Author name: franchise

Inventory Management For Franchisors
Franchisor Coaching, Uncategorized

Franchisor Inventory Management Struggles

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Imagine walking into a boutique franchise store on opening day. The shelves look perfect—rows of pet toys, specialty shampoos, leashes, and treats, easily over 150 different SKUs. It feels polished and exciting. Fast forward six months, and that same franchisee is drowning in mismatched shipments, overstock of slow movers, and constant headaches trying to track what’s actually selling. There aren’t many surprises left in the world of franchising. I’ve seen concepts I never thought were “franchisable” show up at expos and online. Some of them work, some don’t—but one challenge cuts across industries and often separates thriving concepts from those that struggle: inventory. And I’m not talking about a few ingredients in a sandwich shop or 10–15 staple products. I mean franchise models that carry 100+ SKUs, where complexity multiplies and problems scale quickly. Inventory is a unique aspect of a business that significantly alters cash flow and financial strategies. While the success of franchising is at least somewhat attributable to adherence to a system, the training required to operate inventory efficiently often stands in the way.  Additionally, accounting and reporting around inventory often are two the three steps ahead of where owners who lack a numbers background feel comfortable. In this article, we’ll dive into the issues often encountered with inventory, the strain this can put on franchisees and the business model, and strategies about how to address these challenges. The Complexity of Managing 100+ SKUs Inventory Basics A “SKU” stands for stock keeping unit and, as the name suggests, it is a number that retailers assign to a product to keep track of their inventory stock. When you see a report that Walmart carries roughly 140,000 SKUs in their stores, this refers to how many products they have.  Each “type” of product has a different SKU.  For instance, if a store carries the same shirt, in 3 colors and 4 sizes, they would have 12 different SKUs.  Days in inventory or inventory turnover (i.e. also inventory turns) refers to how quickly a business is selling through their inventory.  Walmart has approximately 40 days of inventory on hand- meaning if they didn’t restock their inventory, the would run out of it in approximately 40 days. Inventory turnover is a key metric – a store owner wants inventory that turns quickly to generate cash flow.  The longer inventory sits on shelves, the longer cash is tied up in it. Complexity in Inventory Management The ultimate goal is to sell inventory for a profit, realizing a cash return on the investment in inventory. This sounds simple – buy something for less and sell it for more. However, true inventory management is much more complex. A business model that is going to hold significant levels of inventory must think through – All of these are questions that typically a seasoned business owner who had dealt with inventory or an outsourced CFO may deal with.  In franchising, very few franchisees have the background necessary to work through these issues. The Ultimate Impact of Poor Inventory Management A business often has a certain amount of liquidity available to it. Think of liquidity as the amount of cash and financing available. Often, when inventory is not managed correctly, too much liquidity is tied up into inventory. When this happens, the business loses flexibility. Instead of having cash available to cover payroll, invest in marketing, or take advantage of growth opportunities, money is sitting idle on a shelf in the form of unsold products. Poor inventory management can also trigger a chain reaction: For franchisees, this impact is magnified. They are often locked into vendor agreements, system-wide ordering requirements, and limited financing options. A single misstep in inventory planning doesn’t just hurt profitability—it can threaten the long-term sustainability of their franchise unit. What is Poor Inventory Management Sarah opened her franchise boutique with excitement. Her franchisor required her to stock over 400 SKUs on day one, a mix of apparel, accessories, and seasonal products. She invested nearly $100,000 into that first inventory order. At first, sales were steady, but she quickly ran into problems: her best-selling items sold out within weeks, while racks of slow-moving products sat untouched. Reordering took weeks, leaving customers frustrated. Meanwhile, her cash was tied up in stock that wasn’t generating revenue. With bills piling up, Sarah had to dip into her credit line just to cover payroll and rent. The issue wasn’t her effort or customer demand—it was poor inventory management and a lack of franchise-wide systems to help her make smarter buying decisions. Tracking Challenges Across the Franchise System Inventory-heavy franchise models face an uphill battle when it comes to tracking. With 100+ SKUs in play, keeping consistent, accurate records isn’t just “nice to have”—it’s the lifeblood of the business. Ordering & Supply Chain Headaches Managing orders across hundreds of SKUs is a challenge in any retail business, but in franchising, the stakes are higher because franchisees rely on the franchisor to simplify—not complicate—the supply chain. Impact on Process Continuity – A Benchmark of Franchising One of the greatest strengths of franchising is continuity: customers expect the same experience no matter which location they walk into. Inventory-heavy concepts threaten this standardization. Those are the Problems….How about Solutions If you have made it to this point in the article, it probably sounds like I am strictly against franchising concepts with large amounts of inventory.  While I do think they face an uphill battle, with the right systems and training in place, they can succeed.  Let’s dive into some “must haves” to have a system with inventory that can be successful. Centralized Technology & Systems An inventory-heavy franchise lives or dies by its ability to track data. A centralized POS or ERP system that integrates inventory across all units gives both franchisor and franchisee real-time visibility. With standardized reporting, shrinkage and miscounts are easier to spot, and franchise-wide purchasing trends become actionable. Without a system like this, chaos builds faster than sales. SKU Rationalization Not every product deserves shelf space. Franchisors

