When Joey Pointer, CPA, CGMA, joined Fleet Feet Inc. in 2004, he saw enthusiasm amongst the small US retailer’s franchise owners. But Pointer, the company’s CFO, didn’t see well-organised financial statements.
A successful store owner insisted he had $700,000 in cash on hand. Pointer’s calculations showed closer to $150,000. And major expenses such as payroll were missing from the owner’s version of the books.
This was a problem. And Pointer saw an opportunity: Create a remote financial management system that would centralise financial information among most of Fleet Feet’s 155 stores — and create order out of reporting chaos in the books of what is now a combination of company-owned and franchised stores.
The result was Pointer’s CFO-in-a-Box programme — and an illustration of how finance transformation can succeed at small and midsize businesses.
The programme, which started with the opening of Fleet Feet’s first company-owned store, employs accounting professionals to maintain stores’ financial records and to coach owners on finance. Currently, 12 full-time finance professionals help owners interpret, react to, and plan for the financial situations their business will encounter.
It has made for a stronger company, Pointer said. Fleet Feet, which specialises in running shoes and other fitness equipment, has nearly doubled its store count since 2009. Its revenue is up 32% in the past three years — growth born through a strategy of acquiring independent stores across the country.
OWNERS FOCUSED ON FITNESS, NOT FINANCE
The headquarters view of individual stores’ finances gleaned by CFO in a Box is critical in a company such as Fleet Feet.
Rather than competing on price, Fleet Feet focuses on staff expertise to win customers. It offers running clubs, training programmes, and highly individualised service. To wit: The company helps analyse customers’ gaits to ensure they’re getting the best shoe for the way their feet land. This approach helps Fleet Feet differentiate itself from competitors such as the US brick-and-mortar behemoth Dick’s Sporting Goods and online giant Amazon.
Many of the stores are managed or owned by people who are perhaps fitness fanatics first and finance managers second.
“I was probably spending 10% of my time dealing with financials, when Joey & Co. took over,” said Jeff Wells, who owns two Fleet Feet stores in Richmond, Virginia. “They were doing it more efficiently; it was in their wheelhouse. I felt that burden taken off of me. I felt free.”
John Dewey, who owns two North Carolina franchise locations, also felt that freedom. As the owner of independent stores that were converted to Fleet Feet franchises, Dewey spent time keeping the books or hired a local CPA to do the job. His background is in physical therapy, not finance.
“I really enjoy the fitting process, watching people walk and run, and trying to figure out their biomechanics and what will work best with them,” Dewey said. “Interacting with customers — that’s where I thrive.”
Pointer’s initiative has done more than help owners get more time with customers. It has caught instances of credit card fraud, employee theft, and hidden credits from vendors. It has led to the purchase of a group insurance policy for runners in the stores’ training programmes, which was costing the individual stores far more than chain-wide coverage does.
CFO in a Box also works by providing forward-looking advice and allowing franchise owners — some of whom left careers in rocket science, engineering, and teaching — the freedom to talk running and running products with their customers.
The programme unfolded like this:
A store Wells opened in Nashville, Tennessee, in 2004 was the test case for CFO in a Box, as the first corporate-owned location. Wells ran the front of the house — basically, everything the customer could see. Pointer, meanwhile, handled the finances on Wednesday nights and Saturday mornings from Fleet Feet’s headquarters in Carrboro, North Carolina.
Fleet Feet was opening other locations, and especially in some of the franchised stores, it was easy for spending to get out of control: A marketing budget of $50,000 suddenly became $85,000. The buildout costs to prepare a store for opening sometimes went from $100,000 to $150,000 or more.
“We didn’t have visibility to everything that was going on,” Pointer said. “We were always reacting to data that was six months or nine months too late to really make an impact.”
The task of finding a local bookkeeper for a growing number of locations seemed daunting. With no finance staff to speak of, Pointer was “boot-strapping”, trying to prove that his idea could work, even if the pricing structure wasn’t feasible in the long term. He was convinced that the headquarters, which had a view of all franchises and company-owned stores, was the best place to have financial oversight.
Pointer began teaching part-time Fleet Feet employees to be his eyes and ears for the stores’ finances. Bit by bit, more stores’ financial health was monitored. By 2009, eight stores were taking part in CFO in a Box.
Even remotely, he took pride in the level of service offered.
“At our stores, we compete on experience,” he said. “You can find the product cheaper at other places, but you won’t compete with the knowledge and experience [of staff]. With CFO in a Box, we’re competing on that same knowledge and experience. We’re going to give you an unbelievable experience and level of service that you just can’t find at the local level.”
Today, CFO in a Box is voluntary for franchisees, who pay 0.75% of sales (for a store that has $1 million in annual sales, the fee is $625 a month). About two-thirds of the stores participate.
Fleet Feet’s finance department offered full and light versions of CFO in a Box early on. The light version cost less, stores did their own data entry, and the staff at the headquarters handled month-end close and reconciliations. Pointer said the staff spent more time correcting mistakes than they would have if they had done the data entry themselves. Today, the service is all or nothing.
In addition to giving store owners time savings, CFO in a Box gives them someone they can trust. Pointer said he knew the programme was doing well when he started receiving non-finance questions from owners.
“I’d get a phone call about something like what e-fax service we used,” he said. “It was something that had nothing to do with the financials, but they had a high degree of confidence.”
Part of the reason was strong hiring. Just as the stores are focused on delivering a customer a great fit, the finance employees take steps to build relationships with the franchise owners beyond a monthly call to go over the balance sheet. If the finance staff have been to the retail stores, they are better able to understand and relate to the challenges faced by the franchise owners. When a Fleet Feet store in Boulder, Colorado, had a change in ownership, accountant Chad Gentry volunteered to take part in the inventory process for the new owner.
