How to Build Your Infrastructure for Growth
May 04, 2022
(Part 4 of the 2022 Multi-Unit Franchising Conference)
The Multi-Unit Franchising Conference is an event dedicated to multi-unit franchises, their development, and growth. Once again, The American Franchise Academy was present there to bring you strategies to succeed with your multi-unit franchise.
2022 program included a session on how to prepare our organizations for growth, by building proper infrastructure for it. Not in terms of the leadership team or the store structure, but from the operations and financial points of view.
This topic was approached by four panelists, who highlighted the things that leaders need to implement to succeed and scale their organizations. Here are their tips to build your infrastructure for growth.
Make a serious due diligence
Fred Burgess, a MUMBO (Multi-Unit Multi-brand franchisee) from Twin Peaks, Marriott, and Papa John’s, talked about why it is so critical to evaluate the brand that you want to invest in.
Not only in terms of the numbers, the Franchise Disclosure Document (FDD), and the generic things that you get when you acquire a franchise, but really understanding who are the leaders of that brand and in what direction they're leading the business.
Another wise thing to investigate is what types of franchisees the brand is attracting. These people are sharing the franchise rights, and if their performance is poor, it can hurt the brand reputation as well as your profitability, even if you are a top performer.
To understand who the other franchisees are, Fred recommended that you ask for a list of investors so you can research, call or visit them and ask questions. This strategic move will also help you learn from their experience to make an informed decision on the brand selection.
Ensure your investment pays back
As part of the due diligence, Al Bhakta, a MUMBO from KFC, Taco Bell, Sonic, and Rent-A-Center, with over 400 units under his belt, noted that you must certify you’ll get the return on investment (ROI) that the band estimates.
Some brands provide better cash and cash returns than others, and as a franchisee that wants to grow into a multi-unit enterprise, you must know how to calculate that ROI and how to financially analyze the brands you choose to grow with.
Calculating the ROI before you even open is not a sure thing, but if you have clarity of what to expect and what will it take for you to get that return, you’ll make a better decision when selecting a brand.
Discover what’s the average franchise profit percent you can make in this blog post.
This is not only useful for the brand selection process. When people or credit institutions look at your business to see if they extend another loan, they'll review your numbers. If they are not positive enough, they'll be hesitant about giving you more capital because that increases their risk.
But if you are having the estimated return and you are a good steward of the money, the banks or investors will be confident to give you more funds.
Make sure your franchisor will proactively help you grow
Having the right partner will allow you to grow your business. That’s why Al Bhakta talked about how your ability to grow your organization begins with brand selection.
As part of your due diligence, you have to research if the franchisor proactively helps their franchisees grow, whether with knowledge, support, key relationships, or volume agreements that favor the franchisee.
Think of it this way: the brand that you'll be investing in will be part of your life for a long time. So being able to learn as much as possible about it is going to be crucial for your success as a business owner.
Find your true financial partners
To have a solid infrastructure for growth you require access to capital. That’s why, as Al Bhakta advised to build a relationship with your bank, or other sources of capital, from day one in your franchise journey.
Having a good relationship will increase your ability to access capital with favorable terms in both good and bad times. And he warned: if your bank is not willing to stand by you during the tight times, you need to find different sources of capital or people that are your true partners and supporters.
How you allocate capital
Damon Dunn, a multi-unit Dunkin’ Donuts franchisee, advised that one of the things you need to be clear on is how you distribute your funds, not only so you can have the best possible access to capital, reputation, and results, but also because you are in business to make money.
He also was very emphatic on the fact that, if you truly want to build an enterprise, you have to master the ability to understand your financials and the return on your investment. Being able to properly project sales and manage the waste on labor and product costs will be key to your success and your financial results.
For Damon, the most important thing that you need to know when you are a growing multi-unit franchisee is underwriting. That means knowing the cost of capital in your business and where you can have access to those funds, understanding the interest rate that you're committing to, who are your equity partners, and what is the credit ratio that you are getting into.
This information will help you discover if you are getting the financial results and profits that you want and that can cover your growth plan.
