June 2019
www.franchisebuyer.com.au
This is ‘fintech with a face’
w w w . f r a n c h i s e b u y e r . c o m . a u Published by
MAGNETIC DIGITAL PTY LTD Editor GLENN WALFORD glenn@franchisebuyer.com.au Art Director KATHERINE BERCASIO Campaign Administrator MELANIE BROWN Digital & Technology Strategy ROBB SNELL Writer PAUL ROBINSON
Contributors JOHN DWYER KAREN KENNEDY JAMES SCURR
Published by Magnetic Digital Pty Ltd Opinions expressed in Franchise Buyer are not necessarily those of Franchise Buyer or the Publisher. Persons entering into a franchise agreement are strongly urged to seek their own independent advice. All material is copyright and reproduction in whole or in part is not allowable unless specific permission from the Editor is provided.
Inside this Edition of June 2019 04 News Bites: You should be using social media for marketing Narellan Pools partners with US largest pool company Jon Smith Subs, opening of first store in Australia
COVER STORY:
This is ‘fintech with a face’
8-11 By Paul Robinson
12 Opinion: The most common questions asked about a franchise. Glenn Walford 14 Franchise Ratings: This is a game-changer. A rating system for franchise brands. Glenn Walford 16 Business Processes: The real cost of YOU doing the bookkeeping. Karen Kennedy 19 Attracting Customers: If you want to attract new customers, you have to have a WOW factor! John Dwyer 23 Franchise Funding: Understanding if you can afford a franchise. James Scurr franchisebuyer.com.au
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News Bites
You should be using Social Media for Marketing
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he world is more social than you know and many social media users are there to find products. So… you should be using social media for marketing! According to ‘Social’, a report by GlobalWebIndex, 96% of Australians currently use social media and 29% use social media to research products to buy. Which social media platforms are the most popular? Facebook and YouTube have a cross-age appeal with nearly 7 in 10 internet users of all age
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groups visiting or using these platforms each month. Social Media Landscape in Australia: Facebook 80% YouTube 79% Instagram 45% Twitter 25% Snapchat 25% How much time per day are digital consumers devoting to social media? 16-24 year olds spend an average of 2 hours and 59 minutes on social media per day. How are the behaviours of social media users changing? Gen Z (born from 1997) and millennials (born between 1981-1996) are showing less interest in other people’s updates and have a growing desire to extricate themselves from the social aspects of social media. Social media as an entertaining hub could potentially outlast social
media as a medium for human connection. How are social media services evolving as content and commerce platforms? The opportunities for social engagement, at all times of the day and in various locations, have facilitated the evolution of social platforms into entertainment and commerce platforms. Live streaming represents an important trend in which entertainment and marketing overlap the most. Will social media play a larger role in marketing? With so many users engaging on social media, companies have the opportunity to blend entertaining with commerce, content consumption and advertising in general. Source: ‘Social’ GlobalWebIndex’s flagship report on the latest trends in social media 2018.n
News Bites
Australian franchisor Narellan Pools partners with America’s largest pool company
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ustralia’s leading fibreglass pool manufacturer and franchisor, Narellan Pools, has announced a partnership with North America’s largest pool company, Latham Pool Products. Latham will partner with the Narellan Group, which encompasses the company’s Australian, New Zealand and Canadian franchise and manufacturing businesses. Narellan Pools’ long-time Managing Director Chris Meyer will continue to lead these markets, as well as provide strategic leadership to the North American market. He will also become a shareholder in the new enlarged Latham family. On the partnership, Meyer said: “We’re incredibly proud to have built the biggest and best pool brand in Australia and New Zealand through our franchise model filled with dedicated and passionate people. We are excited to join
forces with Latham to unlock potential on a global scale. “This partnership is an incredible opportunity. It increases our franchisees’ business value and provides new resources. Our decision to take on a partner has not been made lightly; we are acting to not only capitalise on a huge global opportunity, but also protect the long-term interest of all our stakeholders. We’re delighted to have found a partner that has the same drive, passion and commitment to building the world’s biggest and best pool brands.”
