When it comes to franchise support, there are two areas where I see franchisors fail to meet their franchisee’s needs. These observations come from working with franchise systems of all sizes. I work with clients starting up with a couple of units to those with as many as 200 units.
I was a franchisor in the past, so I know there is a genuine desire to support franchisees. After all, the success of a franchise helps the franchisor. However, beyond the financial impact, franchisors are human and want the best for owners who have decided to buy into their system.
Most franchisors I work with struggle to put together coaching systems in place that meet the needs of those in their system. Larger franchisors often have data-driven approaches to support that almost guarantee a certain level of success. Why can’t emerging franchisors do the same?
In my work with franchisors and their franchisees, two key areas stick out that are consistently under-supported. With a certain level of emphasis in these areas and some data-backed methods, franchisors could see dramatic improvements in their system.
As a franchise CFO, it is my job to arm my clients with the data to build sound approaches to coaching. Armed with the data that a CFO can provide, franchisors can build systems and resources to support the acute needs of their ‘zees.
Improvement Area #1: Sales Support
Franchising is sometimes called a business in a box. However, the part that is often missing once that box is unpacked is a systematic sales approach.
I recently analyzed a large franchise system’s unit-level growth trends. One essential item I noted was if their franchisees did not reach a certain level of sales within the first 7 months, that 50% were out of business in year 2 and 75% in year 3. Furthermore, if they did not reach this sales level by 7 months, they only had a 4% chance of ever reaching it.
Armed with that data, a franchise coaching program would likely conclude that the only coaching that matters in the first 7 months would be centered around sales.
Recently, while giving a presentation at a client’s franchise convention, I asked the audience of around 30 franchisees to raise their hands if they felt like they were good business operators. Almost all raised their hands. I then asked them to raise their hands if they felt they were good salespeople. Only around one third raised their hands.
I have often remarked to my clients the best thing they can do for their franchisees is create as many sales as possible for them. The saying is true, “sales cures all”. There has never been a business in the history of business that has ever succeeded without sales.
Franchisors spend too much time building systems around operations and potential efficiencies. However, the hard truth is none of these systems matter without a steady stream of revenue.
Franchisors must have a robust system to drive sales for their ‘zees. As a franchise CFO, when I think of a sales system, I think of detailed methodologies about how to find prospects, approach them, and close the deal. What many franchisors don’t realize is that most of the owners in their system have never had to truly sell before. They need coaching on how to find customers and sell to them.
In the first several months, it is critical to build ‘zees into selling machines. Once these systems and traits are learned, they can be used to scale the business for years. Sports coaches have a saying that once a skill is shown by a player, they own it. In other words, once something is learned and exhibited by a person, they then can repeat it. The same goes for teaching franchisees sales skills.
What Are the Traits of Sales Coaching?
The first trait of successful sales coaching is a system. After all, franchising is all about systems. A franchisor must have a system for how to generate sales.
A sales system will differ for each concept. However, each system will have 3 general components.
First, how does a concept identify and approach prospects? A prospect is anyone in the target market for the service or product the business is selling. Where can you find the target market? Once this question is contemplated, there are often some creative (ingenious?) ways of finding the audience that competitors are not using.
Once this population is identified, there should be a methodology of how and where to approach them. What is the offer? A franchisor should have resources that have shown to be successful in messaging to the audience.
Lastly, there should be resources for closing the deal. This could be in the form of a website to take orders. Or it may be resources around different service options. Regardless, the franchisor should have a system to close prospects once they are engaged.
As a franchise CFO, I am certainly not the best versed in sales. However, as someone who looks at data, I can tell you that systematic approaches to sales often yield the best results.
Improvement Area #2: Cash Management
It goes without saying that starting a business requires huge cash resources that are often not recouped for months or even years. Actually, it doesn’t go without saying. One of the biggest problems franchisors face is that the reality of starting a business (any business) is not understood by their franchisees.
Furthermore, once a business is started, franchisees possess few skills about how to plan and manage cash flow. According to the Small Business Administration, almost three-quarters of business failings are due to cash flow issues. It would surprise some that many of these businesses were profitable.
At the conference I mentioned earlier, I was set to talk for 60 minutes on finance best practices. We spent almost the entire time talking about how to finance growth. Many new entrepreneurs don’t realize that there is a cold, hard, cash cost to financing growth. Business owners are often forced to lay out cash to vendors and suppliers before receiving it from customers. This “cash gap” grows wider as the business becomes more successful.
Owners are often caught off guard by this. The person getting squeezed is often the owner as they forego distributions and salary to finance growth.
As the saying goes, “There has to be a better way”. And there is! However, there must be planning ahead of time so that when cash needs arise, they are easily taken care of.
Teaching Franchisees to Finance Growth
Unlike large corporations, small business owners are often limited with less enticing options to finance growth. If a small business owner walks into a bank asking for a line of credit to fund growth, they are often quickly turned down.
Financing growth requires credit and debt. Many business owners vow to not incur debt to grow their business. I tell my small business CFO clients that there is such a thing as good debt. Good debt is controlled, managed, and paid timely.
The first line of defense in funding the cash gap is often a good business credit card. Savvy owners can use business credit cards to accrue points or other benefits that often act as a tax free distributions. When I bring credit cards up, several owners cringe – credit cards are known for ruthlessly high rates. However, management of this credit can lead to 30-45 days of interest-free financing, which often will close the cash gap.
The next stage is a line of credit. While a credit card comes at an interest-free rate,a line of credit starts charging interest from the second it is drawn upon. However, the rate is typically much lower and the availability of credit is often higher. Earlier I mentioned most banks won’t consider this. However, with 24-36 months of solid operating results, local banks will be more open to conversation.
Lastly is a cash flow management system. If owners know that there is a cash crunch coming in a few weeks, they can often navigate around it. The key is having a system in place to identify this upcoming cash crunch.
By teaching these methods, a franchisor can further ensure the success of their investment in a franchisee after the initial sales cycle is achieved.
A Coaching System Saves Time
Knowing what to coach franchisees means that a franchisor also knows what they don’t need to spend their time on. The result is often a coaching program that takes less hours (and stress) to complete.
I recently helped implement a coaching system with one of my clients. Using data, we had our coaches key in on sales for the first 8 months subsequent to opening. This was intense 1:1 monthly coaching along with a monthly 1:many webinar.
If a franchisee achieved a certain revenue amount, they graduated to the next level of coaching that concentrated on issues encountered when scaling the business. This level of coaching was focused on a 1:many format with monthly webinars. Each month a new topic, typically centered around finance and staffing, was tackled. The only 1:1 coaching done at this point was done yearly.
For those franchisees that didn’t reach the revenue goal in 8 months, they could continue the 1:many sales webinars monthly, but they no longer received 1:1 coaching.
Having a system for coaching saved our coaches hours a week. They now knew exactly who to coach and what to focus on.
Data-Based Coaching
To create this system of coaching, we relied on data. We knew exactly when our franchisees should reach their revenue goal and what their revenue goal should be. Because we had data, we also knew that it was critical for 1:1 coaching for a certain time.
Every franchise system poses the data to complete the same analysis. As a franchise CFO, its about how to put the data together and analyzing the trends.
Krieger Analytics Can Help
Krieger Analytics has several franchisors who rely on them as their outsourced CFO. These franchisors range from just a few units to more than 200. We are an expert in franchising because we have been a franchisor. Our expertise doesn’t just come from theory, it comes from practice.
If you would like to learn what a CFO can do for your franchising company, contact us now. We’d love to see if we are a good fit and can help you accomplish your goals.