This is from last year and I thought I would refresh because the message is still valid.
New evidence from the US, based on auditors research shows that approximately 15% to 20% of franchise locations are underreporting sales by 15% or more. As a result, locating and correcting underreporting behaviour can increase MSF revenue up to 4% annually. So if franchise msf revenue is £1M,on average £40k additional revenue can be generated.
Indeed, further evidence from the US franchise market, where franchise or royalty auditing is more widespread than in the UK, suggests that a program of audits across the franchise network will derive greater results and greater support from the network, than one off specifically targeted audits against franchises known to be under declaring sales.
With these compelling statistics in mind, here are my 6 good reasons to start auditing today:
1) Improved Revenue and Profitability. Auditing encourages your franchises to declare their revenues correctly; where previously you may have missed out on fees and profit.
2) Outsourcing to a trusted and professional business partner, takes away the contradiction between you and your franchisees. They will carry out the audit, as per the franchise agreement, allowing you to carry on supporting your franchise network, without the ‘we don’t trust you contradiction.’
3) The temptation to generate additional undeclared income for a franchisee is enormous, especially in these troubled times. It they know you are watching them; they are far less likely to try to defraud you.
4) The benefit of a partnership between the auditor and the franchisor creates a greater understanding of the requirements of both the franchisee and the franchisor. The auditing process frequently highlights areas where improvements can be made to the benefit of both of the franchise parties.
5) Cost. It need not cost you anything. If you can identify franchisees who you suspect our under-declaring, you can recover the cost of one or even multiple audits from just one visit.
6) Critical Mass. If your business is growing, the chances are that you are using your franchise recruitment fess to support your business. When you achieve Critical Mass, the revenue derived from your management service fees will reach a point where your business is self sustaining and gross profit from each and every new franchisee will go straight to your bottom line. If you audit you increase the prospect of achieving Critical Mass faster.
All Things Financial 