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Archive for category Franchisees

The fragile business

Oct 7

Posted by Steve Gray in Finance, Franchisees, Franchising, Growth, Innovation and Creativity, Planning, Risk Management | 1 Comment

No matter what sort of business you are in, it’s only as good as the next crisis is. Has that got you thinking? I hope so. You see many business people chip away at the coal face to get ahead, but do not stop to think about how to handle major challenges that might arise. Of course we do not want major challenges to arise but they can.

Example, imagine a franchised business, lets say it’s in an early phase of development and the main company has sold a few territories and is pushing to sell more. But the offering turns out to be a flop, (e.g. customers did not want a garden watering service…) so things start going downhill. When push comes to shove they end up with no more sales, no more fees in and it goes belly up.

Well apart from a poor business concept how well the main company does will also depend on what they do to develop their wealth.

Consider this. If the income stopped for the Head Office of this organisation, how long would it last? Answer, not very long (often it’s allegedly about 2 weeks for most). For the business owner/s this means their dream has gone up in smoke.

BUT, what if they had developed a “wealth creation program”, or a “debt reserve fund”. Often its as simple as a separate bank account where a % of funds from all income goes. Over time it compounds and provides a growing liquid asset. This is left alone to grow and provides the main company with a solid foundation to build on (The key is to never spend it.) When it builds, some of it can be put into other forms of investments that can be liquidated fast if need be (shares for example) to do this effectively I would suggest a % be agreed upon to retain cash in the reserve fund (cash is king…)

Although I have used a larger organisation as an example, it can be done (and in my view should be done) by all businesses.

The aim, to build a foundation that keeps the business solid and even if things go “down the tubes” the future has at least been allowed for, obviously the longer the business can run the stronger the foundation and if need be the security can be leveraged against to start another business (hopefully a MUCH better one than the first!)

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What do you get for the money?

Oct 6

Posted by Steve Gray in Finance, Franchisees, Franchising, Planning, Risk Management | No Comments

Most (if not all) Franchises have a franchise fee, (it’s a monthly fee usually) designed to keep the head office “humming”. It’s generally separate from a marketing fee, but that might be on the same invoice you get per month. So what do you get for paying that? I guess the Franchisor will have an answer for you that “covers their butt” but in reality what do you get?

Look, some will suggest I have put on my cynical ‘hat’ and am talking sour grapes… Perhaps that has some truth to it. BUT it’s a great issue and one that all current and prospective Franchisees should be asking about sooner rather than later, and one that Franchisors have to be acutely aware of. Think of how many Franchisees are in a group and then look at how many franchises there are world wide, and growing! the amount would be staggering per month.

So you shell out a management fee per month?

  • Perhaps you will get a support person to watch over a bunch of Franchisees – If that happens in your franchise group, does the number of support people match or better the industry average? How often will you see them? how specifically will they work with you? Have they been a franchisee before ? Or are they bringing employee mentality and or attitudes to the role…?
  • Perhaps it goes into developing new systems – Things change so that can be useful, but what if someone created a new system and it failed, you still paid for it? Perhaps the new system will save you a fortune, in time or money…?
  • Perhaps the fee goes into organising the annual conference – If you have one, but wait that’s usually a separate fee… so the organising cost should come out of there? SHOULDN’T IT? Whoops a slight oversight from head offices viewpoint.
  • Perhaps it goes into training – You go to the franchise meetings don’t you? well you get training there??? hmm maybe not… Well at least your fees go to the meeting room hire.
  • Perhaps it goes into the end of year function… – Well for some it might, but for others well that’s separate, so no joy there.
  • Perhaps it goes into a marketing development fund – No that’s surely under the marketing fee. so if the Co is spending management fees on marketing there is a false economy going on… Perhaps the Co should be altering the management fee amount down and the marketing fee up, same total but different results, one more accurately reflects the real situation.
  • Perhaps it goes into building a new head office – Hey why aren’t they leasing? There are tax benefits to that in most places… Oh the CEO has a company that is into real estate development, oh that’s a bit different… no?
  • Perhaps the company wants to create a great web presence complete with franchisee intranet – Better hope they pick the right sort of web developer or the $$ might just be going out the window… or is that Windows® he he.
  • Perhaps some is going into a debt reserve fund, or a weatlth development fund so the company can build its cash wealth and not just its branches and image.
  • I know, it goes into processing the monthly fees!

