franchise buyer magazine October 2018

October 2018

www.franchisebuyer.com.au

A BUSINESS FOR OUR E-COMMERCE TIMES Get the retail experience right

What media is right for your PR?

Understanding business valuations

NFC18 | 14-16th OCT | MELBOURNE

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Inside this Edition of October 2018 05 News Bites 12 Retail Experiences Amy Roche 16 Generating PR for Small Business

A business for our e-commerce times

PACK & SEND [08-10]

Jules Brooke

20 Personal Finance

Tony Melvin

24 Business Valuations

Brett Goodyer

27 Business Services

Valenta BPO

28 Finance James Scurr

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w w w . f r a n c h i s e b u y e r . c o m . a u Published by

FRANCHISE MEDIA GROUP PTY LTD Editor GLENN WALFORD glenn@franchisebuyer.com.au

Digital & Technology Strategy ROBB SNELL

Writer PAUL ROBINSON

Art Director KATHERINE BERCASIO

Contributors BRETT GOODYER TONY MELVIN AMY ROCHE JAMES SCURR

Published by Published by Franchise Media Group Pty Ltd Opinions expressed in Franchise Buyer are not necessarily those of Franchise Buyer or the Publisher. Persons entering into a franchise agreement are strongly urged to seek their own independent advice. All material is copyright and reproduction in whole or in part is not allowable unless specific permission from the Editor is provided.

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News Bites

100th store opening for Soul Origin

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n late September Soul Origin opened its 100th store in Royal Randwick Shopping Centre, Sydney with strong support reported from the local community.

In the launch celebration, over 1600 free coffees and 400 free lunches were given out to customers on the day along with $4,500 worth of prizes.

The opening in Randwick marked a big occasion for Soul Origin, as it is the company’s 100th store since opening in 2011.

Soul Origin Randwick’s franchise partners Reni Angkasa and Yimmy Yohannesare said the opening was a huge success.

“We were thrilled with the

opening of our new store in Randwick last week.

It was fantastic to see so many locals come along and say hello. This week we have been overwhelmed with so much positive feedback from customers with so many of them saying Soul Origin is just what Randwick needs,” says Reni Angkasa. n franchisebuyer.com.au

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News Bites

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Core9 functional fitness – a business ‘built’ for exiting military personnel and more

raig Arnold and Jason Dolan launched Core9 Fitness in 2013. Since then, Core9 has expanded to 9 locations and carries with it a special purpose along the way.

According to the company, at the heart of Core9 Fitness is a unique training model with a socially-minded ethos that aims to make fitness easy, effective and accessible for everyday Australians. With franchise buyer having its own special connection to ex-serving personnel, their broader vision and purpose stood-out.

Again, according to the company, they have a commitment to providing current and ex-military personnel a supportive path to re-entering society. Stating

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that many struggle finding belonging outside the military and currently there is a 30.2% veteran unemployment rate despite their specialist training, says Core9.

“When I was in the military I was involved in the Special Forces, which we received a significant amount of specialty training for. However, once we leave, there are limited job opportunities for us as there is a lack of understanding about veteran skills. Each ADF member has about $2.5 million of training invested in them over seven years, but it often fails to translate into skills for jobs back in civilian society.

Helping ex-defence personnel who are struggling to adjust to the Australian workforce was a

key inspiration for us to create Core9,” says Jason.

“We (also) wanted to create something that was going to motivate people to exercise and stay healthy. Currently 60 - 70% of gym memberships are not being used meaning that percentage of people are not motivated to go to the gym despite paying for it every week.

This can often be attributed to time restraints and lack of knowledge. At Core9 we have taken that out of the equation.

From the moment someone arrives their class will start within three and a half minutes and finish within half an hour.

It is short and effective and we make every minute count. If it doesn’t challenge you, it doesn’t change you,” says Craig. n

News Bites

Making your impact with record growth

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he success of Safety Products - Confidence in the offer.

SafetyQuip recently reported impressive annual growth on the previous FY of 14.16%.

While this result was an outstanding one for the entire system, the year also saw a record result for a single location in achieving over $4million in annual sales from a single site.

With performance like this, we asked CEO, Gary Shearer, what he put this growth success down to.

“Of course on the ground right across the country, it’s our wonderful franchise owners living and breathing our mission of ‘Local Knowledge, Safer Workers’ daily.

And the foundation for them being able to do that, and achieve the success that they do, comes from doing the right things and doing them consistently. Not jumping around all over the place trying

to find new ways to sell product.

