Archive for December, 2012

Are you a UK Franchisor with international Franchisees? Are you concerned that they are not disclosing their sales properly and are you missing out on MSF or royalty revenue?

December 12, 2012

This is a potential minefield, with language, cultural and geographical barriers. To be honest it is very difficult to police and potentially very costly.
In most case the first port of call would be your master franchise within the country or countries concerned. There are two issues here:
1) Are they collecting sales data and revenues correctly/effectively?
2) Are they passing the info and funds to you as they should be?
If they are responsible for collecting information and funds on your behalf then any costs associated with verifying that figures are correct should be covered by them… Yes, but that still effects you in the long run…
At CBCS, we recognise that auditing internationally, particularly in developing countries is often not considered because the main cost to the Franchisor is not the audit fees, it is travel. And yet frequently your international franchisees are the worst offenders when it comes to disclosing their revenue and royalties correctly. So how do you get round this…?

The biggest cost is frequently travelling to and from the destination country (particularly long-haul). Why would you pay for someone to travel business class, when economy is just as acceptable? If you can travel economy when you go on holiday with your family, surely you can when you are on business? Then there is the cost of hotels and transport to and from the various franchisee destinations. Again, there is no need to occupy two floors of the Presidential Palace, when the Holiday Inn will suffice and is why not take advantage of trains and buses rather than hire cars, taxis and flying? Strict control of a business trip that involves multiple sites will reduce your cost markedly and can turn this into a viable option.

international business travel can be expensive...

international business travel can be expensive…

And what of the other obstacles mentioned above: language, cultural, even local business ethical issues. Language will always be a barrier if one party or the other does not speak the same one with any fluency. You have to assume that as a UK Franchisor, your franchisees, be they in Kansas City or Outer Mongolia will have some understanding of English. So mostly this is not an issue; communication can be more challenging, but not impossible. Cultural differences are easy enough too. An understanding and willingness to comply with local cultural and business ethics is part of preparing for a trip to another country. Again preparation is key.
The additional preparation and the challenges of working in another country make international franchise auditing more complicated than the domestic version. As a result costs for audit and of course travel will be a little higher, but the returns could well be higher too.
CBCS offer a full range of Franchise auditing and business review services both domestically and internationally. Please give us a call or e-mail us, if you wish to discuss this potentially difficult area in more detail. We will treat each case individually and can tailor an auditing package designed specifically for your franchise operation and of course to the individual countries involved.

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December 10, 2012

Danny Alexander has suggested the UK will not enter a triple dip recession. Fine, if that proves to be the case, but ‘bumping along the bottom is just as dangerous. And the ‘Walking Dead’ are still out there, waiting to secure their unsuspecting prey. It could be you if you don’t prepare for them…

All Things Financial

All the hard work has been done. You products and services are selling and you have new clients on board…. All you have to do is provide your service or supply the product and everyone is happy. All you have to do now is get paid…

Most of your clients are paying you on time, some even within terms. The majority of the others have a good reason for not paying you. But why is one client in particular not paying you? Will they ever pay you?

Hopefully if the value of the business generated form this new client justifies the cost, you have already done a credit check on their business and you have reviewed and set a specific credit limit based on the clients buying expectation and your assessment of their credit report. But is that the whole story?

The media has this week been awash with stories about the strength ( or lack…

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A new client. Are they the ‘Walking Dead’? How much do you really know about them?

December 5, 2012

All the hard work has been done. You products and services are selling and you have new clients on board…. All you have to do is provide your service or supply the product and everyone is happy. All you have to do now is get paid…

Most of your clients are paying you on time, some even within terms. The majority of the others have a good reason for not paying you. But why is one client in particular not paying you? Will they ever pay you?

Hopefully if the value of the business generated form this new client justifies the cost, you have already done a credit check on their business and you have reviewed and set a specific credit limit based on the clients buying expectation and your assessment of their credit report. But is that the whole story?

The media has this week been awash with stories about the strength ( or lack of) the UK economy. At best UK PLC is bouncing along the bottom. At worse we will shortly enter a period of recession again… a triple dip recession. It is difficult to say, let alone comprehend the damage this is doing to thousands of UK companies. the news on the continent remains bad and if the ‘fiscal cliff’ edge is reached in the USA and Obama and the Republicans cannot settle their differences, the whole  world will suffer… again! It all looks a bit gloomy…

Recent press coverage has highlighted the number of companies in the UK who are just about breaking even and staying afloat, because they are managing to continue to pay their loans and charges. These businesses are existing… They cannot invest and grow as all their money is tied up in working capital. They are the ‘walking dead’… Still alive just, but not a good credit risk.

So how do you know who these companies are.? Well there are lots of them, which in itself means it is prudent to tie down your credit decision policy to ensure that your risk to bad debt is limited. There are certain signs you can look out for when assessing a new clients credit report:

*Lower or reduced net profits (relative to the size of the company) or near to break even, or those companies who have made a loss.

* Persistent loss making companies, who remain in existence as a ‘going concern’.

* High Gearing. This is the percentage of loans,charges debenture and other debt showing on the balance sheet under long term creditors. If this is too high, it shows an over reliance on external funding. ie. they cannot support themselves.

Companies like these are the ‘walking dead’. They can of course still obtain credit from you and a whole host of other creditors. If they overstretch themselves  they wont pay you, they will pay the people they have to pay first; the business critical debt, the loans, HMRC and their staff.

It follows of course that the longer you leave a debt to fester, the more chance it will not be paid.  How long will it before  the directors of the company or one of their creditors decides enough is enough and the company and your debtor is forced into administration….

All companies suffer from bad debt. It is not unique. All you can do as a business owner or manager is do as much as you can in advance to ensure you limit the value of of business you pick up from one of the ‘walking dead’ companies. If you do pick up high credit risk business, do your research, apply strict credit limits, enforce them and then follow good credit collection techniques to ensure your debtor knows that you are a priority too. Then when the debt is paid, look for business elsewhere…

 


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