April/May 2020 - BAY OF PLENTY BUSINESS NEWS

April/May 2020 BAY OF PLENTY BUSINESS NEWS 19
Three compelling reasons why
franchisees should follow the system
It should perhaps be obvious or assumed that when someone
decides to buy or establish a franchised business that they will follow
the system, after all that is what they have bought into. However, as
human beings we have an engrained propensity to tinker, challenge
and change just about everything.
FRANCHISING
> BY NATHAN BONNEY
Nathan Bonney is a director of Iridium Partners. He can be
reached at nathan@iridium.net.nz or 0275-393-022
With a caveat of saying
no system is perfect
and development and
innovation should be encouraged
and managed in a system,
there are three compelling reasons
why it is in the franchisee’s
best interest to follow the
system.
1. The system works
Firstly, franchises are often referred
to as franchise systems,
and the hint is in the second
word – system.
A system is defined “a set
of things working together as
parts of a mechanism or an
interconnecting network; or a
set of principles or procedures
according to which something
is done; an organized scheme
or method.”
In a franchise the business
product, process or service is
delivered via a systemised approach.
It is tested and based
on the success of the system or
process the franchise brand is
able to develop and grow.
It’s like baking a cake, you
need to follow the recipe, use
the right proportions and cook
at the right temperature and for
the right time. Once you have
mastered this, you may be able
to alter the recipe and or add
but do this at the beginning and
you have a mess.
Holds true with a systemised
business approach, miss
a step, include too much of
something and or alter the process
and the results won’t be
the same.
2. It provides the
ability to measure and
benchmark
A systemised approach to operating
a business provides for
measuring, and the old cliché
of what you cannot measure
you cannot manage applies.
The truly beautiful aspect
of operating in a franchise
business model is it provides
independent business owners
or operators – franchisees, the
ability to measure or benchmark
against and across similar
businesses.
The ability to benchmark
between different locations,
markets and operators is created
by the fact they are operating
under the same systemised
approach.
The Big Mac hamburger is sold by McDonald’s – the
world’s largest chain of hamburger fast food restaurants.
Following a franchise system
is the only way independent
business operators could
possibly achieve meaningful
benchmarking; industry surveys
and statistics, trade associations
and even (illegal)
cartels cannot as they do not
have the constant of an operating
platform from which
to compare, they are at best
able to relate one or several
measures.
Disregard or operate outside
the system parameters
and the franchisees ability to
benchmark and best manage
their business is compromised.
3. It provides a truly
competitive edge
The most powerful motivator
for a franchisee to follow the
system is actually a combined
result of having a process or
system that works, and the
ability to measure and benchmark
with-in and across the
system.
This combined result is a
truly competitive edge. Do
the business better, measure it,
compare, improve. Through
this repeated cycle the franchise
system and franchisee
will probably gain market
share and profitability along
the way. That’s quite a compelling
reason the follow the
system.
Back to my comment that
no system is prefect but a good
system will encourage innovation
and change applying franchise
system disciplines along
the way. That’s how we got the
Big Mac and McDonalds their
best ever selling burger, and
a great number of successful
franchisees!
Top 10 tips to keep
your business
running smoothly
MONEY MATTERS
> BY STEPHEN GRAHAM
Stephen Graham is a Director and Managing Partner at BDO
Rotorua, Chartered Accountants and Advisers. To find out more
visit bdorotorua.co.nz or email rotorua@bdo.co.nz
I
am often surprised with new
clients at how little they
know about their business –
even such simple facts as what
their monthly overheads are –
information that can mean the
difference between success and
failure.
I tell these clients that staying
up to date is crucial, and
that there’s no excuse not to be.
All it takes is a monthly check
of the following key indicators
of your business’ health.
Checking in monthly will
mean you clearly understand
your position and can then
make the right decisions to
run a robust and profitable
business.
Monitor cash
Cash needs to be closely monitored
as it is the single most
important indicator of business
performance. With cash it is
imperative that it is monitored
more daily than monthly. It is
also important that it is monitored
on both a short-term and
longer-term basis.
Financial reports
Too often I see businesses reacting
to information months
down the track. It is imperative
that accurate reports are prepared
on a monthly basis, close
to month end so you can react
in real-time to market changes.
Most software can provide
reports – from large business
with fully integrated programmes
to small businesses
using xero type reports. Don’t
just do your GST and move
on to the next job – print your
monthly reports and review
them.
Customers
You must understand your
customers – continually ask
them what they want and what
they think of your product or
service. Use technology to
help you connect and measure
with them.
Overheads
Many clients do not know
their monthly overheads yet
it is such an easy calculation
– even if done as basically as
dividing annual overheads by
12 months. It is essential information
to have when you reach
that breakeven point in the
month and start to make profit.
Key relationships
Strong relationships are fundamental
to business success. So
find a bank manager you connect
with, who will give you
their direct dial number and
make sure you stay in touch.
Likewise strong relationships
with key suppliers are
imperative. They’re often
willing to extend payment
terms or give discounts and allowances
so constant communication
is the key. Huge benefits
can flow to your business
including improved margins
and support through tight cash
flow periods.
Gross margin
Know your pricing model and
continually strive to maximise
your margins. Gross profit and
margin are key financial indicators
that need to fall out of
your monthly reports. Only by
understanding your model can
you strive for improvements.
Stock control
Measure stock that is key to
your business on a monthly
basis to obtain accurate financial
reports. This doesn’t
necessarily mean monthly
physical stock takes but it does
mean having a programme or
process to monitor levels, ageing
and shrinkage.
Rolling stock takes and
spot checks are useful. Often
when money runs out, stock is
the culprit along with debtors.
Debtors and creditors
Monitor your debtor levels
monthly. It is important to
measure the days outstanding
and have formalised methods
of collections. This often requires
continuous follow up
and a firm consistent approach.
Also measure your creditor’s
levels monthly. Huge gains
can be made by using technology
and managing creditors on
line and eliminating cheque
payments.
Employees
Great employees are the key
to business success. You need
a process for collecting all the
great ideas your employees
have. You also need to monitor
staff turnover on a regular
basis.
Budgets
The difference between a
dream and a goal is a plan.
You must have both short and
long-term business budgets,
and review your monthly results
to budgets.
Most software easily accommodates
budgets.
If you’re stuck or confused
about any of these matters,
ensure you get professional
advice sooner rather than later
as staying up to date is fundamental
to good business.