It’s doing the right things.”

The SafetyQuip team prides itself on “…the knowledge and up-skilling we are constantly providing to our franchisee network so they can go out and sell high-end safety equipment.”

“In fact, we know that collectively we get this to the point that there is nothing out there amongst our 15,000+ product inventory that our franchise businesses are afraid to sell.”

Gary also believes that while being consistent in what and how you sell is important, being consistent in your presence in your market is equally crucial

for success.

“To be successful, you just need to keep presenting yourself to new clients. Getting out there and being the face of your business in your community - there is simply nothing quite like it as far as the impact that can have in your market.”

“And the most satisfying thing for us and all our franchise owners, is that the more successful we are, the more people go home to their families every night safe and sound.”

Now that is something else to feel good about after a successful day in your business! n

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COVER STORY

PACK & SEND A Business for our e-commerce times

A staple for more than two decades in the Australian franchise sector, and now with 100+ locations across Australia, PACK & SEND has been an award winning brand for its success and dedication to embracing technology. ‘Connecting people with parcels when they want, where they want them’ is a mantra – but how are they doing that while making a business out of it as a franchise?

BY GLENN WALFORD

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n a business climate that seems to have many of us pleading with it to “slow down for just a minute!”, any business, let alone a mature business, is always looking to be certain it is on-trend and futureproofed.

The nature of leading a business into the future, is that it is a constant balance to meet or exceed the market needs at the time, but with an eye to the future.

PACK & SEND is a business that is built on the premise of making the sending of parcels easier for all.

That hasn’t changed, but with the boom in e-commerce globally, the way it is achieved, certainly has.

In simple terms, PACK & SEND describes the role it plays in the market as ‘connecting people with parcels when they want, where they want them’.

Even with me being in the franchise sector for many

COVER STORY

years, at times I’ve still grappled to get my head around all that PACK & SEND do in their market. I asked Greg Prussia, Network Growth Manager to explain the business in simple terms.

“Think of the analogy of Flight Centre – you go there to work out the most cost-effective way to get your destination. Flight Centre has all different carriers to get you there and you find the most cost-effective for you.”

“Our premise is basically the same, customers come to us to get the most cost-effective way to get items from A to B.”

PACK & SEND describes the role it plays in the market as ‘connecting people with parcels when they want, where they want them’.

Ok, I’ve got all that, and that part of the offer I believe always looked pretty obvious to the market, and is primarily what I understood it to be.

“But still, that is just one small part of what we do.” then offers Greg.

Now that’s where I’ve clearly been missing something.

If parcel delivery from A to B is effectively only a small part of what they do, it occurred to me that if I’ve missed this point, who else has?

Greg explains further.

“Do you travel much? Do you go straight to Qantas or Virgin to price up and book your ideal trip itinerary? franchisebuyer.com.au

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COVER STORY No, we all go to the aggregator sites like Web Jet, Booking.com, Expedia and so on.”

“For freight and parcels, as either a consumer or a business, you also want the best price and most convenient movement according to your needs.

Effectively, our online technology plays that same aggregator role to provide that service for anyone 24/7.”

“Think of our stores or service centres as we call them, as the home base. That centre runs as a retail business during trading hours. In addition to this trade, we’re doing business and generating income 24/7 via our online freight booking system.“ The technology that the company has invested heavily in, is an aspect of the business that PACK & SEND is always keen to portray. The reported advantages their proprietary technology affords, is a constant focus of the business’ message to the market.

In explaining the business offer for potential franchise owners, the company generally breaks their product and services offer down into either active or passive sources of income for franchise owners.

Our premise is basically the same, customers come to us to get the most costeffective way to get items from A to B.” 10

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“Our active daily income sources for our centre owners include, domestic and international delivery services, parcel collection, packaging services and sales, and local value-add freight and delivery services and more.

In particular, expansion globally of the ‘last mile delivery’ service is being driven by online consumer sales, and demands for prompt, efficient and flexible delivery. Our centres across the country accept parcels from courier companies for flexible time deliveries and pick-ups.”

“Our passive income sources include 24/7 mailbox rental, import/inbound deliveries, online self-service platform for freight movement globally by multiple freight movement companies.”

