Tag Archives: money

On Cashflow Management – and a hint!


Cashflow management is a critical issue for many business owners.

Typically, your cashflow comes under strain in the following circumstances (not an exhaustive list):

  • your business is growing
  • stock levels increase (eg: lead-up to Christmas for retailers)
  • bringing on new staff
  • increasing production capacity
  • diversifying your business activities

Each of these things can be a “cash thief”.

Let’s consider the issue of inventory(stock) management.  The more stock you have on hand, the more cash you have tied up.  I explain this in more detail here, here and here.  By reducing your stock levels, you free up a lot of cash, however you need to balance out the level of stock you need.  You cannot sell what you don’t have!  Effective stock management makes a huge difference to your cashflow.

Cashflow management can also be impacted by increasing production capacity.  Being able to make a lot more “stuff” requires you to have the raw materials, equipment and people to do this.  All this costs.  Your wages come in each week, your suppliers need to be paid each month and the equipment needs to be purchased/financed.  All this robs cash from the business – and you haven’t yet produced anything you can sell.  By building your capacity, you will be able to (hopefully) generate more sales and/or better margins.  But you have to spend first.  This is where your cashflow management needs to be carefully curated.

The Hint

A number of our customers have pretty regular sales.  They use this to reduce their margins (sometimes!) to generate additional sales and hence cashflow.  You find that there is a very clear cycle for this.

One of my favourite fishing tackle stores is in Melbourne.  They have a great range of products, know what they are on about and provide great service.  Over the past year or so, I have noticed that they are having regular sales in the sixth week after the end of each quarter.  This is because they have the Tax Office commitments to meet.  They need to free up cash to pay our friends in Canberra. Knowing this, you, as a customer, can manage your time for purchasing gear.

The same thing occurs in a lot of businesses (especially retail).  Have a look at the sales cycles and you will see a trend.  The margin is better in your pocket than the retailer’s!

So…

Any time you look at the cashflow in your business, get behind the issue to find out what is driving it.  Sales too low?  Margins being squeezed?  Inventory too high?  Expanding?  Diversifying?  Any and all of these can have a significant impact on your cash reserves.

Cashflow management can be difficult.  But when you look behind the numbers and develop your understanding of what drives your cashflow, you will be in a far better position to make the decisions and changes needed to improve things.

We have access to some really powerful cashflow modelling tools that will enable you to see the real picture – going forward.  If you would like to have a chat with us about how we can help you get a better handle on your cashflow management, give us a call!

On Superannuation in the 2016 Budget


Superannuation and government – a recipe for disaster!

Treasurer Scott Morrison delivered the Federal Budget on Tuesday night.  After many months of speculation, the detail (such as it is) finally came to light.  And how short-sighted the document turned out to be – especially for those with superannuation.

Having worked in and around superannuation since 1991, I have witnessed so many changes and it is little wonder that the average punter tends to tune out when the word “superannuation” is used.  It is therefore not surprising they really don’t seem to care and become easy prey for financial planners and industry superannuation funds.

train overboard

The changes being proposed by the Turnbull government in the budget can be summarised as follows (note that I’m not covering all of them here – just the major ones that will impact our clients).

I preface all this by stating that the policy platform relating to superannuation is somewhat confusing – the government wants people to provide for their retirement so that there will be less strain put on the welfare system when they retire.  Fantastic!

Why then do they limit the amounts that people can put into superannuation?  This flies against any and all forms of logic.  If you want to create a welfare replacement vehicle, encourage people to use it – don’t restrict them.

Over the past 20 plus years, we have seen limits – some very generous, others less so.  Passing strange it is that superannuation limits tend to reflect the underlying state of the budget!  When things are going pretty well, the limits are up, when things tighten up, so do the amounts people can contribute.