How will this partnership benefit the brands? • Australian franchise and manufacturing success story Narellan Pools has been recognised on the global stage by North America’s largest pool company Latham Pool Products • Latham Pool Products has made a strategic investment in Narellan Pools to share IP and
unlock growth in the fibreglass market through its franchise model in North America • Partnership set to expedite global growth as companies combine collective skills and resources and provide opportunities for their people Latham Pool Products’ President and CEO Scott Rajeski said: “Narellan Pools is known for its continuous commitment to developing high quality products and innovative manufacturing technologies. Their best-inclass marketing capabilities, including effective social media strategies, have fuelled strong growth by tapping into today’s mobile media savvy customers. “Adding Chris and his dedicated leadership team to Latham Pool Products was key to forming this strategic partnership. He brings an unbelievable passion for growth and success and we’re excited to take on the next challenge together.”! n
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News Bites
A new fresh food focused brand into Australia GRAND OPENING, JON SMITH SUBS DOCKLANDS, MELBOURNE
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e had the absolute pleasure to be invited down to film and be a part of the grand opening of the first Jon Smith Subs store in Australia. The brand was started over 30 years ago in West Palm Beach in Florida, USA, and is operated by the United
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News Bites
Franchise Group (UFG). The company is wellknown in Australia with a strong franchise pedigree with brands such as Signarama, Fully Promoted (EmbroidMe), experimax, VENTUREX and more. Michael Cooke, head of Emerging Brands UFG, explained, “We’re a fresh product, we’re cooked on a grill...everything is fresh (in the) concept, cooked on a grill where our guests can see that being cooked.” For Jon Smith, this is clearly the angle they are approaching the market with. And from what we saw on the opening day, the fresh-off-the-grill aspect to the business looks to be a strong point of difference, that is capable of carrying the brand into the Australian market as an alternate offer in the fast casual dining sector. n
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COVER STORY
This is ‘fintech with a face’ WHO: Wayne Morris, CEO Fifo Capital Australia By Paul Robinson
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alking handin-hand with innovation, Fifo Capital Australia is revolutionising the business finance sector — with a customer base ranging from SMEs to large corporates. For all businesses access to finance to support their cash flow and working capital can be the difference to fuel real growth and success. From paying suppliers to getting paid by customers, the cash cycle of a business drives funding requirements. This is where Fifo Capital steps in with a range of innovative finance products for the Australian market. Launched in New Zealand in 2005, Fifo Capital opened its doors in Australia in 2008 and now runs a team of over 60 franchisee offices throughout the country. The company also operates in Canada, the UK and Ireland. Key to Fifo’s success is that its management team has a wealth of finance industry experience. What they
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COVER STORY don’t know about the business isn’t worth knowing. Backed by this experience, over the past two years, Fifo Capital has scaled up considerably, becoming a major player in the business finance space. It has seen them launch a corporate finance side of Fifo Capital, which supports the franchise network, alongside an innovative technology platform. They truly have become ‘fintech with a face’. Developing networks of intermediaries such as brokers and accountants who can open doors for Fifo franchisees to find potential clients, Fifo’s head office team assist with reviewing applications and the credit side of the business. They charge a percentage of the invoice as a fee for service provided, and
Franchisees can invest as much or as little as they want in the
Backed by this experience, over the past two years, Fifo Capital has scaled up considerably, becoming a major player in the business finance space. It has seen them launch a corporate finance side of Fifo Capital, which supports the franchise network, alongside an innovative technology platform. They truly have become ‘fintech with a face’.