One thing is for sure, the global demand for parcel and freight movement is not slowing down. Seeing this first-hand in any suburb you live in, with the daily flow of courier vans circulating, it’s fair to surmise that being well-positioned in that market is a pretty solid platform for the future. n More about PACK & SEND

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RETAIL EXPERIENCES

SAVVY CONSUMERS WANT RETAIL EXPERIENCE Personalisation, Entertainment, Education and Enlightenment.

What do consumers want? And how can physical stores deliver this in more meaningful ways?

By Amy Roche

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here is no doubt that online shopping has changed the face of retail forever.

But, customers want retail experience, they crave personalisation, education, entertainment and enlightenment.

At its core, online shopping offers a 24-hour service with competitive and comparative pricing – something our stores cannot always deliver on.

However, there is often an overlooked saving grace for retailers, and it lies within their very own 12

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showroom floor. Thanks to online sales and data-driven marketing, we know more than ever about our customers.

But it’s actually the subtleties of being a bricks and mortar retailer, that gives us the amazing insight into what your customers actually want.

So what do consumers want? And, how can our physical stores deliver on this in more meaningful ways? While the focus of retail has shifted, I’m a true believer that human connection is what makes the in-store retail experience so unique and special.

It is the experience of that human connection within the four walls of your retail environment and how it makes your customers feel. This ‘feel’ is what cannot be easily compared or price matched anywhere else.

It’s not just about the products anymore; it’s about the total experience.

Your customers want retail experience, they crave personalisation, education, entertainment and enlightenment.

Retailers that are doing this are the ones who are experiencing success and making the headlines for all the right reasons.

RETAIL EXPERIENCES While it’s easy to blame globalisation, Amazon and others, the fix to our retail woe’s are lurking right inside your own store.

Today many retailers, including ones that I’ve been part of, are still following old-fashioned push marketing routes.

And…for the most part, offering a boring in-store atmosphere.

This sterile and often nonpersonable interaction can easily be matched online. So, when customers are underwhelmed by their in-store visit, they are also less likely to feel inspired to visit again.

Which in turn, leads to further commoditisation of the market, leading to price only decision making.

In addition, let’s face it, your massive advertising budget to bring new customers in-store can prevent even the most clever retailers from being innovative in-store anyway.

as working with many other retailers to bring in-store experience to life in their stores, it’s our own retail and sales mindset that mostly holds us back from great things. In my book, The Retail Experiment I’ve appropriately named this conundrum, The Sales Machine mindset.

As retailers, it’s our job not only historically, but in our day to day operations, to constantly focus on the sales metrics of our business. But, when we focus so much of our resources on extracting sales it puts us at odds with our special people – customers.

Instead, if you shift your retail mindset from extracting sales to deliver more value in-store, you’ll see a dramatic change in your customer’s attitudes which suddenly opens

them up to a genuine relationship. If you skip this valuable step, your customers will not be listening to your messaging.

Unique Customer Behaviours

The first step to offering this customer-driven experience is to understand your own unique customer behaviours and interests. Because retailers are so varied, this will greatly differ from retailer to retailer.

However, you’ll find them all in a similar way, though market research and in-store customer exit surveys, through interactions with customers and comments from staff.

Once you understand your own customer interests, lifestyles and behaviours, tailor your in-store

What’s going to move things forward for retailers?

It’s now critical to think about the in-store experience you offer and ensure that people are being enhanced, being surprised, and feeling delighted as they come through your physical door.

It’s about creating unique experiences that capture your own brand promise while purposely helping your customers to reach their own aspirations. It’s about building a journey that takes both of you where you want to be.

Mindset shift from extracting revenue to delivering more value in-store

In my experience both through running my own 2,500m2 store, as well franchisebuyer.com.au

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RETAIL EXPERIENCES busy, health-conscious females over 6 months.

Delivering specialised monthly events like; cooking with allergies, paleo and autoimmune workshops and understanding and celebrating being gluten-free.

All of these were heavily influenced by the use of small kitchen gadgets and appliances.

Not only did the retailer experience a 47% increase in sales for that category over the 6-month campaign, but follow up survey’s found that attendee’s for the events were 4 x more likely to advocate and share upcoming events, sales and marketing from this retailer.

Using In-store Events & Experiences

experience to fit what you’ve uncovered.

It is not just about playing to the positive either. Understanding negative sentiments and offering something to counteract it can endear a customer to you even more.

In-store Experience

For example, an appliance store we worked with, found its customers displayed nervousness around purchasing high-end blenders and smaller kitchen appliances in-store, however this was a profitable line and they wanted to increase sales in this category.

