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How McDonald’s Franchisees Can Best Manage Risk

Posted by Ryan Moore on Thu, Jan 12, 2017

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road sign - risk.pngThe term risk management is one that can be found with increasing frequency these days, both on television and in print. It’s not necessarily fodder for lively dinner conversation, but the timing of when you get to enjoy that next expensive steak could very well depend on how well versed you are on the topic of risk.

Put simply, risk management is the process of identification, analysis, and acceptance of uncertainty in business decisions. The primary objective of risk management is to provide the assurance that uncertainty does not interfere or prevent one from achieving their business goals. Risks can come from various sources including uncertainty in financial markets, threats from operational failures, legal liabilities, credit risk, accidents, natural causes and disasters, ever increasing competition, or other uncertain or unpredictable events.

The important decisions that you as a McDonald’s Owner/Operator must make every single day have far reaching consequences – some good, some not so much. Adequately assessing the potential negatives and formulating a plan for that inevitable bump in the road could be the difference between success and failure. As McDonald’s franchisees, you can use a variety of tactics to deal with risk.

Accept that Risk Exists

This may seem like a no-brainer but the first step to addressing any problem is to accept that it exists. Pretending like you’re immune or that nothing bad could even happen to you or your business is quite possibly the most dangerous position one could take.

Collaborate with your trusted CPA advisor to create a collective understanding of what risks are present in your market and their potential implications for your business. Together you can decide whether the consequence(s) of a particular risk is acceptable. It’s easier to make a well informed decision once you understand the costs in terms of time and money.

Avoid Risk

Again, you should work with your CPA to formulate a solid understanding of the implications of risks. In the world of business, and especially one as incredibly competitive and volatile as the quick service restaurant industry, what you don’t know can hurt you.

While the assumption of some risk is obviously inherent, making informed decisions through the levels of your specific level of appropriate risk tolerance or appetite is one of the hallmarks of a good leader and businessperson.

Control Risk

One can only attempt to control risk after it has first been identified, diligently analyzed, and determined to be unavoidable. Once this is done, you should get to work on developing a plan for controlling or managing the particular type of risk.

Insurance should always be a major component and consideration when developing your risk management plan. The need and proper level of liability, property and casualty, business interruption, and other types of insurance is critical.

It is important to also develop and implement strong internal controls, both operationally and financially, to mitigate and manage the risk of theft, fraud, and other potential harmful wrongdoing.

READ MORE: Internal Controls Can Boost McDonald’s Owners’ Profitability

Once a risk has been identified and a plan has been put in place to manage it, one must resist the urge to become complacent and not assume risk management is on “cruise control.” McDonald’s Owner/Operators, together with their CPA or trusted advisors, should periodically revisit the basic assumptions and premises of the identified risk(s).

Scan the environment to see whether the situation has changed in a way that affects the nature or impact of the risk. You may find that the risk may have changed sufficiently so that the current plan for management is ineffective and needs to be altered or you may determine that a previously identified risk is no longer so, and the associated resources can be allocated elsewhere.

Despite the generally positive economic indicators and record high market indices, our world is filled with risk. The potential for negative outcomes or trouble is always right around the corner and can never truly be mitigated to zero. However, with the proper planning and astute advice, one can minimize those unrealized hazards and help keep their business out of harm’s way.

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Topics: McDonald's management

Concannon Miller’s unique, holistic and intimate approach to financial health sets us apart from smaller CPA firms with more limited resources as well as mega firms where mid-sized clients struggle for attention. Contact us here to talk about improving your business.

This communication is designed to provide accurate and authoritative information in regard to the subject matter covered. However, the general information herein is not intended to be nor should it be treated as tax, legal, or accounting advice. Additional issues could exist that would affect the tax treatment of a specific transaction and, therefore, taxpayers should seek advice from an independent tax advisor based on their particular circumstances before acting on any information presented. This information is not intended to be nor can it be used by any taxpayer for the purposes of avoiding tax penalties.

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