By Barbara Nuss, CPA | Profit Soup

New franchisees tend to say two things, usually months apart. Before they open, it is “Why do I need to learn breakeven? I haven’t even opened yet.” A few months in, it is “Why didn’t anyone tell me this sooner?”

If you manage a franchise system, you hear the second statement on support calls, and sometimes only after a franchisee is already short on cash. Both statements point to the same gap. Many franchisees start the journey without understanding the financial race they have already entered.

The race to profit starts on opening day

The moment a unit opens, it enters a race to profit. The goal is to grow sales past breakeven and become consistently profitable before cash reserves run out.

Every month below breakeven burns cash. That is normal for a new business. The real danger is not knowing how much cash will burn and how long it will take to stop.

The cushion is often thin. A 2016 JPMorgan Chase Institute analysis of small business bank accounts found the median business held enough cash to cover about 27 days of outflows, and one in four held fewer than 13 days.

“I don’t know my numbers yet” is a solvable problem

New franchisees often assume they need months of actual results before they can complete a franchisee breakeven analysis. They don’t. They need a reasonable budget based on informed assumptions, and franchisors are well positioned to provide the inputs: opening budgets, staffing models, benchmarks from existing units, and operational guidance. Item 19 of the Franchise Disclosure Document can provide useful context.

The assumptions will not be perfect, but informed estimates are far better than launching blind. Once actual results arrive, franchisees can study the variances and refine the model.

Breakeven is mile marker one

Breakeven is the monthly sales level at which revenue exactly covers operating costs. Beyond that point, a unit shows a profit, but it can still burn cash because profit and cash are not the same thing. Loan payments, inventory purchases, receivables growth, and owner draws all require cash without appearing on the income statement. A franchisee can report a profit and still run out of money.

That is why franchisees also need to know their Breakeven PLUS: the sales level that generates enough profit to repay debt, grow assets, and reward the owner for the risk taken. Breakeven PLUS is mile marker two, and the race is not won until a unit reaches it.

Reaching it in six months burns less cash than reaching it in twelve. Every month matters, and the only way to judge whether a timeline is realistic is to map it.

Train before the doors open

The best time for franchisee financial training is before opening. Not three months later, when cash is tighter than expected, and not during a stressful support call after the franchisee discovers the checking account is nearly empty. Owners who understand their cost structure and cash flow in advance interpret their results more accurately and respond more calmly when challenges arise.


We recommend training before opening, with a reinforcement touchpoint within the first six months. Training provides the framework. Coaching helps franchisees apply it.


Research points the same way. A study of nearly 90 restaurant franchise systems published in the Journal of Small Business Management linked more extensive franchisee training to fewer franchisee failures.

Where to start

  • Add cost structure to pre-opening training: variable cost percentage and monthly fixed costs.
  • Teach breakeven and Breakeven PLUS alongside a cash flow forecast, not only a P&L budget.
  • Share benchmarks and informed assumptions so franchisees are not starting from scratch.
  • Schedule a check-in during the first six months to compare actual results to the plan.

Most new units spend their first months below breakeven. Whether those months come as a surprise or as part of the plan depends largely on what franchisees were taught and coached before they opened.

Schedule a call with Profit Soup to discuss Breakeven PLUS training for your team and franchisees here.

Barbara Nuss, CPA, Founder, Profit Soup

https://profitsoup.com/

Barbara Nuss

Barbara Nuss is the founder and president of Profit Soup. She is a teacher, business advisor, passionate advocate for better business thinking, wanna-be golfer, and guitar-playing CPA. While she is ardent about helping business people understand financial information and KPIs, her focus is on the future. She has thoroughly enjoyed putting Profit Soup’s recipe for success – Measure, Understand, Get it Done – into the hands of business owners and managers across the United States, Canada, and Australia.

Barb is a frequent speaker at franchise and association conventions, boosting financial acumen and confidence in a non-threatening, no-nonsense, naturally approachable style. Her extensive experience as a business advisor and coach gives her a unique perspective on the long and short-term challenges that business decision-makers face daily. She combines knowledge, creativity, modern adult learning approaches, and passion for fun into the training she develops for Profit Soup Online and client conferences.