As with any other business, one of the most important elements of a franchise start-up is writing a business plan. A business plan forces you to anticipate and answer a number of questions about the challenges you’ll face and the expectations you have for your new business. The creation of your business plan is also essential if you’re going to need financing from third-party sources, since this is probably the first document they’re going to ask you for.
Preparing a business plan is substantially easier with a franchise than it is for an independent business start-up since there is so much information already available.
During the sales process, the franchisor typically supplies you with a great deal of verbiage you can use to create the narrative portions of the business plan. You can also often find much of the financial information you’ll need in the earnings representations of their disclosure documents.
In addition to the sections that are usually addressed, a business plan for a franchise will have a section outlining the track record, personnel and support available from the franchise company. You may include items like the franchise company’s sales brochure or disclosure document as attachments to your business plan. This additional section can provide a much higher degree of confidence for people like lenders that you’re trying to impress with your plans.
The five key sections in a typical business plan, whether franchise or independent business, include:
This section involves a complete description of the business, including an identification of the product or service that will be sold, the size and competitive nature of the market for the business, a description of the operational approach that will be used to take the business to market, and the challenges and risks associated with the start-up.
This section describes the key management roles in the new business. It names the people who’ll fill the roles and provides background information on these people, such as CVs with prior, relevant experience. In a franchise, you’d also include information about direct support staff of the franchisor in this section.
This section defines who your customer is and how you plan to attract him to your business. It includes an explanation of the business’s competitive advantages, an examination of the value equation related to the product or service as it relates to potential customers, and of course detailed marketing and advertising plans for the business.
4. Pro Forma Financial Projections.
This section includes income statements, cash flow statements and balance sheets that project the anticipated financial performance of the business when it begins operation. The statements should include extensive notes on all material assumptions used to prepare the projections. These projections should always be prepared on a very conservative basis since it’s not possible to project the unexpected delays or challenges that always seem to happen on any new start-up.
5. Financing Needs.
Even if all funding comes from your savings, always prepare a section in your business plan related to financing needs. This section involves a complete analysis of all start-up costs related to the new business, including sufficient working capital to cover initial marketing plans and operating losses until the projected break-even point for the business. The process of carefully detailing this information, even if you’re not borrowing anything from an outside source, will better prepare you for whatever might happen as you get the business set up and operating.
Again, one advantage of a franchise, in relation to creation of a business plan, is that most of this information is readily available from the franchisor. You’ll probably find that the franchise company’s brochure or website contains sufficient information to complete much of sections 1 and 3 above. You’ll also find that its disclosure document contains much of the information to complete section 5 and, if the franchisor publishes financials, then you may be well on your way to completing section 4, as well.
Sometimes franchise companies require potential franchisees to start and/or complete their business plans prior to being approved. Whether or not the franchise requires this, it’s a good idea to start thinking about a business plan. This will force you to consider options and formalise your projected course of action in the new business. You’ll typically identify questions during this process that may not have otherwise occurred to you. You can contact the franchise company and get answers to make sure you have a clear understanding of the franchise prior to making a final decision to proceed.
Remember to update and finalise your business plan after completing the franchisor’s initial training. Regardless of how much research you do prior to becoming a new franchisee, you’ll have a far greater understanding of factors like operational and marketing plans for the business after the initial training. Most franchisors will have pro forma financial models prepared that you can use to double check, or even replace, those you initially developed for the financial projection section of your business plan. Review your entire business plan based on your new knowledge, and you’ll be as prepared as possible for your new franchise business to be off and running successfully.
6 Top Tips For Reading Management Accounts
There is a golden key that reveals the secret of whether your business will survive and thrive. It is keeping tabs on the figures that summarise the strength of your business – your monthly management accounts.
There is a golden key that reveals the secret of whether your business will survive and thrive. It is not the brilliance of your business concept. It is not your talent for talking clients to sign on the dotted line. It is keeping tabs on the figures that summarise the strength of your business – your monthly management accounts.
Many entrepreneurs are usually more interested in operations and find product development or sales much more enjoyable than catching up on accounts. I sympathise – I’m one of them! So if you feel the same way, my top tip is always to make sure that you partner with or employ someone who can oversee the finances for you.
But that does not mean you can let the figure boffins and the finances take care of themselves. To function properly in your business, you need to know the outcome of your sales and development strategies – and the story of that is told in your management accounts.
If you never look at your management accounts, it is like blinding yourself in one eye. It means you risk being literally blindsided by a big surprise, whether it is heading for a significant loss or being confronted by an unexpected provisional tax payment.
Here is how Engela van Loggerenberg, our Group Financial Manager, puts management accounts in perspective for our new franchisees. She urges them to focus on six key areas:
- Priorities: Management accounts can help you pinpoint areas that you need to prioritise, whether to capitalise on growth or because they are not performing as well as you hoped.
- Strength: All businesses aim to grow their assets over time and the balance sheet in your management accounts will reflect whether and how you are achieving that.
- Control: A strong balance sheet is one that shows you have your business liabilities well controlled. The key marker here is your current liquidity ratio, which results from dividing your current assets by your current liabilities. To keep your business healthy, always aim to keep this ratio at least 2:1.
- Revenue: Ideally, you want to see your revenue grow month by month. Check your income statement both for the trend in actual revenue and also for actual against budgeted revenue to check how well your strategies are delivering results.
