Management & support for new franchisors by iFranchise Group

Management & Support Requirements For New Franchisors

About the Panel •

Dave Hood, President, the iFranchise Group – – – –

•

Harold Kestenbaum, Harold L. Kestenbaum, PC – – – –

• • •

27 consultants across four functional specialties 500+ years of experience in franchising 98 of top 200 franchisors Affiliated companies: Franchise Dynamics and TopFire Media Named one of the top 100 franchise attorneys in America 30+ years in franchise law Former board member of publicly traded franchisor Noted author: “So You Want to Franchise Your Business”

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The iFranchise iFranchise Group

Strategic Planning The Key to Success

• You are entering a new business. • Goals drive your business. Start with support and cost structure. • What do you need to do to help your franchisees succeed? • Don’t rely on guesswork: The future of your business is at stake. • Financial analysis is essential. • Reverse engineer your success.

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Goal Driven Modeling Goal Average Selling Price Year Five Earnings Average Royalties

Sell for $10M in 5 Years 6.7 times EBIT $10M/6.7 or about $1.3M $30,000 per franchise

Average Net Royalties

$10,000 per franchise

Need to sell

$1.3M/$10,000 = 130 Franchises

The iFranchise iFranchise Group

Goal Driven Planning

Sales

30 25 15 10 Year

5 The iFranchise iFranchise Group

Goal Driven Planning

Hire Franchise Salespeople 50

Sales

30 25 15 10 Year

5 The iFranchise iFranchise Group

Goal Driven Planning

Hire Field Reps

Sales

30 25 15 10 Year

5 The iFranchise iFranchise Group

Goal Driven Planning

Hire Support Staff Sales

30 25 15 10 Year

5 The iFranchise iFranchise Group

Goal Driven Planning

Sales

Personnel Marketing Office Space

Brochures

25 15 10 Year

5 The iFranchise iFranchise Group 10

GAP Analysis and Growth Planning

Year One Hires President/CEO

Year Two Hires

Human Resources

Year Three Hires

General Counsel

Chief Financial Officer

Legal Staff

Accounting Staff

Chief Operating Officer

Director of Training

Director of Purchasing

Director of Marketing

Purchasing Staff

Marketing Staff

General Manager Operations

HQ Support Staff

Field Support Region 1

Field Support Region 2

Field Support Region 3

Field Support Region 4

Franchisee & Company Operations

Director of Franchising

Franchise Sales

Director of Real Estate & Construction

Compliance

Site Selection

Design & Construction

Staffing Ratios for the Franchisor The right staffing ratios for your company will depend on a variety of factors including:  The type of industry in which you operate  The complexity of your unit level operations  The speed at which your system is expanding  The geography over which you’re expanding  Ability to cluster units  The types of franchises you are awarding  Your philosophy toward support

Typical Staffing Ratios Franchise development staff  Single unit focus = 1 for each 12- 20 deals  Multi-unit focus = 1 for each 5-8 deals Field support staff  Single unit restaurant = 1 for each 20-25 units  Multi-unit restaurant = 1 for each 10-15 owner groups  Territory-based service system = 1 for each 30-35 owner territories Field marketing staff  1 for each 50 to 100 units/territories Overall staff to franchised locations (within a mature organization)  1 staff equivalent for each 7 to 11 locations 13 Copyright, The iFranchise Group, 2013 All rights reserved

Cash Flow Modeling for Growth Conservative Growth $ Only incremental cost is franchise marketing and that can be a variable cost after a start-up allocation The Golden Rule: Grow No Faster Than Your Ability To Support Your Franchisees

Second Hire

Royalty & Gross Margin Revenues Leverage Existing Staff and Minimal Advertising

First Hire

Loss

Time

Marketing & Selling Franchises • Factors affecting sales and marketing management – – – – –

Speed of sales Size of investment Type of sale (area development, area rep, conversion, etc.) Marketing budget and plan Internal capabilities

• Alternatives – Internal development – Hire an expert – Outsource

The Franchise Sales Cycle

Pre-Sale

Post-Sale

Developing a Best in Class Support System

Focus Within a Franchise Support Program

Compliance 20%

IMPORTANT ROLES: •Brand Ambassador •Trainer and Coach •Operations Expertise •Marketing Support •Financial & KPI Analysis 80% Helping franchisees increase revenues and profits

Focus of Support May Vary Based on the Types of Franchisees You Have Multi-Unit Franchisee

Single Unit Franchisee  Financial statement basics

 Detailed business planning

 Expense controls

 Financial benchmarking

 Best practice sharing

 Planning for capital spending

 Sales training

 Technology development

 How to manage a family business effectively

 Multi-unit management training

 Strategies for local store marketing  Hiring good employees

 Assistance with finance or lease programs  Input on key strategy issues impacting the brand

Building Blocks for Supporting Franchisees Nine Primary Areas of Support Third-Party Supplier Support Communications and Technology Brand and Local Marketing Field Consulting Supply Chain Ongoing Training Pre-Opening Training Construction Real Estate Not relevant to some service businesses.