Illustration of a franchise storefront with a dollar coin, bar chart, and upward arrow, symbolizing private equity investment in franchising.
Uncategorized

Why Private Equity Loves Franchising – What Every Franchisor Needs to Know

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Over the past few years, the private equity market has expanded into industries once considered too risky—or too boring—to matter. Sports teams, accounting firms, media rights, and even data centers have all seen significant PE interest. Another sector that has quickly moved to the top of the list: franchising. Why franchising? Simply put, franchise companies offer two things private equity investors love—recurring revenue and a capital-light model. At its core, franchising is built on the idea of expanding a brand with other people’s money, while collecting royalties along the way. That structure naturally reduces risk, and over the last decade, private equity has taken notice. This has been highlighted by multiple investments: While these headline-grabbing deals involve some of the biggest names in the industry, similar trends are playing out on a smaller scale. I’ve worked as a Franchise CFO with emerging franchisors who have secured backing from family offices and high-net-worth individuals eager to ride the growth wave. In the past two years, I’ve had numerous conversations with franchisors looking to position themselves for private equity investment in franchising. What stands out is how often these discussions reveal a knowledge gap—many founders aren’t sure what private equity really is, what firms look for, or how to structure their business to attract capital. That’s what this article will cover: what private equity is, the key characteristics investors value in a franchise, and the process of preparing to raise PE capital. Because make no mistake—very few of these deals happen by accident. Most are the result of a deliberate, well-executed plan to attract the right kind of investment. What is Private Equity Private equity may sound complicated, but at its core, it’s really just investors putting money into private businesses to help them grow. Unlike buying stock in a public company such as Apple or Coca-Cola, private equity firms invest in companies that are not listed on the stock exchange. The idea behind private equity is that it offers potentially more growth (and risk) then investing in public markets.  As such, it offers a unique form of investment to typically wealth individuals, corporations, and other funds, that is looking for larger returns. A Brief History Private equity has been around for decades. In the 1980s, it became well known for “leveraged buyouts,” when firms would purchase entire companies using a mix of borrowed money and investor cash. Over time, the industry matured. Instead of just buying struggling companies to cut costs, today’s private equity firms also focus on growth, expanding brands, modernizing systems, and helping businesses scale faster. Some of the biggest companies grew with the help of private equity investment. Before Facebook went public, private equity firms provided critical growth capital that helped it scale its platform and build out its advertising model. Uber benefited from major private equity backing during its rapid expansion phase, which allowed it to enter new markets and develop its technology before turning a profit. These examples show how private equity isn’t just about buying and selling companies — it can also be a powerful growth engine for businesses. How Private Equity Works (Simple Version) Here’s how it works: While private equity can seem complicated (and sometimes the deal structure can be), the basics are like any other investment: Buy low, invest in growth, and sell high. Why This Matters for Franchising Recently, private equity investment in franchising has surged because franchises are especially attractive. Franchising offers recurring revenue streams (royalties) and a capital-light structure that allows brands to grow quickly. For many emerging brands, having a Franchise CFO who understands both the financial side and what private equity firms look for can make the difference between staying small and scaling into a national name. The Diamond in the Rough – Franchising Let’s discuss a little more in detail why franchising can be such an attractive business. First, there is the recurring revenue nature of the business model: royalties. Recurring revenue is one of the most valuable pieces of any business.  Private equity loves recurring revenue because it provides predictable, steady cash flow that makes future performance easier to forecast. This stability reduces risk, increases valuation, and makes franchising one of the most appealing industries for private equity investment. Next, franchise growth often comes from expanding the brand into new markets. This usually means opening more locations across a wider geographic area — something many businesses pursue. The difference in franchising is where the capital comes from. Unlike traditional companies that fund growth with their own money, franchisors rely on their franchisees’ capital to open new units. This model allows the brand to scale rapidly while limiting the franchisor’s financial risk and still generating steady returns through royalties and fees. Brands like Subway and Jersey Mike’s are prime examples of the powerful growth the franchise model can have. Both have grown to thousands of locations nationwide, not because their corporate offices poured in massive amounts of money to build each store, but because franchisees invested their own capital to carry the brand into new markets. The result is rapid, widespread expansion that would be nearly impossible to achieve using only the franchisor’s balance sheet. Lastly, private equity values the systematic nature of franchising. At the core of every strong franchise is a repeatable system — a proven way of running the business that can be applied consistently across all locations. These systems can be fine-tuned at the unit level to boost sales, lower costs, and improve efficiency. For private equity, that repeatability is gold. If they invest in making the system stronger, those improvements can be rolled out across the entire network, creating massive results with relatively simple changes. What Makes A Franchise Attractive to Private Equity While no two private equity firms have the exact same checklist, most look for a handful of common traits that signal growth potential, financial health, and long-term scalability. Let’s walk through the main factors. Strong Growth Trajectory Private equity investment in franchising almost always focuses on growth.