transaction. The more they invest, the bigger the potential return. Fifo can also invest in each transaction. It’s a win all round. The client gets access to innovative finance, the Fifo franchisees get great investment returns. CEO Wayne Morris has been with Fifo for those two years, and says the company’s readiness to adapt to changing market needs and willingness to try new things has played a major part in its success. “Fifo provides working capital and cashflow finance for businesses of all sizes, from SMEs right up to corporates,” Wayne says. “Up until a couple of years ago, it was all about single invoice financing. We launched supply chain finance two years ago and trade finance last year. Those
The business is headquartered in Melbourne
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COVER STORY products have revolutionised where Fifo is in the finance space. They’re really innovative and have a certain unique quality about them. No-one else can do what we do in this space, the way that we do it. That combination of products has been game-changing for us in the market.” Despite the fact that Fifo effectively now has two distinct arms to its business — SME and corporate — Wayne is adamant Fifo is not deserting its small business base, but rather experiencing a natural evolution. “SMEs are still pretty good volume, but we’re now evolving from that small equity base to becoming a large corporate funder,” he says. “In our view, SMEs are the engine room of the country, if they stall, the country stalls. So we’re always going to look after their requirements. But we also want to be in with the corporate world.” A key point of difference with its corporate funding is that Fifo doesn’t write its transactions directly into the market, priding itself on involving its franchisees. “With our corporate clients we only write transactions if one of our franchisees/business Partners is,” Wayne says. “If a transaction comes to us without a business partner, we definitely bring one in. So it supports the network, it works harmoniously with it. If we grow, they’ll grow too.” On- or off-balance sheet supply chain finance helps businesses receive payment on invoices earlier, without having to go into 10
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Fifo took the same approach with trade finance. This product can be leveraged to pay international suppliers as if they were local, with minimal paperwork and no letters of credit. Suppliers can be paid before the goods leave their country, but the client can choose when they pay Fifo. debt or provide security. It lets the business maintain its cashflow; while secured or unsecured options allow maximum choice and reduce risk. Plus, it’s fast. At the same their business customers can extend their terms up to 90 days. Once approved, businesses choose which invoices they want to be paid early using an online platform called STREAM and receive full payment within a few hours. Fifo had seen the product was working overseas so decided to utilise it in Australia. Wayne came out from the UK specifically to develop the company’s technology-driven supply chain solution. “I’d been running a big tech supply chain company in the UK market, so I knew what we could grow,” he says. “I knew all the pitfalls and the potential income, and we ended up with a product far superior to what we had in the UK.”
Fifo took the same approach with trade finance. This product can be leveraged to pay international suppliers as if they were local, with minimal paperwork and no letters of credit. Suppliers can be paid before the goods leave their country, but the client can choose when they pay Fifo. “We’ve always said we want to innovate…” Wayne says. “For the banks, there are too many restrictions around what they can do. Smaller lenders have got stuck where they are. With the supply chain finance solution, credit insurance and technology, we built those things from the ground up. Having started with a blank canvas we’d been able to listen to our customers and solve their problems.” Despite rewriting the finance rulebook and the efficiencies of technology, Wayne says Fifo is still big on a personal, hands-on approach with its clients. He calls it “fintech with a face”. Of course, Fifo’s front line is its franchisees — who don’t necessarily have to have a solid background in the finance industry as Fifo provides some pretty intensive training, both face-to-face and through online webinars. In the marketing space, co-branded literature and web content is made available to brokers. “We have a very comprehensive training program that starts with a three-day inauguration at head office,” Wayne says. “And there is ongoing support throughout the journey for several months
COVER STORY
after getting on board. What we’re looking for are people who have the ability to connect with a network. They like people and they want to get involved with really innovative financing solutions. They want to be out there at the forefront of the fintech space.” He adds that the right franchisee can usually see a meaningful revenue stream within a month or so of coming on board. “We do a lot of the credit reviews for our franchisees and help them write deals,” he says. “There’s a seven-step process on every deal and if they follow that process, franchisees can be writing deals within their first month or so.” Some franchisees take a bit longer to get grounded with their network, but Fifo maintains its support through regular advice and its website. “They know they’ve got us to rely on,” Wayne says. “If they’ve