Field Support Process Primary decisions to be made:  Qualifications for the field support position  Compensation structure  Where should reps be located?  Ratio of reps to units  Frequency of visits  Routing efficiency  Agendas for each visit  Business planning tools  Use of mystery shops or quality assurance resources

Best Practices Operations Manual • Key here is “best practices” • Serves many functions – – – – – –

Sales Tool Training Guide Reference Tool Liability reduction Enforce system standards for Quality Control Extension of the legal documents

• Knowing what to document, what to mandate, what NOT to document, and what NOT to mandate is key

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QC – Beyond the Operations Manual • Faster growth requires formal training programs – For your staff – For franchisees

• Train-the-Trainer too – Franchisee will train their staff – Should have tools to do so

• Video pushes QC to lowest level of organization • On-line training decreases costs, increases quality, and can decrease liability – Customized by employee – Document what is reviewed and test scores – Lowers on-site training time and costs for both the franchisor and the franchisee Copyright, The iFranchise Group, 2013 All rights reserved

The iFranchise iFranchise Group 23

Key Steps In The Planning Process With Franchisees

Business Planning With Your Franchisees The planning process will vary based on the needs of each franchise system. In general, however, a franchiseeâ&#x20AC;&#x2122;s plan will focus on areas such as: Marketing

Operations Management

Human Resources

Facilities

Budget

Revenue Goals

Staff Levels

Maintenance

Local Marketing

Cost of Goods

Co-op Planning

Operating Expenses

Training & Development

Construction & Trade Dress Updates

Support of Systemwide Initiates

Overall Profitability

Tracking Marketing Performance

Capital Expenditures Cash Budget

Compensation Plan Turnover Targets New Staff Hires

Operations Quality Customer Feedback

New Equipment Technology & Software Facility Lease Review

Communications and Technology

Phone

Field Visits

Newsletter

Training

Secure Web Portal

Conference Calls Communication

E-mail

Strategy Blog Social Media

Webinar Convention

Advisory Council

Legal and Sales Best Practices

Limiting your liability:  Be sure your FDD is kept current  Making changes as the system matures  Develop a system to track state renewals and ensure compliance for each franchisee  Conduct appropriate background checks  Develop and monitor a system (at closing) for verifying and documenting that no inadvertent disclosures were made  Train your franchise sales force on an annual basis  Mystery shop your franchise sales force using an outside firm to ensure legal compliance – will also be a great report to have if you ever do have litigation. Copyright, The iFranchise Group, 2013 All rights reserved

Accounting and Auditing Best Practices

Limiting your liability:  Make sure that all payments are kept current and that late payments are addressed promptly  Make sure that the audit is begun on a timely basis and that auditors finish on a timely basis so you do not “go dark” on franchise sales  Install a system for tracking and documenting that each franchisee is maintaining proper insurance coverage  Install a system for tracking and documenting that all franchisee licensing is kept current  Install a system for documenting appropriate franchise background checks, financial diligence, representations. Copyright, The iFranchise Group, 2013 All rights reserved

Operations Documentation

Limiting your liability:  A good Operations Manual can help you avoid litigation  A bad Operations Manual can be a franchisor’s worst nightmare  Operations Manuals must provide you with adequate brand control but should not be too prescriptive – a fine line  Must avoid creating an inadvertent “agency” relationship  Must avoid potential areas of negligence or take great care when prescribing actions  Should cross-reference regulations and not cite them  Should be updated annually and reviewed by professionals and attorney. Copyright, The iFranchise Group, 2013 All rights reserved

Operational Support

Limiting your liability:  Have a standard compliance checklist for field support that does not leave room for interpretation  Make sure your support people document everything and that you keep a detailed file on each franchisee including all correspondence, contracts, FA, FDD, etc.  Supplement field support visits with Secret Shopper Programs  Document all client calls using Contact Management Software  Train your staff on a regular basis on appropriate franchisee communication and interaction, as well as best practices communications techniques – especially emails!  Develop a Field Support Manual for identifying problems and maintaining best practices. Copyright, The iFranchise Group, 2013 All rights reserved

Real Estate Support

Limiting your liability:  Document your requirements and process the franchisee must follow  Ensure the franchisee conducts and documents their own due diligence  Approving versus accepting the franchisee’s site  Ensure the franchisee retains a qualified real estate attorney  Review each lease to ensure your lease requirements have been met prior to execution.

10 Common Mistakes in Supporting Franchisees 1.

Lack of commitment to providing adequate support, particularly in the early years of franchising

Hiring support staff that is under-qualified or given insufficient training and direction

Lack of operational experience by the franchisor

Failure to build the support program around the issues that are most important to franchisees

Failure to involve franchisees in key decisions

Failure to develop an effective change implementation process

The belief that technology can replace human contact

Failure by the franchisor to measure the results of its support efforts

Negative attitudes toward franchisees

Questions