It’s no small achievement to open a single franchise unit and make it successful. But opening more than one is a higher-stakes gamble that can pay off with bigger profits. Done badly though, more units may just lead to bigger losses.
Owning many units takes a completely different set of skills than owning a single store, says Mark Johnson, CEO of the consulting firm MyFranchisePath.com. Are you cut out to be a multi-unit franchisee, or would you be happier with a single store? Below, our experts offer some tips on how to tell.
Take It Slow
Few would-be franchisees should jump right into multi-unit ownership, says Don Daszkowski, president and CEO of franchising resource FranchiseBuyersNetwork.com. The exception is people with previous experience managing a multi-unit operation, for example, your parents’ small restaurant chain.
Otherwise, he says, open one store and see if it’s profitable. Then, see if it pencils out as part of a multi-unit chain. Daszkowski says that often franchisees don’t count the true costs of running a unit without an owner/manager on the premises, as you’ll need to if you expand. If it takes two managers at R200 000 a year to cover the long hours you’ve been putting in at that first store, that makes a serious dent in the profit margin.
Also, work on developing a good relationship with the franchisor. If you don’t feel supported by them with one unit, you won’t want to open multiple units.
Do What You Love
The move to a multi-unit operation signals a big change in how an owner spends his or her time. Instead of spending all day at the store, serving customers and overseeing employees, the multi-unit operator concentrates on hiring and training quality managers to oversee each unit.
“A multi-unit owner must be a delegator who’s willing to rely on good people,” says Johnson. “You need to be more of a coach, a leader with drive and vision.”
Would you enjoy mentoring workers, or would you miss the day-to-day contact with customers if you expanded? Can you let go of store-level responsibilities and empower others to make those decisions? You’ll need to if you’re going to succeed with multiple units.
Two other important skills in the multi-unit operator’s toolkit are site selection and fundraising, says Michael Seid, managing director of franchise consulting firm Michael H Seid & Associates. With multiple units, it’s a plus if you have expertise in those areas, as you’ll be out looking for sites and raising money often.
Map Your Strategy
Where you open, your additional units can help or hurt you. Ideally, you want your units to be near each other, but not so close that they depress each others’ sales, says Seid. Having all your units in one territory has numerous benefits: you can often save money doing joint advertising, it’s convenient for you to visit all the units regularly, and it’s easier to move employees between stores, promoting assistant managers or solving personality clashes.
Some operators sign up to be area developers, thereby guaranteeing adjacent markets will be available for additional stores. On the downside, examine whether operating more units would really be more profitable than operating one, Seid notes. Will you add more overhead such as a warehouse or a delivery fleet? Be sure to consider the costs of growth.
Franchisees seeking to expand should first learn how much assistance they can get from their franchisor. There should be substantial support, as franchisors save an estimated R20 000 to R30 000 for each franchisee they don’t have to recruit, notes Seid. So be sure to ask about franchise-fee discounts and any other available perks.
Show Me The Money
Financing one new store poses a challenge. Financing many, especially many that are opening at once, is vastly more difficult, especially in the current economic downturn. It’s generally a myth that one successful unit will throw off enough cash to fund the opening costs for a second unit. You’ll need good financial connections or cold cash to jump to multi-unit operation. And don’t forget you’ll need both opening costs and operating cash to tide each location over until it’s profitable.
“A lot of people are blinded by money and think ‘Wow, the more units I open, the more money I can make,’” says Daszkowski. “But they don’t realise that all these units they’re opening aren’t going to be profitable for 18 months, and that’s a lot more working capital you’ll need all at once.”
6 Things You Need To Know About Profit And Cashflow
Why your business needs both and how to check.
In the heat of the action as you build your business or launch a new line, it’s easy to hope some aspects will take care of themselves. It’s especially tempting to fall into that trap with your accounts if you don’t like dealing with figures.