got a transaction going on, they know they can talk to us about the deal and get some relevant advice. Then before they fund, or before we fund if it’s corporate, there is more discussion.” However, every now and then, along comes a prodigy. Wayne notes that alongside the evolution of the business, there has been a major change in attitude on the part of Fifo franchisees. Until a couple of years ago, we were more about lifestyle,” he says. “It was working from home, no overheads and just a few select customers. We’ve moved on from that and most of our team is now more specialised and focused on their returns. Many have been in the network from the beginning and don’t really need support from us on a regular basis anymore. But they’ve almost become brand ambassadors, helping the
‘newbies’ get up to speed.” Fifo Capital is showing no signs of slowing down their rapid expansion, investing further in customer service and support and continuing the integration of its financial solutions with technology. Their commitment to innovation in business finance has been recognised by the industry. “We were runners-up in the Fintech Business Awards for lending innovations this year,” Wayne says. “It looks like a good time to grow. There is a bigger demand than ever for our products and we’re committed to taking things to the next level. The scalability is absolutely huge in our business. Roll back five years or so and we were writing deals for $200,000. Now we’re way past $1 billion in funding to the SME community. The only way is up.” n Find out more about Fifo Capital franchisebuyer.com.au
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OPINION
THE MOST COMMON QUESTIONS ASKED ABOUT A FRANCHISE By Glenn Walford
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nce it all settled down later on Sunday afternoon at the recent Brisbane Franchise Expo, we searched out anyone who would answer one key question;
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“What is the most common question you have been asked this weekend?� A franchising expo is a golden opportunity to take the broad pulse of franchising. In particular, it is a great gauge on investor sentiment and
focus, because you have a room full of franchise companies, and potential investors who have put in the real effort on a weekend to conduct their research. The franchise sector and key people involved are often accused of being franchisor centric. A franchising expo is all about people external to the sector
OPINION
and considering whether franchising is the right business investment vehicle for them. That’s why I enjoy them so much.
I’m often surprised why more brands are not representing themselves there, as it is literally the ‘coal face’ of franchising expansion in the market. The expo environment for buyer and seller is especially great because it can be disarming. You have nothing blocking making eye contact, reading body language and really understanding the brand and the people involved. Same goes for franchise brands with the same
opportunity to meet you and understand more about you. What a great place to explore getting into a business for yourself! n
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FRANCHISE RATINGS
This is a game-changer. A rating system for franchise brands By Glenn Walford
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his is great news if you are looking to invest in a franchise – you finally have a way to measure. It’s even great news if you are currently IN a franchise – it’s a measure where your success and satisfaction is part of the equation! It’s also great news for so many good franchise brands who are equally frustrated when other franchise
companies don’t do the right thing. As a result, everyone gets tarred with the same brush. We all get lots of ‘press releases’ here at franchise buyer by all sorts of companies and people. A short while ago, one really stood out for me from Darryn McAuliffe of FRANdata – it was about a Franchise Rating Scale that he was trying to get attention and momentum behind it.
This displays a serious and dedicated effort by people within the franchise sector to raise standards and be proactive in response to the challenges faced over recent years. Darryn McAuliffe describes the strong track record the company has in rating franchises. “…we supply the methodology that the US FORBES publication uses to compile its annual best and worst
Introduction to Franchise Ratings
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FRANCHISE RATINGS
The 7 Measuring Criteria Explained
franchise list. FRANdata has created the three tiered recognition system required to participate in the USVetFran program, and we built the Franchise Underwriting (FUND) score model relied upon by the US franchise lending community. In short, we know what we’re doing, and we have a track record doing it.” As the founder of a franchise buyer media publication and business, I’m
passionate about the rating system because, in particular, it goes a long way to greater transparency, and helps investors to compare one brand to another. Ultimately, if widely adopted, it should in theory make it pretty hard to be a poor-performing franchise company in Australia – because people will be able to see it. If you’re a brand
and you aren’t rated, people will ask ‘why not?’. And if you are rated and displaying it, this will position the brand as far more transparent than the rest, all the while finally giving potential investors a measure to compare brands. And, in my view, all of the above makes for a far better scene in which to consider investing in a franchise business. n
3 Most Common Questions
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BUSINESS PROCESSES
The Real Cost of YOU doing the Bookkeeping By Karen Kennedy
I know, everyone thinks it sounds like a good idea to do the bookkeeping for your own business. But, you need to really consider just what your time is worth.
