Chris Roberts of Franchise Finance explains how to programme your business satnav for success
When starting a franchise, we’d suggest you look at this as embarking on a business journey, with your business objectives acting as your destination points.
Think of your business plan as your business satnav, which helps to guide you throughout your business journey, helping you predict what’s around the corner, while simultaneously ensuring you don’t run out of petrol in the tank (cash in the bank) when en route.
Planning and preparation
You wouldn’t jump straight into a car without any lessons or any idea of where you wanted to go, would you? It stands to reason, therefore, you shouldn’t start your business journey without adequate planning and preparation, ensuring you have the best chance of success.
At Franchise Finance, we regularly share these three fundamentals with franchisees when they’re starting their business journey:
Turnover is vanity, profit is sanity and cash is reality.
Businesses go bust when they run out of money.
When you start to measure business performance, you can then manage business performance.
An understanding of these three fundamental aspects will have a major impact on a franchisee’s business performance and its ultimate success.
Your business satnav helps you with all three fundamentals. Both financial and non-financial elements need to be considered.
What financial aspects should you consider? The answer is a projected profit and loss account (projected sales less projected costs), cash flow forecast (a prediction of how your bank account will look) and an end of year balance sheet (a list of your assets and liabilities, both short and long-term).
Put simply, the profit and loss will show you whether a business is worth starting, the cash flow forecast shows you how much money you’ll need to operate it successfully and the balance sheet shows how your business will look at a particular moment in time.
To compile these statements, you’ll need to undertake a good deal of preparatory work, including the costing of all business activities you wish to undertake on your journey. This will include sales assumptions over a period of three years and also the amount and type of resource you’ll need in each of the three years.
Using this information to programme your business satnav will enable you to establish the overall viability of the proposed franchise venture. If it doesn’t work for you after draft number one, it’s worth tweaking the plan to see if there’s a way to make the venture realistic and achievable.
It’s far better to take this approach online or on paper, rather than in ‘real life’ with your capital on the line.
Finally, don’t forget your MOT. The health of your business needs to be checked and monitored closely. It’s important you compare actual performance with projected performance to ensure you’re on track to arrive at your planned destination in a timely manner.
If you need to make changes, your MOT, or business health check, will bring this to your attention.
So good luck on your business journey and, most importantly, drive safely.