For a large majority of people, becoming their own boss is the driving factor in them deciding to purchase a franchise. But the real satisfaction also comes from good financial performance and profitability.
While the business model is a key factor in determining the profitability of the business, franchisees often fail to plan; and that’s how they falter and fail.
It’s unfortunate that most franchisees look at various things in an attempt to identify what the cause of their problems is; in doing so, they omit looking at themselves. Today, we discuss 5 important KPIs to up the profitability of your franchising business that you should be looking at:
Most potential franchisees don’t work out exactly how much they need to cover all their living expenses. This is one of the very first things you should be doing; you need to know how much you need to pay your mortgage or rent, pay bills and purchase groceries, go out on family holidays and put your kids through school and more. Most people don’t realise that all these expenses add up to a significant amount. This is why your living costs become of the very first KPIs to keep in view as that is what your business needs to provide you at a minimum.
When you are borrowing any money to purchase a franchise, the loan’s term should match the franchise duration. This means if you draw against your 25-year home loan for a franchise of 5 years, you aren’t looking at the true cost of that interest over the duration of the business. You may feel that the initial repayments are quite low; but what you fail to keep in view is that you will be servicing that much after you have left/sold the business.”
Franchisees often complain about how their business isn’t profitable. But if they take a closer look at their financials, they may just notice that a lot of personal expenses are being put through the business; and these impact the profitability of the business. If the owners’ drawings are added back, the business would be able to demonstrate profits. Any business will be bought and sold only on the basis of its ability to draw profits; this means if your business financial figures don’t show any profit, it won’t be worth much to any potential buyer.
Oftentimes, franchise profitability either gets over/under reported. This is because the franchisees end up overpaying or underpaying themselves. If you are paying yourself an excessively high amount, that will reduce your profits annually; sometimes, this may cause it to show a loss as well. In other cases, the franchisees fail to pay themselves enough and this distorts their profit figures.
It’s a fact that some franchisees are extremely good at selling; they outsell other similar franchisees by a vast margin. Selling is the cornerstone of every business. This is why you need to have a quality benchmarking program in place that will link your success with the marketing and promotional activities being used. This can help you predict, with a certain level of accuracy what your likely sales increase will be from any marketing strategy you are using.
In short, you need to have an ongoing process of benchmarking in place as this can help in garnering profits for the business and for you. If you want to know more about setting up a franchise business or want some advice on franchising, feel free to get in touch with us at The Franchise Institute. You can call us on 1300 855 435 or fill in this contact us form and we’ll reply as soon as we can.
Thanks for reading,
The Franchise Institute Team
1300 855 435