How to Build a Financial Safety Net for your Franchise

on May 29, 2020 | 2953 views

It’s always important to plan thoroughly when it comes to money matters. Most of us have been stuck in a financial obstruction while dealing with our franchise business whether it is execution of marketing strategies, franchise recruitment or improvisation of old techniques. We know it’s emotionally demanding but one needs to handle this with prudence. It’s sometimes challenging to save money and get ahead financially when you’re just trying to make ends meet, even if you do have a financial plan in place.

Financial Safety For Franchiser

Hence, building a financial safety net for your franchise is very important to stay strong in the franchising game.

The reality is that financial emergencies are bound to happen no matter how much careful planning you do. That’s why it’s important to develop a financial safety net so you can rest easy knowing that you can overcome this trouble.

When you are building your financial safety net, you need to think about how you will protect yourself from risk, while also finding ways to save and invest for your future.  One big fat financial emergency hit franchisors recently. Many franchise owners are distressed during the coronavirus pandemic.

Everyone is looking for advice, financial assistance, and expertise on the new government support. The wise ones are making quick changes to adapt with the changing conditions while planning for a swift return into business as usual after an indefinite time.

Waiting for the economy’s restart is stressful with some franchises already wobbling down. However, with the anticipated influx of cash and forgivable government loans, the franchises who had an emergency fund are doing better than those without an emergency fund. As with personal cash, those who maintained a cash reserve lasting for at least 3 months of essential expense are able to survive this pandemic relatively well.

An emergency fund, or retained earnings, is meant to assist if there is an emergency or cash-flow shortfall. Certainly, both of those circumstances exist right now for many. As your franchise prepares and plans for huge expansion and grand re-openings, make it a priority to build cash reserves. It will better ensure the business against the next unexpected change in the economy.

Build your emergency fund: The first step in your financial safety net should be creating a special savings account just for emergencies. You spend all your time paying other people, and now is the time to pay yourself first. The problem is that many people overlook the importance of creating an emergency fund and instead rely on their savings accounts as a safety net.

How to create a financial safety net: Each franchise has different demands, but these are some generic financial safety tips that will help you create a healthy fund for emergencies or new opportunities: 

1. A SEPARATE SAVINGS ACCOUNT Emergency funds should be saved in a separate savings account from your overall savings so you can be sure not to touch it.  Take some time to figure out what are your fixed expenses and work backward to create your emergency fund. Break the total you need to save up into small bits and put your savings on auto draft each month to treat it like a bill that you have to pay to make it a little easier.

2. 25% of ANNUAL REVENUE Make 25% of your annual revenue the goal. Although its often suggested that your goal should be at least 10%, but in this case, the more the better. It is better to have more than less. You may not need it all for fighting an emergency but prevention is always better than cure. A franchisor should always ne prepared and prudent.

3. AUTOMATION Automate the savings. Create an automatic transfer from your business’s operating account into a separate emergency fund. Automation always helps you to keep a record and assess your condition easily. This can be weekly or scheduled around payments that you receive regularly. If cash flows vary greatly, assign one particular revenue stream for your emergency fund.

4. SAVE A PART OF EACH TRANSACTION.  Little drops of water make the mighty ocean. Put a portion of every transaction into a separate account. If it’s automatic, it will build almost magically with small amounts whose absence you won’t feel. This method of saving is the most pleasing one, you do not feel like you’re cutting on your expenses and still end up saving a huge amount.

5. TARGET PAYROLL AND BENEFITS To help determine how much to save, focus on the immediate needs of payroll and benefit payments. Missing payroll can be a disaster for a small business. Cutting staff in an emergency might be necessary, but in the current situation, keeping staff is part of the deal, so those funds are critically important to have for employees.

6. COST CUTTING  A penny saved really is a penny earned. The rent costs and staffing expenses are the highest for most franchises. Review and renegotiate actual needs. Maybe a smaller location makes sense or fewer employee hours are in order. You might need to work more hours to maintain a financial safety net.

No matter how you get there, your reserved earnings for future emergencies will be your financial safety net for your franchise the next time an economic crisis hit which always does.

Developing a financial safety net takes some time and effort. Don't get dispirited if you can't check all of these financial safety tips off at one time. Instead, create a plan and add any extra expenses to your budget when you can, focusing on creating a stable emergency fund first. It may take some efforts, but you'll be grateful for creating a strong financial safety net for your franchise the next time a financial emergency comes around.

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