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Management & Support Requirements For New Franchisors


About the Panel • Dave Hood, President, the iFranchise Group – – – –

27 consultants across four functional specialties 500+ years of experience in franchising 98 of top 200 franchisors Affiliated companies: Franchise Dynamics and TopFire Media

• Harold Kestenbaum, Partner, Gordon & Rees – – – –

Named one of the top 100 franchise attorneys in America 30+ years in franchise law Former board member of publicly traded franchisor Noted author: “So You Want to Franchise Your Business”

• A lot to cover, so please hold questions • Will email copies of this presentation, so you do not need to write notes • A little about you? Copyright, The iFranchise Group, 2013 All rights reserved

The i Franchise Group

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The Importance of Strategy Copyright, The iFranchise Group, 2013 All rights reserved

The iFranchise Group

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Strategic Planning The Key to Success

• You are entering a new business. • Goals drive your business. Start with support and cost structure. • What do you need to do to help your franchisees succeed? • Don’t rely on guesswork: The future of your business is at stake. • Financial analysis is essential. • Reverse engineer your success.

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The iFranchise Group

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Goal Driven Modeling Goal

Sell for $10M in 5 Years

Average Selling Price

6.7 times EBIT

Year Five Earnings

$10M/6.7 or about $1.3M

Average Royalties

$30,000 per franchise

Average Net Royalties

$10,000 per franchise

Need to sell

$1.3M/$10,000 = 130 Franchises

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Goal Driven Planning

Sales

50

30 25 15 10 Year

1

2

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Goal Driven Planning

Hire Franchise Salespeople 50

Sales

30 25 15 10 Year

1

2

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Goal Driven Planning

Hire Field Reps Sales

50

30 25 15 10 Year

1

2

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Goal Driven Planning

Hire Support Staff Sales

50

30 25 15 10 Year

1

2

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4

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Goal Driven Planning

Sales

50

Personnel Marketing Office Space

30

Brochures

25 15 10 Year

1

2

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5 The iFranchise Group 10


GAP Analysis and Growth Planning

Year One Hires President/CEO Year Two Hires Human Resources

Year Three Hires

General Counsel

Chief Financial Officer

Legal Staff

Accounting Staff

Chief Operating Officer

Director of Training

Director of Purchasing

Director of Marketing

Purchasing Staff

Marketing Staff

General Manager Operations

HQ Support Staff

Field Support Region 1

Field Support Region 2

Field Support Region 3

Field Support Region 4

Franchisee & Company Operations

Franchisee & Company Operations

Franchisee & Company Operations

Franchisee & Company Operations

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Director of Franchising

Franchise Sales

Director of Real Estate & Construction

Compliance

Site Selection

Design & Construction

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Staffing Ratios for the Franchisor The right staffing ratios for your company will depend on a variety of factors including:  The type of industry in which you operate  The complexity of your unit level operations  The speed at which your system is expanding  The geography over which you’re expanding  Ability to cluster units  The types of franchises you are awarding  Your philosophy toward support

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The i Franchise Group

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Typical Staffing Ratios Franchise development staff  Single unit focus = 1 for each 12- 20 deals  Multi-unit focus = 1 for each 5-8 deals Field support staff  Single unit restaurant = 1 for each 20-25 units  Multi-unit restaurant = 1 for each 10-15 owner groups  Territory-based service system = 1 for each 30-35 owner territories Field marketing staff  1 for each 50 to 100 units/territories Overall staff to franchised locations (within a mature organization)  1 staff equivalent for each 7 to 11 locations Copyright, The iFranchise Group, 2013 All rights reserved

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Cash Flow Modeling for Growth Conservative Growth $ Only incremental cost is franchise marketing and that can be a variable cost after a start-up allocation

The Golden Rule: Grow No Faster Than Your Ability To Support Your Franchisees

Second Hire

Royalty & Gross Margin Revenues Leverage Existing Staff and Minimal Advertising

First Hire

Loss

Time


Marketing & Selling Franchises • Factors affecting sales and marketing management – – – – –

Speed of sales Size of investment Type of sale (area development, area rep, conversion, etc.) Marketing budget and plan Internal capabilities

• Alternatives – Internal development – Hire an expert – Outsource

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The Franchise Sales Cycle Concept & Value Proposition Offer/Structure

Validation

Pre-Sale Communication Marketing Plan

Support Message & Materials Opening Assistance Advertising Expenditures

Post-Sale Training

Selectivity

Sales Process

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Developing a Best in Class Support System

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Focus Within a Franchise Support Program

Compliance 20%

IMPORTANT ROLES: • • • • •

Brand Ambassador Trainer and Coach Operations Expertise Marketing Support Financial & KPI Analysis

80% Helping franchisees increase revenues and profits

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Focus of Support May Vary Based on the Types of Franchisees You Have

Multi-Unit Franchisee

Single Unit Franchisee  Financial statement basics

 Detailed business planning

 Expense controls

 Financial benchmarking

 Best practice sharing

 Planning for capital spending

 Sales training

 Technology development

 How to manage a family business effectively

 Multi-unit management training

 Strategies for local store marketing  Hiring good employees

 Assistance with finance or lease programs  Input on key strategy issues impacting the brand

 Managing employees

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Building Blocks for Supporting Franchisees

Nine Primary Areas of Support Third-Party Supplier Support Communications and Technology Brand and Local Marketing Field Consulting Supply Chain Ongoing Training Pre-Opening Training Construction Real Estate Not relevant to some service businesses.

