It seems funny to think about selling your business before you even start, doesn’t it? But having a vision of how you would like to conclude your business ownership before getting started is no different from knowing your destination before you start a trip.
When I talk to prospective franchisees early in their discovery process, I always ask the same question: “When you look back at your first year in business, what would you like to have accomplished?” More than 75% of the time, I am met with a blank stare. When they finally do respond with an answer, I usually follow up with, “So, when the day comes to eventually leave the business, how do you foresee that happening?” That’s the guaranteed deer-in-the-headlights question.
Where to Start
Do you think if I had asked Donald Trump or Michael Phelps when they started out what they hoped to accomplish that they’d have that same look? Nope, not even close. These competitors know how they want to finish what they start – and how to build the plan to achieve it.
So how does an aspiring entrepreneur envision the conclusion of their business endeavour before they get too far into it? Often franchisees are first-time business owners, and it’s a huge step for them. It can seem inconceivable to discuss exit strategy before even celebrating the grand opening, but doing so has tremendous value for both the franchisee and the franchisor.
Why? First of all, it gives you a sense of motivation. The fear of losing a job or the sting of having already lost one is encouraging more people to own their own business. With the economic downturn, aspiring entrepreneurs are really struggling to fund their dreams of self-employment.
And once the funding is there, they still have to battle through the inherent fear of such a big decision. The best antidote to fear is knowledge! Knowing you have options and control over your future is empowering.
Think ‘What If’
In talking with other franchisors, I’m somewhat surprised at how few of them engage in the ‘what if’ business transfer discussion with prospective franchisees. In some cases, by not bringing eventuality, they fall short of extolling the many virtues of franchise ownership. Perhaps they fear extinguishing the excitement of the launch.
But I believe this is an ideal time to discuss the end-game, because in today’s uncertain world, it’s comforting to know you’ll have options when the time comes to exit your business. It takes planning and hard work to make sure you maximise the value of your efforts.
For example, one franchisor I talked to had a 70-year-old, highly successful franchisee who was thinking about passing on his franchise to a family member. But that family member didn’t have the same experience or appreciation for the franchisor and only saw the individual work their father had invested in building the business.
When the time came to prepare the owner’s exit, the franchisor reached out to both members of the family and worked with them to smoothly and profitably transition the business to the next generation.
Does this story make you wonder what would have happened if the business in question had not been a franchise? I can answer that from personal experience; my family’s landscaping business was a case study for exit strategies (both good and bad).
Exit Strategy in Practice
My father had a 10-year plan in mind the day he purchased seven acres to house the building and nursery of Lindenmayer Landscapes. At the time he was 55, and the thought of digging holes and carting around wheelbarrows into his late 60s was pretty far back in his mind. As the business’s 10th year began, my parents obviously planned to pass it on to my brother and me.
Unfortunately, his divorce and my lack of funds kept us from being able to carry the torch. My dad sold the equipment and a few accounts to a budding entrepreneur and the land was eventually sold in two parcels.
Lindenmayer Landscapes ceased to exist.
My family’s story is not uncommon among entrepreneurs who try to transfer their businesses to family members. Unfortunately, reports show that two-thirds of businesses passed on to the next generation fail.
I’m not saying a franchised business can’t fail upon a transfer, too, but a franchise system is designed to survive the individual, and a successful brand is something that has a life of its own.
A business doesn’t have to be a household name to have value at the end of one owner’s life-cycle; however you must have someone vested in the transition. By its nature, a franchise system must ensure the success of its franchisees and work diligently to provide training, support and ongoing inspiration to whoever’s at the helm.
Given the tightening of the credit markets and the transient nature of today’s society, don’t you want the peace of mind of knowing that your business is nearly as mobile as you are? Make sure you understand the options you’ll have down the road if and when the day comes to move on, and you may find that some of the anxiety of starting your journey into franchise ownership subsides. L
Keep in Mind
- Here are a couple of things to consider long before your grand opening:
- What’s the market for your business today? What’s it likely to be in five, 10, 20 years?
- Are there any barriers to you selling your business – certifications, the name of the business, personal relationships that can’t transfer beyond you, etc.?
- If passing the business on to family is a consideration, how will you prepare them to take over? Is that going to be an option for both you and them financially?
- Will your cash management allow you to properly value the business? What actions do you need to take to make sure you show accurate numbers to a potential buyer or investor?
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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