How to Manage Cash Flow in Your Franchise Business

Tips For Maintaining a Healthy Cash Flow as a Franchise

Managing cash flow is an essential component of running a successful, profitable franchise business. It means having money set aside for major expenses, being able to pay your staff, and turning a profit.

However, as a new franchisee, trying to manage cash flow and ensure you have a healthy amount of money in the bank to cover expenses is much easier said than done. To help your franchise business stay profitable and financially healthy, we’ve compiled our top tips for managing cash flow as a franchisee. Keep reading to learn more about this important topic.

The Importance of Managing Cash Flow in a Franchise Business

Cash flow refers to the movement of money in and out of a business. This includes revenue from sales, expenses, and investments.

Having a healthy cash flow is crucial for any business, including franchises. It ensures that the franchise has enough funds to cover its day-to-day expenses, like:

Rent
Utilities
Employee salaries
Inventory
Marketing

It also ensures that the franchisee is able to meet their financial obligations, grow the franchise, and build a healthy reserve fund for unforeseen expenses.

Nine Ways to Grow and Maintain Cash Flow in a Franchise

Here are nine practical tips from our franchise experts that will help you to manage and increase your cash flow as a franchisee.

Know Your Break-Even Point

Before you start your franchise business, create a list of expenses and anticipated profits and determine how much money you would need to make in order to break even. Knowing this number before you open your doors is essential, as it will help you create a budget and better understand how much money you should be spending on business expenses.

Create a Budget

A budget is one of the most effective ways to stay on track with your financial goals and maintain cash flow as a franchise owner.

By outlining your anticipated revenue along with mandatory expenses and creating a budget, you’ll have a clear framework for implementing cost-saving measures based on how much you are spending vs. earning each month. This helps to ensure that you have enough cash on hand to cover these expenses and maintain a healthy working capital.

Manage Expenses

One of the biggest reasons franchisees often struggle with cash flow is that they aren’t keeping a close enough eye on their expenses and are spending more money than they are earning.

To help maintain a healthy amount of cash flow for your franchise, keep close tabs on all business expenses and sit down and review what you are spending money on. Then, identify areas where you can reduce unnecessary or non-essential expenses without compromising quality or customer satisfaction. As a franchise owner, you should be doing this at least every three months, but ideally once a month.

Forecast Future Revenue

Business forecasting is the process of analyzing trends and estimating your franchise business’s expected cash inflows and outflows over a specific period, such as monthly or quarterly.

Forecasting helps you anticipate potential cash flow shortages or surpluses and gives you the power to make informed decisions on how to spend or save money in response to cash flow issues.

Monitor Your Inventory Closely

To avoid overspending and diminishing your cash flow, keep a close eye on your inventory. You should always know exactly how much inventory you have so you can avoid overstocking or understocking inventory. By closely monitoring and managing your inventory levels, you can easily reduce carrying costs and free up cash flow.

Have a Contingency Fund

A contingency fund is money that you set aside to use in case of emergencies or cash flow disruptions. Having a contingency fund is crucial as a business owner as it provides you with a safety net and prevents you from having to deplete your cash flow anytime an expensive, unexpected situation arises.

Here are some examples of emergencies that would require you to dip into your contingency fund:

Equipment needs replacing
Damage caused by a natural disaster such as a flood, earthquake, hurricane, or fire
A sudden, unexpected loss in revenue
Legal issues or lawsuits
Unexpected health and safety issues that need to be resolved

Be Meticulous With Your Bookkeeping

Accurate and timely bookkeeping is critical when it comes to effectively managing cash flow. Always keep detailed records of:

All revenue
Expenses
Debts
Financial transactions

Also use accounting software or hire a professional accountant to ensure your financial records are up-to-date and accurate.

Streamline Accounts Receivable

If you are struggling with your cash flow, you’ll need to find ways to ensure you are receiving payments on time from customers so you can accelerate cash inflows and avoid going into debt. Always be clear when communicating your payment terms to customers and follow up when invoices are overdue. Also consider offering incentives for early payment, such as discounts or rewards.

Ask Your Franchisor For Support

Always maintain open communication with your franchisor when it comes to financial matters. Your franchisor wants to see you succeed and will offer support and guidance to help you manage your cash flow and avoid financial issues.

Looking to start a franchise but haven’t yet found the right franchisor to partner with? Consider investing with Gorilla Bins.

Gorilla Bins is Ontario’s leading waste management franchisor with several locations across the Greater Toronto Area.
Gorilla Bins offers its franchisees lots of training and support to help them be successful. We also have a track record of producing successful franchisees and have tripled our revenue over the past five years.

Get in touch with our team today to learn more about Gorilla Bins and how we can help set your franchise up for success.