With the UK experiencing financially challenging times, Pip Wilkins QFP explores what franchisors can do to retain financial stability over the coming weeks and months
I think we can all agree that as I write, in February 2025, many businesses are facing economic challenges and being just weeks away from Rachel Reeves MP’s Spring Statement, many are bracing themselves for even more belt-tightening measures.
But no matter what the state of the economy, be it booming or slowing down, professionally run franchises should always keep a close eye on their financials, not only to see how their business and franchisees are performing, but also to be able to react swiftly to any incoming financial storms.
With this in mind, we consulted BFA members who are highly experienced in this arena: Theo Millward, MD of Swimtime and founder of FranScape, and Phil Archer QFP, head of business planning and funding at d&t chartered accountants.
Financial metrics
We started by asking Theo what financial metrics he uses to assess the health of his businesses and that of his franchise network. Theo said: “At Swimtime we track network sales, active number of swimmers, load factor, consumer happiness metric MPS’s, and retention rate. Using our Franscape system I can see most of these metrics in front of me, which gives me a 360 degree, real-time view of my business. I can then break those figures down in multiple ways. For instance, I can see exactly how many people are waiting to book onto a swimming class with a franchisee who has capacity to take them on: if there is a delay in getting them into a class, the system will flag it to our staff immediately, so we can find out if there’s a problem.”
Back to basics
How does Theo respond to a financial crisis? His answer is simple: “This comes back to basic business prudence and due diligence. Is your model fundamentally a good one? Are you making a net profit? If you experience a crisis, from any direction, be it from the Government raising taxes or something completely unrelated, you generally have two choices – you either cut costs or raise prices. If you are familiar enough with your franchise’s finances, you should easily be able to see what you can do to stabilise the situation.”
“Don’t put off making the strategic and structural changes to your business needed to help growth… Rip the plaster off early and get on with building wealth.”
The cost spiral
We were interested to know what Theo thought were the biggest mistakes new franchisors made, and how they could be avoided. Theo said: “The biggest threat to new franchisors, or all businesses, is what I call the ‘cost spiral’. When you start a new business your costs are going to be more than your income for a while – that’s just life. But then as you grow, you reach ‘apex points’ where you need to raise your prices to carry on growing, but because you are pouring all the profit into building the business, you never progress any further on your bottom line.
“This bit is hard. My advice to any new business would be don’t put off making the strategic and structural changes to your business needed to help with that growth. Don’t delay getting a decent CRM system – you are just kicking the problem further down the line and the change, when you finally implement it, will be harder the bigger you are. Rip the plaster off early and get on with building the wealth.”
What are Theo’s thoughts on the upcoming budget? Candidly, he said: “Go back 200 years and you’ll see that all great innovations in this country have come from entrepreneurs, not Governments, but they don’t seem to appreciate this. If Labour wants to fix the economy, they need to remove barriers, red tape and taxes and let us get on with what we are good at.”
Realistic expectations
So, what does d&t’s Phil Archer think are the biggest mistakes that new franchisors make when setting up their franchises? Phil said: “I think not having a clear understanding of how much they will need to invest to start their business can be a problem. Potential franchisors come to us with three- and five-year plans, saying they are going to take on X-number of franchisees a month or a year, but in our experience, it rarely works out that way.
“New franchisors also need to factor in how much time it will take to support these new franchisees. They probably only have a small team, so it’s going to be hard work for a while to get everyone bedded in. They’ve also got to consider if the franchise model they are building is attractive to banks to fund potential franchisees. How do other people view the business opportunity they are trying to sell?”
Meet the experts
- Pip Wilkins, QFP is CEO of the BFA (British Franchise Association), the voluntary self-regulating body for UK franchising, established in1977 by leading franchising organisations. Its goal is to accredit and promote franchise systems that meet its strict ethical business standards.
- Theo Millward is the managing director of Swimtime, one of the UK’s largest independent swimming schools, and the founder of FranScape, a franchise-management software platform designed to streamline and automate various aspects of franchise operations.
- Phil Archer serves as the head of business planning and funding at d&t chartered accountants, an award-winning firm that has collaborated with over 100 franchise networks. He assists businesses in achieving financial success through effective planning and funding strategies.
Planning and funding
Has the current economic climate affected franchisors’ financial planning and access to funding? Phil dives straight in with some big facts: “Once interest rates started shooting up north of 4%, the ‘debt service cover’ used by banks to measure if a business can afford their debt repayments were indeed getting ‘thin on the ground’. If a bank was offering a 30/70 loan, they might now be changing this to 50/50 where the bank loans the franchisor 50% of the money and the franchisor puts in the other 50%.
“In this situation, the franchisor is going to have to get more investment from an incoming franchisee as the project costs rise. This in turn means the franchisor now needs to attract franchisees with more cash to put down. Is this necessarily a bad thing? Who knows, but it is a direct result of interest rates going up.”
Managing cashflow
As someone who works for an accountancy firm, we asked Phil how franchisors can manage their cashflow effectively, whilst expanding their network. “Although I am not an accountant myself, the most important thing for any franchisor is to use decent accountancy software,” he responded.
“The packages available are very powerful; they don’t replace your accountant but, rather like Theo’s Franscape, they help you understand how your business is growing and how you are spending money. It’s very easy to set up automated reports so you can keep an eye on your P&L and cashflow. It’s also crucial to regularly check back in with your business plan to review it.
“Are you where you expected to be? If you are behind, find out why. If you are ahead, you should identify what you do well and do it even better.”
“If taking the financial pressure off lets them focus fully on what they need to do commercially, then that’s a sound decision. No franchisee comes equipped with all the skills necessary to run a business.”
Franchisee support
Finally, we asked Phil what financial strategies a franchisor could use to support struggling franchisees, without compromising the overall network.
Phil suggested a mixture of methods. “If you have been using a good accounting package you should be able to use that data to pinpoint their problem. If they are under financial pressure, you could give them a holiday from their royalties, help them with some extra marketing investment, and provide extra training or coaching. If you think they are failing in a specific operational area, get out on to the ground with them. Sit in on calls and visits, lead from the front. Introduce them to some of your highest performers to learn from the best. You could also discuss their funding arrangements; banks are quite amenable to these conversations and might consider a capital repayment holiday or an overdraft.
“If taking the financial pressure off lets them fully focus on what they need to do commercially, then that’s a sound decision. No franchisee comes equipped with all the skills necessary to run a business, so take the time to work out where their strengths and weaknesses lie.”
And finally, what does Phil expect to see in the budget in March? “The Government has got a hard job to do, but if they think they can raise more money from the British public and in turn squeeze our standard of living even further, then I think they are going to have a very hard job selling it – I think it could be risky for them. I’d like to think there are some areas of wastage and schemes of their own that they could save money from before they come to us again.”
BFA Academy
On 15 April 2025, the BFA is hosting an QFP Module online event, ‘How to Understand Franchisees Financial Performance 2025’, to enable franchisors to better understand business finance and accounts, and how this should be applied to the monitoring of a franchise network. You’ll find full details here.
The BFA (British Franchise Association) is the voluntary self-regulating governing body for franchising formed in 1977 by the major franchising organisations looking to accredit and promote those franchise systems that meet the strict ethical and business criteria of a good franchise.
