We all get into business to build wealth. To achieve an attractive return on investment, we must grow sales. However, one location’s organic growth (more customers, buying more frequently at a higher average transaction value) may not yield the profits we seek. Some franchises work best with multi-unit ownership.
This is the fourth in a five-part series that explores my “top 5” list of capabilities that make multi-unit ownership work. It has little to do with how well franchisees make sandwiches, scoop poop or cut hair. Even the best “operators” will fail at multi-unit ownership without an enterprise management mindset. That enterprise mindset is a “must-have” for both the franchisor and the franchisee.
Multi-unit success depends on these five capabilities:
- Maintaining Scalable Systems (delivered by the franchisor, executed by the franchisee)
- Screening, Training and Coaching (both franchisor and franchisee)
- Leading, not Doing (managing the enterprise)
- Understanding Financial Drivers and Results (monitoring the enterprise)
- Managing the Financial Risks and Rewards (planning the growth pathway)
#4. Understanding Financial Drivers and Results
Multi-unit owners must routinely review financial statements, budgets and KPIs. They must master breakeven analysis to establish meaningful sales and profit goals, and to predict the timeline to break even as each unit is added. This requires that franchisors have systems in place that enable franchisees to monitor KPIs remotely. Franchisors are also well-advised to invest in financial education for coaches and franchisees and benchmarking to provide useful guideposts to assess whether the new location is on pace in its race to profit. The longer it takes, the more capital will be consumed.
In a perfect world, we recover capital eaten by start up losses with future profits. But until the profits come we’re digging a “Location 2 hole,” one that is commonly funded from a combination of owner capital, profits of location 1 and new debt. How much capital is needed? It depends. How will the new location costs differ from the original? How long with the race to profit take? These are essential questions to answer as we expand.
Ongoing, owners must focus on KPIs representing that keep the operations team on track with building the new customer base in the time required. Enterprise management is management by the numbers.
Watch for more details the fifth and final capability in the coming days!
ICFE Special Session on Successful Multi-Unit Expansion
My colleagues and I will be presenting a full day session entitled: Advanced Financial Essentials: Driving Profitable Growth Through Multi-Unit Expansion at the Institute of Certified Franchise Executives special sessions on Saturday, February 8th at the IFA conference in Orlando. If you are seeking to expand your network through multi-unit ownership, I encourage you to join us!
Follow this link for more details and registration options: