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Franchise Diary

10 Tips to Manage COVID-19 as a Business by Brody Sweeney

I’m Brody Sweeney, the founder of Camile Thai Kitchen, an award winning home delivery franchise.  This blog is not about my business, but rather some advice for if you’re thinking about franchising, or indeed already involved in it – and want to learn more.

Far too many businesses, both franchised and not, have found the ground torn from under them as the pandemic took hold. If you are one of those finding it hard, I’m setting out some ideas based on how we have been managing the pandemic. We have been incredibly fortunate, despite the trauma experienced by the restaurant industry at large. Camile Thai began the pandemic with a 30% hit to our sales – and we needed to find a way out of it. Through some hard work and clever thinking, we made it work. 

1. Have an opportunity brainstorm.

In the immediate aftermath of the lockdown, a kind of shock pervaded the business world, and many were paralysed into inaction. But not everyone.

Some entrepreneurs have put their heads up, to think about what new business opportunities are presenting themselves. Every crisis gives rise to opportunity, and it’s possible your business could pivot into a new direction which didn’t exist before.

Restaurants that never did takeaway before doing takeaway now. Pubs delivering pints out of vans with beer taps fitted. Wine distributors selling cases to the home instead of to their restaurant clients. Get together with your team (if your business is really small, invite in some friends and colleagues) and brainstorm how you could change direction into a temporary or permanent new direction.

We then tested our new ideas as quickly as we could. This is a time for MVP’s – Minimum Viable Products – where you can get a prototype out to real customers before getting it perfect. The guys who put the beer taps into the back of the Van didn’t wait around to conduct research, or design the perfect looking van – they just got it out there, and got immediate feedback.

2. Be absolutely honest with yourself. Consider going into receivership and starting again.

Absolute honesty is necessary if you are to survive the next period. Avoid wishful thinking and hoping yourself into a better position. I read last week about one of our role model businesses in the U.K., Pret a Manger, who have reopened and are doing only 20% of the sales they were doing prior to lockdown. Pret needs to have a very honest look at their business, because no amount of wishful thinking is going to bring customers back before they are ready. 

One unpalatable option is receivership. If your situation is so terrible that it can’t be turned around, maybe better to bite the bullet and start again, than to flog a dead horse.

You know best your own business. And as the old adage says, you can fool other people for a while, but you can’t fool yourself.

3. Make a one year plan.

It is all about the next 12 months. Survival. So why might you have long or medium term aspirations, if you don’t exist in 12 months time, they’re all academic.

Make a plan for the 4 key areas of your business – in fact the 4 key areas for all businesses – Finance, Marketing, Operations, People.

We know before you start the plan, that it won’t work out exactly, but that doesn’t matter. As you execute your plan and an aspect isn’t working, change it. Then change it again, and keep changing it until you get it right.

4. Where you can, cut costs immediately.

Preserving cash is the only way you can survive until things improve. Defer payments immediately if not already done so – you can figure out later how to pay the deferred amount back. The point here is that if your business is down, and you pay all your bills as due, you might not survive. Contracts across the business world will have to be renegotiated. You’re not alone bending your contracts now – if that’s what it takes to survive.

Cut any discretionary expenditure that you can. Subscriptions, consultancy, travel, bonuses etc. should all be up for grabs.

5. Commmunicate, communicate, communicate

Keeping in close touch with all your stakeholders is not only the right thing to do, but it makes good business sense as well. When you’re not able to have face to face meetings in person, then video calls have been a godsend. I personally never made a video call before the crisis, and now I’m never off them.

On the suggestion of our Head of Marketing Daniel, our leadership team commenced daily morning video call, and we have stuck religiously to this since then. I feel we’ve never communicated better as a team, and we have decided to keep this communication up as the crisis subsides (fingers crossed!)

We’ve also made special efforts to keep in touch with the rest of our teams, including all hands video meetings and regular staff updates about what’s happening in the business. And the results of all this communication ? Less misunderstandings, less stress for our teams, and a better team spirit – all these are so worth having.

6. Keep perspective and ask for help.

For one of the few times in my business career, most businesses in my industry of hospitality are in trouble at the moment. You’re not alone.

