Franchisee Recruiting - “I Know Nothing”
Recently, a friend was looking to purchase a franchise and had spent some 3 to 4 months going through the initial investigation process.
A number of interviews had taken place with some gradual information released.
The process seemed fairly thorough and professional but had reached the stage where a deposit was required. However, the payment of a deposit required a huge leap of faith as the financial information disclosed to this point was so insufficient that they were unable to conduct any reasonable analysis. Even after extrapolating the numbers provided, it did not give any comfort, as a breakeven or a nominal return requiring an 8/10 year period for recovery of capital was the best outcome financial modelling could construct.
After advice from their accountant and 2 other advisors, their interest to proceed has probably waned to the point where the final interview will not proceed and the recruitment team will wonder why they lost a “hot” lead.
However, this franchise is a successful well known Australian brand and while the information released would certainly comply with the code, I wonder how many other groups experience this phenomenon.
AN ANALOGY
I liken it to you putting your house on the market and somebody knocks on the door expressing a very keen interest in the property, not looking to argue the price and has the cash; but wants to have a look through the property before signing a contract. In the franchise analogy, we would have to say NO not until after settlement, and we wonder why the sale does not proceed.
In this case, I reviewed the information provided, which contained a collection of approximately 40 unidentified sites with their monthly revenue for the last financial year. The performance range was significant. In addition an average gross margin with a variable of 10% together with a labour cost range of another 10%.
The only definitive number was the expense amount of royalty and marketing levy.
In assessing the risk potential, most accountants will take a low average revenue performance combined with a low margin, high labour ratio, plus a collection of other costs and debt conditioning and understandably determine there is not enough cushion in the venture being considered. And that is exactly what happened in this case. In these instances, it is then very difficult to resurrect the sale by trying to present a better set of benchmarks. The seed of doubt has been sown – even before they have reached the lender with their list of considerations.
Effective recruiters ensure potential franchisees know as much as possible about the fiscal requirements of the business to ensure the right decision (for both) is made before they buy a franchise. Avoid a common mistake in franchising ‘I knew nothing’ and stand firm with ‘they knew everything’.
FISCAL FITNESS
A healthy business needs fiscal fitness. Our Franchise Model Analysis report provides a comprehensive financial assessment for potential Franchisors and Franchisees based on their personal, business and corporate objectives.
The program uses group/industry performance metrics to establish initial sales, performance targets and transactions you need to achieve your desired ROI objectives.
This deep-dive report will provide you with a set of realistic Business expectations, with clear targets across key performance indicators. Don’t make decisions in the dark.