Illustration of a bar graph with upward arrow, dollar symbol, and businessperson icon representing financial growth with text: "How Franchise CEOs Can Use Finance as a Strategic Advantage with an Outsourced CFO".
Uncategorized

Building a Future-Focused Finance Function for Your Franchise System

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An outsourced CFO’s guide for franchise CEOs Why Future-Focused Finance Matters in Franchising In 2025, U.S. franchising is projected to top $936 billion in economic output, expanding 4.4 percent year-over-year. Yet the International Franchise Association warns that tighter labor markets and higher borrowing costs continue to compress franchisee margins.International Franchise Association A forward-looking finance function—supported by an outsourced CFO who understands both franchising and small business dynamics—can turn those headwinds into growth. As franchising grows ever more competitive, top-tier brands are hunting for fresh ways to stand out. Robust launch support and the occasional monthly coaching call are no longer enough to keep franchisees thriving. Yet, in the rush to enhance support, few franchise CEOs turn their attention to the finance function. Developing a dedicated financial support system can be a true differentiator—franchisees who understand their numbers are dramatically more likely to succeed. So how do you make finance your strategic edge? Start with these nine focus areas. 1. Reimagine Your Financial Vision for Franchise Growth A future-ready finance function starts with a north-star vision. For franchisors, that vision must marry brand expansion with sustainable unit-level economics. Align your finance strategy around these questions: As CEO, articulating this vision publicly—at conferences, in sales presentations, and in franchise advisory councils—signals to franchisees and prospects that finance is a strategic growth driver, not a back-office cost. 2. Align Unit-Level KPIs With System-Wide Strategy One of my first bits of advice as an outsourced CFO is sharpening the KPI focus. It’s a call to select the metrics that truly predict future results. For franchisors, that means integrating franchisee KPIs (average ticket, labor-to-sales ratio, digital order mix) with corporate KPIs (royalty growth, average time-to-opening, marketing fund ROI). Begin with an outsourced CFO-led KPI workshop: 3. Modernize Data Architecture Across Franchisees Franchise CEOs often inherit a patchwork of POS platforms, payroll providers, and legacy Excel models. Future-focused finance demands a single source of truth: A robust architecture lowers the cost of benchmarking, royalty audits, and new-concept pilots. This allows smaller franchisors the oppurtunity to compete with the “big guys”. 4. Automate Routine Accounting to Free Strategic Capacity Automating low-value tasks to redeploy your franchisees time. In franchising, consider three quick wins: Your outsourced CFO partner’s role is going to change. Cutting edge CFOs long transitioned to strategic roles years ago. However, their role is about to evolve again. While the startegy part of their role isn’t going away, they will now be looked at more than ever to automate areas of finance. Only a skilled financial professional can effectively evaluate business finance systems and determine the best course of action for implementing automation. 5. Cultivate Analytical Talent Within Your Finance Playbook Future-focused finance organizations “upskill and recruit analytical talent.” Franchise brands often lack the budget for a platoon of data scientists, but you can still build muscle: 6. Harness Predictive Analytics for Royalty Stream Forecasting Not all of these need to be about how to improve your franchisees business. We also need to make sure the system’s financials are in order. Traditional budgeting rolls last year’s royalties forward with a 3-percent bump. Future-focused finance teams deploy predictive models that ingest lead-to-opening pipelines, attrition probabilities, and macro indicators like personal consumption expenditures. Pilot a royalty forecast model that: These insights let you adjust credit lines, marketing support, or development agreements months before issues show up in cash flow. 7. Collaborate Cross-Functionally to Drive Franchisee Profitability The finance team should partner across the enterprise. For franchisors, that means embedding finance liaisons in operations and franchise sales. Cross-functional teaming converts finance from scorekeeper to strategic co-pilot. Integrating the CFO into your sales process also injects confidence into your prospects. Their biggest concern is often around finances. Talking to a finance “expert” can help put them more at ease. 8. Strengthen Risk Management Across the Franchise Network Cybersecurity breaches at a single franchisee can tarnish the whole brand. Future-focused finance expands risk oversight: The IFA’s 2024 Outlook shows 80 percent of franchisees still face unfilled job openings, elevating wage-inflation risk. A strong risk framework keeps both franchisor and franchisees resilient. 9. Embed Continuous Improvement in Your Finance Processes Build a culture of ongoing refinement. Apply a kaizen mindset to franchising finance: Setting up a small continuous-improvement fund (even 0.1 percent of royalties) supplies resources for automation pilots and training without annual budgeting battles. Outsourced CFO Perspective: Balancing Cost and Capability Many emerging and mid-market franchisors lack the scale for a 10-person finance team. An outsourced CFO bridges that gap—bringing Fortune-100 finance rigor at a small business price point. Outsourcing also signals to private-equity suitors that you run a disciplined, audit-ready shop. Conclusion: Turning Finance Into Your Competitive Advantage Franchise systems thrive when franchisees grow profitably, royalties flow predictably, and brand equity compounds. By adapting the nine future-focused finance steps to franchising, you can: In a world where consumers demand frictionless experiences and capital markets reward efficiency, a modern finance function is no longer optional. Whether you staff it internally or partner with an outsourced CFO, now is the moment to future-proof your franchise’s financial engine—and outpace competitors who still view finance as just another cost center.

Graphic illustrating a document labeled “19,” a franchise storefront, and an upward bar chart, with the title “How to Use Item 19 to Drive Franchise Sales (Legally & Effectively)” on a teal background.
Item 19