Trying to figure out what to do when something like this hasn’t happened before is really hard. This is the time to call in favours, and lean on others you respect and admire for help and support. We have made a point of reaching out to businesses to support others in our industry at what we know is an awful time for them. And we’re not alone. The spirit of help and camaraderie from notional competitors across the business community is inspiring.

I know (from bitter experience!) when you’re in the shit, it’s hard to keep a sense of perspective. And when you don’t have a sense of perspective, you can end up making poor quality decisions. Talking to other industries, to people who are not emotionally involved in yours, can help you stand back, and look critically at where you’re at and where you are going.

7. Mind yourself and those around you.

I’ve never worked harder in my life than during the pandemic. The lines between working and home life become ever more blurred. Finding the mental space or time to look after yourself both physically and mentally, go out the window.

But looking after yourself is a critical element of fixing your business. If you are crushed physically or emotionally, you don’t make good decisions. Your business requires you to look after yourself.

Personal relationships can fall victim to your stress, and add even more stress on. Minding those around you, who are dealing with their own issues, is expected. When you are there for them – you feel better about yourself as well.

8. Celebrate the little wins.

There’s enough bad news and uncertainty out there to last a lifetime. So celebrating little wins is a welcome antidote to the negativity that surrounds us at the moment.

9. Lead from the front.

This is not a time to be a shrinking violet. Even though your world may be full of uncertainty and stress, your team is depending on you to give clear direction. Put on the brave face, put yourself in their shoes – understanding their fears and uncertainties, and give them a sense of a compelling future.

10. Remember the lessons you’ve learned from this period – they will come in handy again.

There’s no escaping that this is an awful time for a lot of people in business. You can’t control many aspects of the external environment, but that doesn’t mean you should be paralysed by indecision or lack of leadership. Put on a brave face and work hard for solutions. Making difficult decisions and innovating your way out of trouble are the qualities that will set you apart from the herd. And that is a quality that will never stop being useful to you. 

Want to learn more about Camile Thai? 

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10 Personality Traits of Winning Franchise Owners by Brody Sweeney

I’m Brody Sweeney, the founder of Camile Thai Kitchen, an award winning home delivery franchise. It’s my third and most fun franchise business, and after 40 years in the franchise industry, I guess you could say I’ve seen a lot – good and bad – about this industry. This blog is not about my business, but rather some advice for if you’re thinking about franchising, or indeed already involved in it – and want to learn more.

 

A misconception with prospective franchisees is the belief that sticking a franchisors name over the door means instant success. What they don’t realise is that a franchise is made up of individual business owners, and that is where the real success lies. The franchisor’s most crucial job comes at the early stage – to make sure they choose the right franchisees for their brand.

When my franchise brand is scouting a prospective franchisee, we spend as much time as we can learning about them and their personal goals. I’ve discovered our best franchisees all have the following traits in common. Do they sound like you? I’d love to talk to you.

1. You don’t want a job. You want a business.

The key difference between owning a business and having a job is that in a business, you are totally responsible for the performance of the business. 

This can be a huge misconception for prospective franchisees. They may be coming from a corporate environment, where the actual performance of the overall business is someone else’s problem. You go home in the evening, and get to relax, secure in the knowledge that your salary will be paid, and your job secure.

Not so in your own business. Every little decision you make has repercussions – good or bad. If you’re making a mess of things and not fixing it, there’s only one place the results of that are going to land, and that’s with you.

2. You love working with people.

All franchises involve you working with customers, and most involve you building a team. If you’re not great with people, then starting any new business, never mind a franchise is probably a bad idea.

I had a friend once who lived in a big house. He was very comfortable in his own company, and didn’t really like visitors. When he told me he was thinking of putting the house on Airbnb, I didn’t think twice about persuading him that this was not a good idea. He didn’t like friends coming to his house, never mind complete strangers!

We conduct psychometric tests with prospective new franchisees, partly to find out about this. Someone could be totally happy as a desk jockey – but for most businesses, you need to love people. 

3. You are resilient, and know how to bounce back.

For most people, starting a new business is one of the most difficult and challenging things they will ever have to do. It’s not just the physical bit of working 12 hour days at the start, but the mental side of dealing with stress, deep disappointments, and crazy highs when you think you are a rock star. All businesses have highs and lows, and require exceptionally hard work, often for extended periods. You need to have the stamina and positive mental attitude to keep going, even in the difficult days.