Despite having a B. Comm degree, I’m happy to admit that I don’t really like accounts. I much prefer strategies, management and business development. Fortunately, my co-founder and our Chief Financial Officer Peter Forshaw tirelessly keeps us on track financially – and his message to our franchisees is always that in your own business, you must understand enough of the financial basics to know whether your business is swimming or sinking…
It’s so important that we include this as part of our franchisee training. To get you started, here’s what Engela van Loggerenberg, our Group Financial Manager, tells new franchisees:
- Cashflow and profit aren’t the same: You can’t track one and assume the other shows the same pattern. There is no natural correlation between the two – your cashflow can be positive and you can be making a loss or your cashflow can be negative but you’re making a profit.
- Cash keeps you going: It’s vital to have money available in your business so you need to be generating enough cash to pay operating expenses. Otherwise you could be making a profit but not be able to pay staff wages. If so, you will either have to put in some of your own money or take a loan to keep your cash flowing and your business afloat.
- Time for a checkup: Both cashflow and profit are important to a business – but you can’t do anything without cash which is why you have to manage your cashflow carefully. Check your profit monthly but your cashflow daily. This will alert you to problems in the making so you can head them off. You will see if your clients are overdue in paying their accounts with you, for example. If they fall behind, this could in turn squeeze your ability to pay your operating expenses, which is why cashflow monitoring is such an important tool to keep your business afloat.
- Different perspectives: Remember when you look at your figures that profit figures are a result of what has already happened and are usually reported with a time lag of a month. Cashflow is a snapshot of what is happening in your business now and will have an impact on profit figures in the months to come.
- Know what you’re looking for: What you need to know are your net, not gross, figures. For net cashflow that is your incoming cash less your outgoing cash for the period. So if you are receiving more than you are spending, you will be left with money in the bank to meet future expenses. Similarly, your total sales less direct costs make up your gross profit. Deduct all your operating expenses from the gross profit to calculate whether your business is making a net profit.
- Make the most of your cash: Take pressure off yourself by keeping spare cash for future expenses such as VAT and taxes in a good interest-bearing account such as a money market, call or investment account. Then set up reminders ahead of time to arrange to withdraw the sum required.
Remember that any system is only as good as the person operating it. So if like me, figures aren’t your thing, make sure that you have someone at your side who can manage them for you.
3 Ways To Ensure Your Loyalty Programme is Working Hard For You
Plastic cards are making way for app-based loyalty programmes. Is your franchise keeping up with the digitally savvy consumer?
The average consumer today is a member of at least five of the 100-plus loyalty programmes in South Africa, according to a 2017 study by Nielsen. As the loyalty playing field becomes more cluttered and competitive, what are you doing to ensure each one of your franchisees are catering to customer needs when it comes to loyalty?
Mobility. It’s not the newest buzzword, but it is useful for attracting customers who don’t want to lose loyalty points because their card is lost or not with them. Ailsa Wingfield, Nielsen’s Head of Emerging Markets: Thought Leadership, says that as adoption of non-traditional payment methods increases, loyalty programmes also need to introduce payment type flexibility.
“Mobile payment platforms will increasingly deliver an opportunity for loyalty-programme engagement with consumers, providing a convenient and personalised way for programme members and retailers to engage with one another all along the path to purchase.” – Ailsa Wingfield Nielsen Head of Emerging Markets Thought Leadership.
Have you considered what role tech could play in your current loyalty programme? Here are three ways to apply digital enhancements that appeal to present and potential customers:
1. Offer differentiation through more options
Research has concluded that the loyalty programmes devised by retailers and franchises are not innovative enough to capture the attention of the youth – Millennials and Gen Z. it’s time to diversify your rewards offering. But how?
If your customer base is predominantly younger, being omni-present is key, according to the Truth Loyalty Whitepaper: “An omni-channel approach will not only meet the demands of the younger customer, it will also allow your business to combine intelligence on shopping, search and web behaviour history to assist you in identifying when to offer an in-store promotion, extend a seasonal offer or make a product recommendation through the appropriate channels.”
Implementing a digital loyalty campaign is also a smart way to reduce costs. Coffee shop franchise Mugg & Bean’s Generous Rewards App and partnership with Vitality Active Rewards, means members can earn cash-back rewards to spend on their favourites. Just downloading the app earns you a R25 voucher.
