Choosing the right franchise requires some research and due diligence before making such an important decision. You should think about your experience and your strengths and weaknesses to determine if it's a good fit. Do a thorough evaluation of the opportunity. Assess your goals and objectives to see if they're in line with what the franchise has to offer. Determine how you can compliment it with your background and business experience and expertise.
Do you understand the franchise system - how it works and does it really work effectively and efficiently?
Be sure to understand what you need as a franchisee to operate the business successfully. On the other hand, understand what your requirements are as a franchisee to the franchisor. Ideally it should be a win-win relationship. You create a successful business based on the support and expertise of the franchisor. In return for this support, the franchisor receives his royalty fees knowing that the business will be successful based on his proven business model.
It's all about processes - get them in place - are all the ducks in a row?
So here's where we really get to put the franchisor's experience and expertise to the test. Are there streamlined processes in place to help you run the business? And have these been proven to be effective by others in the business? A positive answer to these critical questions should most help to steer you in on the right path whether or not this is the right business to acquire.
Manage the Process - operational management - Who's in charge of operations?
Now comes your part as a franchisee. Can you follow the "rules book" from the franchisee? After all, at this stage of the game, the franchisor is acting like your coach. He know the rules and is in fact saying to you that if you follow the rules of the game, you will succeed. Well it's not quite that simple, but you know what I mean. So know the rules of engagement to manage the process.
Know your Numbers - so what are they telling you... and are you listening?
Ah yes, the numbers. Sometimes the most neglected part of running the business. So often, the focus is on marketing and sales. But without accurate and timely financial information most businesses are running blind and doomed to failure. You need to understand the numbers so you can see where your business has been (historical financial information) and where it's going based on projected financial information. This helps you to run your business proactively based on informed decisions that allows you to make course corrections along the way. It's sort of like your business compass or GPS system.
Here are a few crucial numbers you need to know and monitor to control your business operations:
Pay particular attention to cash flow. It's still the king. Review the balance sheet, income statement and cash flow statement every month to assess net worth, net profits or losses and cash flow. On a quarterly basis, calculate the following financial ratios to evaluate key performance measures:
- Sales year to date
- Gross profit margin
- Cost of sales as a percentage of sales
- Labour rate as a percentage of sales
By comparing these ratios to those of franchise or industry averages, you can determine the progress of your business. If you need advice or assistance, an accountant experienced with franchises would be your best resource. This professional can help you interpret financial results and benchmark your progress relative to both competitive businesses and other locations within your franchise system. He or she can also guide you on how to strengthen and improve results.
Proactive Management - are you working on your business?
And finally, your ultimate goal is to get to the stage where you're working On your business rather than In it. So often, franchisees start off a business with great excitement and lots of ambition and enthusiasm. Only to find out that things are not as they anticipated and they actually become an employee of the business rather than an employer. In short, the business is running them, rather than them running the business. For those of who who really want to understand this philosophy, I highly recommend you read "The E-myth Re-Visited" by Michael Gerber. There is a famous chapter in the book entitled "Working On your Business, Not In It". I think you'll enjoy it.
The Bottom Line
So here you are! You've decided on a franchise in which to invest. It's a financially stable company that provides "know how" and support to help you become a successful entrepreneur. But be sure to get the accounting support you need, either from the franchisor or your own accounting professional -- and be committed to follow the "rule book", know the numbers and manage and monitor your business in real time to achieve financial success. After all, isn't that why you're an entrepreneur?
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