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B
ut at the heart of any business is often an owner looking around and wondering why they’re drowning in so much backend work at the end of the day. Keeping your bookkeeping in-house might seem like a costeffective, time-saving idea, but really, it costs far more than you think.
setting aside a day, a weekend or even longer to knock out everything outstanding and that’s just finding all the paperwork and entering the data! That doesn’t include dealing with your outstanding accounts payable and receivable or checking over your financials to see where you can improve your financial position.
You won’t save time
You might miss something
How long does it take you to do your books once you find a moment to sit down ad do them? We frequently hear owners talk about
Bookkeeping isn’t only putting numbers in a spreadsheet. It’s a complex financial tracking system
BUSINESS PROCESSES that accounts for every dollar that flows in and out of your business, categorising each transaction for a clear picture of where your money goes. But to be really effective in your bookkeeping, you need to stay across all the related tax regulations and the specific requirement of your franchise system.
You won’t save money To calculate what it costs you to do the books for your franchise, you need to place a value on your time, as if you are an employee. The general rule of thumb is $50 an hour, because that includes pretty much all the benefits you get if you were an employee. So, if it takes you a day to get all your bookkeeping up to date, then that’s $400. Add in a few hours of research to understand the tax considerations of some transactions, and that’s another
$150. If you want to store all your paperwork digitally, that’s at least another $50 (depending on if you scan or snap). Then filing, that’s another $50 or more. Now if you have inventory counts and payroll, assume another couple of hours if you’re organised, and double it if you’re not. We’re creeping up to the $900$1000 mark. And this could just be one week’s worth of bookkeeping! What could you have spent that time doing to improve your franchise?
Let’s get the obvious out of the way Because of my experience with both franchisees and franchisors alike, of course I will say that I’m the most cost-effective method to handle your bookkeeping. This leaves you free to manage and grow your franchise, with access to up-to-date financials as you need. No more chasing debt or managing
your creditors. It’s all taken care of. But, if you’re not ready to hand over your books, or like us, you really enjoy it, here are three things I recommend doing to keep your bookkeeping cots to a minimum.
1. Get bookkeeping software There are many different types of bookkeeping software around, which can make it difficult to know what would suit your franchise. We recommend Xero, because it’s easy to set up, easy to use, and as long as you have internet access and a computer, you can use it. It even has a smartphone app so you can send out invoices on the go. Being a cloud-based software, it also means that anyone in your business can access it if they need (providing you have given them access).
2. Snap your paperwork Eliminate printing (and its
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BUSINESS PROCESSES BUYER HELP
associated costs) and store your paperwork online. It’s as easy as taking a photo of the receipt or invoice and saving it to your computer or even a cloud-based storage option. This not only means you’re freeing up space in the office, but you can access your paperwork no matter where you are. Even better, there are receipt apps that integrate with Xero, so when you take a picture of your receipt, it’s sent straight to Xero for reconciling. It can even extract details from the receipt, so that’s even less work for you. Even the ATO has an app where you can store your expenses.
bookkeeping software, make sure your accountant uses it as well.