3. Life never turns out exactly as your business plan thinks it will.

A business plan is a vital element of your preparation for opening your new business, and a good one gives you a road map, down which you drive yourself and your business.

But when preparing a business plan, you need to understand they never work out as planned. You will either do better than you think (this is a good thing), or worse than you think (not so good), but it is extremely rare for a business to perform exactly as predicted.

It’s a fact that all banks love business plans and insist you prepare one, but also know the predictions will not hold true. As one bank manager friend said to me “Brody, I have never seen a business plan presented to the bank that did not show the bank being repaid in full and on time”. This was not the bank’s actual experience in very many cases.

Of course, because very many business plans don’t work out exactly as planned, it’s your capacity as a business person to adjust your plan, and keep adjusting it, until you get it right, that’s what separates the winners from the losers.

5. You are excited about moving outside your comfort zone.

Being in business for yourself often involves you having to do things that are really hard, and which in normal circumstances you would like to avoid. Having to let someone go is one. Another good example is cold calling. To go and knock on a stranger’s door, offering your life’s work for sale is really tough. But a successful business in many franchises requires just that. If you know your hit rate is just one in twenty, then you know your audience and learn to plan accordingly.

Unsuccessful business owners will try it, slow down when the going gets tough, and then make excuses and stop entirely. Successful ones get it, and when they get the rejection, brace themselves as they stand in front of the next door.

6. You know when to step back and trust the brand’s decisions.

Being in a franchise means you have to sacrifice some of your independence, and toe the line. The prize for your patience is greater and more secure profitability. You might want to paint your shopfront neon green and sell Pizza, but at our Thai restaurant chain you’d have to walk over my dead body before I let it happen. That’s because your franchisor realises that a brand is about reliability, consistency, and a common standard. Common standards adhered to by all the franchisees is the best way to ensure the common good.

If you’re someone who really likes making all their own decisions, you might find the restrictions placed on you as a franchisee very frustrating, and you could be better off on your own.

7. You take comfort in being part of a bigger community and team.

While your franchisor will want you to observe their brand standards, keep to their standard operating procedures, and promote the brand in the same way as all the other franchisees, they also need you to be a motivated self-starter capable of making decisions and getting things done.

This is about you being in charge of running your own business, and doing whatever it takes to make the business successful. Disaster for the franchisor is a franchisee who waits to be told what to do all the time.

8. You consider yourself a disciplined person.

Running any business requires huge amounts of personal discipline if it is to be successful. For example, in our retail restaurants we have been extremely disciplined about cash. We take cash very seriously, because if we don’t it has a habit of disappearing in an unexplained way. 

It’s so easy to lose money in business if you are not carefully watching your key performance indicators, and taking appropriate action where you are not meeting them. It’s very hard in the stress of opening a new business to sit down and work out your margins for the previous week, but if you want to avoid unnecessary losses and potentially running out of cash, you need to have the discipline to do these calculations every week.

9. You have to put customers and staff ahead of yourself.

It’s mostly a laughable misconception, at least in our company, that fat cat business owners exploit staff & customers to make huge profits for themselves.

Modern business owners realise that to generate consistent sales, you need to deliver great service, and put the needs and wishes of your customers at the centre of your business strategy.

Great service comes from staff who are happy with their work. And if they’re not happy in their work, your customers will notice it.

Being of service to your staff and customers does not come naturally to everyone, but if like me, and thousands of other business owners you like doing it, then this is for you.

10. As a business owner, you need to be prepared to walk a lonely road.

This is not something people consider, but running a new business where you have to make difficult decisions can be hard on a person. Often things will be happening that you have no experience or knowledge of how to deal with. Realising that your business is not performing as it should, and that you might run out of cash and the business fails, is a very lonely place to be.

Even with the support of a great franchisor, many times the buck stops with you, and that can be hard to handle mentally.

My experience in franchise businesses would suggest that the biggest risk factor for a new franchisee is not the franchise itself, but themselves. You are the most important element that makes the franchise business successful. In Camile, we give every new franchisee a specialised toolkit (business system, brand, marketing strategies etc.) However, it’s up to the franchisee whether they use this toolkit well, or at all.