Navigating Item 19: Strategies for Boosting Your Franchise Sales

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There’s an old adage that the worst presentation is the one that’s never given. This seems to be a mantra many franchisors apply to the presenting financial data in their Item 19 disclosure in their Franchise Disclosure Document (FDD). Too often, franchisors rush to publish an Item 19, despite results that might not be as stellar as hoped. Item 19 of the FDD is like a peek behind the curtain. It’s where franchisors can showcase the potential earnings of their franchise units. It’s akin to the section of a dating profile where people list their most impressive achievements. While it doesn’t tell the whole story, it certainly captures your attention. The primary reason franchisors opt to present an Item 19 is their belief it is the key to unlocking significant future sales. While this might seem like the ‘easiest path,’ it’s not always the wisest choice. Consider the fitness industry, for example, where I recently conducted a study. One of the sector’s most successful concepts, Orange Theory, chooses not to disclose an Item 19. They operate over 1100 units and have ranked as high as 23rd on Entrepreneur Magazine’s Franchise 500 List. If an Item 19 is so crucial to a franchise system’s sales, how has Orange Theory achieved such remarkable success? Interestingly, depending on the franchise industry, 20-50% of concepts opt not to present this data. So, how do they manage to sell units? In my view, many franchisors rely on presenting Item 19 data as a crutch. Although this information can certainly aid in growing a franchise system, there are several other tactics in the sales process that can be equally, if not more, effective. As an outsourced CFO, you might be thinking this article is counter-intuitive to most advice someone like me would give. This is not to say that financial performance is not important.  Financial performance is a critical element that will determine if a prospect moves forward. But, there is a better way to go about this. In this article, we’ll explore how to execute a sales process without Item 19. We’ll share three critical factors to present to your prospects to help them evaluate whether your system is the right fit for them. Strategy 1: Teach The Flaws with Item 19 Data I have put together several Item 19 presentations for clients. While I use a high ethical standard for this presentation, I can’t help but question why the industry has chosen to present data in this manner.  There are several flaws in the data presented in Item 19s.   Firstly, the data is unaudited. This means that the financial information provided by franchisees, who are often not bookkeepers, is only as reliable as their reporting skills. Franchisors’ obligations in gathering this data do not extend to verifying its accuracy through independent audits. They rely on the information franchisees provide, which can vary greatly in quality. Secondly, the net income reported for small businesses can be highly inaccurate due to the commingling of personal and business expenses. It’s not uncommon for a franchise owner to use a single account for both business expenditures and personal expenses. For example, a franchisee might charge a all of their fuel to a business credit card (hopefully the IRS isn’t reading this), thereby inflating business expenses and understating net income. Franchisees exhibit varied levels of operational efficiency. Skills and experience differ significantly across the board, leading to wide variances in profitability, even