Utilising the franchising muscle

Businesses big and small, new and old have been feeling the pinch recently from the slowing global economy, and franchise businesses are no different. By Rod Nuttall.

DURING AN ECONOMIC slowdown, such as now, it is important for franchisees to use the strength of the franchise system to their advantage. Doing the basics well by taking control of operating costs and keeping the business’ finances in good shape will help boost its resilience and keep profits turning over.

There are many benefits and advantages to being part of a franchise system, especially in times of economic slowdown. An established franchise brand brings with it the added security of a tried and tested model with robust processes and procedures that are handed down through the network.

Buying power is also greater due to well-established supply chains, meaning that franchisees have access to stock at lower prices. Structuring supplier payment methods correctly from the beginning will go a long way toward streamlining operations and making the business work more efficiently.

Often, established systems have a centralised marketing fund – another great resource available to franchisees. The funds for this are collected from each of the franchisees in the form of an advertising levy. Unlike independent businesses, which rely on individual store marketing initiatives to reach out to customers and prospects, the franchise system marketing fund allows for a broader scope of activities with greater clout, which can penetrate target markets beyond the local area.

Keeping financially fit

No matter what the economic climate and despite business performance, it is important to conduct a financial health check regularly. It is also advisable to conduct a similar process on the system you’re buying into, so as to satisfy any concerns about security and financial efficiency. Ultimately, this is a good way to gauge whether the franchise has the strength to withstand any downturns in the wider economy.

To assist with this, all franchisors should have an established and proven profitability model in place which can act as a benchmark. This model will track business costs such as salaries and non-wage costs and also the current cash flow and cash flow projections.

Once satisfied that the model is in good shape, prospective franchisees should adhere to it when they start running their own business. Remember, one of the major causes of a failing franchise businesses is the under utilisation of the resources available, such as this franchise profitability model.

Aside from the profitability model, there are also a number of other resources across the franchise network that a franchisee can call upon to help boost success and optimise business efficiency.

The support network

Another key mechanism during the good times, and the bad, is to utilise all the resources available across the network and within the wider local business community.

Internally, a franchisee can seek support from other franchisees or the area manager, and can also draw on expertise from as far up the franchise chain as the chief executive officer. The Franchise Advisory Council – an internally focused group within the franchise system – is often a good means of establishing and maintaining communication between franchisees.

Outside the system, the Franchise Council of Australia (FCA) is a valuable resource, providing a forum to discuss any broader issues. The FCA also provides an opportunity to become more actively involved in franchising activities outside of the system and meet with owners from other systems.

Franchisees can also draw on the expertise of specialist franchise business bankers and other financial advisors. With a wealth of experience and knowledge about the financing requirements of franchise businesses, these advisors play an integral role in driving the business to success.

Specialist franchise business bankers and other financial advisors also play an integral role in helping to manage a profitable franchise business. It’s important for all franchisees to remember that working on the business rather than just in it is the key to success. By adopting a proactive approach, franchisees should be well placed to succeed in any situation.

Rod Nuttall is the National Executive Manager of Commonwealth Bank’s Franchising division, a specialist team of business bankers providing tailored financial solutions to both franchisees and franchisors around the country.

Mobile 0420 946 013 or visit www.commbank.com.au/franchise

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