They also wanted to connect better with customers in this market and provide reassurance and value to their shopping experience. So we created a range of in-store events for

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As you can see, in-store events cannot only educate and demonstrate techniques, but they also supplying attendees with ton’s of inspiration from real-life experts and in their field.

While there were no specific products mentioned or being ‘sold’, customers are “surprised and delighted” by the

RETAIL EXPERIENCES

retailer’s generous gesture but also in enriching their lives.

Attendee’s reciprocated their appreciation by sharing on social and inviting other friends for upcoming events and by purchasing what they needed to get started on their new lifestyle journey.

Most big retailers have this type of market research at their fingertips already. However, it can be even easier for smaller, more boutiquetype retailers who really know their customers and the niche they represent.

People are more open today than just ten years ago to forming closer bonds with a brand. This is one of the reasons why inspirational and educational events are so powerful for retailers.

There’s never been a better time, or better market conditions to

start driving this new trend within retail. Helping your customers solve meaningful problems, connecting with their emotional versus logic only side (features and benefits), can be a powerful engagement tool for retailers today.

The in-store experience you create can help your customers feel at ease in your store, better understand your

products and can also connect their lifestyle goals with your brand.

So, get cracking at creating these events in-store and connecting and communicating with your customers on a much more meaningful level – if you get stuck, reach out, I’d love to help answer a few questions to get you started. n

Amy Roche is an author, retailer, marketer, and in-store customer experience advocate. Her book entitled, “The Retail Experiment, 5 Proven Strategies to engage & excite customers through in-store experience”, was released in late 2017. www.RetailRockstars.com.au

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GENERATING PR FOR SMALL BUSINESS

WORKING OUT WHAT MEDIA IS RIGHT FOR YOUR MARKET Not every media outlet is a target for your story. Let’s look at some practical ways to tighten your targeting to give your story pitch the best chance of success.

By Jules Brooke

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etting your target media right is crucial for the success of your PR campaign. Pitching a business story to Woman’s Day or Men’s Health is unlikely to get picked up, as it is quite obviously not

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the right target. Sometimes though, it’s not that obvious, and trying to work out the right target media for your PR can be hard. The media is made up of so many thousands of individual journalists, bloggers and organisations, not to mention the

many wide range of media types, from newspapers and magazines, to radio, TV, websites and blogs. How can you know which ones you should make the effort of contacting and pitching your story to?

The place to start when you are

GENERATING PR FOR SMALL BUSINESS working out your target media is your target market. In general terms, we all know who the target market is for our business. You might answer ‘cyclists’, ‘home owners’, ‘CEOs’ or ‘young men’, but where it really starts to get interesting is when you start to narrow it down and consider your secondary markets.

For instance, at Handle Your Own PR we think of small business owners as our target market. But business owners is still a very broad market, and that really limits us to broad statements in our PR which means we would miss opportunities to resonate more effectively with our secondary, or niche, markets.

Instead of lumping all business owners together, we break our primary target market into smaller markets. This includes business mums, entrepreneurs, retailers, franchisees, product wholesalers, inventors and everything in

between! We can even get more specific and segment further by location or the type of media we target (you would probably say something different on radio compared to print, for instance).

That way, we can tailor our message to each specific market - after all, you don’t use the same language or examples for parents as you would use for young singles, or financial advisors compared to musicians, would you?

So, who are your secondary target markets? Perhaps you are a women’s fashion retailer, in which case you may think you are just targeting women, but actually, you could break it down into retirees, young singles, mums and business women, as well as by style, interest and personality.

If you are an accountant, you may break down your target market into people running family businesses,

franchisees, young entrepreneurs and start-ups or retirees. Perhaps you run an online store and you sell hampers - your secondary target markets might be young women, young men, new mums, grandparents...and so on. Think about the language you would use when speaking to people who fit that market niche and what you want to offer them in terms of information and advice.

In terms of a process, try this little exercise: 1. Create a table with three columns 2. Write down your general, primary target market in the first column 3. Write down at least 3 secondary markets for each target market in the second column (see our suggestions above to give you an idea).

Now that you know your secondary target markets, it makes it much easier for you to identify your media targets. You can start to think about the media that each of the niche markets would read, watch and listen to. For instance, to get to mums you might try the parenting media, women’s magazines, weekend newspapers, morning TV and mummy bloggers. To get to franchisees you might try the small business media, franchisee media, talk radio and weekend newspapers.