Before making the decision to invest in a hands-on franchise, have an honest conversation with yourself about your strengths and weaknesses, and your capacity to be your own boss. If you have any questions, you know where to find me. 

Good luck and stay safe.

Brody

Want to learn more about Camile Thai? 

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When to Franchise vs. Go It Alone by Brody Sweeney

I’m Brody Sweeney, the founder of Camile Thai Kitchen, an award winning home delivery franchise. It’s my third and most fun franchise business, and after 40 years in the franchise industry, I guess you could say I’ve seen a lot – good and bad – about this industry. This blog is not about my business, but rather some advice for if you’re thinking about franchising, or indeed already involved in it – and want to learn more.

Join a Franchise, or Go It Alone?

When you’re thinking about starting your own business, many people will advise against investing in a franchise. “You have to pay huge fees” is a common reason I’ve heard, “you won’t be able to make your own decisions,” “you’ll be a small cog in a big wheel.” While these sentiments carry some truth, going the route of full independence (and risk!) comes with its own set of difficulties too.  Which path you choose to take depends on many factors, such as personal vision, personality type and entrepreneurial goals. However, a good franchise can be a much better idea than doing your own thing for a large number of people – keep reading to find out why.

1. It will be easier to raise finance for a franchise.

Banks love lending to franchises, because they are inherently less risky than lending to an unknown start-up. You’ll be able to borrow more (which isn’t necessarily a good thing – the more you borrow, the more you have to pay back!), but regardless, a franchise agreement will likely provide more favourable terms than you would be offered on your own.

2. You don’t have to reinvent the wheel.

Starting a new business on your own is hard. Very hard. Figuring out how it works, sorting out your operating systems, coming up with ideas as to how to market the business, and figuring out what products to sell  for takes time, and generally costs money as you try out one strategy over another. For some very few entrepreneurs it seems to come easy, but for 99% of us mortals it’s incredibly difficult to get a business going.

In a franchise, your franchisor and other franchisees have figured out the nuts and bolts of the business, and you can benefit from that knowledge and their experience of operating in your niche area. It means that instead of re-inventing the wheel, you are able to concentrate on building your business locally, hiring and training great talent, and being an outstanding ambassador for the brand.

3. You may be able to attract better quality employees.

If I have learnt one thing from my years of experience in business, and specifically in franchising, is that the quality of your team reflects the quality of your business. I spend much more of my time in Camile on hiring and interviewing, then supporting and mentoring our team, than I did in any of my previous businesses.

And it stands to reason that people with many options will more likely go with an established brand (which will look good on their CV) than an unknown start-up. We work extremely hard in our business to create a great environment for our employees to thrive in, one in which they feel a special part of and which they are proud to talk to their friends and parents about.

4. It’s less risky. Period.

For 90%+ of small business owners, starting any new business is fraught with risk. Lots of good business ideas are just that – ideas – and translating ideas into successful businesses is not easy. Mistakes can actually bury you, or you can run out of cash before you get to viability.

Good franchises are the complete opposite. 90%+ of them will be successful. And here’s why. If your risk of failure is 90% or 80% or whatever it is on your own, it’s because you don’t fully understand at the start how the business will work. Your franchisor knows about site selection – lets say that reduces your risk by 10%. And your franchisor won’t let you open if you don’t have enough money – lets reduce the risk by 10% for that too. They know what range of products to sell and for what price – let’s take 5% risk reduction for that. All these things the franchisor knows or does chip away at the risk, to bring it down to a relatively low level. There is always risk, but it would be top of my list if I was investing my life savings – or worse, someone else’s – to reduce that risk right down.

5. You will be trained how to run a franchise.

Have you ever visited a new business, or indeed an existing business, where it was clear they hadn’t a clue how to run it? A chaotic new business opening means dissatisfied customers, and staff who cannot wait to go work somewhere else.

Having a good idea what to do, and as importantly what not to do – knowing what you should focus on at the beginning, and what can’t wait for later, are vital elements in getting your new business off the ground successfully. A new franchisee training course is essentially a start-your-own business course, focused on your exact business.

Being properly trained from the off saves time, money and means you’re more likely to hang on to your customers and staff.