What’s your time really worth? It’s easy to think bookkeeping is one of those tasks to manage
yourself, but it’s a complex and time-consuming task for nonbookkeepers. Your time is valuable. Take the time to minimise how long you spend on your books, so then you can focus on where you can make a difference. n
3. Get an accountant Like bookkeeping, tax is something else that may seem better to keep in-house. But for any business, and especially for a franchise, it is too easy to make an unintentional mistake. With the ATO paying more attention to incorrect statements and returns, the penalties far outweigh what you’re saving by not using an accountant. If you are using a particular 18
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Karen Kennedy has over 20 years accounting and administrative experience having worked in accounts and admin departments for many and varying business types. Ranging from multinational companies to franchising, real estate, manufacturing and hospitality. She has worked her way through the sector on her way up to Financial Controller and now Founder of Bookit Bookkeeping. https://bookit.net.au/ karen.kennedy@bookit.net.au
ATTRACTING CUSTOMERS
If you want to attract new customers, you have to have a WOW factor! By John Dwyer
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’ve been devising ‘customer attraction marketing campaigns’ for a few decades now and it’s clear to me that less than 5 percent of businesses worldwide, use proper ‘direct-response marketing techniques’ in their overall advertising plan. I speak at conventions in Australia and overseas, with the majority of attendees in my audience being ‘business owners or managers’. And when I ask how many of them are ‘using directresponse marketing tactics’ to lure prospects, only a handful of people raise their hands.
Most are wasting money on bus and taxi advertising, billboards on the freeway and generic ‘branding imagery’ on social media. If you want to attract more prospects quickly, my belief is you need to do the following: 1 Identify your ‘most profitable’ target audience (so you can look for more people who ‘look’ like them!) 2 Create a ‘wow factor’ to take their eyes off the price! 3 Fix your website/webpages! 4 Your website is now your Director Of First Impressions, so make sure it has the right directresponse ingredients to keep visitors sticky and interested!)
5 Use a ‘problem/solution’ strategy in all communications, demonstrating how you are the answer to your prospects’ challenges! 6 Collect data online and offline – and reap the benefits through repetitive trade!
Replace Price Discounting With ‘Wow Factor’ Added Value! In my view, ‘price-discounting’ should be your very last resort when it comes to marketing your products or services. It’s obvious that if you are constantly discounting your prices, you are taking your brand from the franchisebuyer.com.au
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BUSINESS PROCESSES ATTRACTING CUSTOMERS penthouse to the basement without taking the elevator! You don’t want to be in the ‘race to the bottom’ – you want to provide prospects with ‘added value’ and therefore maintain margin and a good brand persona. Not many of us have an ‘organic wow factor’ (in other words, an incredible component that is not easily duplicated by any competitors). Therefore, I’m in the business of providing clients with ‘artificial wow factors’ that distinguish their products or services from others. Here’s a few examples of my ‘marketing mantra’ that demonstrate my point:
1. Win $1 Millon By Staying At This Resort! My Fijian resort client was sitting on 34 percent occupancy when he came onboard my Private Marketing Consult Program – because his hotel was 20+ years old and 30 minutes from Nadi airport. Other newer, sexier hotels had opened at Port Denarau and had stolen market share. I discovered that his major flow of customers was from travel agents on the east coast of Australia – so our challenge was to provide these agents with an incentive to book guests into his hotel (Hideaway Resort) rather than others. So we created a $1 Million Giveaway Incentive aimed at Australian travel agents, providing them with one entry into the chance to win $1 Million for every room night they booked. This $1 Million prize was 20
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‘insured’ which meant that the Hideaway Resort simply paid a modest premium of about $8,000. (We do ‘Insured Prize Giveaways’ regularly) And guess what – within a couple of weeks, the occupancy rate had skyrocketed from 34 percent to 98 percent and stayed there for the three months of the promotion! Let’s face it, whoever walked into a travel agent during this period and enquired about a Fiji holiday, were immediately recommended to stay at the Hideaway Resort because the travel agent would get a free entry into
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the $1 Million draw for every night booked! A stunning result because of an exciting ‘wow factor incentive’!
