How to Build Financially Savvy Franchisees

By Caitlin Elsaesser
When Heidi Ganahl started franchising Camp Bow Wow, her pet care business, she noticed a consistent issue with her franchise owners: While passionate about dogs, many owners lacked the financial skills to help their businesses grow.

In response, Ganahl institutionalized financial education for her franchisees, with great results. Three years after starting to franchise, she has 215 franchises awarded. Today, Camp Bow Wow has 25 employees at corporate headquarters and 1,800 system-wide. Implementing financial education resulted in an immediate 5 percent revenue bump, which has continued to pay off: Last year, the company posted $50 million in system-wide sales.

Without return, it isn't worth the investment
Shortly after starting to franchise, Ganahl noticed that many owners were not spending their money with an eye on return. For example, one franchise owner was paying $5,000 a month to participate in a local value coupon pack, convinced that the coupon was bringing her lots of customers. But she didn't have any data to back up that opinion.

In the original Camp Bow Wow location in Denver, Colo., Ganahl had found that ad spending generated very little business. So she suggested that the owner start tracking leads. (Ganahl provided the owner -- and other franchisees -- a spreadsheet they can use to determine where customers come from.) As it turned out, less than one percent of business came from the coupon pack.

In fact, most customers heard about Camp Bow Wow through word of mouth and online searches. The owner was able to eliminate the coupon pack from her ad budget and put more effort into increasing her online presence. The end result: She simultaneously cut ad spending and increased revenues.

Basic financial matters: reports and capital
Another problem Ganahl noticed among franchisees was lack of knowledge of financial vocabulary. For example, many franchise owners didn't know when to categorize an item as an expense (a recurring cost expended in the course of running the business) or an investment (a one-time purchase made in hopes of increasing long-term revenue).

The distinction is critical, Ganahl says, since it can help franchisees see the return on an investment more easily. In her experience, franchisees who understand how to prepare and evaluate their financial reports -- such as a profit and loss statement -- tend to do better both in terms of revenue and profit margin. "A business that understands financial reports can see on its own what is and is not effective," says Ganahl.

To encourage franchisees to pay attention to their finances, Ganahl sends weekly emails with reminders on financial strategies and information about trainings on financial basics offered by Quick Books and other organizations. Franchisees also receive free financial coaching from the corporate team to help them understand how to prepare and interpret their reports. Meanwhile, owners have access to a company intranet, where they can find common tracking documents and archived videos from past webinars.

Learning when to be forceful
Ganahl admits that not all of her franchisees immediately embraced the financial tips she offers. However, she does require franchisees who are struggling -- based on revenue, customer reviews and quarterly financial statements -- to attend regular webinars on financial topics. But while she can encourage and even require franchisees to use financial best practices, ultimately, some franchisees will refuse to follow them -- and often end up struggling as a result.

Ganahl has learned to be more stringent about some financial issues. From the beginning, she required franchise owners to have a minimum amount of capital to start up, but she did not require any documentation to prove it. In Camp Bow Wow's second year of franchising, one location folded for lack of capital. Although the business was initially growing well, first year expenditures tend to exceed income, so the franchise ran out of money and had to close.

Since then, Ganahl has asked to see documentation of startup funds before approving a new franchise.

Ganahl also builds her franchisees' investment in the financial strategies that headquarters promotes by enlisting the help of her franchise advisory council, a group of franchisees who meet regularly to provide feedback on new financial initiatives and trainings. "When we have the council's buy-in, that goes a long way with the other franchises," she says.

Hard-earned wisdom
Ganahl's own financial knowledge comes from hard-earned experience. Her husband died in a plane crash at the age of 25. In the following years, Ganahl blew through a million-dollar settlement from his death due in part to a couple of failed startups. In 2000, with just $80,000 left, she returned to the business plan she and her husband had created out of their shared passion for dogs.

Ganahl knew that if the doggy daycare were to work, she had to plan carefully. "Because I had such little money," she says, "I had to figure out what worked very quickly and stick to that."

Today, Ganahl credits her bumpy start for her determination to run her business with financial savvy. "I now have the confidence not just to practice financial smarts but to promote them," she says. "I am here to play ball."

Resources

• Read about one company that promoted financial literacy among the ranks.
• Watch a video about what entrepreneurs need to know about their finances to be successful.