Chris Roberts, director of Franchise Finance, highlights the keys to success
At Franchise Finance, we have three fundamental messages for our franchisee clients:
- Businesses go bust when they run out of money.
- When you measure your business’ performance, you can properly manage its performance.
- Turnover is vanity, profit is sanity and cash is reality.
We believe an understanding of these three fundamental aspects will have a major impact on whether a franchise business will survive and how successful it will be.
When starting a franchise, we suggest you look at it as though you’re setting out on a business journey, where your objectives are your destinations on that journey. This driving theme provides many helpful analogies.
Why not think of your business plan as a ‘business satnav’ that you can develop and use to help you guide your way and see what’s around the corner, thus ensuring you don’t suddenly crash off the road?
When you first started to drive a car, did you just jump in and head off down the road or did you have some driving lessons first? Chances are, your franchisor will give you a lot of operational and marketing help and support, but many give less help on the financial side of running a business.
What financial aspects should be included within your business satnav? The answer, with their technical definitions, is:
- A projected profit and loss account (projected sales less projected costs).
- A cash flow forecast (a prediction of what your bank account should look like in the future).
- A balance sheet (a list of your business assets and liabilities).
The first shows what you hope to do and whether it’s worth it, the second shows how much money you will need to do it - or if you can afford to do it - and the third shows what your business will look like at a particular time in the future.
In order to compile these documents, you will need to have costed all the activities you wish to undertake on your business journey. A good way to do this is to consider what level of sales is realistically achievable over, say, each of the first three years and then decide what resources - property space, equipment, vehicles, personnel, etc - you will need in each of these years.
By using this information, you will be able to establish whether what you’re hoping to do will be possible with your cash resources and whether it’s likely to be profitable and worth doing.
If it doesn’t work for you the first time, make some realistic revisions to see if you can find a way to make it work.
Finally, don’t forget to MOT your business from time to time. Every franchisee should occasionally stop working in the business and work on it. Review how you’re doing against your plan and consider what changes, if any, you need to make.
Good luck on your business journey and drive safely.