Skyline Cloud Services by Uni-Data
Technology and Service Delivers Franchise Value and Growth
High unemployment and low consumer confidence have weakened business spending, impacting even the strongest of established businesses. The 2010 Franchise Business Outlook1 forecasts “a slow recovery with marginal increases in the number of establishments, jobs and output”, and suggests that even as the economy starts to recover, franchise small businesses will continue to face financing struggles.
Reliance by franchise small businesses upon credit is unquestionable; across the franchise industry, the fear is that the best opportunity to create sustainable business and subsequent job growth will be lost if credit access isn’t made available now. The strictures to establish credit have tightened, and lenders require potential franchisees to be equipped with extensive data detailing both their own worthiness, and that of the franchise concept itself. Lenders increasingly examine a franchise system’s efficiency of processes, the security and recoverability of systems, and the response to market forces by the brand before risking funds on a new small-business venture. Thus, franchise operators find themselves pressured to improve system performance at all levels, and providing the back-office support systems, business intelligence, and business resiliency for their business owners has become essential to the growth of franchise systems.
Proving Business Value: Item 19 Sells Units
Much of this is old news, as it’s in the Franchise agreement itself: Item 19 of the FTC and state Franchise Disclosure Documents (FDD)/Uniform Franchise Offering Circular (UFOC) is the earnings claim, which are estimates or, historical figures detailing sales, expenses and income a prospective franchisee might realize as the owner of a particular franchise. Regarding Item 19 disclosures the Federal Trade Commission states “All financial performance representations must have a ‘reasonable basis.’” 2
The earnings claim is often considered to be the most important factor in selecting and obtaining financing to purchase a franchise, as it enables realistic projection of sales, expenses, and profits earned. In cases where a potential new franchisee has no experience running a business, or no applied experience in that particular type of business, the earnings claim is often the only guidance available. Since the franchisor is the source for this information, the veracity of the claim may be questioned unless accompanied by extensive supporting data. It is difficult to determine which could raise more doubt about the sincerity of the franchisor: using unverifiable data, or not providing an earnings claim at all.
Supporting Better Business Performance
When a franchisor provides back-office accounting support or financial management oversight to their franchisees, the opportunity to obtain data for the earnings claim, performance benchmarking, and royalties verification becomes a realistic goal. The ability to substantiate the data can prove invaluable in a tough franchise market where buyers want verifiable information.
IT Model Facilitates Greater Business Intelligence
By electing to implement application hosting and cloud-based platforms to support franchisee operations, a franchisor creates an environment where back-office support services become a benefit of franchise ownership. Application hosting offers a technology model which adapts trusted and proven software and systems to cloud-based, collaborative online working models that allow businesses to use familiar software to support the business, while improving the security and management of their critical business data, and while reducing or eliminating associated on-premise IT expense. Further, centralized management of business applications and company data facilitates integration with reporting systems used to perform analysis and comparison of data from a single business to an entire franchise system, thus giving greater creedence to the Earnings Claim.
By providing enabling information technology, and by requiring and providing access to accredited accounting and financial professionals, franchisors can ensure that the proper business financial data and insight required to support aggressive system growth is available to prospective franchisee candidates. Franchisors must look more closely at leveraging application hosting and cloud technologies to enable the delivery of fiscal management, and reporting for their franchisees, and provide avenues to better-address accounting and bookkeeping responsibilities in order to gain the credible performance data and useful benchmark metrics necesasary to compete for credit in this difficult economy.
Bob Babcock, Vice President
SKYLINE Cloud Services
65-37 Fresh Meadow Lane
Flushing, NY 11365