So here goes:

$500,000 Lifetime Limit on “private contributions” (in the legislation, these are called “Non-concessional contributions”)

The idea has always been that there were opportunities for people to add to their superannuation accounts during the year using tax-paid/after-tax money that they might have saved up.  This can also include amounts withdrawn and re-contributed to the fund when it is in pension phase.  Prior to Tuesday this week, people could deposit $180,000 per year into their fund or, elect to “bring forward” a couple of years contributions and put $540,000 into their fund.  This works really well for people who haven’t been able to build big balances in the superannuation system as they were running businesses, bringing up families and generally contributing to the wealth of the nation.  Now, the government, in their wisdom, is placing a “cap” on the amount they can contribute in this way.

The net effect of this is to restrict the ability of people to put money into their superannuation accounts for their retirement.

Remember when it was possible (some years ago) to put $1,000,000 into superannuation?  Lots of people took that opportunity up.

Now, if you’re one of the lucky ones who have made contributions of this type since 2007 and are currently over the new $500,000 limit, good for you.  It just means that you won’t be able to make any more.  If you’re not at the new $500,000 limit yet, well, you can make additional contributions to get you there – but PLEASE don’t go over the limit or you will get stung with Penalty Tax.

One interesting note – the budget papers make reference to the fact that the date of 1 July 2007 was chosen as this is the date from which the Tax Office has “reliable contributions records”.

I am not sure whether backdating a limit commencement start time is valid Constitutionally.  Watch this space!

Limiting the Size of your Pension Fund

The government refers to this as a “Transfer Balance Cap” – what they really should call it is “You can’t have a pension bigger than this”.

What it means is that, from 1 July 2017, you will be able to transfer a maximum of $1.6 million into your retirement account.  Subsequent earnings on the amount transferred will not be subject to tax.

I don’t know about you, but I have found that where you segregate assets, it becomes difficult to “un-segregate” them.  Let’s say you have a fund with $2m in it. You transfer $1.6m of shares into the new “Maximum Pension Fund” box.  The share market tanks – all of a sudden, you have well less than $1.6m in that account.  Can you top it up?

Conversely, you transfer $1.6m into your “Maximum Pension Fund” box and the shares appreciate markedly so that the balance in that “box” is now well over $1.6m.  Do you have to transfer funds out?

Or, riddle me this one – your single asset in your superannuation fund is a building worth $2m.  Do we have to transfer 80% of that building into the “Maximum Pension Fund” box?

Apparently the government is going to “consult” on how this will all be implemented.  Good luck with that.  This has all the hallmarks of an absolute mess and will result in uncertainty for the superannuation industry for years.

I find it somewhat galling that the government will be effectively trying to legislate how much you can save in your pension fund to access the tax-free earnings.  Many people have saved and worked hard over decades to give them a retirement that they can enjoy.  To come in and take this away from them is unfair – especially for those who are already in pension phase and who have planned their lives and activities around what they thought was some level of certainty.

Contribution Limits

As mentioned above, the government keeps telling everyone to put more money into superannuation.  Then they place a limit on how much you can contribute before you run into penal tax rates.

If you have a look at the levels of allowable (read “deductible”) superannuation contributions over the past years, you will see it is a dog’s breakfast.  Starting (for the under 50 year olds) at $50,000 in 2008/9, it has reduced to $25,000 from 2009/10 then increased to $30,000 from 2014/15 and it reverts to $25,000 from 2017/18.  It’s a bigger mess for those aged over 60!

If the government wants people to contribute to superannuation to fund their retirement, set a limit and stick to it.  For younger people with a plan to put money aside, it becomes impossible for them to budget to achieve this.

I will point out there are some positive proposals in the budget with regard to superannuation, however, the issues highlighted above are so short-sighted and ill-thought-through that the government is making the superannuation system even more unwieldy than it was previously.

On Analysis, Happiness and Satisfaction


“I get the figures, but I’m just not that happy” – so said the Engineer customer to me recently when we were discussing a range of issues impacting on him and his business.  His three-plus decades of professional training and practice have been based around detailed analysis of numbers and formulae.  Very clinical, very precise and, to his mind, now very wrong.

