The keys to your new franchise are in your hand. The grand opening is behind you, and the initial flurry of excitement is settling into the day-to-day reality of running a business. Now what? The first 100 days for any new franchisee are a whirlwind of activity, learning, and, most importantly, financial management. This is the period where the foundation for your future profitability is laid. Get it right, and you’re on the path to success. Get it wrong, and you could be facing an uphill battle.
This isn’t just another guide with vague advice. This is a detailed financial checklist, broken down into manageable phases, to help you navigate the crucial first 100 days. We’ll cover everything from managing cash flow to understanding your key performance indicators (KPIs).
The Critical Importance of the First 100 Days
Why are the first 100 days so important? Think of it as the launch phase of a rocket. A successful launch sets the trajectory for the entire mission. In the world of franchising, a strong financial start can mean the difference between a thriving business and one that struggles to get off the ground.
According to a report by the International Franchise Association, the economic output of franchises in the U.S. is projected to reach nearly $894 billion in 2024. While the franchise model offers a proven system, success is not guaranteed. A common reason for failure is poor financial management in the early stages.
The Financial Checklist: A Phased Approach
We’ve broken down your first 100 days into three distinct phases. Each phase has its own set of financial priorities.
Phase 1: Days 1-30 – Establishing Your Financial Foundation
The first month is all about setting up your financial systems and getting a firm grasp on your numbers.
- Separate Business and Personal Finances: If you haven’t already, open a dedicated business bank account and credit card. This is non-negotiable for accurate bookkeeping and legal protection.
- Set Up Your Accounting System: Whether you’re using QuickBooks, Xero, or another platform, get your accounting software up and running from day one. Connect your business bank accounts and credit cards to automate transaction imports.
- Create a Detailed Budget: Your pre-launch budget was based on estimates. Now, it’s time to create a detailed operating budget based on your actual costs. This should include:
- Fixed Costs: Rent, insurance, salaries, franchise royalties, and marketing fees.
- Variable Costs: Inventory, supplies, utilities, and hourly wages.
- Understand Your Franchise Fees: Beyond the initial franchise fee, you’ll have ongoing royalties and marketing fund contributions. Make sure you understand how these are calculated and when they are due. According to franchise statistics from WebFX, royalty fees typically range from 5% to 6% of your gross sales.
- Establish Payroll: If you have employees, set up your payroll system. This includes understanding your obligations for taxes, workers’ compensation, and any benefits you offer.
- Track Everything: Get into the habit of tracking every single expense and all revenue. Use your accounting software to categorize everything correctly.
Example: A new coffee shop franchisee in their first month should be tracking not just the big expenses like rent and payroll, but also the smaller, recurring costs like coffee beans, milk, cups, and cleaning supplies. This granular level of tracking will provide a clear picture of their cost of goods sold (COGS).
Phase 2: Days 31-60 – Monitoring, Analyzing, and Adjusting
With a month of data under your belt, it’s time to start analyzing your financial performance and making necessary adjustments.
- Review Your Profit and Loss (P&L) Statement: Your P&L statement will show you your revenue, expenses, and net profit or loss for the first month. This is a critical document for understanding your financial health.
- Analyze Your Cash Flow: Cash flow is the lifeblood of any new business. A common mistake for new franchisees is underestimating their working capital needs. You need enough cash on hand to cover your expenses until your revenue stream is consistent.
- Create a Cash Flow Projection: Use your budget and first month’s data to project your cash flow for the next few months. This will help you anticipate any potential shortfalls.
- Key Performance Indicators (KPIs) to Watch:
- Break-Even Point: This is the point at which your revenue equals your expenses. You need to know how much you need to sell each day, week, and month to cover your costs.
- Cost of Goods Sold (COGS): As a percentage of sales, this tells you how much it costs to produce the goods or services you sell.
- Labor Cost Percentage: This is your total labor cost (including taxes and benefits) as a percentage of your total sales.
- Customer Acquisition Cost (CAC): If you’re running local marketing campaigns, you need to know how much it costs to acquire a new customer.
- Adjust Your Budget: Compare your actual spending to your budget. Are there areas where you’re overspending? Can you identify any opportunities to cut costs without sacrificing quality?
Phase 3: Days 61-100 – Optimizing for Profitability
By now, you should have a good rhythm and a clearer understanding of your business’s financial dynamics. The focus now shifts to optimization and long-term planning.
- Refine Your Pricing Strategy: Based on your sales data and COGS, are your prices set for optimal profitability?
- Inventory Management: For retail or food-based franchises, efficient inventory management is key. Overstocking ties up cash, while understocking can lead to lost sales. Use your sales data to forecast your inventory needs more accurately.
- Focus on High-Margin Products/Services: Identify which of your offerings are the most profitable and focus your marketing and sales efforts on them.
- Build a Financial Cushion: If your cash flow is positive, start building a reserve fund. This will help you weather any unexpected expenses or slow periods.
- Tax Planning: Don’t wait until the end of the year to think about taxes. Consult with an accountant to make sure you’re setting aside enough money for your tax obligations.
- Review Your Franchise Disclosure Document (FDD): Now that you have some real-world experience, revisit your FDD. Are there any support systems or resources offered by the franchisor that you haven’t taken advantage of?
Common Financial Pitfalls to Avoid
- Underestimating Startup Costs: Many new franchisees focus on the initial franchise fee but neglect to budget for other expenses like renovations, equipment, and initial inventory.
- Lack of Working Capital: As mentioned earlier, running out of cash is a major reason why new businesses fail. It’s recommended to have enough working capital to cover 6-12 months of operating expenses.
- Ignoring the Franchise Agreement: Your franchise agreement is a legally binding contract. Make sure you understand all of your financial obligations.
- Poor Bookkeeping: Inaccurate or messy books can lead to poor financial decisions and problems with the IRS.
- Not Seeking Professional Advice: Don’t be afraid to consult with an accountant, a lawyer, and other business advisors.
Tools and Technology to Help
In today’s digital world, there’s no shortage of tools to help you manage your finances.
- Accounting Software: QuickBooks, Xero, and FreshBooks are popular choices for small businesses.
- Payroll Services: Gusto and ADP are comprehensive payroll solutions.
- Point of Sale (POS) Systems: Modern POS systems like Square and Toast not only process payments but also provide valuable sales data and inventory management features.
Frequently Asked Questions (FAQs)
Q: How much working capital do I really need?
A: While it varies by industry and franchise, a good rule of thumb is to have enough cash to cover at least six months of operating expenses. Your franchisor should provide you with an estimate in the FDD.
Q: What is the most important financial report to look at in the first 100 days?
A: In the very early days, your cash flow statement is the most critical. You need to make sure you have enough cash to pay your bills. After the first month, your Profit and Loss (P&L) statement becomes equally important for understanding your profitability.
Q: Should I hire an accountant right away?
A: Yes. An accountant can help you set up your books correctly from the start, ensure you’re compliant with tax laws, and provide valuable financial advice.
Q: How often should I be reviewing my financials?
A: In the first 100 days, you should be looking at your key numbers (like daily sales and cash on hand) every day. You should do a more in-depth review of your financial statements on a weekly and monthly basis.
The Road Ahead
The first 100 days as a franchisee are a marathon, not a sprint. By following this financial checklist, you can build a strong foundation for a profitable and successful business. Remember to stay organized, track everything, and don’t be afraid to ask for help. Your franchisor and a team of trusted advisors are valuable resources on your journey to entrepreneurial success.
