Working Capital
A big advantage of franchising, there is an initial outlay, yes, but that’s fairly limited, I think, in terms of what you can spend in a business today, is that you get working capital.
So for franchisors, you really have very little in the way of outgoings except for any advertising and promotion you may have to do. And you’re going to get that outlay in franchise fee income. So whether it’s a Jim’s Mowing bringing in $20,000 or $30,000 or whether it’s a pharmacy group getting a hundred thousand, all you’ve got to do is pay your initial set up costs, any promotional costs and so forth out of that figure and basically the rest is yours to put into your cash flow, pay off your mortgage or whatever.
So that’s one advantage people don’t realize, I mean, getting working capital is the thing that holds so many businesses back. You know, you got to sacrifice the business and give half of it away if somebody will invest, if you can attract them.
Getting great quality people to work with you
When you ask people what is their biggest problem, it is going to be people. This is one of the main reasons people look at franchising. Many find staff are not committed, they’re not reliable. You know the saying, they go on a bender overnight and the next day they’re not really at work. They’re there but they’re not there.
Franchisees, have skin in the game. They’ve got an investment, a commitment, they’ve got ambitions. And if you’ve selected the right people, you really get that commitment and desire but also, it applies to your team, your staff. Because people like working for an organization that’s got an identity, the brand, and energy. It’s got feeling and a bit of passion about it. A franchise has got all those systems and people love working in that kind of environment. So you’ll find the franchise sector has been really quite strong in Australia for the last couple of decades. There are a lot of people out there who can fill lots of the roles that you’ll create, really very capably.
For instance, one of John O’Brien’s team, who now looks after the growth of the whole group now, was his first franchisee in far north QLD 10 years ago. Moving him to this corporate support role gave creates an environment of internal growth. Which is absolutely superb, I mean, they know you and so.
Leverage
The other one is leverage. Once you can put those people on, you can step away the way that Nettie did. You heard her describing her six days a week in tears and then moving on to be able to go on a holiday and handle her calls and her emails on a Thursday and a Friday morning when she was overseas. That was it. So you can manage it. You just need to set the rules and the systems in place and make sure you’re giving franchisees the support they need. Getting the leverage you need is critically important. That’s what will give you the lifestyle you’re looking for and the opportunity to plan or take those extra holidays if that’s one of the things you’re looking for – whatever it might be.
Work on the Big Picture
And the other thing is gaining the time, to use that clichéd expression. to work on the business and not in it. You know, there’s so much scope for every business through working on it. Looking at that big picture. Just thinking outrageously big. Look at the Jim’s Mowing situation and say wow! Today it is 3,600 franchisees and 36 franchise groups. You know, that wasn’t something that Jim Penman, as a student lawn mowing contractor, was really seeing as part of his big picture in the beginning.
So you got to be open to surprising growth. That’s important.
Group Buying Power
Buying power is extraordinary. When I was with Bedshed, we used to make a net profit of about 27-28%. And we were doing better in those days, in the 80s, than our competitors who were the large groups, the Myers and their local equivalents. We ended up negotiating with our supplier, Joyce Bedding as it was in Perth, and we increased our margin to a point where, when I sold my last store, we were making 38% net. Because we were just leveraging our negotiation with our supplier and they did not want to lose us. They were even paying all of our advertising for us. They paid for our conferences for us and took us over to Rottnest Island in Perth. They paid for that. So don’t underestimate the negotiating power of a franchise group, even with the suppliers you’ve got now and which you think you’re negotiating hard. You will gain more negotiating power as you grow and so that’s a key.
The Power of the Brand
It’s all about brand, isn’t it? You know, you read about it but the truth is, it’s the power of the brand – it is brand identity.
What do people see that you’re sort of just have synergy with? Whether it’s Coca-Cola or Ford Motor Company or whether it’s Hungry Jack’s, it’s the brand that really creates the value.
And then when it comes to selling the business, it’s the brand which is your big asset that can make a huge difference.
Exit Strategies
So it comes down to your exit strategies. If you’re looking to move on from the business in the future. It doesn’t matter whether it’s going to be in 5, 10, 20 years’ time, having a business which is franchised or franchise ready actually gives you a lot more opportunities.
So what I’d like you to do now, is to think about your business as if you’re going to sell today and write down the type of person or business you think is out there who would buy your business as it is now? Just take a minute or two to write down and say who you think is out there as a prospective purchasor or maybe just a business investor or a competitor. Someone of that nature.
Okay, I wonder what sort of answers, anybody like to nominate who’ve they got on their pad or in their mind as far as perspective purchaser? Yes, Kimberly.
Kimberly: For us it would be dealing with floor layers and businesses which could do our type of work first in association with their current business. We find a lot of floor layers don’t have enough work to keep them going because there’s such a high competition within their own industry but there is not much in ours. So it would be something that would just give them a little bit more income.
Brian: So that’s prospective franchisees you’re talking about there?.
Kimberly: Yes
Brian: Okay, what about from the point of view of selling your whole business lock stock and barrell in the way you bought it four years ago, who would you see being out there as potential customers to buy your business as an ongoing concern?
Kimberly: Probably our competitors
Brian: Probably your competitors. Okay, the reason I asked that question is because once you’ve got a franchise, suddenly, you have a whole heap of interested people.
You know, if you’re selling a house, whether you’re selling it via private treaty or auction, the value of the house is going to be determined by how many people are interested. And there are a few criteria around that. The more interested people are, the higher the value is going to be.
With a franchise, what it means is that you have many more options.
There may be other franchise groups that may want to merge with you, they might want to come in and go under your umbrella or they may want to put you under their umbrella and reduce their overheads. The Retail Food Group you may know of, based in Southport, started off as a humble Donut King and now they have 16 groups. They’ve just bought Gloria Jeans. And what they do each time is use their common training, common administration and accounting. So they’ve reduced the overheads to increase the profitability. So that’s one area.
Then you have franchisees. With Signwaves recently, the Australian rights were sold to two franchisees.
Then you look as well, maybe, to other companies which aren’t franchised, but maybe operating in your area who would like to have a franchise or perhaps convert their business. What better way to do it than via an existing franchise and use all that intellectual property and knowledge?
Then beyond there, you look as well at larger businesses or investors. Perhaps they say to themselves, “Well, we have a general manager, we’ve all the structure, all we would have to do is put in a GM or have a Board looking over the franchise and then we will have a group.” Which is why it is not uncommon to see large scale franchise sell to an investor or an investment bank or something of that nature.
So you see, as you start to look at that picture, there are all those potential purchasers.
I worked with one client a number of years ago in Coffs Harbor called SpeedyLube. We got them all ready for franchising and the owner was sadly diagnosed with an illness. It wasn’t terminal but it meant that he could carry on running the business so he sold it. The business broker who sold his business got 50% more because it was systemized, ready to franchise. They sold it to a white collar car enthusiast even though it was a car servicing business, rather than a car mechanic which is where, traditionally, he would have found a purchaser who wouldn’t have had the funds to pay this significant investment. So that’s one example of what can happen. So it gives you, I think, some scope that shows you why systemizing your business is so important.
I just read yesterday, that the Terry White pharmacy group, which is a franchise, have just purchased a group called ChemPlus in South Australia. And they’ve done exactly that for the reasons I have outlined above. They can merge the new franchise under their structure, increase their buying power, reduce their administration costs pro rata, and so on and so forth. And probably learn what ChemPlus are doing what they’re not doing and how they can improve their other pharmacies, so it’s a really great way to go.