Sure, he can outline margin, profitability, ROI and all sorts of easily measurable results.  Some years they are up, some years they are down.  That’s business – and he knows that.  He knows why his margin has dropped, he understands why the ROI sits where it sits and he can detail precisely his asset utilisation rates.  Perfect.

But not.

He is able to rationalise all this based around the numbers, however the answer he is getting from undertaking this process isn’t the one he is looking for.  It’s not that he’s asking the wrong question, he is looking in the wrong spot for the answer – because it is where he has always looked.

As we delved further into his thinking, we started getting into the “why” questions and that “what” drivers.  I found it very sad that his answer to the question “when was the last time you drove into the office really looking forward to the day ahead” was “never”.  How soul destroying!

The process many people adopt in reviewing their position and opportunities tend to revolve around the same approaches they have taken in the past.  They tend to adopt the same metrics to analyse and assess their “success” each month, quarter, half-year or year.  The results are a scoreboard which tends to drive how they “feel” about their performance.

Success Quote

My experience has been that having assessments which are based on metrics that don’t resonate with satisfaction or happiness tend to be low-value.

For example, as I discussed in a recent podcast I did with the guys from Grow My Accounting Practice in the US, the feeling of being “happy” or “satisfied” rarely has anything to do with hard, numerically-based metrics.  Satisfaction comes from achieving things that mean something to you.  Sure, I acknowledge that there are metrics that can inform this, but you’re unlikely to have the feeling of deep satisfaction purely based on a margin improvement!

When we bring up kids, we don’t measure our success or failure as parents based on their academic scores.  To do so removes the focus from where (I believe) it should be.  You cannot objectively measure the things that really matter in your role as a parent.  I know from the various posts I see on social media that when people post things about their kids, they aren’t about their test results.  They are about instances where the kid has demonstrated care, concern and love.  Not getting into a heavy theoretical/philosophical discussion here, but how do you measure love?  And what, exactly, is a “good kid”?

In talking through the issues with my customer, we covered a lot of ground which had to do with his thinking about and approaches to what actually mattered in his life.  His concerns were around his family, his kids’ education and his staff.  Hard to objectively measure.

As he indicated to me during the conversation, he finds it difficult to assess how the really important things are going in his life but can be really precise about the looking-backwards results and his forward budgeting.  Once he has done his budget, they try their level best to achieve it, but, given the industry he operates in, it is difficult to drive additional revenue or improve margin by “throwing things at them”.  And, at the end of the day, the results the business achieves are only relevant in so far as they enable him to do the things outside of his business that are important to him.

Focus on business yes, but realise that it is only a stepping stone/tool to fund the important things that you want to achieve.  Of course we want to make sure our businesses operate well, but is that the end game?  My argument is that it’s not.

After a very enjoyable meal and nice bottle of red wine, we decided that he would spend some time thinking about the things that really mattered to him and where he could increase his level of satisfaction.  He is going to gain a better idea as to what he does and work out the things he loves doing.  This will then inform our planning as to what he keeps doing and what he stops doing.

The analysis process he had adopted caused him to direct his focus on metrics that resulted in him losing sight of the bigger picture.  As part of our discussions, we worked out that there were available and easily exploitable opportunities for him to more than double his profit each year.  Because he had fallen into the rut of using the same metrics that were precise and he was comfortable with, he had not seen the opportunities that are, quite literally, sitting on his doorstep (actually, inside his office).

Beware of too much focus on analysis – the old adage “paralysis by analysis” was proved to work in our discussions as it had given my customer a tunnel vision that fed his dissatisfaction and unhappiness with his position.

When it is just about the numbers, the meaning is lost.

On “Call THAT a Profit Increase?”


The purpose of a business is to make a profit – so have uttered many business sages over the years.  As one of my mates states “Profit is the applause you get from your customers”.

