Budgeting and franchising
Like any business, when it comes to franchising there are plenty of considerations to give thought to; things that both franchisors and franchisees must think about in order to be successful. Some of these considerations will be similar for both parties,
Acritical element to any business is planning – financial planning and forecasting – as well as mapping out all the various elements you need to create a sound project. Without a good plan and a proper budget, you’re not allowing for the variety of scenarios that you may face: whatever your business or project could be.
If you want to succeed, it’s absolutely crucial to estimate, plan and consider the variables. It’s even more critical that this is done often. Numbers aren’t always the most fun thing when it comes to business (and it’s of course a good idea to hire someone who can help you with this), but you need to at least understand and respect them well enough to fool proof yourself – as best as any business can – for the rainier days that can come.
Business and change go handin-hand, and rapid change can be devastating if you’re unprepared. Budgeting and financial mapping when you’re in franchising is just as critical as in any business and can be the key difference between one person’s success and another’s failure. So, when paralleled with a standalone business, what are the main differences for those working with a franchise model when it comes to budgeting?
Strictly speaking, the principles are the same, but franchising isn’t necessarily as daunting as taking the leap on your own. In a franchise you’re (hopefully) working with a recognised brand with support mechanisms, and ultimately there is less to deal with alone. It’s not a bad option if you’re willing to take a leap, but not quite ready to go skydiving.
On the proviso that you a) have funding to get you there in the first place, and b) get the top line and planning right, franchising can be one of the more relatively controllable business models. There are strategies in place for franchisees to follow, benchmarks for comparison and advice just a phone call away. Not many businesses have the luxury of tapping into the networks that franchisees do, so those that follow the matrix and use their advice avenues wisely, find the budgeting requirements much easier because there’s a map already in place. These are the franchisees at the top of their game.
Franchisees generally have a yardstick to work with. They have a reasonable idea of their fixed overhead cost (rent); cost of goods percentage, advice on how much labour is necessary (usually as a percentage of sales), so all that is necessary is the forecast of sales.
The bottom line is that franchisees must be ‘real’ in terms of the expectations of sales and what they want to achieve.
As a franchisor, one must also ensure budgetary expectations are realistic. There’s no point planning for huge growth via franchisees alone – it’s got to be more than that. For us at Franchised Food Company we plan to grow via an increase of store sales; organic system expansion and acquisition.
Sometimes success in budgeting comes down to gazing into the business crystal ball, riding the waves as they come and getting a feel for those waves, as well as prepping for the times that are a bit unpredictable AND predictable. Two of our franchise brands sell ice cream - hugely seasonal when it comes to profit. These franchisees must squirrel money away so they’re prepared for a downturn in the cooler months, and on the flipside, be extremely disciplined in the summer months when profits are typically at their peak.
Financials can be a hard task to master, and with this, personal budgeting is also important. It’s very easy to spend and be frivolous with your cash when it’s coming in quickly; but not so easy to cut back when things take a turn in the opposite direction.
Just like every business model, there will always be things with franchising that need ironing out. If everything was peachy and hugely profitable, every business idea would take off and we’d all be millionaires.
My parting words… Do your best to utilise the avenues you have at your disposal, and plan. Without a plan you can’t forecast, you definitely can’t budget and more importantly, there’s probably no way out for you either. When you create a budget and set your forecasted plan, with a sound business plan and map in toe, suddenly you will feel like you have more money, and more confidence to keep pressing on, and you will have more fun… And that’s always a good thing.
Stan Gordon is the CEO of Franchised Food Company, the umbrella organisation encompassing the brands Cold Rock Ice Creamery, Trampoline Gelato, Mr Whippy, Pretzel World, Nutshack and Europa Coffee drive thru. www.ffco.com.au