July/August 2023Previous IssuesResource Articles

The Franchise Tool Kit

7 Skills You Need to Bring to the Table When Franchising

By Daniel McIntosh

At its core, franchising is about a symbiotic relationship. The franchisee gets access to a proven system, where the franchisor has already created a marketing strategy, considered location details, and completed a traffic analysis for the territory and/or location. The franchisor gets to expand their vision with like-minded franchisees who all want to see the brand succeed. But some keys to success, like interacting with your staff and customers, lie squarely with you, the franchisee.

Before you turn the key for the first time, read on for seven critical skills prospective franchisees need to bring to the table to find franchise success.

Breaking even and profiting

You might love the product you’re offering. Maybe you love it so much you’d even work at the business for free, given the opportunity. But bills still need to be paid, so getting to that crucial break-even point is necessary.

Potential investors and franchisors want to see that you’ve considered the relevant costs and revenue levels required to reach a break-even point in the business. Understanding how your costs break down can help you determine when you’ll be approaching the point of profitability.

There are many factors that go into any given franchisee’s profitability, and you probably chose your franchise with hopes that it would be successful, so you can look to the franchisor for help in estimating your future profitability. Specifically, item 19 of the Franchise Disclosure Document (FDD) covers financial performance representation, which provides historical information about sales and financial data of the business overall. Along with reviewing this section in each FDD in granular detail, franchisees should reinforce the information by asking the franchisor questions like:

  • What’s the gross revenue of a similar location in this area?
  • How long have previous franchisees taken to break even?
  • What type of profit margin should I expect?

While these questions won’t give a definite answer for your location, a good franchisor should be able to estimate your business’ profitability. After all, you both want to see the location succeed!

If you happen to hit any setbacks along the way, identifying the internal and external factors like the location traffic or a particular underperforming team member can help determine what’s limiting the profitability of the business. Once you find the symptom, you can work to cure it. Develop an understanding of how your store is being affected and implement a strategy to solve it.

Controlling costs

Savings start on the balance sheet. If you’re looking to maximize your profits and cut your losses, check out your recurring costs and see where you can save. If you know your customers almost always order medium-sized drinks over small, cutting down the amount of small cups you receive in your weekly shipments can help you reallocate funds to more useful areas, or simply put some of that cash aside in your franchise’s rainy-day fund.

Hiring and retaining staff

Unless you plan to run an owner-operator franchise, chances are you’ll need some help. Besides, most franchisees see hiring their first employee as a rite of passage. So how can you select the right person for the job and ensure they want to stay for a long time? Some franchisees use KPIs to analyze employee success and focus on which areas need improvement. Here are some methods franchisees can take to find—and keep—good talent and prevent high turnover.

  • Competitive pay: Money talks. Offering higher pay than your competitors and raises for good performance is a great way to keep good employees around.
  • Upskilling: The reward for good work is more work. Training junior staff senior duties shows them that you’re invested in their growth, along with the growth of the brand. It also builds trust with the staff. Trust makes employees feel valued and investing in their development provides an opportunity for them to feel central to the company.
  • Referrals: Continue to recruit awesome talent by sourcing from the best–your existing employees! Ask them to help with the staffing situation by recommending colleagues for open positions. Additionally, offer referral bonuses for successful hires of new team members.

Customer service

While franchising ensures that you’ll have a proven system to fall back on, it takes a little extra effort to capture customers in new markets. Knowing how to keep customers happy and returning is required to generate sales and maintain a positive relationship with your client base.

Your business can be the best of the best, beloved by its local community, and thriving year over year, but no matter how well run, efficient, and well-liked your franchise location is, you’re still tied to the national franchise’s identity. If there are issues with the overall brand, it may impact your individual location.

You need to be ready to handle the reality of being a team player and managing the reputation that comes with it; you aren’t a solo star. You’re also the courier between your local community and the franchise at large. No matter what issues may arise, it’s important for you to maintain strong relationships with your customers, to keep them flowing through your location.

Staying true to the brand

Franchising can be freeing, in a managerial and financial sense, but being your own boss has certain limits when you’re a franchisee. While you may enjoy some independence in your decision-making, there are many facets of the business that are directed by the franchisor’s brand standards and policies.

Maintaining consistency across all franchise locations is paramount to keeping customers satisfied, no matter where they are. Certain parameters are put into place to maintain the uniformity of the brand at large, and it’s one more aspect of the business taken care of, so you can focus on running your franchise to the best of your ability.

Following the guidelines laid out by the franchisor ensures you can find the repeatable success that’s at the heart of franchising. If you prefer to fully carve out your own path rather than follow the one set out for you, franchising may not be the right business ownership model for you.

Managing growth into multiple units

If your individual franchise location is running smoothly with help from an efficient team, and you’re saving costs while earning profit, it might be time to expand to additional units. The decision to reinvest your profits can be a tough one to make, as most franchisors don’t have training specified for making the jump from single- to multi-unit operations. You’ll have to develop your leadership skills to become adept at maintaining operations at multiple locations—you can’t be in two places at once. Moreover, you can risk losing all of your units if one of them fails. Even an experienced franchisee must carry out the proper due diligence when purchasing a new location. In the case of purchasing a resale franchise, especially if the location was previously hindered by ineffective ownership, outsized operating costs, or other factors, you need to ensure that the conditions are stable enough to turn the operations around.

Becoming an effective leader

Developing the qualities of an effective leader is essential in managing staff. The best way to encourage retention is by simply being someone worthy of trust. As a matter of fact, effective leadership at the franchisee level creates more leaders in the form of unit managers and employees. Effective franchise leaders should be/have:

  • Adaptable: Establishing a profitable franchise can be a long process, and you need to be able to tweak your business approach to stay on top of any changes. Factors as large as legislation or as small as limited stock can impede your progress, so it’s important to stay current with all aspects of your business.
  • The ability to delegate in order to scale the business. Especially when it comes to multi-unit ownership, franchisees must trust their store managers to act in the business’ best interests. Micro-managers run the risk of facing burnout, alongside the general impossibility of being in two places at once.
  • Strong communication skills to address issues and get your franchise’s goals across to everyone involved in the business.

As much as the franchisor sets you up for success with onboarding and training when you join a system as a new franchisee, there are numerous tools you need to bring with you or develop through experience. Handling the finer issues of management, operations, and staffing is strictly your responsibility as a franchisee, and your success relies on putting these skills and abilities into practice.

Whether you’re just beginning your franchise journey, or you’re well on your way, these seven skills are a framework for success that will certainly be an asset. By sharpening these skills, you’ll be prepared for any challenges the experience throws at you.