6 Step Franchise Prep Series - #1 Being Highly Profitable
It is always about the dollars and sense in business...do you have a truly and exceptionally profitable business? Do you have this pie that is big enough that the franchisee can take their slice and it gives them a reasonable rate of return based on providing the support, development and research in order to keep ahead of the curve?
Let’s dive deeper into what a highly profitable business looks like, why it’s important as you move into franchising and how you can get there. Think about what you have done to make it so that you either have this powerful brand that just draws people in so that your revenues are higher, or maybe you found production techniques, the use of systems and processes that makes your costs lower. Whatever you've done, you have solved the problem to create a more profitable business.
What it means to be highly profitable and why it is important...
A highly profitable business requires it being significantly more profitable than the average business in your space. Highly profitable also means that your business is so appealing that a potential franchisor can see the value and would be willing to invest in your proven way of doing business. It should be easier for a potential franchisor to join your business and become more profitable, more quickly than starting their own business from the ground up.
One focus for making your business stand out and become profitable is around what you do that is different from others. What about your product or service makes it stand out, more efficient and/or proprietary compared to your competitors? You can also look into other revenue stream opportunities that may be available to you, either in the services you offer or internally. An example is your supply chain, there may possibly be vendor rebate programs to help fund the franchisor.
Margins are also a big part of this equation. The margins need to be great enough that you can take a percent of the gross sales from your franchisees and there is still sufficient revenue for your franchisees to also have a generous share. Margins may be improved by knowing exactly what each of your products/services costs to deliver. Understanding the margins of your specific industry can be really helpful- you can learn more about margins here.
It is also important to note that franchising your business will not make it more profitable, it will only duplicate mistakes which is why you want to be highly profitable to begin with...
Becoming highly profitable is important for the following reasons:
Adds to the overall proposition of the franchise
Advantages in supply chain (access to better pricing for your franchisees)
There is a proven plan in place to generate sales faster
Day-to-day operations are done in the most efficient manner
All of these reasons make your business more appealing to franchisees and helps create a duplicatable business plan that is guaranteed to succeed!
Now What
Here are some recommended actions to get your business in a highly profitable position:
Establish Key Performance Indicators (KPI)
Track all expenses as they pertain to the cost of delivering a product/service so you can accurately evaluate margins
Evaluate all revenue streams - is there a service or product that is more or less profitable?
Other opportunities for profit - are there other more profitable products/services you could add?
Increase sales, reduce expenses or BOTH!
Recommended Reading
Profit First by Mike Michalowicz
Profit First is a great read for anyone who is interested in reverse engineering how they manage their company's finances.
While it isn't for everyone (all those bank accounts, etc.) the ideas and strategy may be worth considering and you will never look at your business finances the same way again. I've heard of people using this for personal finances as well.