2. Candy Shop Transformation! Whether you’re a franchisee or owner/operator, you need to look at your ‘first impressions’ and determine if they have ‘wow’? Whilst these days one’s website is traditionally the ‘Director Of First Impressions’, for retailers, obviously
the shopfront can make or break the business. A client in Sydney called Lollies n’ Stuff boasts about being the International House of Candy – but the exterior of the three retail stores didn’t communicate the incredible ambience of the interior of the stores. So I quickly provided my ‘Disney-style’ revamp recommendations and the result has been spectacular to say the least!
No one could possibly walk past the refurbished exteriors of these stores without being tempted to go inside! It’s a ‘wow factor’ on steroids and perfectly provides the appropriate ‘message to market match’. The owner of this business has decided to stick with my program forever, as this ‘wow factor’ (along with lots of social media ideas) has monumentally changed his revenue! franchisebuyer.com.au
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3. Loyalty Programs To Stimulate Repetitive Trade! In order to enjoy similar benefits to Netflix, you need customers/ clients to be coming back over and over again. It amazes me that 98 percent of businesses DON’T collect any data of their prospects or customers. They simply let them walk into their business, purchase something
and then leave without providing any personal details! Let’s face it, even the giant fast food chains have millions of customers a day, yet not one collects data at the counter! Just crazy stuff! And very few businesses collect data online via webpages or their website – it just astounds me. You can be one of 80,000 people in a sporting arena and the code won’t know your name or contact details! We live in the world of Amazon and if you don’t start mirroring their ‘data collection techniques’, there’s a good chance this giant will wipe you out!
Take a hair salon for example. The best way to stimulate loyalty and repetitive trade would be to do something like the following. For every $50 a customer spends, they get one Movie Point – save 10 Movie Points and get a $50 Gift Voucher to go to the movies! Note that this $50 Gift Voucher represents just 10 percent of the $500 that the customer has spent – and how much more horsepower this has compared to putting a sign outside the salon promoting ‘10% off’! So my mantra is always to determine what discount you are prepared to give away – AND THEN TURN THAT DISCOUNT INTO A HAPPY MEAL TOY BONUS! You’ll find the ‘value added bonus’ will blitz the corny discount offer! So next time you are considering price discounting, stop and consider how you can turn that discount into a ‘wow factor bonus’ and I bet you’ll be pleasantly surprised with the result! And of course, if you are looking for someone to fast-track such ideas, feel welcome to contact us at www.theinstitueofwow.com n
John Dwyer is renowned as one of Australia’s leading direct-response marketing experts. His client list includes the “who’s who” of Australian businesses, including News Ltd, Channel 9, Madura Tea, KFC, the Greater Building Society, Fairfax Publications, BP & 7 Eleven. His business, The Institute Of Wow, helps all size companies attract avalanche leads through innovative online & offline advertising tactics. Contact: john@theinstituteofwow.com Website: www.theinstituteofwow.com
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FRANCHISE FUNDING
Understanding If You Can Afford A Franchise
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ranchising is a great opportunity for many people who are looking to delve into the world of small business ownership, enjoying the flexibility of being their own boss, but with the backing of a proven business model. However, to ensure that you can take a franchising opportunity and turn it into a successful longterm operation, it is important to have an in depth understanding of the impact owning a business will
By James Scurr
have upon your financial position. Unfortunately many potential franchisees begin looking into ownership opportunities with a lack of knowledge regarding what they can actually afford. This can be for many reasons including a poor understanding of their own financial position, or unrealistic information surrounding what the start-up investment for a franchise business really is. Striving to gain a better understanding of what the initial financial cost will be is vital,
and will likely impact the type of franchise you consider purchasing, as well as your ability to access the finance you need to buy it.
Understanding The Real Start-Up Cost The first step in deciphering what the real start-up cost of your potential franchise business will be is to have an in depth read of the Franchise Disclosure Document provided by the franchisor. This document should outline franchisebuyer.com.au
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FRANCHISE FUNDING everything you need to know about the business, including franchise fees, real estate costs, equipment expenses, inventory requirements and any necessary insurance. As well as outlining all of the major initial expenses, this document should give an indication as to ongoing fees or royalties to be paid to the franchisor, which is an important consideration for longterm sustainability. While the Franchise Disclosure Document will outlay all of the obvious costs, the expenses to the business owner do not stop there. It is the forgotten ‘extra’ costs that can often land new franchisees in hot water. Setting up a business is a process, and throughout that process many additional costs and fees can really add up. Expenses such as legal and accountant fees, stamp duty, finance application fees and most importantly working capital can often be overlooked.