6. You will avoid expensive mistakes (mostly!)

My experience of starting multiple businesses as a franchisor was that I made every mistake in the book (the smart thing was tending not to repeat them 😊). Some of the mistakes nearly buried me, and it took much longer to get to profit than it could have done. When a new franchisee joins our system, they have the benefit of the learnings from these mistakes, and so should be able to avoid repeating them.

7. You are part of a bigger community / team.

Starting a new business can be a pretty lonely experience. There’s not necessarily anyone that you can turn to for advice and guidance, and you’re often faced with difficult problems without obvious solutions. In franchising you’re in business for yourself, but not by yourself. Getting help with problems from your franchisor, but more importantly from your peers – other franchisees – can be more practical and satisfying than ploughing your own furrow. Being part of something big, the camaraderie, the feeling of belonging can all make the experience of running your own business more satisfying.

8. You will do more business and be more profitable.

Franchised outlets tend to do more sales, and make more profits than independents, and that’s despite having to pay the franchisor royalty and marketing fees. Why is that?

Your franchisor will have fine tuned their business system. Gotten out of areas that aren’t a good brand fit, or that don’t make money. Figured out efficient ways of producing your goods or services, how to hire and train staff, and invested in the right things to make your business sign. It has the substantial resources of many franchisees contributing money into the system, to allow it to hire the right people and test new ideas. It’s very hard for an independent start-up to compete against that.

9. Your franchisor’s brand means your business will get off the ground quicker.

Name recognition can be a huge factor in helping get a new brand off the ground. Customers like shopping with the familiar, and if they have heard about your business, and especially if they have heard good things, it can really help in those critical early days.

10. It will be easier to sell on later down the line.

Successful franchisees that are part of a successful brand, will find it easier to sell their businesses, and for a higher price than independent businesses. That’s because these types of business are more attractive to potential purchasers, than most independent stand-alone businesses. There is an old Irish adage about business “the day you buy is the day you sell”, in other words on the day you buy your business, understand how easy or not it will be to sell it, when you eventually want to.

Smart investors get that.

Lots of people can and do set up independent businesses on their own, and good luck to them. 

For many others of us, we realise our limitations. We have the energy, the enthusiasm and the smarts to do our own thing, but prefer to do it with an experienced guiding hand, where our risk can be substantially reduced. If you’re one of them, then franchising has to be on your menu of options.

Good luck and stay safe,

Brody

Want to learn more about Camile Thai? 

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Must Ask Questions for Your Future Franchisor by Brody Sweeney

I’m Brody Sweeney, the founder of Camile Thai Kitchen, an award winning home delivery franchise. It’s my third and most fun franchise business, and after 40 years in the franchise industry, I guess you could say I’ve seen a lot – good and bad – about this industry. This blog is not about my business, but rather some advice for if you’re thinking about franchising, or indeed already involved in it – and want to learn more.

Questions to Ask Your Potential Franchisor

Asking the right questions is important to laying the foundation of your future franchise partnership. I’ve set out some important points that will help you form an opinion of your new franchisor before making a financial or legal commitment to them. 

As a general point, franchisors should welcome these questions, because they demonstrate you are doing your due diligence. The better quality questions being asked of me, the more excited I get about taking a franchisee on. It shows their seriousness about the venture, which bodes well for both of us. 

 

1. Can you show me the actual operating performance for a unit?

It’s an unstated principle that good Franchisors shouldn’t really make earnings claims for their business, as nobody really knows how a new business will perform in the early days. But you need to know how the financial side of the business works, and so a historic profit and loss statement, for one or more branches, will give you a good idea, how sales translate into profits. 

Your franchisor will probably give you figures for their top performing units (they are after all trying to sell you a franchise), and there’s nothing wrong with that, except to understand that these are probably not average performances. 

In any franchise system there will be poorly performing branches, that may even lose money. There are a wide variety of reasons why that may be – in my experience so much has to do with the manager or franchisees operation of the business – that do not call into question the viability of the system.

A franchisor may also have some form of  disclosure document, which outlines a lot more detail about the franchise, including who owns it, and how they make their money. You should ask for it, and expect a yes.

 

2. Can I speak to existing franchisees?

Speaking to existing franchisees is a great way of finding out about the franchise. Ideally your franchise company will give you a list of all their franchisees, and invite you to pick 2 or 3 to actually meet.