Don’t limit yourself to mainstream media either – think about industry newsletters (ie. If you want to get to the banking industry, you might like to go to Australian Banking Finance franchisebuyer.com.au

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GENERATING PR FOR SMALL BUSINESS

of AB+F, if you want to get to boat owners you might approach the Boating Industry media), website newsletters and online versions of magazines and newspapers.

Then you need to think about how quickly you want coverage.

Perhaps you want to get coverage in the next couple of weeks, in which case TV and radio don’t need much notice and will get you on the show quickly if they are interested. If you have a longer term agenda then monthly magazines, which may take 3-6 months to publish the article, 18

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are a good target. Bloggers are also a quick way to get coverage whereas weekend newspapers can take 2-3 weeks and weekly

magazines can take 4-6 weeks.

Some industries put out quarterly or even 6-monthly magazines where they are probably working 6-12 months in advance. Just bear in mind that if you go to a long lead magazine, and the journalist or Editor loves your story and says they will put it in the ‘next issue’, they may mean a magazine that will be published in 3-6 months, it won’t appear in the following months’ issue.

Identifying your target media becomes a lot simpler once you identify your target market. Even if you are very certain of your secondary markets, giving this exercise a go while you are building your media list will help to focus your strategy and get you the best results.

You will find it a useful exercise for all of your marketing any way!n

For the last fifteen years, Jules Brooke has been teaching small business owners and entrepreneurs how to grow their sales and get the phone ringing by getting featured for free in the media, helping helped over a thousand small business owners to make millions of dollars’ worth of media exposure.

For more information, or to try running your own PR campaign, go to www.handleyourownpr. com.au.

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PERSONAL FINANCE

IS YOUR CREDIT SCORE KEEPING YOU BROKE OR POOR? Is your credit score controlling you and your life without even knowing it?

The Rich Habits

By Tony Melvin

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he Credit Score industry is new. A hundred years ago it hardly existed, but today it is a multi-billion dollar industry (about $4B in the USA alone.)

That such an industry exists indicates immediately that Poor Habits are out of control. Before the “credit score” or “credit rating” 20

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system, the criteria for loans was based simply on a person’s character.

How important is your credit score?

Those who practice Rich Habits and use debt only for the purpose of investing know they are plenty of ways to borrow money that does not require the use of one’s personal

credit score. But it’s vital to those who practice Poor Habits and overspend, they are the ones who desperately try to keep a “good” credit score, and they pay the most for it.

Let’s look at some numbers.

Bill, Dave, and Jane are in the same financial situation. They all earn $60,000 gross salary per year,

PERSONAL FINANCE and they all have credit card debt of $50,000.

Bill is desperate to keep a good credit score, but he can only pay $800 per month. Paying such a small amount adversely affects his score, but he maintains his payments. If we assume the credit card has an annual interest of 18%, it will take Bill over 15 years to pay off his cards. In total, he will pay $148,800 to eliminate $50,000. During that time, Bill’s credit score is below average due to paying so little towards his debt.

Dave, on the other hand, discovers he can save interest by using balance transfers. He gets a new credit card with an interest-free period of 18 months and transfers his $50,000 debt. Like Bill, he can only afford $800 per month. Repeating this process of using interest-free cards, it will take

It’s vital to those who practice Poor Habits and overspend, they are the ones who desperately try to keep a “good” credit score, and they pay the most for it. him just over 5 years (62 months) to pay off all credit card debt. Dave’s credit score is also average.

Jane decides to implement the Rich Habits Solvency System (as described in the book Rich Habits) and instead of paying $800 towards her cards, she immediately puts them on hold and then negotiates a 10% settlement. This process takes

about 6 months, and during that time, Jane is not paying anything toward her debt. Instead, she saved $4,800. She scrapes together another $200 and pays $5,000 (10% of $50,000) clearing her credit card debt entirely. Jane is now debt free and vows to practice Rich Habits, building her wealth.

What about Jane’s credit score?

Well, that would be pretty low, but if Jane applies the Rich Habits, she could easily build her score back up.

In fact, in a year or two, her score would be better than Bill’s and Dave’s because they are both still struggling to pay their cards each month.

So what does it cost Bill to keep his credit score compared to Jane? An extra $143,800 and 15 years years of additional stress.

Here’s a summary of the above scenarios.

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PERSONAL FINANCE

What about the moral obligation of the debt?