The point. To find out where the money goes, it should be available to the franchisees as a graph, a pie chart or similar so they can know where the money goes, and so their Franchise Advisory Council can advise based on facts, not on here say and good will.

Is your Franchise group showing you the “money…” or are they showing you a chunk of “PR” that makes the “money” look good?

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Choosing a supportive franchise

Sep 18

Posted by Steve Gray in Franchisees, Franchising, People!, Planning, Risk Management, Starting out in business | 2 Comments

Starting in any business is fraught with challenges, in franchising its the same, there are challenges. The aim however with a franchise is to diminish some of the risks so you can begin with a solid system behind you that offers training and support as well as a proven brand people want to buy from.

It is important therefore to select a franchise that can work with you in a way that suits you and while people have different things they want from a supportive business arrangement here are a few points to guide you.

Note that prospective franchisees have a great deal of power, the sales person wants you to buy, you are looking and therefore have the power to say no, the power to ask lots of questions and can walk away at anytime if it does not suit you. Use this “power” to make sure you are getting into the right kind of franchise, because a rushed decision can cost you dearly over time if its the wrong one!

This article is part of a series on franchising, you may like to see the first one in the series, it’s here.

Business and practical skills training - A caring Franchisor will provide both, therefore, as you work on the business you can work in it as well. The training provided is vital to ensure you are able to tackle the business with ease, not with trepidation. So ask lots of questions about the training and how they measure the results of that training. E.g. do they follow a competency based assessment model to ensure you meet a set std or do they simply show you and expect you to figure it out later… A supportive organisation will make sure you know the right way to do things and how to build your business to be all you want it to be and more.

Ask for examples – Of how they have helped existing franchisees with their businesses, then get their contact details and verify that this is the case, check for gaps in the communication they say they are offering and the actual communication taking place. The differences can be huge, so the smaller the difference the better. I would also ask franchisees how the organisations leaders operate, if they are leaders and how they prove that (note, not dictators but leaders… their team love them, the franchisees love them)

Fluff and bubble – Some franchises have franchisee meetings, seminars and or conventions, are these full of “fluff and bubble” or are they of real value to the franchisees? Yes you should be asking all about these things as they may well form the backbone of support for your business after the initial training. A caring and supportive franchise will certainly want to make these sessions power packed, relevant and to the point.

Transparency – Is the main Co transparent in ALL their dealings? Of course most will say “yes” however does that include the financials? Head office staffing issues (happy, sad, turnover of staff) all these things can have an impact on the stability of the overall organisation. Of course it may not be as transparent as a cooperative group where the members are like shareholders and an active part of the organisation, however the amount of transparency is useful to know. Often people trust a transparent organisation more than one that appears to hide information.

Ease of information – The main Co should be way to get info from, they should have been through the hoops before with these issues and have the ability to answer the questions with ease. If things are starting to become challenging with a few questions, imagine how they might be in a few months after you joined their business. the aim is ease of working with them.

Passive income and you… – Ask them about how they can help you specifically to build a business that provides you with passive income, they should have an easy to follow system to assist you over time. Passive income? Income where you don’t do too much to get a return on your outlay. Initially it would be build the business, make a profit… then you install a manager to run it for you, you do little and reap the rewards, mainly income.

Sales reps and you… – The sales rep for the company could be anyone from the CEO to the State or area Manager. Ask yourself, did they respect you? This can show up as a range of things, like, were they on time? Did they have a clear presentation? Did they stick to a set time frame? Did they bring material to leave you with? Did they do anything else they promised to do? I judge this on a ten point scale, if they start at a ten and then fade, from there I would start to evaluate if it’s worth it below say a five or four. I am not saying the rest of the company is like them, but chances are the first impression can be a vital indicator.

That’s the list. Its a starting point to ensuring your investment in the business system is one that ensures you will be cared for, if not I would ask is it worth it? Remember this information is provided as an educational device and not speific advice, the decisions you make are up to you.

In the end it’s all about a great business model and the relationships they build from there.  If you feel it can grow and blossom or fade and wither. I know which I would prefer!

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