Firstly, you get to see the type of people that the franchisor has recruited. Do you identify with them?, do they seem like good business people? Can you imagine them as colleagues and peers for the next ten years?

Secondly how does the franchisee speak about their franchisor? A healthy tension in a franchise is a good thing, but that’s not the same as a franchisee bad-mouthing (maybe with some justification) the support office. You can tell a lot about the state of relations in the franchise, by talking to two or three franchisees.

And finally, you can ask them about how they’re doing financially. They don’t have to be making a fortune (their own business may have only recently opened for example), but they should feel they are on a pathway to profitability, and be able to verify for you, that their key costs are in line with what the franchisor says they are.

 

 

3. Are you members of the IFA / BFA, or your region’s franchise association?

Any franchisor worth their salt, will be a member of their local franchise trade association, and if they’re not, you should be asking why.

Franchise trade associations conduct some basic checks on your franchise before admitting them to membership, and while this is not a substitute for separate and specialist independent legal and financial advice for you, it does indicate that your franchise has at least passed some basic tests that indicate that it is a bona-fide business.

You should be conscious though that the trade associations tend to conduct tests before admitting franchise companies to membership, but almost no tests after that. So while the company may have passed a test 20 years ago, there’s no guarantee that standards are still being maintained.

 

 

4. Can you introduce me to contacts in the banks?

Most high street banks have specialist franchise teams, who act as a liaison between franchise companies, and the banks local branch management teams. Banks love lending to franchises as it’s way less risky for them to spread their risk over many franchisees (who are unlikely to go bust all at the same time) as opposed to a company owned chain, where if the company fails, all is lost.

Your franchisor should have a relationship with all the franchise managers in the high street banks, and be able to introduce you to them, before you make an application to your local branch. If they can’t do an introduction, that should be a red flag for you. Why do they not have a relationship with the banks?

 

 

5. What are you doing to future proof this business?

While none of us can forecast the future, some trends are obvious, and to the extent they might affect the performance of your chosen business, you want to think that they are on your franchisors radar, and that he or she is thinking about how to deal with them. 

For example the coronavirus crisis it seems will lead to many more people working from home than before. Peoples are still increasing their use of screens for phone, email, video calls – all of which can impact business in all sorts of ways. Can your franchisor demonstrate that they’re on it ?

 

 

6. What are the biggest challenges I will face as a franchisee?

Any franchise you get involved with will have challenges, some of which are common to nearly all business start-ups. If your franchisor cannot articulate what they are, or indeed down-play them, then they may not be being realistic with you. Some common challenges with starting a franchise or any new business might include learning to manage the business,  prioritizing, hiring, training and motivating your team – and building sales in a very competitive environment.

 

 

7. Have any of your franchisees failed?

Surprisingly maybe, you should expect your franchisor to have had some franchises that did not work out. No franchise company is perfect, and every established franchise will have some closed branches, or franchisees that did not work out, and that shouldn’t be a major concern for you. 

What is important is firstly that your franchisor acknowledges problems (it’s not realistic to expect that there would be none), and secondly to understand why some of the franchisees’ businesses failed.

So was it because a franchisee turned out to be unsuitable, or the demographics of an area changed? Or was it some other reason, that will help you avoid that situation yourself?

 

8. How will you support me pre-opening and post-opening?

One of the areas where franchise relationships can break down, is where expectations are not managed, and assumptions are made.

Before embarking on your new venture, you should be crystal clear about who does what in terms of getting the new business off the ground. In our case for both pre and post opening, we list the franchisors responsibilities and the franchisees separately. 

For example it is the franchisors duty to help with the recruitment and training of new staff, but the franchisees responsibility to actually legally hire, train and fire them as necessary.

Take the trouble before signing off with your franchisor, to remove any and all “assumptions” about who will do what, and get a name responsible for each task. 

 

 

9. How and when will I be trained?

Many recruits into a new franchise system will have no specific industry experience, as well as probably little experience of running their own business. The training of these people is therefore vitally important, if we want to reduce the risk of something going wrong. 

Most franchise companies run effectively a Start-Your-Own-Business course, focussing on their particular business.

The more thorough the training and preparation before the new business opens, the more chance that it will get established quickly and profitably.

Find out where your franchisor is on training, and how and when you will be trained.