within the same franchise model. Franchisors don’t exclusively showcase their top-performing franchisees in Item 19. Therefore, the data often reflects a broad spectrum of operational skills and other variables, including geographical differences. Presenting this reality clearly to prospects is in franchisors’ best interest. While many potential franchisees clamor for this data, it should be approached with caution. At its best, the data requires careful interpretation; at its worst, it could lead to poor financial decisions. By understanding the nuances behind Item 19 data, prospects can make more informed decisions, ones not solely based on the results of other franchisees. Strategy 2: Focus on Differentiators and Efficiencies As I highlighted earlier, I have been taking a deep dive into the franchise fitness industry. After of food concepts, health and wellness may be the second largest segment of franchising.  It constantly amazes me how many fitness concepts there are.  At least on the surface, several of them are the same. If this is true, then how does one separate themselves to a prospective franchisee? First, lets take a step back.  In my personal opinion as an outsourced CFO, several of these franchise businesses are bad concepts. They should have never been franchised in first place. Yes, the owner most likely had some great success with their location.  However, that doesn’t necessarily mean the concept will work without them running it.  This is an important theme to note. The owner in several of these business is the differentiator or the reason for efficiency. Sadly for any franchises that open up the concept, the original owner is one trait that can not be duplicated. Franchise concepts with lasting success have key differences and efficiencies. For anyone thinking about franchising their business, they should watch “The Founder”, the story of Roy Kroc.  Set in the 1950s, it shows how the efficiencies in his business were innovative and created a real competitive advantage for a McDonalds franchisee. There is a scene in a parking lot where he has a chalk outline of the kitchen of one of his locations and how each employee will operate.  For restaurants during this time, this was true innovation. True differentiators or efficiencies will sell your concept to prospective buyers. Further, if you can numerically detail out the advantages these will give the buyer, this will be heavily impactful on their decision.  Here is the truth – several concepts can’t do this because they don’t exist. If your reading this article and I am describing your business, then this may be you. However, if you can truly

Illustration of franchise business owners reviewing 2025 tax changes under H.R. 1, featuring tip deductions, interest write-offs, and bonus depreciation highlights.
Franchisees

Support Your Z’s: A Free Memo on One Big Beautiful Bill

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Congress just passed a sweeping tax reform bill (H.R. 1) that will impact nearly every franchise business starting in 2025. From tip income deductions and expanded equipment write-offs to new interest expense rules and sunset dates for energy credits, this legislation is packed with provisions that could affect your bottom line. To help our franchise community stay ahead, we’ve created a high-level but actionable memo that breaks down what’s changing, what it means for you, and what to start doing now with your payroll provider, CPA, and financial planning. 📄 Want the full breakdown?Fill out the form below to download your copy of our easy-to-read summary memo.

