Franchiser would want to request for a reasonable franchising fee. However Franchisee may want to see a payback period of within a two-year period. Then how the Franchiser and Franchisee would get their mind meets.
Franchisee therefore needs to have a financial workout and a realistic outlook to start the Franchise business. You would ask how much financial commitment do you to kick start.
You would have done your homework as to the type of franchisee you would like to go in. Now, let say, you are keen to start and food and drink kiosk. Through your market study you recognize the food on the move would attract consumers with good quality food and yet affordable.
Franchiser for this kind of business would like to have many kiosks spreading over the country but within a 3 to 5 Km radius to have one outlet. You would also establish which location you have in mind and how much the rental would be.On the other hand Franchiser may have rented some places waiting for franchisee to take up. Franchiser had identified suitable location as they did the research and ensure continuity for their business. Franchiser generally would be protecting their “brand” and ensure it does not get dilute. Similarly, Franchisee may not be able to negotiate a good location as compared to Franchiser.
Secondly, the Franchiser would have a financial model as to the amount of rental should be and what is the percent of the sales income. The rule of thumb is to be within 20% of sales income. Franchiser secured the place and would have estimated the sales income with a 10% deviation.
Next, you would think of the set-up cost and capital investment for equipment and the renovation. Franchiser would have a set of standard requirement that they would want you to comply as part of the corporate culture and the customer’s dining experience for the environmental setting.
You may go a step further to request for the organization or manpower requirement. This would give you an idea of number of head counts and the type of skills and competency required. From this information, you would be able to gather information on staffing and its related costs.
You may visit events that Franchisers are participating to attract potential franchisee. Outsourcing and research help you to establish the financial commitment for 2 years to make it a success. Franchisee would enjoy the business that they always dream about, the chances of success is much higher.
Why need to have financial resources for 2 years? The first six months, you establish your clienteles, the next 6 months, you would work hard to retain your clienteles. The third six months you would want your current clienteles to give referral. You need to reach out to more customers and convert them to loyal customers. Therefore the 4th six month, you start to have your client relations database to grow you business. By the end of 2 years, you would be able to reap back your initial capital investment.
You would prepare a Proforma Profit and loss Statement for first 3 years as follow:
- Sales income
- Less Cost of Goods Sold
- Operations expenses (Staff and its related cost, Advertisement and promotion, Communication cost, Royalty fee if any, Provision for other expenses)
- Net Profit/Loss
From the above you would likely to establish your cash outflow and cash inflow, the net difference is your monthly working capital.Now you have your financial figures and you would decide how to raise fund. First of all you can start to think about Franchiser to support you as a Franchisee. Can you pay the fee in installment, deferred payment scheme and other related payment for products cost. Renovation - any chance for payment term to stretch longer without increase of cost of capital. Franchiser always wanted to have a successful Franchisee. That’s your chance to be a successful Franchisee, so is your Franchiser.
© Copyright 2008 KnowledgeMediaNetworks, LLC.
