The topic of finding a good location and then negotiating a favourable lease is one that all franchisees face when they are in a site-based franchise system. Because most new franchisees do not have any experience in finding a location, they can experience significant anxiety if the proper assistance is not available from the franchise company.
Most site-based franchises have support available to help with this issue, but that support varies from company to company. One of the critical issues to address in your research of prospective franchise offerings is the amount and type of such real estate support. There is usually a team approach to finding the location and negotiating and finalising the lease. The team consists of you, the franchisor, a local commercial real estate broker and a good lease attorney. Most franchisors provide you with specific selection criteria for finding a good site. This information covers topics such as the demographic characteristics and population density, traffic and parking parameters, and the importance of site visibility to the success of your business. They often provide other helpful information, such as the type of tenant mix that is preferable in a shopping centre you are considering or which side of a busy street you should be located on.
Most franchise systems assume you’ll do most of the legwork in terms of locating a prospective site, based on the selection criteria they have provided. In many cases, the franchisor requires that they have consent to any site and may ask you to provide them within formation (often including pictures or videos) about the site prior to consenting. Some franchisors send one of their operations support staff out to your market to personally verify the acceptability of the site prior to consent.
After you have found one or more acceptable potential locations, you will move on to lease negotiations. This is where you determine the economics of the locations you have found and also any other considerations that might be important to your specific business. The economics of a location revolve primarily around the rent. Another possible factor: percentage rent clauses that escalate your rent as your business grows over time. There are also commonly clauses requiring you to pay for common area maintenance, real estate taxes, landlord insurance and other expenses. You need to work with the franchisor and the local real estate broker to make sure these other expensesare reasonable.
The franchisor and the broker should also help you identify financial assistance available from the landlord. This commonly comes in the form of free rent allowances and tenant improvement allowances.This can represent a significant amount of money, so make sure you pursue this area. When the principal terms of the lease have been agreed to, you will typically have the lease reviewed by the lease attorney. This is a specialized area of the law, and you need to make sure you’re dealing with an attorney who is experienced in reviewing leases.
The franchisor should also have support materials to assist you and the lease attorney in the lease review process,such as sample language for “use” clauses that need to be included in the lease, or suggestions for language restricting competing use by other businesses in the centre. The franchisor will typically also have language suggestions relating to other normal and standard clauses lease contracts. In some cases, the franchisor may even have a suggested lease document they would like you to propose to the landlord. Keep in mind, though, that your bargaining power with landlords is often not as strong as theirs, so you typically have to work from their standard lease document. Throughout this entire process, you are the main player. The rest of the team, including the franchise company personnel,should be your support system to help you get the best site on the most favourable terms possible.
When you are investigating any franchise company, always ask the existing franchisees about their experiences with the real estate process. Ask about each of the factors mentioned above and find out whether they had any other unforeseen problems. Finally, make sure to find out how long the entire process took them from start to finish and whether their time frame was normal and met their expectations. This type of research takes time, but will arm you with the knowledge you need to avoid unpleasant surprises when you become a franchisee.
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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