It’s obvious, the need for profit drives all business. And franchise groups are no exception. It is the desire for profit by business owners at every level of the group that is the most important driver of success.
Franchise groups are made up of at least two business levels, the franchisor who manages the whole group and their franchise business partners, the franchisees who do the work to bring in all the money. In more mature groups there are often other intermediate management levels as well – State or Regional Franchisees who look after the regional structures.
So, how does the money work in these more complex business arrangements?
There is a trade – money for service
And yes, this circle of money does lead to a tricky relationship which is yours, as franchisor, to manage.
Franchisees, knowing they are doing all the work bringing in all the money for the whole group, can become understandably difficult if they feel they are not being given the best service and support to get the job done. After all this is what they are paying for.
And franchisors, knowing they have to pay for all that support and service become anxious when the balance tips and their expenses drain the profit they know they deserve for creating the brand that works so well in the market place.
So, how do you work out how to get this money flow working so franchisees have the best chance of success and bring in the cash, and franchisors receive their due return for their investment?
These are the steps.
- Work out what your franchisees will be doing to service your customers and bring in the cash and how much this will cost.
- Work out the kind of person your ideal franchisee will be. What personality will they likely have? A massage therapist will be empathetic and good with people but not so good at managing business or marketing. Is it likely your franchisees will have a skills gap which will mean they need particular support to run a successful franchised business?
- Work out the kind of support you, as franchisor are going to have to give them. Will you be doing the marketing through a website or managing the 1300 number? Will you be helping with bookkeeping? What training are you going to have to give on induction and ongoing? Are there particular IT issues you will have to support? The list goes on.
- Then, using your existing business cash flow, work out cash flow budgets for your franchise outlet and for your franchisor business
Once you have pulled this information together, you need advice. From a franchise savvy accountant and a franchise consultant with on the ground experience to check your assumptions and make sure the figures have the best chance of working. Once you have it as right as you can, the information will be the basis for you to figure out your initial fee structure and the ongoing payments your franchisees will have to make to keep everything going.
At the end of that, ask yourself a couple of questions – is there enough money in the pot for you to give your franchisees the best chance of business success and make the profit they deserve for doing the work? And will there be enough money in the pot in the long term to keep the group alive and well?
If you would like to know more, feel free to contact our friendly team for help.