Some will argue that Jane has “ripped off the system.” My reply is, what about the moral aspect of lending someone almost their entire annual salary? Why is the system geared to keep people ignorant of Rich Habits and trapped in a never-end cycle of debt? Whether you decide to utilize this legal and valid method of eliminating your killer debt, the moral question is a personal one, and it depends on your circumstance.

Tony Melvin is a best-selling author and creator of the Rich Habits series and the Rich Habits Board Game.

He also founder of Writer’s World — a new self-publishing platform for authors. You can contact Tony and grab a copy of his books at tonymelvin.com

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What if Jane’s husband was suddenly ill and no longer able to work? Or perhaps she lost her high-paying job or suffered from a natural disaster?

My purpose in sharing this information is to help people rise up the Rich Continuum faster toward Rich. Those who wish to abuse the system by intentionally repeating the process of racking up credit card debt only to negotiate a reduced settlement, are of course, practicing Poor Habits, and are not my audience. But I’m not about to

withhold this vital information just because there are a few who will abuse it. Such people will never be Rich, no matter how much money they have.

I’m interested only in those who want to improve their financial position, who cease Poor Habits and lead by example, practicing Rich Habits and decide to live a life free from financial stress and worry. Such people, as I have witnessed many times when they finally break free from financial stress and the burden of killer debt, naturally help others do the same. It is for them that this information is written.

As a final word, remember the Rich know everything is negotiable.

And that includes debt. There is no need to suffer endlessly in a cycle of overwhelming debt. There is no need to compromise.

By knowing this information, you can be free of killer debt in no time, just like my client Ben discovered.n

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BUSINESS FORENSICS

BUSINESS VALUATIONS

UNDERSTANDING THE MYSTERIOUS MULTIPLE

By Brett Goodyer

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s discussed in the last edition of Franchise Buyer, the valuation of a business is often quite different to the owner’s perceptions or pre-conceived notions. In this follow up article, Brett Goodyer of www.bizdiligence.com. au discusses the role of the valuation multiple and what it really means.

Businesses can be valued in a number of different ways; discounted cash flows, net tangible assets, and cost of creation to name but a few.

The methodology most often applied however, is the capitalisation of future 24

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maintainable earnings (CFME)... and with it comes the often misunderstood capitalisation rate, usually applied as a multiple.

Much like the Continuum Transfunctioner (as immortalised in the ground-breaking and some would say ‘classic’ movie “Dude, Where’s My Car?”), when it comes to the multiple applied in CFME valuations, “...its power is only exceeded by its mystery”. It is regularly assumed that the multiple should always and forevermore be 3; but rarely is this the case... the multiple is a misunderstood beast.

When valuing a business, it is generally accepted (by us valuation boffins) that the discounted cash flow (DCF) method is the most accurate and reliable. In general terms, the DCF method calculates what all of the future income streams of a business are worth in ‘today’s money’. This is done (in its most simplified form) by determining firstly how long we can reliably measure those income streams into the future (usually in years), and secondly determining what sort of discount rate to apply based upon the time-value of money and the relative risk of the business.

BUSINESS FORENSICS

risk assessment of the industry, the turnover level, the relative financial performance of the business, insurance and credit risk, specific commercial risks, entity specific risks, reliance upon key employees, owners or key customers, geographic risks, competitor risks, technology considerations

The reason that this method is not the most regularly utilised by valuation professionals is that most SMEs dont have cash-flow forecasts for the next 3 months, let alone the next 5 years... so what do we do instead?

Enter the CFME valuation methodology; if the business/entity has been profitable for the last few years, we can apply this methodology as a proxy for the DCF valuation.

Instead of discounting each parcel of cash that the business is likely to receive into the future back to today’s value, the CFME methodology seeks to determine an approximation of

the profits that the business/entity is likely to make into the future (usually by reference to profitability in the form of net profit, before tax and excluding interest in prior years), and then applying the multiple. The multiple is a risk assessment of and for the business; it considers the industry, the turnover level, the relative financial performance of the business, insurance and credit risk, specific commercial risks, entity specific risks, reliance upon key employees, owners or key customers, geographic risks, competitor risks, technology considerations... to name

but a few. It is not simply 3*.

For instance, in micro businesses (where turnover is less than $500,000), it is not unusual for the multiple to be less than 1, as the business is entirely dependent on a single individual. Essentially, the business sale would be a person purchasing a job.

A business turning over less than $1 million is often traded for a multiple of between 1.5 and 2.5.