“I said to Chad, ‘Why do you want to count shoelaces at 2 o’clock in the morning?’” Pointer said. “He said, ‘That’s when the relationship is formed. There are processes and procedures, but it’s about forming that relationship. This is a time early on when I can form the relationship with that new franchisee, so they look at me as a trusted business adviser.’”
TECHNOLOGY CUTS DOWN ON LABOUR COST
From 2004 to 2009, franchise owners put paper invoices into the mail for someone at the corporate office to review and input into the accounting system. That process was slow and labour-intensive, and it was too easy to have information get lost or entered incorrectly.
Today, Fleet Feet uses a digital invoicing system that has cut the average time to pay invoices from about 40 days to four. Franchisees approve or dispute invoices online at least weekly, and that information is automatically sent to the “CFO” in charge and to the company’s accounting program, which is hosted on a cloud-based server.
The hosting company provides technical support for franchise owners, an important outsourced task given that Pointer is the de facto IT director but spends a good bit of his time travelling to look at real estate and recruit new stores.
Technological advances enable more Fleet Feet stores to pay faster, therefore taking full advantage of early-payment discounts from vendors.
ADDING VALUE WITH ANALYSIS
Fleet Feet’s CFO-in-a-Box staff have mitigated franchise owners’ financial and cyber-security risk by uncovering instances of credit card fraud. The staff also can see patterns in product return rates of individual employees that might indicate a worker is stealing from the company. These are the kinds of things a busy franchise owner might not even notice, especially one starting a new store.
“Something like that might have gone right under my nose,” said Wells, the Virginia franchise owner. Senior Accounting Manager David Staley, CPA, who now manages CFO in a Box, went from new guy to popular guy when he began calling stores in his first few months on the job and telling them how much money they had available to spend with shoe and apparel giant Nike.
Staley learned that Nike didn’t always send a credit memo when it issued a credit for returned merchandise. In talking with Nike’s credit department, Staley learned that one store had 11 credits totalling about $4,000. Then he asked about another store, which had credits worth $6,000. Then he asked for a company-wide spreadsheet for credits from Nike. The total amount was $150,000, at least half of which was from the previous year.
Now, he believes, the value he provides stores is not in unearthing past oversights but in piloting a franchise forward. Because Staley sees the financials of so many other franchises, he knows when one location’s numbers are amiss.
Pointer believes in presenting big-picture comments along with financials, and he creates a PDF of hand-written notes to go along with a spreadsheet sent each month to individual franchise owners. Staley and others have followed suit, offering three or four key points and then discussing those with the owner.
“Those three [points] usually lead to a bigger discussion about their business and how it can be improved,” Staley said. “And that’s where the value is. We can say, ‘You’ve got an issue that’s going to lead to a bigger problem down the road if you don’t take care of it now. Your inventory’s too high, or your payroll’s been creeping up.’ ”
WORD OF MOUTH HELPS SELL THE PROGRAMME
Franchise owners are constantly talking and comparing themselves with others. If one has had a good experience or a bad one, they will be vocal. Staley said owners who first received a pitch about CFO in a Box were the people they were certain had “zero desire to ever do anything financial.”
Once those owners, including Wells, could quit worrying about finance, their outlook brightened. They talked to other owners, some of whom called Staley to ask how they could sign up.
These days, Staley and 11 other full-time employees manage the finances for 73 CFO-in-a-Box stores — a far cry from Pointer’s solo work on nights and weekends in 2004. The company hopes to grow to 125 CFO-in-a-Box stores by the end of 2016.
“For the good of the brand, we needed this,” Pointer said. “We need good financials, which are the building blocks for any successful business.”
How to centralise finance in a franchise model
Fleet Feet CFO Joey Pointer, CPA, CGMA, offers the following steps for bringing the finances of franchised locations under one roof:
Hire one person to run the show from day one
While piecing it together with several people may seem like the cheaper option, ultimately, something is going to get dropped along the way. If everyone is responsible for something, then no one is responsible for everything, so find someone who will own the programme. This person could start as an accountant, producing tangible results each day in addition to overseeing everything. Or the manager could oversee several other functions in the company, but ultimately there needs to be one “CEO” of the programme.
Create an organisational hierarchy
A well-trained data-entry staff can enter bills, receipts, and sales information more accurately, which will free up your team of accountants to perform higher-level functions and analysis.
Determine pricing structure upfront
It’s more difficult to change prices once a customer — in this case, the franchise owner — has become accustomed to a set price. Even if you offer a deal to early adopters, do it with a clear end point. For example, “half price for the first year”.
For data entry, you will need systems to track who has entered what documents and where those documents reside. For month-end accounting work, you will need systems to track what entries have been made, the last date various accounts have been reconciled, and when a month is “closed”. We have a giant, colour-coded spreadsheet that we use to evaluate our accountants’ performance.
Establish a primary point of contact for customers
Don’t have a data-entry person call with a question in the morning and an accountant call with a question in the afternoon. Have one person who is responsible for communicating everything with the client, and allow this person to become someone the client trusts with their financial information.
Constantly hiring, training, and managing staff is exhausting, especially in the early phases, when your bigger focus is on adding clients quickly. Automating as many functions as possible enhances the ability to expand quickly.
It won’t happen immediately, but be prepared to run an accounts payable department
The more bills that come through, the more you need a team of people to help ensure your client’s records match those of the vendor. The most noticeable error to your customers is one involving payment of bills, so you need a team in place to prevent these errors from occurring.