As we continue to look at what steps to take prior to investing capital, it is important to know there are parts of the business plan that franchisees leave out. Whether you are investing the total sum of capital or, you have investors such individuals or financial institution it is real important to complete a full business plan. There are many parts to a business plan, and when you don’t know how to completed one, there is help out there. One of the top business plans programs is Palto Alto Software. They have different ways to completing your plan, either web base or downloadable software that you can own on your computer. A business plan will help you to gather information and ensuring you prior to investing and minimizing your risk.
Looking at “Top 5 Questions” to ask when considering becoming a restaurant franchisee. In our last blog, we looked at Question #2:”When working with successful franchisees, what are three common traits that you see in these business partners that made them successful?”
In this blog lets look at the three essential items missing:
Question #3:”When you receive a business plan from prospective franchisees what do you often find missing”?
1. 1-3-5 Year Performa
When looking at prospective franchisees, we have concluded that they are missing financial planning with realistic projections. So what is a Performa? A Performa is a business plan with formal statements of a set of business goals, the reasons they are believed attainable, and the plan for reaching those objectives. It may also contain background information about the organization and the team attempting to reach those goals.
2. Operator / General Manager
Hire an experienced person to operate the day to day business. There are techniques that can lead you to the right person and in Dave Ramsey’s book EntreLeadership he mentions he avoids IQ test and other measures of raw intelligence. Malcolm Gladwell found in his research for his book Outliers that IQ or GPA is seldom and indicator of success.
3. 9-12 Month Operating Capital
In Dave Ramsey’s book EntreLeadership, “6 month’s of operating capital saved in cash” will give you ability to meet financial obligations. I say 9-12 months provides you with a lot of cushions. Paying cash and no debt will give you financial freedom and allow you to try different marketing ideas until you have reached the breakeven points and profits.
Let’s review each one of these;
Assemble a Realistic 1-3-5 year Performa – Keyword “Realistic”
A common mistake often made by first-time business owners is putting together an unrealistic Performa. This miscalculated step, can, and in most cases have devastating (financial) impact to your business, and personally/ emotionally to a business owner.
An unrealistic performa is tantamount to planning a trip in your car from New York to California, (on limited resources). When planning the trip and not budgeting a realistic cost or expenses plan before leaving, only to depart, get halfway and find you are out of money.
Build realistic performa and allow a CPA to challenge the assumptions used in the budget.
Operator / General Manager
Hire an experienced person to operate the day to day business.
If you’re planning to be that person, do yourself a favor and get as much training as you can prior to beginning your business. Also, understand this may not be a 9am to 5pm venture. Understanding this is one of the first steps to success. Starting a business is not only an investment in capital, it is imperative to understand, it is also an investment in time.
If you’re planning to hire someone in this role, create a list “have to’s”. Dave Ramsey calls this “KRAs,” Key Results Areas, “this will help you define who you are looking for as well as clearly communicates what the position entails.” Interviewing several candidates will give you the prospective and have dinner with the perspective candidate and their spouse and of course invite yours. If you’re not a competent interviewer, or feel you can’t make the right choice, hire someone who has experience in interviewing. Do not underestimate the role of this person you are hiring for your business. Remember, this is not the time to cut corners, nor look to save money. When thinking about pay structures you should always take it seriously.
An active operating Manager will not only help you identify expenses that may be hurting your business, but will also correct and eliminate those problems that negatively impact profits.
9-12 Month Operating Capital
Depending upon how successful your business performs in the early stages, may dictate the need to infuse some capital into your company. It all depends on how quickly sales and revenue perform. If you have a “Soft Opening” or, sales ramp up slowly it may require investing additional capital into your business until it reaches a break-even point. You should indicate this in your outlined in your Performa.
Next blog: As a Franchisor, what would you expect from me?