2. Use your tools to engage more
A crucial mistake most franchisors make is not communicating consistently with their loyalty programme members once they’ve signed up and increased numbers. They spend a lot of time recruiting customers to join, but expect them to prompt cashiers for points’ balances and produce their cards independently in their various locations.
“You have gained permission to talk to your customers and created the opportunity to collect enormous amounts of valuable data. Use this to your advantage by creating meaningful and relevant engagement initiatives and communications across your customers’ lifecycle,” advises Truth, a boutique consultancy business specialising in customer centricity and loyalty programme strategy and design.
When enhancing your engagement strategy, Accenture advises that you keep the following in mind:
- 54% of South African consumers are loyal to brands that actively engage them to help design or co-create products or services.
- 57% are loyal to organisations that present them with new experiences, products or services.
- 47% are loyal to brands that engage them in ‘multi-sensory’ experiences, using new technologies such as virtual reality or augmented reality.
3. Keep the experience simple
Review your loyalty programme. Honestly. Then ask yourself if you’ve made your programme too complicated for the layman. If your answer is ‘no’ or even ‘maybe’, how can your target consumer ever reap the full rewards of this programme if they don’t understand the rewards on offer and how to redeem them?
Changing rules too often is the first complication to go. No matter which one of your stores they choose to shop at, the redemption and earning process should be simple enough to keep members interested and engaged in the programme. Make sure you keep your programme simple and transparent.
“Clicks made a simple but fundamental change to its redemption process – paper-vouchers were replaced with virtual points that can be redeemed as cash-back when you swipe your card at the till. While Clicks and Dis-Chem are among only a handful of brands that do this, it’s a sure-fire mechanism for increasing redemption,” said Amanda Cromhout, founder and CEO of Truth.
3 Crucial Considerations For New Multi-unit Franchisees
Your marked success as a single-unit franchisee has led to the choice to multiply your achievement. But do you know what it really takes to move from owner-operator, to multi-outlet operator?
Multi-unit franchise ownership is a brilliant way to grow your business portfolio, once you’re successfully running your single location. Once you get the hang of being franchise business owner, adding one or a few more units could be the next logical step.
“The risk with having one store is higher than if you have more than one store, as the stores support one another. When the one is down the other one is up,” says multi-unit Montagu franchise owner Pierre Lombard.
You’ve probably already realised this lucrative option and are getting acquainted with multi-unit franchising. As this is new territory, you may want to consider these methods to multiply your success.
1. Make more discerning recruitment choices
When you opened shop at your first location, you were probably warned against hiring a manager, because they may not be as invested in the success of your business as you are. Now that you growing, you have no choice, so you need to be selective in your decision of who’s going to run the show when you’re not around.
The best way to ensure consistency in service and quality in each location is to always put culture fit over ability. While a certain level of skill is required to carry out the tasks required of a manager, attitude trumps aptitude when selecting capability running your locations.
“Place one of your outstanding managers or staff from your current store in the new one and have them train up any new staff,” suggests Francesca Nicasio, Retail Expert at Vend.
“That way the practices and attitude that you’ve cultivated in your business will continue into your new store.”
2. You need tech to help you be everywhere
Not only are Cloud technologies enabling franchise owners to scale quickly, easily and more affordably compared to on-site solutions, but these advancements mean you can remotely optimise inventory across all your locations, get a more accurate assessment each store’s performance and better understand your business – all you need is an Internet connection.
With the variety of Cloud-based solutions available today, you’re also able to connect your sales, staff, and customer information to give customers a seamless experience at all locations. You’re also able to receive alerts on low stock levels and automatically have it.
3. Set and stick to a specific standard
As a franchisee, consistency is standard practice. But that’s easy done as a single-unit owner than when running multiple locations. To make your mini network more manageable, ensure all your store understand brand standards beyond the operation manual.
“Naturally, you have your franchise systems’ operations manual and procedures but the way you personally want to stamp your mark on customer experience, for instance, needs to be documented too,” experts at Inside Franchise Business advise.
Doing this reduces the stress of continually keeping tabs on staff, and frees you up to collect and collate the data you need to make smarter decisions faster.
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