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 Tips For Franchise Agreements
Below are 5 tips to ensure that your franchise agreement complies with the CPA.
South Africa has some great homegrown franchises – Mugg and Bean, Steers, Debonairs and Nandos, to name a few. South Africa is also no stranger to international franchise groups, such as McDonalds, KFC, Wimpy and SPAR, although there has been an increase in the number of international franchises investing in South Africa in recent years.
The Consumer Protection Act, No 68 of 2008 (“CPA“) is the first piece of legislation in South Africa that specifically regulates franchise agreements. The CPA prescribes certain minimum requirements for franchise agreements, as well as certain information that must be disclosed prior to a franchise agreement being signed. It is important that all franchise agreements comply with the CPA as provisions in franchise agreements may be declared to be void for non-compliance.
Below are 5 tips to ensure that your franchise agreement complies with the CPA:
1. Make sure you meet the minimum requirements
The CPA prescribes “minimum requirements” for franchise agreements. These requirements, which are set out in the Regulations to the CPA, set out mandatory terms (i.e. terms which must be included) and prohibited terms (i.e. terms which must not be included). They also prescribe that franchise agreements must be drafted in simple and plain language so as to be easily understood. Legal jargon must be avoided unless absolutely necessary.
2. Include prescribed minimum information
The CPA prescribes minimum information that must be included in a franchise agreement. Most of this minimum prescribed information is fairly general in nature and would be contained in the franchise agreement in the ordinary course (for example, name and description of the types of goods or services that the franchise relates to, the obligations of the franchisor and franchisee, and any territorial rights).
There are, however, certain more unusual requirements in relation to prescribed information, which information would not necessarily be contained in a franchise agreement in the ordinary course (for example, the qualifications of the franchisor’s directors, and details of the members/shareholders of the franchisor). These more unusual requirements must be kept in mind when preparing a franchise agreement.
3. Prepare a disclosure document
The CPA requires the franchisor to provide certain minimum prescribed information to the franchisee in a disclosure document delivered to the franchisee prior to the signature of the franchise agreement (including a list of current franchisees, if any, and of outlets owned by the franchisor; the direct contact details of the existing franchisees; an organogram depicting the support system in place for franchisees; and an auditors certificate confirming that that the franchisor’s audited annual financial statements are in order).
This information is intended to provide the franchisee with enough information about the franchise, its financial viability and potential business success so as to enable the franchisee to make an informed decision as to whether or not he/she wishes to “acquire” the particular franchise.
4. Prepare a non-disclosure agreement
It is important to ensure the protection of confidential information which may be disclosed to the prospective franchisee during the preliminary stages of negotiating and concluding a franchise agreement.
This may include, for example, the growth of the franchisor’s turnover, and written projections in respect of levels of potential sales, income and profit. Although not a requirement under the CPA, it is advisable for a franchisor to ensure that a prospective franchisee executes an appropriate confidentiality agreement prior to being sent the disclosure document.
5. Beware the “cooling-off” period
It is important to bear in mind that a franchisee has an entitlement under the CPA to cancel a franchise agreement without cost or penalty within 10 business days after signing such agreement, by giving written notice to the franchisor.
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.