Run the operations to truly understand them
The Dunkin’ Donuts franchisee also shared how this brand requires their potential franchisees to work for a few weeks on the operations before signing on as a franchisee. Many brands do that. Domino's Pizza, for example, requires its candidates to be unit managers for a year before considering their application.
There’s a reason for this: the more you understand the operations, especially at the beginning, the better ability you’ll have to produce the results you want.
Get rid of the wrong leaders
Heather Safrit, multi-unit franchisee of SDS Salon Partners with over 12 salons operating, reminded the audience how having the wrong leaders in your organization will slow your growth. That’s why if you detect them on your team you should let them go, or else, you’ll get stuck.
I always have spoken about the ”hire slow, fire slow” mantra. However, I don't mean that you should wait too long before you let go of somebody that is not a good fit for your organization and your culture. What I mean is that you should follow the right process in the behavioral correction so that the employee has the opportunity to get back on track.
And you have to put something in place to ensure that this wrong behavior is corrected, otherwise, you will give people a second, third, and even a fourth chance, and they won’t change.
View this video to discover the benefits and drawbacks of rehiring an employee.
One of the things that a very wise man once taught me was "you will get an abundance of that which you tolerate". And he's right: if you keep tolerating poor behavior and bad performance, these employees won’t do anything about it and you’ll get more of it. This will paralyze your growth.
Don't hire friends and family
This is something that we see in the franchise world all too often. As Fred Burgess pointed out, the challenge with having family members and friends working for you is that you cannot run your business as you should. And if they are not the best people for your organization, they can stop you from growing.
At the end of the day, people are infrastructure. And giving opportunities to someone that doesn’t fulfill all the requirements or that isn’t the best for the job just because it’s close to you is going to hurt you and your business.
Reorganize responsibilities to improve quality of life
In this day and age, finding people that understand the business and truly will care about your operations is a challenge, as Damon Dunn pointed out. But doing so is a must for your growth. Realizing this, he understood that to keep opening units he needed to help his unit managers with the hiring process.
He took away this obligation from them and gave it to the district managers. Now, they are the ones that do the interviewing and the hiring, as well as the orientation and training of the new team members, along with the HR department.
Discover here all about the staffing responsibility for district managers.
He advised the audience to implement processes or systems to simplify the manager's job responsibilities, without hurting the bottom line, to help them streamline their operations and produce positive and consistent results.
Vendor loyalty is key
Heather Safrit also mentioned the importance of vendor loyalty and having a relationship with those key vendors that you're going to depend on for growth, from your distributor and your builder to your maintenance person and anyone you’ll call upon when you are opening more units.
That external team will provide the necessary support for your organization to grow rapidly. While they're not part of your business infrastructure, they must be a part of your growth plan because having them on your side will allow you to grow fast, successfully, and with cost savings.
Trust in external allies
There are a lot of questions surrounding this matter: How much should you invest in that overhead? When should you have internal team members operating vs. third-party companies doing it? At what point do you bring some of these services as support in-house?
I have spoken about these issues with a lot of successful multi-unit franchisees and it surprises me that many of them still keep most services external, from accounting and maintenance to legal.
Those who do this argue that they rather be experts in running their business and operations to increase their sales and inspire their people than focus on administrative activities.
By delegating to external team members, not only do they save money but also can negotiate better rates as their organization grows. At the same time, these external companies get you closer to innovations and technology that you wouldn't have access to if you were running the service internally.
Those were the most important takeaways from this session. I hope this was helpful for you and your business. You can review the rest of the insights from the Multi-Unit Franchising Conference by subscribing to our YouTube Channel. And give us a thumbs up on our Facebook, Instagram, and LinkedIn networks to get more valuable resources for your everyday business operations.
Reflections:
- How much time and effort have you invested in evaluating the brands that you want to grow with?
- How much financial understanding do you have of your current operations and what it will take to grow your organization?
- Are there any leaders that are slowing you down?
- How can you improve your relationship with your key vendors and external team members?
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