How do you ready a business for sale? Here we take a look at the commercial and operations processes that help make a franchise network a compelling acquisition.
You can’t manage what you can’t measure is key to preparing your business for the serious scrutiny that will ensue. This includes your financial systems – both the hardware and software – at franchisor and franchisee level, as well as consistent financial data and records.
The collection and analysis of the monthly profit and loss statements from all franchised (and company owned) outlets provides the key metrics and especially the net profit of the business. Ideally you have point-of-sale systems linked to management reporting processes providing timely, quality data to measure and benchmark KPI’s across the network.
Importantly you need to be able to demonstrate how the financial data analysis determines and drives KPIs, educating franchisees, mentoring them and uplifting their performance relative to others in the group.
Look at your head office team and your external accounting and business advice resource to ensure you have the strategic and functional capability to set your course and deliver year on year growth as this is most important to investors.
This may seem obvious but the key here is your ability to ensure consistent delivery of the day to day fundamentals of your business. Your ability to leverage scalable, cost effective business technology to provide franchisees with real-time access to new products, training and other operational material and to communicate across the network is critical. So is your ability to monitor and enforce operational and legal compliance.
A failure to provision these needs not only increases costs, reduces productivity and your ability to scale your business, it reduces the value of your franchise offer and presents an unacceptable degree of risk to investors.
Systems and procedures
Accessing your systems and processes is one of the major ways in which franchisees mitigate the high risk of failure in running their own businesses. Evidence of this for them and for an investor is how well you articulate, train and enforce compliance to your operations and procedures.
Whether it’s physical manuals or an online Learning Management System (LMS) via a franchisee portal, you need to describe in detail every aspect of the business operations in a clear systematic format.
From the customer facing role to stock control, point of sale, financial management, rostering and how they will train their staff to their reporting obligations to the franchisor, it all needs to be comprehensively documented to ensure accessibility of content.
Induction, training and support
Your operations and procedures manuals can also be designed to serve as induction and training manuals, again in hard copy or online.
Training is an ongoing activity at every level of your business, and you need to demonstrate that. From orientation and training for franchisees and their staff via field support, coaching and peer mentorship to franchisee and manager training supported by suppliers or direct guidance from the franchisor, a commitment to training ensures standards, consistency and compliance across the network.
The best franchise systems have a culture of compliance. They define the standards during the recruitment phase, and reinforce during the induction and training phase how the standards are measured, managed and achieved.
Field managers build trust by understanding the goals and motivation of their franchisees so they can assist them to become better business people through education and support rather than policing.
It is important however to be consistent in enforcing compliance across your network as a high degree of prescription and compliance drives greater profitability.
Supply chain partnerships
Franchisors who treat their suppliers as strategic partners derive substantial income and other benefits for their franchisees as well as for themselves. Suppliers can be willing partners in new product research and development because they understand that assisting customers to grow will result in increasing sales volumes for them.
The key to supply chain management is ensuring standards for quality, service and delivery are specified contractually and not compromised, and that prices paid by franchisees result in a higher gross profit than if franchisee purchased independently.
The quality of your recruits is essential not only to the success and profitability of your network, but as an indicator of your enterprise value.
You need to ensure that the franchisee profiling, screening and recruitment process and documentation are well developed and documented. They also need to be compliant with the Franchising Code of Conduct, Australian Consumer Law and any other external regulatory or statutory requirements relating to your industry. Recent events in the franchising sector have increased potential buyers’ awareness all these issues in assessing the business value and decreasing risk.
Reliance on the franchisor – key person risk
Your main role as franchisor has been building and operating your network. So irrespective of whether you are looking to a total or a partial liquidity event, buyers will consider how much of the business’ success is directly linked to you and your involvement, and how that business will continue to operate independently of the founder.
Indeed this may be a deciding factor in whether the purchaser acquires all of the business or requires you to retain a shareholding for a minimum period and continue to have an executive role during the transition.
The depth and quality of your head office infrastructure, resources and personnel to support the network will be critical in ensuring the brand maintains momentum and consistency. These are the measures by which a potential buyer not only values your business but mitigates the risk in acquiring it.