Before you research any franchises, you should set three- and five-year goals. Goals must be both financial and ‘quality of life’ (or non-financial) in nature. Financial goals should take into account cash flow, savings, net worth, equity build-up and spendable income. Quality of life goals should consider lifestyle issues that are important to you, like having dinner at home three nights a week, being able to take vacations, attend soccer games, make a difference in the community, and so on.
Don’t overlook quality of life goals or you’re setting yourself up for dissatisfaction. Quality of life goals are more important than financial goals. Why? Because many people who invest in a franchise have already made a decent living in the past. Aside from earning a pay cheque however, they couldn’t find a compelling reason to go to work in the morning. Money alone wasn’t enough to keep them going, and money will not hold your interest long either. While you will have some minimum threshold of earnings which you won’t dare to venture below, once that threshold is exceeded, you will find that quality of life becomes the driver.
Virtually all franchisors have key performance criteria that help you and the franchisor to determine whether or not your business is winning. You will be taught how to track sales, labour costs, cost of sales, and other statistical measures. Franchisors design their business and support systems to help you structure your business to achieve these measures and monitor results.
Following the Money
However, we know of no franchisor who measures how many meals you’ve eaten with your children or how many of the kids’ soccer games you’ve attended. Franchisors measure your success by their definition, not yours. Most franchisors have no clue as to whether or not their ‘successful’ franchisees are living the life they originally desired when they invested in a franchise. Franchisors follow the money. And as we’ve already stated, money won’t hold your interest long.
Additionally, in order to secure loans, bank financing, financial support from your family, or other forms of financing, chances are you will need to write and submit a business plan or cash-flow projections to the parties from whom you’re seeking financing. In your plan you will detail the tactics and strategies you will execute to drive the sales, contain the costs, maximise the cash flow of your business, and repay your loan. To succeed in business, you have to generate money.
Imagine that you’re in business, money is tight and you are two months late on loan payments. The loan officer calls you to see what happened. You tell the loan officer that while you don’t have the money to pay the two instalments, you did attend all your kid’s soccer games this month. Most likely the loan officer will sarcastically reply, “Congratulations. I’m nominating you for parent of the year.
Where is my money?
Like banks, franchisors also want their money on time. They are as focused on achieving their own financial goals as you are on achieving your complete and total definition of success. We’re not saying this is right or wrong, it’s just the way it is. If you were to list and prioritise the many reasons you’re looking to start a franchise, where does ‘helping the franchisor exceed its corporate objectives’ show up on the list? So you want yours, the franchisor wants theirs, the bank wants theirs, and the world turns.
Defining Your Goals
It’s solely your responsibility to create a clear definition of the goals that define what winning looks like for you. Use your definition of winning as your criteria to compare various franchise opportunities. The franchise where you have the highest probability of attaining both your financial and quality of life goals is the franchise you make an investment in.
It’s easy to lose sight of your goals. Prospective franchisees often get caught up in their perceptions of the problems and challenges of the business rather than whether or not the franchise can help them achieve their objectives with a high degree of probability.
For instance, you may be investigating a residential home-cleaning business and from talking to franchisees you hear there is a high employee turnover. Afraid that you might get stuck cleaning houses, you think, “I didn’t go to college so I can clean toilets and vacuum carpets.” Your knee-jerk reaction is to dismiss the opportunity. However, whether or not there’s employee turnover isn’t the real issue at hand. Given employee turnover, your focal point should be whether or not you can still achieve your goals with a high degree of probability.
Goal-focused prospective franchisees will dig deeper and ask questions such as:
- What are the franchisor’s hiring and retention strategies?
- What is the impact of turnover on the business?
- How long does it take to find replacement help?
- What training programmes are in place to train replacement labour?
- How long does it take a new hire to become productive?
Every franchise has its unique challenges to overcome. Franchisors either have proven systems and a demonstrated track record for overcoming these challenges or they don’t. Dismiss those who don’t. Investigate those who do by asking questions like the ones above.
Creating Your Goals
Clear goals, whether financial or quality of life in nature, must pass the SMART test.
Goals need to be clearly articulated and written down. ‘Making a lot of money’ isn’t specific. Making R800 000 is specific. ‘Having more control over time’ is not specific. ‘Going to ten of my son’s soccer games and ten of my daughter’s dance recitals this year’ is specific.
You have to be able to create a tracking system; a method of keeping score. This lets you know whether or not you are on track and whether you’ve achieved your goals. If your goal is to make R800 000 by the end of the year, on 30 June, you should have earned R400 000 or you may not be on track. On 31 December, you’ve either hit your income goals or you haven’t. It isn’t open to opinion or speculation.
Using the previous example, if you attend 11 soccer games, you’ve won. If you only went to six, you fell short. It isn’t open to interpretation or opinion.
Goals must be considered both possible and worthwhile pursuits, or you won’t be motivated to achieve them. For instance, you may say your goal is to make R4 million a year, but if you have never made more than R400 000 a year, you may not really see this goal as possible and may not take aggressive steps toward achieving it. As a franchisee you may experience a 20% increase in sales, but if you think it’s going to take working 90 to 100 hours a week to achieve that goal, you may not consider it a worthwhile pursuit. And you won’t be motivated to hit this goal.
Goals have to have a deadline, a ‘by when’ date. Goals without a deadline don’t inspire commitment. It’s human nature not to take action on anything you wish to achieve some day. Think of how long you have thought about starting a franchise. Have you set a deadline as to when you will open? If not, other more urgent activities will take precedence and your dream will be pushed further and further back.
If you don’t have a deadline as to when you are going to start, then you may have a good intention, but you don’t have a plan or a goal. A wise man once said, ‘The road to hell is paved with good intentions.’ Good intentions don’t make a difference; committed action does. You will never be called forward into committed action without a specific, measurable, attainable, and time-limited goal that’s worthy of being achieved. Activities with deadlines attached to them grab your attention and create a sense of urgency and action. For instance, you know you have to get your taxes done by 15 April. If your goal is to get your taxes done on time, 14 April will be a very productive day for you!
Goals with deadlines that are too far out also don’t inspire action. Think about something in your life that you wish will occur within the next 20 years. Are you taking action now? Think about when you bought your home. Did you think, ‘here is where I’m going to live for the next 30 years!’ or did you think, ‘this home is ideal for now.’ You aren’t wired to think more than three to seven years out. Goals with extended timelines are as useless as goals that you want to achieve ‘some day’ because they don’t inspire action. Consider setting long-term goals with a three- to five-year time limit. l
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.”
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.
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