 

 

10. Can I meet other members of your management team, and particularly those with whom I will have day to day contact?

The person in the franchisor company who sells you the franchise, is unlikely to be the person who looks after you on a day to day basis. So while you might get on like a house on fire with the franchise sales person (who by the way tends to be warm and engaging – otherwise they don’t sell franchises), the person you actually deal with from the operations team may be very different.

It pays to get to know the franchisor team before committing, to make sure the person looking after you, is someone you can relate to – as well as you judging the calibre of people running the business. If you are not impressed with the people you meet, why would you want to spend the next 10 years or so of your life with them?

 

You have an opportunity before commitments are made and money changes hands, to ask hard questions and get satisfactory answers. It has never ceased to surprise me over the years, how many franchisees become blinded by the perceived success of the franchise, and don’t ask hard questions, before parting with significant amounts of cash and a major portion of their life. Don’t be like that.

 

Brody

Want to learn more about Camile Thai? 

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10 things to watch out for with smaller franchises by Brody Sweeney

Diary Entry #2 – 10 things to watch out for with smaller franchises

While there are lots of good reasons why you should consider getting in on the ground floor with a young franchise, there are just as many things that you should watch out for before jumping on board to a concept just because it sounds exciting.

I’m Brody Sweeney, the founder of Camile Thai Kitchen, an award winning home delivery franchise. This blog is not about my business, but rather some advice for if you’re thinking about franchising generally.

Buying into any franchises is a thrilling prospect, something that can help you fulfil your career and personal goals. But like any “marriage”, the more you find out about your new business colleagues before you make a commitment, the more likely you are to get it right the first time. I want to help you frame the right questions so you can make a good decision for you, even if that ultimately means rejecting the franchise you currently courting. These are the kinds of questions I encourage my own franchisees to ask us, and any other franchise they may be thinking of joining. Doing this due diligence has lead to greater satisfaction – and profit – for their businesses in the long run. 

Armed with the information I have set out below, you’re much more likely to improve the quality of your decision making.  

1. With a smaller franchise, your risk will be higher.

Starting any new business is risky. According to UK bank statistics, something like 4 out of 5 new business start-ups – not including franchises – don’t make it to their fifth year. In good franchises, it’s the complete opposite., and more than 90% will still be around after 5 years. One of the main reasons you invest in a franchise is investing in a proven concept. In a newer franchise, it may not yet be fully proven, and so the risk of it not working out are higher than in an established franchise. 

 

2. The franchisor may not have full worked out the business model. 

Sometimes franchisors start selling franchises before they have proven the business model. A good newer franchise will have established pilot franchises first to fully test and prove the business idea. Through operating their own pilot outlets, franchisors get to put theory into practice, and confirm their hunch that they are on the right track, and that there is demand for their product or services, that can be served profitably. This is one of the main comfort factors a prospective franchisee can get when looking at the viability of the new business. It’s perfectly in order for a prospective franchisee to ask for evidence that the franchise works, mainly by looking at a profit and loss account for an existing franchise or pilot of the business.

 

3. Brand recognition is lower.

It stands to reason that if it’s new, it won’t be well known. One of the things you pay for in an established franchise is the goodwill attached to your brand’s name and reputation. That means before you even open, there is usually latent goodwill there, which helps get your new business into profitability quicker than if the name is unknown.

But remember Subway, and McDonalds and Starbucks started with a single store, and were not known at all at that point. So while I wouldn’t worry unduly on brand recognition, if your new franchise is going into direct competition with an established player, it can be very hard to break through to establish your franchises name.

 

4. The Franchisor may not be very experienced.

This means that you may end up paying for the franchisors mistakes as they learn how to operate the business, and make all the mistakes that are a normal part of getting a new business off the ground. A bit like they say the eldest child in a family has the hardest time, because the parents learn through them. They will find out lots about how to operate a franchise, both good and bad, through their dealings with you. The bad stuff can be painful and unless you and your franchisor are on the same page, and have the type of positive relationship which allows you to weather these storms, can lead to a breakdown in the relationship. 

A good young franchisor understands this point, and will test innovation on their company owned businesses first before asking their franchisee to take the risk.