Whichever way you look at it, we need to understand that improving profit is a goal that all businesses should strive for.

idea

You may recall that some time ago, I posted about the results one of our favourite customers had realised from appointing someone they would not have previously considered to the role of Manager of one of their remote sites.

Well, we now have the full year results in and – they’re even better than I had previously reported.

For the previous financial year, the site in question had generated an EBITDA loss of $13,000.  Yep, a loss.

The results this year?  Well, the EBITDA  result for this site has come in at comfortable number in excess of $155,000.  That represents a $170,000 turnaround.  Bottom line.

In a highly competitive market, with lots of challenges.  How?  By getting the right person in the job, giving them the opportunity to thrive, providing them with the support they needed in the way they needed it and, otherwise, keeping out of their way.

How many people in your organisation are you not setting free to do their best?  What would happen if you did have some absolute stars who you could enable to be of their best for and with you?

It happens.  Wouldn’t it be great if it could happen in your business?  If you would like to find out how you might be able to sleep better at night, give us a call.

After all, it’s only profit you’re missing out on.

 

On Incentives Going the Wrong Way


Every so often in a meeting, you find out information that makes you shake your head in wonder.  I had one such meeting this morning.

Our customers have been requested to provide a price for some work to a large Australian, publicly listed company.  Great.

The issue is that the price they put in was some 55% over the price the company had received from another business.

OK, but, when you receive two prices that are aboutShort term bonusthe same from different providers and another price that is significantly lower than them (over $500,000 less), you would more than likely pause to consider whether the significantly lower price was, well, realistic.  Or whether the price was submitted to get the job in the hope that other work will crop up once the contractor is entrenched on site..

The trouble is, the managers of this publicly listed company are incentivised to under-spend their capital budgets each year – the more money they save against their budget, the bigger bonus they get.

As our customer said this morning – “they will end up with a pile of crap that won’t do the job but the manager doesn’t care as he got his bonus”.

The incentive program any business uses needs to align itself to the needs of the business and the staff but also, fundamentally, to the long term goals and strategies of the business.  Where there is no alignment, you run in to significant problems on a number of fronts.

Firstly, you want the incentive to encourage the type of behaviour you want to see.  If short term profit is the focus on the business, build your incentives around that.  However, the focus on short term profit is, to my way of thinking, myopic.  Getting a longer term strategy is far better for everyone concerned.  There are some notable people who like longer term strategies.  People like Warren Buffett.

Secondly, the incentive needs to match the motivators of the person being incentivised.  Using cash bonuses is fantastic however, the bonus can take other forms which might not cost as much but which may be far more highly valued than cash.  By aligning the bonus to what actually matters to your people you are also showing that you care for them as people rather than using a blunt force (cash) for everyone.  For example, a cash bonus is terrific but if you were to pay for a family holiday for your staff member, or give them some extra time off as a bonus (especially when they have a young family), this can have far higher value to them than anything else.

Finally, think about how you might face your shareholders/financiers where you had to explain how your business was so focused on short term thinking and behaviour that the investment decision made in plant and equipment spend was solely based on price and not quality or longevity.

They might, on hearing this information (however it is packaged) cause to question your thinking and ability to act as a custodian for their interests.  I seem to recall a similar approach was adopted by some banking institutions during the 2000’s.  That really didn’t end well.

The current business environment is very challenging for a lot of businesses.  There is a lot of competitive pressure due to a lack of consistent activity – especially in commercial construction.  This causes many businesses to try and “buy” work – price it with little or no (or, occasionally, negative) margin.  All they succeed in doing is making their exit from the market more rapid and they tend to deliver incomplete jobs as they go broke before the job is finished.

If your incentive program gives your team tacit or explicit approval to seek lower and lower prices – at any price, the quality of what you purchase will decline and will end up costing you more.

rich enough
A friend put it beautifully many years ago “I am not rich enough to buy second best”.  When you are designing and implementing your incentive program, make sure it delivers what you really want – not a facsimile of what you think you might like.

