When you buy a franchise: 5 steps to success
Are you considering a franchise purchase? Check these top tips for successful business operation.
Buying a business can often take time, but a proper pre-purchase process is critical to your overall success. The last thing you want to do is sign up to a franchise contract only to find out the business isn’t what you thought it would be.
Getting the foundations right provides you with a solid platform to scale your business. You might want to open multiple outlets, grow your territory, or maybe you are happy being a single site operator.
Regardless, a successful long-term business begins with the basics.
Check these five ways you can get off on the right foot when starting a franchise.
1. Research the business opportunity
Consider each business carefully, and don’t be blinded by what seems like a great deal. Remember, if a franchisor is keen to have you on-board now, you can guarantee they will be happy to take you on in a couple of months.
Take the time to do your research. Speak with current and former franchisees and take the franchise agreement and disclosure document to a franchise-specific lawyer.
2. Investigate the financials
Once you are confident in starting a franchise, it’s time to take a look at your own financial propensity.
Consult a franchise accountant and be sure to bring the agreements with you. Your franchise accountant should be able to chart how much the franchise will cost, including ongoing operating costs and fees.
Remember, just because a franchise has an investment cost of $50,000 and you have $50,000 in your bank account, doesn’t mean you can afford it. In the early days, you can expect to run at loss until you generate a strong clientele with recurring costs.
It is important to view consultation with a franchise accountant as an investment, not a cost. Spending money on your financials early in your journey may save you trouble later on own the track.
3. Keep an eye on your cashflow
Following on from that, any new business owner starting a franchise should put together a cashflow forecast. This is an important document that will measure the financial health of your operation from the outset and throughout.
Having a firm grip on your current financial standing is critical to your ongoing success as a franchisee. You should consistently refer to this document to remain up to date with operations.
Maria Robinson from Sequel CFO calls the cashflow forecast the single most important tool for franchisees to manage finances.
“It should be used when conducting your due diligence to decide whether a business opportunity is right for you, and it should be used while operating your business,” she said.
“Picture it as your business bank account and the money that get deposited into and taken out of this account. A cashflow forecast is when you project ‘cash in’ and ‘cash out’ of your business in future (generally) months.”
Robinson said the cashflow forecast can be developed with the help of a franchise accountant, or by yourself, however it must contain three key components; revenue, expenses and closing cash position.
“Running a business is fun but it is also stressful,” she said. “Good planning (strategic and financial) helps reduce stress by placing you in an informed position.”
4. Hire good team members
One of the best practices to get into when starting a franchise is hiring the best people. Wages are some of the biggest recurring costs in any business, so it pays to have a dedicated team that can help you to achieve your goals.
Lee-Anne Hunt and Tegan Rose from HR Dept Ringwood said getting the hiring process right when starting a franchise allowed you to better manage other aspects of the business.
“Your people are the face of your business; good people can help you lift your business to the next level,” Hunt and Rose said.
“Start with defining the values of your business that all employees will need. Next, think about the role in detail; what is the absolute bare minimum you need in qualifications and/or experience? Our top tip would be to hire the person with the right qualities and then train or teach them the skills they need.”
5. Delegate when you have to
Now that you have a team of talented people who share your same values, it’s time to steer them in the right direction. For a lot of franchisees, it can be hard to relinquish control over certain aspects of the business, but understanding when to take a step back is a critical skill you must learn.
Clayton Treloar, CEO of Mail Boxes Etc said taking control and being the boss isn’t about doing everything yourself.
“If you’re the boss, you also hold the key to a good work-life balance for your employees,” he said.
“Delegating makes sense, but you should also remember to encourage your employees to take breaks. It’s how you build yourself a dedicated core of job-loving staff who know their boss expects the best – and rewards it.”
Treloar said franchisees who take on too much, particularly in the early days of starting a franchise run the risk of burning out quickly.
“All work and no play doesn’t just make you a dull boy (or girl). It also makes it even harder to get those sustainable, quality hours of work out of yourself every day,” he said. “Achieving a good work-life balance isn’t easy.”
Your future starts with a franchise
Starting a franchise is a big decision. It opens you up to the exciting world of entrepreneurship, placing your future firmly in your hands, but it doesn’t come without cost.
Be prepared to spend time researching, consulting and reviewing your ideal franchise, prior to purchasing. Once you do have the keys and the doors are open, it is import you keep a close eye on the financials, your team and your own personal workload.