It would need to be a business possessing some very special attributes in order to attract a multiple of 3 or more. Equally, a franchisebuyer.com.au

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business in the turnover range of $1 million to $5 million would have to be quite special or be purchased for synergistic benefits to attract a multiple of 3 or more.

Once a business turns over more than $5 million, making a significant (and relatively consistent) profit, with few operational risks, it is more likely (but by no means guaranteed) that the business valuation CFME multiple will approach or eclipse the mystical number 3.

So, in a sea of businesses in a similar industry, with similar turnovers, facing similar business risks, how does one business achieve a greater multiple? Put simply, in order to achieve a greater multiple than other similar businesses the key is to represent the lowest risk to the prospective purchaser amongst the options available to them. This is achieved through qualitative means

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rather than simply increasing a business’ profitability (though the value of a business is rarely harmed by increasing its bottom-line). So how do you do that? By assessing your business and considering what a prospective new owner would not only require continuing the business after you hand it over, but what would make it easier?

When valuing a business, a competent valuer is going to consider

qualitative factors of a business such as documented work procedures, whether the business premises has a long term lease in place, are key suppliers and customers locked in with contracts, and various other considerations that would reduce the risk of taking over a business.

The reduction of business risks to a prospective purchaser is the key to an increased multiple; and an increased multiple means an increased value.

Like any specialist service, business valuation requires the systematic application of academic rigour within the context of sensible, commercial considerations. A onesize-fits-all approach is not only inappropriate; it can be misleading and potentially damaging. To assume that the CFME multiple that was appropriate for one business is automatically applicable to the next business is quite simply incorrect.

Multiples are assessed on a case by case basis by considering the individual circumstances and attributes of the subject business, but with a measured and targeted strategy there is absolutely no reason why any business could not increase the multiple applied in its valuation. * Occasionally, through pure happenstance, the multiple might just happen to be 3. n

Brett Goodyer is the Managing Director of online SME Due Diligence and Valuation portal www.bizdilgence. com.au and Director of SV Partners Forensics (NSW). To discuss your needs or the needs of your clients with Brett you can call him on 0447 264 224 or contact him on brett.goodyer@svp. com.au. He is also rather impressed with himself for working a ‘Dude.

Where’s My Car?’ reference into a business valuation article.

FEATURE - BUSINESS SERVICES

GENERATING PASSIVE INCOME NEW ECONOMY FROM THE

“We have a service in constant need, and we’re meeting that need in an innovative and highly leveraged way to generate a mainly passive income stream for franchise owners...” says Jayesh Kasim, Managing Director of Valenta BPO.

By Glenn Walford

I

n a truly global economy, the old barriers to tapping into workforce support, no matter where you or team members are based, have effectively disappeared.

Outsourcing many business functions into the global pool of labour is the new frontier and MUST be part of the conversation and analysis when truly looking to maximise a business’ efficiencies in productivity, work flow and staffing costs.

Up until quite recently, it could be argued that offshore outsourcing mostly use to be the domain of larger corporations, and was characterised by the offshore telemarketing and phone support services in call centres.

This could not be further from the reality now.

“Businesses of any size can, and should benefit from outsourcing offshore. This could be for some, or all functions, but the extent of offshoring that is suitable depends on the type and operation of the business, as they are all different.” says Jayesh.

“For some businesses, it may just be administrative tasks in the form of a remote personal assistant, book keeping, help desk support

and the like, that’s very easy and logical in many cases. For others it could be more complex with entire departments and or functions in a business being handled remotely.”

Offshore outsourcing is not new, and it is probably reasonable to surmise that many businesses have not gone down that path due not feeling that they have the expertise to do it properly. There is no doubt that the thought of what it would take to find, hire and then manage someone that remote from your business, would be a barrier for many SME’s.

This is where Jayesh saw his opportunity.

“This is what we do! We are helping Australian SME’s of all sizes to access real efficiencies in their businesses to allow them to grow into what they have the potential to be.”

“The way we’re doing it is such an exciting thing for me. We’ve built a system with offices around the world, so a professional / executive here in Australia can own their franchise region, where they are introducing SMEs to the enormous benefits of offshore outsourcing.”

“The SME is their client, they have the relationship with them, and they find and recommend ways within these businesses to help them grow using offshore support. And it’s not challenging to do when you consider that accessing the global market of qualified labour sees wage rates payable from just $6.50 per hour (still with relative equivalent buying power in their economies).”