 

On Data Ownership


Just who “owns” your business’ data?

Source: nctba.org
Source: nctba.org

This is a question that not very many (if any) business owners consider in the selection and implementation of the “back-end” of their business.  More often than, not, the choice is effectively left to the accountant and/or bookkeeper.  This then creates a legacy system that the business has to deal with for many years to come.

This question was raised recently by one of the participants in my Tax Discussion Group who detailed an example where a customer of theirs was wanting to bring their bookkeeping from an external provider to an in-house resource.  Their system is on the Xero platform and the soon-to-be-no-longer-required bookkeeper wasn’t keen to assist them in transitioning the data for the new resource to use.  Suffice to say, the Xero Terms & Conditions seem to support the “losing” bookkeeper and effectively leave the customer (whose data it actually is) up that famous creek.

When you are considering a software package through which you wish to operate your business, you need to carefully consider who actually has the ownership of the data and what happens where you choose to change service providers.  Will they given you a guarantee that your data will move with you or will they “hold you to ransom”?

We guarantee that your data stays in your ownership.  If any of our customers want to move away from us or from the package that we manage for them, we will not stand in their way – it’s your data after all.

Does your current advisor give this guarantee?

Might just be worth asking the question – and get their response in writing!

 

On Pricing Power


“But I make no profit” was the plea.

On my recent trip to Bali, Indonesia, I was with my daughter and she was wanting to purchase a dress from one of the street vendors.  Aside from the fact that the dress was not something I would have chosen for her (I’m no fashion icon according to her), she had decided that was what she wanted.  It then came down to haggling over the price.

Source:  therebelmum.com

Source: therebelmum.com

I don’t want to go through the rather long and protracted discussion we had with the vendor (in the end, we reduced the pricing discussion to arguing over about A$0.20!) suffice to say, the process itself was rather fascinating.

Having determined that the dress was right for her, my daughter then handed discussions over to me.  In the process, I asked the vendor “How much?”  This led her to come back with “How much you want to pay?”  Classic positioning questions.  The only problem was, this was one vendor on an island with thousands of them all selling commoditised items – if I couldn’t agree on a price with one, I could easily go to another.  Both of us knew that.  The end result was that my daughter got what she wanted at a price that we were all (more or less) happy with.

Contrast that with the discussion we had the next day with some other Aussies sitting at the Pool Bar (as you do).  They had only just arrived in Bali and had, in the excitement, gone straight out shopping.  They hadn’t done their research (ie: asked other tourists) with regard to prices so the context in which they approached things was to compare prices being asked to the prices they paid at home.  In other words, they had no idea as to context.  The street vendors had a field day!

Sunglasses we were buying for A$2.50 – they paid A$25.00.  Shorts we paid A$2.00 for – they paid A$15.00.  Nothing different in the products at all (and in at least one case, the same street vendor).

Context and understanding the level of commoditisation are vital in the process of reaching a pricing and purchase decision.  Where there is an absence of one, there will be a shift in the outcome in favour of either the vendor or the customer.

From a business owner’s perspective, this then leads to the issue of being able to separate your product from other offerings on the market.  There are heaps of books available on this topic if you want to read further (contact me for a list of selected readings) and some excellent free podcasts that will help you understand this (again, contact me for a list of these).  Where you can de-commoditise your product/service offering, you are able to command a price premium as the customer will know that they are unable to get what you offer anywhere else.

It is for this reason that many businesses and brands fiercely protect their IP.  The premium inherent in the “brand” is the reason for the price points they are able to achieve.

In your business, are you able to differentiate what you do from others in your industry?  If you can, get the message really clear and make it about the customer.  If you can’t then your options to achieve premium pricing are still there, they just need to be approached somewhat differently.