Illustration of three franchise storefronts with icons for fitness, food, and pet care, alongside a rising bar chart and text reading “Franchising in 2025: 10 Key Trends Every Franchisor Should Know.”
Franchisor Coaching

10 Quick Takeaways from IFA’s 2025 Economic Outlook Every Franchisor Should Know

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I’ve read the IFA 2025 Franchising Economic Outlook cover to cover—so you don’t have to. If you’re a franchisor or franchise leader, here are the 10 most important insights you need to know for 2025, backed by data and focused on helping you plan with confidence. Whether you’re forecasting growth or reviewing your development strategy, these insights can help you stay ahead. As an Outsourced CFO working with franchisors across industries, I can tell you: these trends matter. 1. Franchising Will Surpass 2024 Growth Rates Franchising is expected to expand by 1.9% in 2025, reaching over 830,000 franchise establishments in the U.S.—an increase of 15,000 units. That’s faster growth than 2024, which was already a rebound year. Remember that franchising often does well in times of economic uncertainty. As we see warning signs of a slowing economy, this could spell growth for the industry. 📈 Key Insight: Franchising is proving resilient, even amid higher interest rates and inflation concerns. 2. Franchise Output Will Exceed $893 Billion The total economic output of franchises is projected to hit $893.9 billion in 2025, up from $860.1 billion in 2024—a 3.9% increase. 💡 Takeaway for Franchisors: This signals solid consumer demand across sectors, from quick service to personal services. This is a simple way to benchmark your same store growth – is it at least 3.9%? 3. Jobs in Franchising Will Reach 8.9 Million Franchises are forecast to add over 221,000 jobs, pushing total employment to 8.9 million workers in 2025. 👥 Action Tip: With labor still tight in many sectors, investing in workforce retention and automation tools is essential. 4. Texas and Florida Remain the Franchise Powerhouses Texas, Florida, and Georgia lead in franchise establishment growth. California, however, has lost ground due to labor laws and rising operational costs. 📍 If you’re expanding: Prioritize states with favorable regulations and population growth. If you have limited sales resources, determine where to strategically deploy them. 5. Personal Services Franchises Are Booming Sectors like health & wellness, beauty, and pet care are seeing the fastest growth. Personal services will grow 4.7% in units and 6.5% in output—the highest among all franchise types. 💇 Outsourced CFO Tip: Focus on unit economics and recurring revenue models in these high-margin segments. 6. Real Estate and Interest Rates Still Matter Access to capital remains a limiting factor. Higher interest rates and stricter lending standards have made SBA loans harder to secure for new franchisees. 🏦 Strategic Insight: Explore alternative funding models (revenue-based financing, seller financing) when planning development. Also expect to have to consult with your franchise prospects on how they can best raise the funds they need to get started. 7. Franchisee Profit Margins Are Stabilizing Margins took a hit in 2022–2023 due to inflation and wage growth but are expected to stabilize in 2025 as pricing power returns and supply chain issues ease. 📊 What to Watch: Encourage franchisees to manage cost-of-goods-sold and labor efficiency—critical KPIs I monitor in every franchise CFO engagement. 8. Multi-Unit Franchise Ownership Is Increasing Over 54% of franchisees now own multiple units, and that number is expected to rise. This consolidation trend favors franchisors who support scalability. 📁 Franchisor Strategy: Build systems and support models that cater to sophisticated, growth-minded operators. That means concentrating on building better systems around technology, finance, and automation. 9. Technology and AI Adoption Will Define Winners IFA emphasizes digital ordering, back-office automation, and AI-enabled marketing as key differentiators. 🤖 CFO Advisory: Start measuring ROI on your tech stack now. I advise franchisors to integrate data dashboards and automate financial reporting early. 10. Regulatory Oversight is Tightening Franchisors should be ready for increased scrutiny on disclosure practices and employment classification. The FTC and state regulators are eyeing more transparency. ⚖️ Next Steps: Ensure your FDDs are airtight and train your development teams on compliant messaging. Final Thoughts: Why This Matters Franchising in 2025 is poised for healthy growth, but smart operators are adapting fast—investing in systems, supporting franchisee financial performance, and planning with precision. As an Outsourced CFO, I help franchisors turn data into strategy, financials into foresight, and compliance into confidence.

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