This best practice is for potential franchisees. If you are considering purchasing a franchise, then we suggest you place great focus on the potential returns of any franchise you consider.
It is important that you don’t get carried away thinking about the type of work of the franchise, without giving adequate attention to what the business will need in financial terms upfront – and what it could or should look like as it grows and develops. This is to help you understand the full range of potential and likely outcomes, and therefore attractiveness to you. By following this process you may also find some of the best returns available to be associated with franchises in industries you weren’t initially aware of and/or attracted to.
So it is important for any franchise that you consider that you have a really extensive understanding of the total investment that you will need to make (initially and ongoing), including the extent of working capital that might be needed in order to reach break-even. Aligned, you will want to think about what your profit and cash flow position could and should look like as the business grows and develops overtime.
To achieve this great focus, you will need to conduct good research and due diligence. You will need to collect relevant financial information and planning tools from the franchisor. You will want to work with a specialist accountant. You will want to corroborate certain information with franchisees you may interact with as part of your research. And you will want to talk with your bank; they may already bank company and/or other franchisee units.
In behind this primary focus, and we call this a primary focus because you need to stay in business, is a need to explore and understand what you will need to be able to do to get this business to perform at the level necessary to achieve your profit and return objectives.
We talk of this profit and return focus because it is so important that you understand this aspect of the business and also hone a very clear objective for what you want to achieve. That then allows you to translate that into clear plans (often with the franchisors help) for what you need to do to achieve those objectives. It enables a more productive franchisor-franchisee relationship that has a positive outcome focus.
And if you have this profit and return focus, prior to even signing a franchise agreement, you can ask your potential franchisor how they have worked with franchisees on their profit and return objectives, and you can also ask established franchisees the same.
In summary, you need to have a profit and return focus prior to purchasing a franchise, and you need a franchisor that also has this focus at a franchisee level as well. Aligned you will note that a franchisor [Leadership Focus on Franchisee Profit and Returns] is our very first best practice we have identified within our total [Franchising Best Practice 500].
About the Franchising Best Practice 500 Series
This is part of a series of franchising best practices. Franchize Consultants is sharing and publishing these best practices weekly for the betterment of franchising. We know that better knowledge and execution of franchising best practices leads to bigger and more valuable franchisor and franchisee businesses.
We have assembled the first 40 best practices into The Best Practice Handbook, which is available for purchase.