Similarly, are your customers fully aware of the context in which they are buying, but, more importantly, are YOU aware of the context in which they are buying?  If you are, fantastic as you can then ensure that what you are offering meets your customer’s needs (and what happens if it doesn’t???)  If you aren’t aware of the context, then you really are at a loss and will need to adopt a “one price fits all” strategy.  This can be dangerous as you will (not might) have different customers who will pay different prices for what you’re offering.  Without sufficient information and context, you’re really only guessing.

If you end up having a discussion with your customers similar to the discussion we had with the street vendor, you’re in trouble.  Your customer doesn’t care whether you make a profit or not.

In Bali, I told her that.

On Increasing Profit by 865% in One Year


Regular readers might recall a recent post concerning the identification and development of talent of one of the staff members in one of our favourite client’s businesses.  This all occurred through using Trimetrix on some of the team in his business.

Source: africanramble.wordpress.com

Source: africanramble.wordpress.com

Well, the financial results are now in.  And they are spectacular

I won’t quote the actual numbers (as that would be unfair and not in line with our professional obligation to keep client information confidential) but I will give you the impact that they have experienced from identifying a great person (using Trimetrix) and giving them the opportunity and support they needed to thrive.

Using the six month period we were reviewing, the results for the half year to 31 December 2013 were (let’s say) $20,000 net profit (after all expenses but before tax).  Then our client dropped his newly-identified star into the business.  Profit for the period to 31 December 2014 was $173,000!  All the metrics for the site have improved and staff morale has gone through the roof.

Remember that, as I wrote in May last year, if you have a deep understanding of your people and their talents and skills, along with the capacity to trust yourself and them, you can create some exceptional outcomes.

Why don’t you give it a go?  What have you got to lose (other than a potential star who will leave because they’re not being challenged and developed in your business)?

Give us a call to discuss how Trimetrix can make a huge difference in your business which will have an exceptionally positive impact on you, your people, your team and your customers.  You will be happier, your team will be happier and your customers will be happier.

And, if it results in an 865% profit improvement for a six month period, I’ll bet the investment will be worth it!

On Fishing & Culture


One of the most enjoyable things about having a break is that you can undertake those things that you’re often too busy to do during the time you’re working and living a “busy life”.

fishing Murray

For me, that usually involves a fishing rod and books.  I can report that the fishing rod was merely a prop and didn’t yield anything in the way of produce (but I did enjoy very much sitting by the river contemplating the universe).

The books I took away and read were terrific.  None of them were tax or accounting books (c’mon, I’m not that boring!) and none were fiction (well…).  They did what good books are supposed to do – they opened up my mind to new thinking and helped me expand my horizon in a number of directions which will hold me in good stead as the years roll out.

From the time spent lost in their pages, there were a couple of ideas that I have taken and want to share:

  • the concept of team balance is often forgotten – everyone has to participate and recognise the contributions of each other to the success (or otherwise) of the team.  Share experiences (in and out of work) – it brings everyone closer together
  • A re-iteration of Dan Pink’s thinking – provide people with the opportunities to achieve Mastery, Autonomy and Purpose.  In other words, grab hold of good people who are aligned with your vision and goals, give them the tools they need and then get the hell out of their way!

One of the other benefits of being on holidays was that we spent time with some terrific and very smart friends.  Dean (in particular) has a wonderful capacity to “get” the issues around culture in a business.  Trust me – he’s seen the great, the good, the bad and the very very ugly in his career to date! 

As I was consuming pages, we would sit down in the late afternoons over a quiet beverage or two and discuss many things – including what I had been reading.  These discussions often ended up finishing well into the night.

It’s quite easy to be able to take an idea from a book and get it into your head – it’s a whole other matter to explain that idea to someone else in a way that they understand.  This is the art of communication.  Anyway, when Dean and I went through the stuff I was reading and thrashed around the examples we both had of experiences we had been through demonstrating the very best and very worst examples of the issues, it really did serve to cement a lot of this into my head.

The guts of all this waffling is then “what makes a good culture”? 

The guts of the answer is “I don’t know – but I know what’s a bad one”.

