Go Sell it on the Mountain - Franchisor Do’s and Don’ts

 

 

INTRO

Hi This is Holly Ford from Zarian Firm

TRENDING

this week in franchising….

The Working Capital component of buying a franchise. So many buyers and even franchise developers underplay this important detail.  It’s not just about having the ability to pay for or secure funding for your new venture, but you need to make sure that you have the capital available to inject into the business until the business reaches the net revenue that matches your current needs.

Sadly, this week, I have been working with a franchisee who consulted Zarian Firm for help. This franchisee began his business with insufficient working capital.  Now less than a year into the business he no longer has the capital to move the business into profitability and wants to sell.  Unfortunately, without profits, the business is worth the depreciated cost of the assets -  unless we are able to find a buyer that wants to take the risk with the two-year trending forecast.

In this instance the buildout came in more than 100,000 over projected costs and the new owner was not clear on what ‘break-even’ really meant. He mistakenly assumed that this was where he replaced his prior income. But break-even is just that.  The business now has enough revenue to support and sustain the costs and expenses of the business.  Break-even does not meet profitable.

So when you are looking at new franchise opportunities it is really critical to engage the developer or your broker to assist you in creating a pro forma based on your existing resources and the existing data on other franchisees real results.

If you would like to learn more about working capital and or how to create a pro forma, connect with me through the Pillar’s Blog or send me an email to ‘Holly@zarianfirm.com’

 

Now for today’s

2-MINUTE TOPIC…

Go Sell it on the Mountain - Franchisor Do’s and Don’ts

Developers are enthused about their concept.  This makes it easy for these skilled salesmen and women to really champion the franchise as the best in the industry.  All good, but always remember these men and women buying a franchise are often using a lifetime of savings, leaving an exition source of income or investing in their future retirement.  So be positive, but be real.

The single most important rule for franchise developers  is NO FPR’s!  This is common knowledge in the industry but for those of you that are new to franchising, FPR’s are defined as Franchise Performance Representations. Essentially it is telling a prospective franchisee how much money he can expect to make.

If a franchisor has an Item 19 in their FDD (franchise disclosure document) he is legally allowed to state exactly what is represented and approved by the state in that section of the FDD that focuses on performances of other franchisees.   But there is much more to “being real” than this.

Today we are going to take a birds eye view of  3 areas of focus for  Franchisor Do’s and Don’ts:

  • Money
  • Competition
  • What to Expect

As we just discussed, do not misrepresent the real results of your other franchises, but also and possibly even more important, is to make sure that you don’t under project working capital requirements.  This is the biggest mistake in development that I have seen as I spoke about earlier in our ‘trending section’.  As a franchisor make sure that you are looking deep into the finances needs of your prospect. How much is his burn rate?  Will he be working full time in the business?  What other sources of revenue does he have?  Then put the picture together with a conservative, cautious projection.

The second area of focus today is the competition.  Don’t underplay the competition.  You can sell the advantages of the franchise focusing on support, additional streams of revenue, fast start up low build out, etc… but don’t ignore the real threat that competitors pose.  Instead prepare them with the strategy to overcome or out market the competition.

The final are of focus is ‘what to expect’.  When doing a discovery day with potential franchisees, it’s great to have a nice dinner or cocktails to get comfortable with the key players in the corporate office, but make sure that the candidate has the opportunity to experience the real day to day operations of the franchise at a location in the company of a model owner.

If you would like to learn more about the do’s and don’ts of franchise development connect with me at Holly@Zarianfirm.com.

Next week’s two-minute topic is entitled Add the Lip-gloss - Preparing your Business for Resale

 

And finally today our hilted

FRANCHISE OF THE WEEK:

Apple Spice

Apple Spice is a proven B2B Box Lunch Delivery & Catering Company enjoying a piece of the $45.8 billion dollar industry. Apple Spice services the corporate & business community as well as educational systems, government offices, financial institutions, sporting events, churches and charities. Apple Spice is the only solely catering franchise with a low-cost start up and fantastic technology and support.

Give me a call if you want to learn more; 855-733-1337 or email me at Holly@Zarianfirm.com.

CLOSE

If you have any questions about this topic or any other question regarding franchising email me at holly@zarianfirm.com and we can cover it on a future episode.

This is Holly Ford of Zarian Firm on Pillars of Franchising saying see you next week Same Bat Time, Same Bat Channel.

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