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franchise.co.nz – PUTTING PEOPLE IN BUSINESS
anaging cash flow is key to success. With planning, efficient
handling of income and expenses, and the right tools, small to
medium enterprises (SMEs), and franchises can thrive.
Cash flow management means tracking and balancing the money
coming into and out of a business. For franchises and SMEs this includes
handling income and expenses like salaries, rent, royalties, and taxes,
while ensuring financial stability.
Revenue:
Income from sales or services.
Cash Received:
Payments from customers
Expenses:
Fixed costs like rent and wages, taxes, royalties, and marketing.
Profit:
Money reinvested in equipment or growth opportunities.
Key strategies for cash flow management
1. Forecast Cash Flow
Plan ahead to predict future financial needs and avoid shortfalls.
This helps franchises, for example, prepare for royalty payments and
marketing fees and helps all SMEs prepare for seasonal sales changes
and planned maintenance costs or upgrades.
2. Optimise Receivables
Receivables are the amounts you are paid by customers for your
business’ products or services. Slow payers and uneven income may
lead to your business running out of cash.
• Bill customers quickly.
• Encourage early payments with incentive discounts.
• Make it easy for customers to pay you.
• Follow up quickly and firmly on overdue invoices.
Example: A restaurant franchise with a lot of tourist customers could
offer a range of multiple secure payment options, such as credit cards,
bank transfers, online payments, and mobile payment solutions to help
collect payments efficiently.
3. Manage Payables
Payables are the amounts
you owe suppliers of goods
and services to your business:
these can include rent,
electricity and other utilities,
as well as equipment, stock
or the ingredients you need to
make your own products, for
example.
• Negotiate flexible payment
terms with suppliers. Your
franchise system or buying
group may have negotiated
favourable terms with suppliers
• Prioritise essential expenses like rent and utilities.
• Talk to your business banker about working capital facilities to cover
seasonable requirements or unexpected expenses.
Example: A small business can free up cash by negotiating a payment
schedule when they purchase new equipment.
4. Monitor Inventory
Avoid tying up cash in extra stock on the shelves. Use systems like ‘just-
in-time inventory’ to keep operations smooth.
Example: A clothing store can cut storage costs by increasing
inventory turnover.
5. Reduce Costs
Look for savings by outsourcing, automating, or renegotiating contracts.
Examples: An SME may outsource marketing to reduce expenses, while a
franchisor negotiates bulk supply discounts for their franchisees.
6. Handle Specific Obligations
Franchises may have unique financial needs:
• Royalty Payments: Franchises must allocate funds for regular royalty
fees owed to franchisors.
• Marketing Fees: Most franchisees make contributions to a franchise-
wide marketing pool.
• Taxes: Set aside money for
all your tax requirements,
including GST, PAYE and
Income taxes – and don’t
‘borrow’ from your savings
for tax.
Example: A gym franchise pays
monthly royalties and marketing
fees through direct debits,
while an SME bakery focuses
on managing property rent and
equipment maintenance.
Cash flow reporting and forecasting
Managing your cash flow effectively makes your business more resilient
and stable. By planning, tracking and monitoring your cash flow, you can
make more informed decisions. One important way to do this is by using
cash flow reporting and forecasting.
Cash flow reporting lets you look back and see what typically happens
with cash in your business. You can spot seasonal trends and patterns,
which makes your forecasting more accurate. Cash flow forecasting
shows how much money your business is likely to have in future – a
week, a month or even a year from now. It projects your likely income
and outgoings across a period.
Having a forecast helps you spot potential crunch points and plan ahead
for them. This can make your business less stressful to run and gives
you more time to focus on more important things. It can also save you
money, giving you time to organise your money so you’re less likely to
need a new loan or overdraft. This will also make your discussion with
your banker a lot easier and effective.
You can create your cash flow forecast using a spreadsheet (Westpac
offers a downloadable template on our website), or by using your
accounting software. However, the best option is to ask your accountant
to work with you on a forecast, because their expertise will make the
process easier and more accurate.
Helpful Tools
Accountants can help create forecasts, track expenses, and meet tax
regulations. Your bank can assist through, for example, resources
like the Westpac Cash Flow Guide that includes practical steps and
templates.
You can find a free cash flow forecasting template, real life examples
and advice in the Westpac Smarts video Getting Greater at Cashflow and
Westpac’s full set of guides for small business, including the Westpac
Cash Flow Guide at https://www.westpac.co.nz/business/tools-rates-
fees/business-base
And if you think you may be struggling with cash flows or facing problems
managing all the ins and outs, involve your financial advisors early on,
so they can help you turn things around.
Source: Xero’s two-part 2022
report Crunch: Cash flow
MANAGING CASH
FLOW EFFECTIVELY
Running a Franchise
Westpac’s Daniel Cloete provides a
quick guide to managing cash flow for
franchised businesses.
Daniel Cloete is an Area Manager Business and the
National Franchising Manager for Westpac. Contact
the Westpac Franchise Team on 0800 177 007 or
Email: franchising@westpac.co.nz
The information contained in this article is intended
as a guide only and is not intended as an exhaustive
list of matters to be considered. Persons entering
into franchise agreements should seek their own
professional legal, accounting and other advice.
About the author
Source: Xero’s two-part 2022 report
Crunch: Cash flow challenges facing
small businesses