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Field Support Process Primary decisions to be made:  Qualifications for the field support position  Compensation structure  Where should reps be located?  Ratio of reps to units  Frequency of visits  Routing efficiency  Agendas for each visit  Business planning tools  Use of mystery shops or quality assurance resources

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Best Practices Operations Manual • Key here is “best practices” • Serves many functions – – – – – –

Sales Tool Training Guide Reference Tool Liability reduction Enforce system standards for Quality Control Extension of the legal documents

• Knowing what to document, what to mandate, what NOT to document, and what NOT to mandate is key

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The iFranchise Group

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QC – Beyond the Operations Manual • Faster growth requires formal training programs – For your staff – For franchisees

• Train-the-Trainer too – Franchisee will train their staff – Should have tools to do so

• Video pushes QC to lowest level of organization • On-line training decreases costs, increases quality, and can decrease liability – Customized by employee – Document what is reviewed and test scores – Lowers on-site training time and costs for both the franchisor and the franchisee Copyright, The iFranchise Group, 2013 All rights reserved

The iFranchise Group 23


Key Steps In The Planning Process With Franchisees Provide benchmarking data to franchisees throughout the year, allowing them to measure their own progress against the system as a whole.

Schedule an indepth meeting with each franchisee to develop their plan for the coming year

Create and continually refine the planning process with the input of your franchisees

Communicate the final process both internally and to your franchisees

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Meet with franchisees at least quarterly to review progress to the plan and actions needed to address problem areas

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Business Planning With Your Franchisees The planning process will vary based on the needs of each franchise system. In general, however, a franchisee’s plan will focus on areas such as: Marketing

Operations Management

Human Resources

Facilities

Budget

Revenue Goals

Staff Levels

Maintenance

Local Marketing

Cost of Goods

Co-op Planning

Operating Expenses

Training & Development

Construction & Trade Dress Updates

Support of Systemwide Initiates Tracking Marketing Performance

Overall Profitability

Compensation Plan

Capital Expenditures

Turnover Targets

Cash Budget

New Staff Hires

Operations Quality

New Equipment Technology & Software Facility Lease Review

Customer Feedback

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Communications and Technology

Phone

Field Visits

Newsletter

Training

Secure Web Portal

Conference Calls Communication

E-mail

Strategy Blog

Social Media

Webinar

Convention

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Advisory Council


Legal Issues In Managing the Franchise Process Copyright, The iFranchise Group, 2013 All rights reserved


Legal and Sales Best Practices

Limiting your liability:  Be sure your FDD is kept current  Making changes as the system matures  Develop a system to track state renewals and ensure compliance for each franchisee  Conduct appropriate background checks  Develop and monitor a system (at closing) for verifying and documenting that no inadvertent disclosures were made  Train your franchise sales force on an annual basis  Mystery shop your franchise sales force using an outside firm to ensure legal compliance – will also be a great report to have if you ever do have litigation. Copyright, The iFranchise Group, 2013 All rights reserved

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Accounting and Auditing Best Practices

Limiting your liability:  Make sure that all payments are kept current and that late payments are addressed promptly  Make sure that the audit is begun on a timely basis and that auditors finish on a timely basis so you do not “go dark” on franchise sales  Install a system for tracking and documenting that each franchisee is maintaining proper insurance coverage  Install a system for tracking and documenting that all franchisee licensing is kept current  Install a system for documenting appropriate franchise background checks, financial diligence, representations. Copyright, The iFranchise Group, 2013 All rights reserved

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Operations Documentation

Limiting your liability:  A good Operations Manual can help you avoid litigation  A bad Operations Manual can be a franchisor’s worst nightmare  Operations Manuals must provide you with adequate brand control but should not be too prescriptive – a fine line  Must avoid creating an inadvertent “agency” relationship  Must avoid potential areas of negligence or take great care when prescribing actions  Should cross-reference regulations and not cite them  Should be updated annually and reviewed by professionals and attorney. Copyright, The iFranchise Group, 2013 All rights reserved

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Operational Support

Limiting your liability:  Have a standard compliance checklist for field support that does not leave room for interpretation  Make sure your support people document everything and that you keep a detailed file on each franchisee including all correspondence, contracts, FA, FDD, etc.  Supplement field support visits with Secret Shopper Programs  Document all client calls using Contact Management Software  Train your staff on a regular basis on appropriate franchisee communication and interaction, as well as best practices communications techniques – especially emails!  Develop a Field Support Manual for identifying problems and maintaining best practices. Copyright, The iFranchise Group, 2013 All rights reserved

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Real Estate Support

Limiting your liability:  Document your requirements and process the franchisee must follow  Ensure the franchisee conducts and documents their own due diligence  Approving versus accepting the franchisee’s site  Ensure the franchisee retains a qualified real estate attorney  Review each lease to ensure your lease requirements have been met prior to execution.

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10 Common Mistakes in Supporting Franchisees 1.

Lack of commitment to providing adequate support, particularly in the early years of franchising

2.

Hiring support staff that is under-qualified or given insufficient training and direction

3.

Lack of operational experience by the franchisor

4.

Failure to build the support program around the issues that are most important to franchisees

5.

Failure to involve franchisees in key decisions

6.

Failure to develop an effective change implementation process

7.

The belief that technology can replace human contact

8.

Failure by the franchisor to measure the results of its support efforts

9.

Negative attitudes toward franchisees

10. Fear of losing control with either the support staff or franchisees 33 Copyright, The iFranchise Group, 2013 All rights reserved


Questions


Management & support for new franchisors