Understanding Your Financial Position Now that you have a better idea of the dollar figure your
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franchise is going to cost you, it is time to take a look at your own financial position. It is important that the money you contribute to the purchase of a franchise is an amount you can realistically afford. If you’re not quite sure how much flexibility you have in your finances, enlisting the help of an accountant or business advisor can help provide some much needed insight. Investing all of your savings, or taking out a loan for more than you can repay, will put you and your franchise in a precarious financial position. Most franchisees find that striking a good balance between utilising outside finance and investing their own savings sets them up for success.
Understanding Your Loan Options Almost all prospective franchisees will turn to outside financing in order to get their business up and running. There are a broad range of lenders available that all offer an abundance of finance solutions designed to meet
the varied needs of small business owners. The type of franchise you are planning to open and the level of funding you require will have an impact upon which of these lending options will best suit you. Franchise partners hat belong to well known and reputable franchise brands that sport a good track record on the sales front will likely be able to gain access to finance with minimal barriers. However, you must remember that gaining access to finance is not always a given. Many franchise owners find success in financing with alternative lenders, who are known for offering more flexible solutions to suit small business than the banks. In preparation for a finance application, you should complete the basic documents that may be required for an application. This includes asset & liability statements, tax returns and personal financial statements, as well as financial projections for the business and a well thought out business plan. Despite being part of a larger system, lenders still want
FRANCHISE FUNDING
to see that your individual business is financially viable, and ensure you can repay the loan. It is certainly worth noting that just because a lender gives you a borrowing capacity of say $300,000 that you don’t have to take it all. Franchise owners should strive to find a balance between personal investment and external financing, in order to keep their debt to equity ratio healthy and sustainable in the long run.
Understanding Your Potential Profits The reality of franchise ownership is that it may take 12 months, or even more, for your business to be operating at a level where you can begin to turn a profit beyond your initial investment. This is true for businesses of any size, and those who opt to invest in a low-cost franchise should consider whilst their initial outlay is low, their potential profit will likely be lower as well.
In any franchise, having a ‘cushion’ of working capital is essential in order to bridge the financial gap during the business’ initial growth stage. It will inevitably take time for your franchise business to grow to a point where it is generating a healthy level of profit that can sustain both your income as the franchise owner, and the future growth of the business. It is vital that franchisees have some working capital stashed away so that they can take full advantage of any opportunities
that come their way. A lack of funds to invest in local area marketing, expansion and refurbishment may stall the business’ potential for growth. Many franchisees often ask, exactly how much working capital should they have? This is a hard one to answer as it really does depend on a range of variables including your personal financial position and the businesses projected performance. However, there is no need for franchisees to be guessing blindly. Taking the time to talk with other franchisees in the network, or other businesses in the area can provide great insight as to what you may expect as a future business owner. Asking questions about the performance of other franchises in their first couple of years will give an indication of how much working capital you may need as a buffer. Before delving into the world that is franchise ownership, be sure to take the time to understand the real start-up costs, potential profits and loan options, and whether your financial position will allow you to set your business up for long-term success. n
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James Scurr is the Founder and Managing Director of Cashflow It, a specialist equipment finance company and the only equipment-funder focused solely on the Australian franchise industry. He has almost 20 years’ experience in the franchise industry having spent time as a successful multiunit franchisee for campanies, including Boost Juice Bars. James has extensive franchising and small business experience and has an acute understanding of franchisees’ requirements. Phone: 1300 659 676 Email: james@cashflowit.com.au Web: www.cashflowit.com.au
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