Create your very own Auto Publish News/Blog Site and Earn Passive Income in Just 4 Easy Steps
The opinions expressed by Entrepreneur contributors are their own.
As a former franchisee and current franchise consultant, I am often asked about the lessons I have learned from both my personal experience and from working with over 800 franchise candidates over the years.
Below I have provided some practical insights that provide you with actionable options to help you on your franchising journey.
1. Focus on the skills required of a General Manager
Traditionally, as a General Manager – or as I like to call it, OEO (Only Executive Officer) – you are a jack of all trades. You need to know up front if you (the franchisee) want to take on the role of General Manager or if you are going to hire someone to run the day-to-day operations.
Note: The skills required of a general manager vary depending on what type of franchise (location-based brand or service-based brand) you own.
Location-based brands:
While running a boutique fitness franchise, I discovered some key metrics that looked great on paper but weren't translating into sales.
As a fitness company, we attracted people who were great trainers and had a passion for fitness. However, we soon realized that this passion did not translate into sales. After working with a CEO who had a great personality and was a hard worker, we also realized that he was not very forward-thinking. If nothing went wrong, he did not know how to plan or look ahead to develop future opportunities for success.
In turn, we needed to define that the ideal General Manager is someone who lives and breathes sales, has excellent marketing skills and is also passionate about fitness. By defining these critical skills for success, we were able to hire more effectively. In general, the processes for location-based brands are very straightforward, so the critical skills for your General Manager are marketing and sales.
Service brands:
In general, service-based brands are more hands-on and follow more of an owner-operator model. (As opposed to my location-based boutique fitness brand, consider a home service brand like painting.)
In years past, these franchise owners not only did skilled labor and managed customer inquiries/tickets, but also managed marketing and sales projects. Fortunately, technological advancements about 5-10 years ago streamlined the service-based sales requirements. Today, these owners have robust operational software structured for marketing, ticketing, and sales. In turn, these brands have become partially more absentee and managers do not need to be sales and marketing geniuses.
Service-oriented brands therefore need to be less concerned with acquiring customers and instead their required skills need to focus on providing/executing services and managing employees.
Related topics: Which franchise model is right for you? How to make the choice.
2. Prioritize the right location
It seems obvious: choose a location in a densely populated area. But it's not quite that simple. When I started, I didn't realize how important density is to the location.
The goal: You need a high density of your profile customers.
As a general rule of thumb, the more often the customer comes, the more convenient the connection to their home must be (the higher the density within a 10-minute drive radius). If people come to you once a month or every two months, they will pay less attention to location.
As a franchisee, you have a huge advantage in location selection because of your relationship with your franchisor. For example, your franchisor should have access to a demographic profile of their customers that includes household income, age range, etc. In addition to traditional demographic data, many also use psychographic data that indicates how people spend their money (lifestyle characteristics), how flexible they can be (e.g., traveling couples whose children are out of the house), and their economic capabilities (dual income, no kids, or “DINKS”).
Note: While some of these tools can be very sophisticated, this is not the only thing you should consider. You need local real estate expertise and your own gut feeling. Don't blindly rely on the franchisor – they should give the green light, but you need to triangulate.
Related: Thinking of franchising your business? This franchise consultant shares his top advice after 20 years in the industry
3. Invest in effective tools
It's important to invest in tools that give you the best value for money. For example, in my fitness franchise, we invested in a low-cost scheduling software that has been extremely effective.
First, we defined three basic job roles: manager, shift leader and employee.
Through cross-functional training, we ensured that a manager could perform their duties and those of a shift supervisor or employee, a shift supervisor could perform their duties and those of an employee, and an employee could only operate within their designated role. Any manager could perform any role. If someone had to miss a shift, they could offer their shift to someone trained in their role and it would automatically be released to someone else.
This tool has saved us time and administration while giving our employees the freedom to set their own work hours. Take the time to research effective tools for your brand – you'll thank yourself later.
4. Ensure sufficient working capital
After all, you are running a business and need to have sufficient start-up capital.
A major reason young franchises fail is not that the franchisees are not running a good business, but that they may be undercapitalized and not allowing enough room for error. Maybe a pandemic hits, maybe the general manager quits, etc. People tend to underestimate the value of “extra” capital.
Item 7 of the FDD (Franchise Disclosure Document) describes the “estimated initial investment” that a new franchisee must make before starting. This document provides a breakdown with a lower and an upper column (e.g. vehicles, equipment, etc.). The law requires a minimum of 90 days of liquid capital.
Related: Is franchise ownership your next wealth move? Here's how it compares to four other income streams
The reality is that few new businesses start cash flowing (making money) within 90 days – although this is the requirement, it is not realistic. Make sure you give yourself a little more wiggle room than you think you actually need.
There is no way to avoid all the obstacles that come with owning a franchise, but it is important to learn from people who have experience with franchising before jumping into the adventure.
Create your very own Auto Publish News/Blog Site and Earn Passive Income in Just 4 Easy Steps
