I wish I had known that I had to plan how to exit my business before I had even entered. AND why knowing my key performance indicators (KPI’s) from day one was so important.
As a new franchisee I didn’t realise that my time in my franchised business was measured in blocks of time. The length of the store lease. The length of the franchise agreement.
When you buy your franchised business you think you are buying something that will build in value and will be able to be sold in the future for a profit. Well that’s what I assumed anyway. And it is true BUT there are optimum times to sell the business and there are actually times that your business is worth very little so you do not want to be selling then do you?
The first term of your lease is the time that you need to make your money to pay for the business you purchased. The next lease renewal is where you make your money or perhaps sell your business. The time to sell for optimum return is just after a fresh new fitout and with a full lease term and a history of profit – three years history is best. This is why your KPI’s are so very vital right from the beginning – you have just the length of your first lease to show a profit, pay for another fitout or store freshen up, oh and make some money to pay back the loan you have just taken out. The things I have learned…..
A lease term is quite short really, only five to seven years. This means that if you need three years of profit before you can sell you only have two years to get your business profitable, so it is imperative that you know your Key Performance Indicators (KPI’s) right from day one. You have to hit the ground running!
The easiest way to do this is to prepare a budget that allows for the profit you need to meet that will match your franchise journey strategy. Yes you will have to know when you are going to exit before you even start this journey. Once you know what profit you need to make to pay off your initial investment then it is just a simple matter of working backwards. Your franchisor will have given you guides of what the costs are likely to be but they will be very wide indeed. Speaking with other franchisees in the system before you buy in will also give you a guide on what labour costs and cost of goods (COG’s) are likely to be. You know what your rent will be, your insurances, including workers compensation, but you will also have to have a handle on all your other operating costs. Add all these expenses up, plus the profit you want, and that’s when you will find out how many sales you need. Now, look at this budget in front of you and this is where you will find these magic KPI’s.
Divide the total sales figure by 52 to get your weekly sales KPI. The next most important KPI’s you need to know are the COG’s and labour, have them in percentage form for easy monitoring. The labour percentage is easy to monitor and starts from the moment you prepare your roster. The COG’s KPI is a little harder as it involves stock management and operational performance that minimizes waste. But if you know what target you need to hit, then you are halfway there. Share these KPI’s with your team and make them accountable for meeting them. I use a KPI dashboard that I complete at the end of each day. It’s in my box of tricks on my website.
Knowledge is power, knowing how you would like your franchise journey to be and knowing what KPI’s you need to meet to get you there gives you peace of mind and allows you to enjoy being a franchisee.
Elizabeth Gillam founder and CEO of Franchisee Success creates High Performance Franchisees. Having owned and operated three franchised food businesses; Boost, Healthy Habits and Bucking Bull; she knows what it takes to operate a profitable food franchise. In her book, Upsizing your Profits? – 6 steps to running a profitable food franchise she outlines how franchisees can ACE their franchised business unit.