 

5. The Franchisor may not have much purchasing clout.

One very important thing in a franchise is the benefit of the franchisor’s purchasing power, as this helps you to cover at least in part some of the royalties and marketing fees you will be charged. There may be special circumstances where this is not as important. In some franchises like Domino’s, you may actually end up paying more for goods than purchasing independently, but the bottom line is so good the food and packaging costs are higher doesn’t matter. In a new franchise, your expectation of lower cost of goods should be realistic, and in keeping with the scale of the purchases the entire group is making.

 

6. It may not be as easy to get finance as an established franchise.

One of the first lessons you learn as a business person is that banks are not supposed to take risks with their depositors money. They need assurance that the money you borrow will in fact be paid back. Banks love franchising because it’s considerably less risky than backing independents, and the risk is shared across a network of individual businesses under the franchisors umbrella, rather than lending to the franchisor on their own.

Established franchises by virtue of having been around longer, and having ironed out the kinks in their system, are less risky in the eyes of banks than new ones. This may mean the bank is more risk averse in a new franchise, which may mean they load extra security (like personal guarantees), and want to loan you a lower amount than if your franchise was well established.

 

7. Training may not be developed sufficiently.

Taking you in as a raw recruit, and training you how to set up and operate the business successfully is Franchising 101 for an established franchise, and one of the most important aspects of what you are buying into, particularly in the early days. In a new franchise, they may not have recorded or worked out all their training systems in a way that is easy to replicate and pass on to you and your team.

 

8. The franchisor may not be very good at picking other franchisees, and go for quantity rather than quality.

In my view, this is one of the biggest dangers you face in a relatively new franchise. Your franchisor may be under pressure to recoup some of the heavy initial investment they have made in getting the franchise off the ground, and when a prospective franchisee shows interest in the concept – well, that can be flattering – and perhaps cloud their judgement as to whether this is a good long term fit or not.

The problem here is that the wrong initial franchisees can ruin the system before it has gotten off the ground properly. Either a poor performer (some people are brilliant rocket scientists or school teachers, but totally unsuitable for running their own business) or someone who is disruptive and thinks they know more about the business than the franchisor, and wants to let everyone know about it – can mean the franchisor gets caught up helping a weak business, or dealing with the politics that disruptive people love to wallow in.

It should be mandatory that as you look at the franchise, that you are given the opportunity to meet and spend time with some or all of the existing franchisees to make your own mind up on this. How your franchisor deals with your application, if they’re too quick to accept you, without due diligence of you personally, should also be a warning sign.

 

9. The franchisor may run out of money before the franchise is established.

Murphy’s Law applies here. Getting a new business off the ground usually takes twice as long, and costs twice as much as planned. Not every franchisor has enough capital to come through the start-up unscathed, and so may be more worried about their own survival than yours. A franchisor who is under financial pressure, may not have the wherewithal to keep going as your business becomes established, and may have to focus their time on paying their own bills, instead of helping develop your business. They may also end up making poor quality decisions, which won’t be in your interest. 

No different than your franchisor checking you out at the beginning, I like to see prospective franchisees checking us out also, by asking probing questions, and getting acceptable answers.

 

10. The franchise may be vulnerable to a better funded, larger competitor, who may try and put you out of business.

When companies like Sixt Rent a Car or McDonalds set up, they didn’t have a lot of competition. That meant they were able to become established and build a brand name without having to be in a dogfight with a competitor from the getgo. It doesn’t mean that getting involved in a new Pizza or Hamburger franchise is doomed from the start, it can just be much harder. If the established business decides to bloody your nose, your new franchise may not have the financial firepower to withstand it.

 

In Summary

I hope you found these common sense matters helpful for you in your search for the right franchise relationship. Always dig, dig, dig, and do your research before jumping on the first opportunity that promises you fortune and fame within fifteen months.

If I was leaving you with a good tip from these pointers, it would be to recognise that if you really like the new franchise, if you feel incredibly drawn to it (and you should obviously feel passionate about it), then recognise that these are emotions, and emotional only decisions about business are generally not good.

Put your unemotional business hat on, and do a proper due diligence on your franchisor, and the people behind it, while you still have the time, and definitely before you make an irrevocable commitment to the new venture. That’s what we’ve encouraged all of our franchisees to do, and it’s contributed greatly to their long term satisfaction working with Camile. 

Good luck and stay safe,

 

Brody

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