Anyway, I am looking forward to spending the next stint with my fishing rod and some more books.

On Franchises and Getting it all Wrong


Franchises.  They seem to be popping up everywhere. 

Image source: National Franchise Associates Inc.

Image source: National Franchise Associates Inc.

BUT, are they all they are cracked up to be and what do you need to consider when you’re looking at getting in to a franchise?

In recent months, we have been in the position of reviewing a number of Franchise Agreements for a number of our customers who are looking at getting into the market as Franchisees.  All good as they know that any business needs a system and all businesses need support to enable them to be their best.  The franchise model can work incredibly well as the platform to do this. 

The big problem that we have seen over many years (and seems to be becoming much more prevalent of late) is that the franchise model is becoming all about the Franchisor. 

Now, forgive me if I am wrong, but would common sense not indicate that if the franchisees are doing well, the franchisor will, in turn, do very well?  From what I have seen in recent months, the franchisors don’t seem to “get” this part of the model.  I have seen situations like this over many years with a range of what turned out to be unsuccessful franchised businesses.  In effect the franchisor didn’t really give a stuff about the franchisee or their success.  They effectively “churned and burned” them.

To my simple way of approaching things, the franchisor should be making it easy for the franchisee to run and operate their business and should be supporting them in growing and developing their business.  They should be able to provide all sorts of assistance and guidance as part of that support and have, as their raison detre, the ultimate success and creation of wealth for the franchisee.  This will then create a sustainable and desirable franchising base for the franchisor that makes their offering attractive to other potential franchisees.

Some of the recent agreements had some mind-numbingly stupid clauses in them.  The philosophy behind the approach appeared to be the protection of the franchisor at any cost with nothing provided to the franchisee apart from obligations and massive cost burdens (over which the franchisee had very little, if any, control).

I get that the franchise model is based on a “brand and process” that the franchisor leverages through their franchisees to create a bigger footprint and network.  This makes good sense and enables the “love” to be shared.  However, when the franchisee gets little if anything by way of support, coaching, encouragement or development, you need to question what the potential franchisee is actually getting for their investment.

If you are considering getting in to a franchised business or looking at franchising your business, you need to do your due diligence and ensure that what is being offered is what you’re seeking or what you’re offering is meeting potential franchisee needs.  This should include a raft of areas but, at a minimum, the following:

  • Training and support (initial and ongoing);
  • Development of your business skills (including sales, HR, cashflow and profit/margin management);
  • Realistic and timely reporting of your perfromance against established KPI’s with suggestions for improvement from within the franchise network;
  • Merchandising and marketing;
  • Product and service knowledge (including your people);
  • Network support with and across other franshisees; and
  • Capacity to expand the franchise into other areas/regions where the franchisee has proven themselves.

I recently reviewed a franchise agreement which actually enabled the franchisor to sell into the market via the internet in direct competition with the franchisees.  The franchisees would then be required to fulfill internet orders processed through the franchisor with their compensation for the work in meeting this obligation being “in such manner as [Franchisor] considers fair and reasonable”.  For mine, this is simply unsustainable.  Not surprisingly, ouor client has decided not to proceed as they would be in direct competition with their Franchisor and they would bear the cost of delivering the product with no guarantee of any worthwhile remuneration associated with it.  Common sense has taken a holiday from the franchsior’s office.

McDonalds is seen as an exceptional franchise business and are highly sought after as franchise businesses.  Knowing quite a few McDonalds Franchisees, they have detailed the support and encouragement they receive from McDonalds.  They know that their franchisor is interested and passionate about having their franchisees make a worthwhile living and helps them achieve great things – it is therefore no surprise that the model operated by McDonalds is so successful.

It is a great pity that more franchsiors (and their advisors) do not appear to understand this.  They are doing themselves, but more particularly their franchisees, a great disservice.

If any franchisors or franchisees (actual or prospective) would like to have a discussion about where they can go right in their model and approach, more than  happy to have a chat.

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