David Earl, Chief Financial Officer, Stratus Building Solutions.
When I first moved into franchising after years in Fortune 100 and private equity-backed companies, I had to shift my perspective. I was used to looking at big, complex organizations, but in franchising, the financial heartbeat also runs through individual franchise owners. Their success is the system’s success. Understanding that dynamic changed the way I approach capital allocation and financial strategy.
At its core, capital allocation for a franchise system means figuring out how to spend and invest money in ways that fuel growth while also keeping the business stable and resilient. Expansion is exciting and needed—opening new units, entering new markets, improving technology—but none of it matters if the financial foundation is shaky. In any leadership role, but specifically in my CFO role, it is vital to make sure that the franchise system grows without losing stability.
Why Balance Matters
In franchising, there is always pressure to expand. Growth is what attracts new franchisees, investors and customers. But unchecked growth can drain resources, create cash flow problems and even destabilize the brand. On the flip side, playing it too safe and holding back capital can mean missed opportunities and slower momentum. The key is striking the right balance between ambition and caution. Conceptually, capital should be reinvested in the business, and excess returned to the shareholders. However, every decision must weigh risk before action is taken.
Capital allocation is not about saying yes or no to growth; rather, it is about making sure we are prepared for growth. That means building strong financial models that account for both the upside and the risks.
The Importance Of Cash Flow
Earlier in my career, I was taught that cash is king, and I have lived by this rule ever since. Nothing is more important in franchising than cash flow. Franchise fees, royalty streams and reinvestment all fuel the system. The challenge is timing. Initial fees can cover early expenses, but they are not a long-term revenue source. Royalties provide predictable income, but they only grow if franchisees perform well. Meanwhile, capital is often needed up front to fund marketing, training and support.
A clear cash flow forecast keeps everything on track. It shows when additional capital will be needed, highlights potential bottlenecks and allows leadership to plan for financing in advance. I like to think of it as a road map that guides not only the corporate team but also every franchisee.
Planning For The Unpredictable
If the past few years have taught me anything as a CFO, it is that the unexpected will happen. Inflation, labor shortages and shifts in consumer behavior have all tested our system. The franchises that stay strong are the ones that prepare. I have previously written about financial strategies in uncertain times, and one of the key points I stressed was the importance of running models for both good and bad scenarios.
Uncertainty is not only a challenge, it can also be an opportunity. Some of our best ideas have come during volatile times when we had to adapt quickly and think creatively. By planning ahead and staying adaptable, we protect stability while positioning the brand for sustainable growth.
Supporting Franchisee Success
The financial model cannot only serve the corporate office. It has to empower franchisees, too. When franchisees understand their revenue, costs, margins and benchmarks, they can make smarter decisions day to day. That clarity builds confidence, and confident franchisees are much more likely to succeed.
Brands should work hard to provide transparency. It’s vital to share clear performance metrics, align expectations about investment and returns, and make sure franchisees have the tools they need to plan effectively. When franchisees thrive financially, the ripple effect strengthens the entire system.
Strategy And Discipline
I have seen systems that grow too fast without proper financial controls, and the results are painful. I have also seen systems hesitate out of fear and miss their window of opportunity. The strongest systems are the ones that use financial discipline to scale confidently and sustainably.
For me, capital allocation is, of course, deciding where dollars go, but it is also creating a framework that encourages bold moves, protecting the foundation of the business and safeguarding the brand. Growth should never come at the expense of stability, and stability should never prevent us from pursuing the right opportunities. When we strike that balance, we build a franchise system that can weather uncertainty, support its owners and create long-term value for everyone involved.
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