How to Improve Franchise Royalty Reporting
One of the most common problems we hear owners of fast-growing and emerging restaurants ask for assistance with is royalty reporting. They have a “gut feeling” that some of their franchisees are under-reporting sales in order to reduce the amount in royalties they have to pay. This “gut feeling”, without proof, creates distrust that has a negative impact on the relationship between the franchisor and franchisees.
As restaurant brands begin to scale, they face similar challenges. A common one is that the Point of Sale (POS) systems across their chain tend to be fragmented. Oftentimes, franchisees, in the absence of clarity in the franchise agreement, purchase older systems or convert stores they already own (including the POS) over to the new brand. One result of disparate POS is that sales reports are submitted a variety of ways, including: by fax, email, some even mailed in days later to the franchise head office. This means the franchisor has no single source of truth in terms of how sales at any given location is doing, and what may be owed in royalty fees.
Common things to look for on franchise sales reports:
- High numbers of “item void” or “no sale” transactions
- Traditionally busy periods of the day with limited sales or many low value transactions.
- Frequent missing guest check or order numbers
- High labor or food costs that are out of line with other franchisees
- Unusual cash:credit card transaction ratios
How to Ensure Better Royalty Reporting
The best way to ensure more accurate royalty reporting is to create an ecosystem where the franchisor’s head office has real time access to sales results. Traditionally, this has been costly, because it required all franchisees convert to a single POS to use that vendor’s analytics product (ex: Micros and MyMicros). However, with advances in open architecture and cloud computing, solutions like Livelenz are POS agnostic and generally don’t require a single POS (more about Livelenz’s software for franchisors here). They can work in a fragmented POS environment, reducing or negating the needs for individual franchisees to upgrade their POS’s.
Being able to see sales in realtime, greatly reduces the ability of the franchisees to retroactively alter sales reporting. Additionally, integration with HR and Inventory reports similarly restricts the franchisee’s ability to reduce reported sales. A franchisor can quickly see if a store has unusually high food or labor costs for certain days, that point to sales not being recorded accurately, operational inefficiencies, training issues or incompetence.
Having an accurate picture of sales numbers, labor and food costs isn’t just beneficial for ensuring royalties are paid. They are the keystones to understanding the health of an individual store, region, district manager’s territory and overall brand. It means the ability to spot high-performing stores and knowing, early on, about problem locations that need your assistance or a closer eye. Adding visibility and accountability can mean thousands in annual royalty increases that should have been paid all along.
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