- Profitability: Of course, revenue is not the same as profitability. You need to know your gross profit – the basic figure of your sales less the cost of those goods – and net profit, which also deducts a range of other expenses including taxes. Track the percentage of these two profit figures as well as the actual cash amount they represent to keep a check on whether your costs are creeping up too high.
- Finance: Most businesses at some point want to finance their growth by borrowing from a bank. A set of well-regulated management accounts is a prerequisite to obtaining finance.
Your management accounts do not have to be particularly complicated to give you these vital pointers – and if you are figure-shy, the more straightforward the better.
The important thing, though, is that you do not allow yourself to be too scared to ask if there is something which is not clear to you. That is the way to keep control of this key to your business fortunes and to keep building your business from strength to strength.
A Three-Pronged Approach To Franchise Success
Danie Nel, head of business development for Cash Crusaders franchising, says the brand’s success over the past 22 years is attributed to the sentiment that “a profitable franchisee is a happy franchisee.”
What is your current footprint?
220 Stores. We’re looking to increase that number by another 20 stores for the 2018 financial year, which will then bring us to a total of 240 stores. Depending on the economy, we’re looking to grow our footprint even more to around 300 to 350 stores nationwide in the near future.
What are some of your brand’s biggest achievements that other franchises can learn from?
Our ability to read the retail market and innovate to stay ahead of times. We have recently launched an online platform where customers can sell their goods or borrow money — all online. This was a first for online retailing. One other achievement that I would wish to highlight is the launch of our mobile phone range, Doogee, exclusive to Cash Crusaders. Personally, having the honour of opening our 200th store was a tremendous achievement.
Franchisor involvement has also played a big role in the success of the organisation. Our CEO Sean Stegmann and other senior managers are as much involved in the business as any other operations manager or operator.
There is simply no ‘ivory tower’ management in our business and it makes a huge difference.
What are some of the challenges you’ve encountered and how have you overcome these?
Some of our daily challenges include securing a premises at a favourable rental and securing a franchisee with sufficient unencumbered capital, who is credit- worthy. Once the store is open, cash flow management and stock procurement is key.
In addition to this, it’s a challenge to achieve profitability immediately and to meet franchisee expectations. It’s also vital to ensure superb customer service and to retain those customers in the current retail and economic climate. I would say that our single biggest challenge is to retain and to build our customer base.
What attracts franchisees to Cash Crusaders?
Our unique retail model that allows for multiple streams of income through one business. These three profit centres include: New goods (variety of imported quality goods), second-hand goods (which we buy directly from the public, either through customers coming directly to our stores, or via our house-buy system offered by some of our stores) and secured lending (a financial service where customers can borrow money against valuables, determined at store level, and the loan is repaid within 30 days — or the contract is renewed for another 30 days with interest and service fees charged).
Why is it important for successful franchises such as yours to have a strong banking partner and how does it benefit both the franchisor and the franchisee?
Gone are the days where you just got a deposit book or cheque book and a little business loan from your bank. Banking has become more sophisticated and the technology that the bank offers is as important as its service, making life for both the franchisee and the franchisor easier on a day-to-day basis.
5 S-Words Make Your Store Site Pay For Itself
Richard Mukheibir, CEO of Cash Converters recently addressed delegates at the FASA (Franchise Association of SA) conference on the topic of choosing the best location for their business. He spoke about the 5-S technique to assist business owners with deciding which premises is best suited for their business.
The combination of continuing trading uncertainty in South Africa and the new financial year for many businesses can add up to carefully reviewing costs – including leases on premises. Choosing a site to set up or relocate your business can be just as stressful as deciding where to buy a house – and just as fundamental to its health, finances and sustainability, says Richard Mukheibir, CEO of Cash Converters.
This is not the time to snap up the property with the cheapest rental as that might turn out to be something you regret in the long run. Nor is it the time to be dazzled by the swankiest premises you can find. The potential for bragging rights could turn out to be poor value for money.
“This is a time for your head to rule your heart regardless of the industry you trade in.” he says.
The real-estate mantra of “location, location, location” works just as effectively in commercial as it does in private property but you will often be looking for rather different factors. Mukheibir shares his 5-S technique to help you begin narrowing down the areas where you will consider locating your business – first at the macro level, focus in further to the meso level, then look more closely at the micro level before you start weighing up specific sites.
Remind yourself of the medium and long-term strategies you have developed for your business. Keep your understanding of your business’s customers, purpose and growth prospects top of mind when you are selecting the areas where you will start looking for sites.
Within those areas, redline any sections where you feel the competition from other businesses will detract from your potential to grow your market. Greenline areas where there are good synergies between the people who live or work there and the demographic that you have identified as your target market.
Make sure there is clearly a good pool of potential customers for you – size definitely matters when it comes to ensuring that there are plenty of customers available to you. Look specifically for facilities that cater for the kind of customers you want to attract. Sports stores benefit from being close to schools and tertiary colleges, for example.
Although many businesses now have an online element, most still benefit from attracting customers to walk through the door. For your premises to be a good fit for your business, you should be located in plain sight and ensure that your ability to market yourself locally through signage and lamp-post posters is not restricted by local bylaws.
You will attract and retain good customers and staff if they feel they’re secure in the area. This perception includes factors such as easy, safe parking and a welcoming environment.
“Making a success of your business is not just about the product or your branding,” says Mukheibir. “It can be as fundamental as finding a site that ends up paying for itself. To do this, it must offer you a well-calculated gap in the market where the strong demand for the product or service that your business offers ensures sales and profit. If you have considered all these steps carefully, you will never worry about making rent and wages payment again.”
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