“And all you do in that territory is find the SME, maintain the relationship and introduce the operations team to your client and we do the rest in finding and managing the remote staff for them.

For finding and managing the client relationship, you as the franchise territory owner get paid a great % of EVERY hour worked by every team member placed on-going.

That is the primary, but also is just one of our income streams.

It does not take much to see that the more clients you build and staff they place at low costs, could blossom into a strong and mainly passive income stream for you.” n More About Valenta BPO

franchisebuyer.com.au

27

FINANCE

FINANCES,

THE FRANCHISE DISCLOSURE DOCUMENT AND THE IMPORTANCE OF

DUE DILIGENCE

Paying close attention to the financial health of the business on the way in is the best investment you can make.

By James Scurr

28

MAGAZINE

L

ike any major financial decision, it is important as a potential franchisee to know you are committing to before you sign on the dotted line. Getting information surrounding what is expected of you as a franchisee, your commitments, contract terms, and most importantly, the status of your finances is a must before jumping into any franchise agreement.

This kind of background research is known as due diligence, and ensures that as a potential franchisee, or any buyer for that matter, that you have a realistic

Disclosure

picture of the franchise you are buying into.

However, reviewing the financial performance of a franchise before purchase isn’t always an easy task.

This can be the case as franchisors are limited in the financial information they can provide, in order to ensure that they are not making inaccurate representations that you may rely upon.

A Franchise Disclosure Document (FDD) should cover all the key points that may influence any potential franchisee’s decision. From a financial perspective, this document can help you highlight fees that may not have been previously considered, including required refurbishments, marketing levies, renewal and transfer fees and so on.

It is important to thoroughly analyse the information given, as the FDD will tell you if there are any legal proceedings against the franchisor, the history of the directors and most importantly it will tell you how many stores have ceased to trade, how many have been sold, how many have been bought back by the franchisor and it will list any previous and current franchisees and their contact details.

This information alone doesn’t always give you the whole picture.

Hence, there are steps that you can take in order to find out more about the business before you buy.

It’s up to you It is up to you to seek alternative sources of information that can help build a bigger picture about the true state of the business and the viability of the franchise. Though you will be going through a credit check for your finance, also paying to have one

From a financial perspective, the Franchise Disclosure Document can help you highlight fees that may not have been previously considered, including required refurbishments, marketing levies, renewal and transfer fees and so on.

undertaken on the franchisor can provide useful insight on whether they are keeping on top of their bills, which can often reflect their attitude towards management of finances.

Whilst many franchisors opt not to disclose any financial figures that would provide an indication of future earnings, it is required that they provide their own financials for the past two years, or provide an independent audit that assures the business can pay its debts.

Meaning that franchisees are not left completely in the dark.

Often though, nothing is as reliable as going straight to the source.

Reaching out to existing franchisees can help give a general idea of how happy they are with the performance of their franchise and how they view their relationship with the franchisor.

These things can help provide some franchisebuyer.com.au

29

FINANCE

A good way to prevent this happening is to seriously consider hiring a franchise consultant or business advisor to help break down all the information contained in the FDD, ensuring that any decisions made are done so when you are properly informed. useful advice about whether the brand is a good cultural fit. Some existing franchisees may even be willing to share some financial information with you to help in your assessment of the opportunity.

Many prospective franchisees are driven by an emotional attachment to the brand and business they are wanting to invest in. As a result, sometimes this manifests in a failing to invest time into conducting due diligence as they struggle to take 30

MAGAZINE

emotion out of the decision. Don’t let that happen to you!

A good way to prevent this happening is to seriously consider hiring a franchise consultant or business advisor to help break down all the information contained in the FDD, ensuring that any decisions made are done so when you are properly informed.

Whether it is your first time investing in a franchise, or you are expanding out into your tenth site, getting a clear indication of financial performance can be a challenge. Conducting due diligence is an important part of the franchise purchase process and can help prevent problems and the dreaded buyer’s remorse down the line. n

James Scurr is the Founder and Managing Director of Cashflow It, a specialist equipment finance company and the only equipment-funder focused solely on the Australian franchise industry. He has almost 20 years’ experience in the franchise industry having spent time as a successful multiunit franchisee for campanies, including Boost Juice Bars. James has extensive franchising and small business experience and has an acute understanding of franchisees’ requirements.

Phone: 1300 659 676 Email: james@cashflowit.com.au Web: www.cashflowit.com.au

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