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Franchisee Advice

Ready for More?

Are you ready to be a multi-unit franchise owner?

Carol Tice

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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.

Get Support

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.”

Carol has been reporting on businesses large and small for 15 years now.

Franchisee Advice

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.

Richard Mukheibir

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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.

Related: 6 Things You Need To Know About Profit And Cashflow

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:

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. 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.

Related: 7 Things Every Entrepreneur Should Know About Managing Cash In The Business

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Company Posts

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.”

Nedbank Franchising

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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.

Related: How Sorbet Franchisee Kate Holahan Is Nailing Success By Following Her Dream

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.

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Franchisee Advice

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.

Richard Mukheibir

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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.

1. Strategy

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.

Related: Effective Ways To Bring Customers To Your Door

2. Scope

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.

3. Synergy

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.

4. Sight

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.

Related: FASA Establishes Industry Specific Food Franchise Forum

5. Security

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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