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When should your franchise stop growing?

Written by Dave Galvin on Thursday, 19 April 2018. Posted in Finance

As the saying goes, size isn’t everything, which is certainly true when it comes to scaling your franchise

When should your franchise stop growing?

The business world can seem obsessed with size. Who doesn’t dream of a life where their business has grown so much that money is now no object? To reach a point where you can buy anything you want, go on all the lovely holidays you could wish for and have countless employees to do all the hard work for you. Growth and success are the aspirations for so many entrepreneurs and of course the sky is the limit but not all growth is good. The blunt truth is that if growing your business isn’t growing your profits, it’s time to stop.

So many business owners keep on pushing on, working under the mistaken belief that the sheer size of their business is what defines success. It’s not true. To demonstrate this point, let me introduce you to two of my previous franchisees. One had a turnover of £1.3m, 24 technicians out on the road and nine staff in the office. The other turned over around £400,000 with six technicians on the road and two office-based staff.

On the surface it appears the first business was the most successful. It was far bigger in size, employed more staff and was apparently far busier. And he was very vocal about his achievements too. This guy’s business worked at around 1.5% net profit.

The other business, however, was a very different story. While smaller, the business was actually far more profitable, working at around 10-12% net profit. The business owner had made a conscious decision to maintain his size and grow incrementally, rather than actively seek new customers. Having reached a position he was comfortable with – he paid off his house, was able to buy nice things he wanted and look after his loved ones – he preferred not to risk what he had already achieved, which was a sustainable, profitable, manageable enterprise that served his needs. Instead of a giant business, he ran a very efficient operation, using a model he had developed and evolved to maximise time and minimise waste. Not only did this put more money in his pocket but the stress was far less too.

Growing your business’s size has unlimited potential but with it comes with huge quantities of pressure and responsibility. Some relish that challenge and deservedly reap the rewards. However, that working life isn’t for everyone. The shiny cover image of running a big business looks wonderful but running a business is tough – and it’s especially tough if you don’t actually have the stomach or the appetite for it.

As your franchise grows in size, so will almost everything else – your competitive and market landscape, your overheads, the demands on your time. You need to check your figures add up and that increased sales generate more income than overhead costs. Getting bigger also means you become both more of a threat and more of a target to competitors. This isn’t something to take on lightly – before growing, you need to make sure your business model is refined, profitable and truly scalable.

Genuinely successful business growth is sustainable, structured and doesn’t have to be at a million miles an hour but at your own pace. Most importantly, you must keep your personal and business goals in alignment with each other. Put simply – if you want to be the next Google-sized organisation, you’re probably not going to find the time to work on that golf handicap three times a week.

In the case of the second business, the franchisee was content with where he was. Of course, that doesn’t mean his business stagnated. Instead, he focused on improving his business and service, perfecting it and maximising its potential in other areas, rather than simply building its size. All too often, businesses go after more and more customers to achieve the dream of growth. But focusing on new customers alone is not enough and it’s not sustainable. Turnover isn’t the only thing that makes a business a success.

It’s not just about the acquisition number of clients, the more important figure is how many you serve successfully. You want to make sure your product or service is the best it can be, with the maximum operational leverage to ensure good profits.

Growing simply for the sake of getting bigger is dangerous. The biggest issue I see is burnout due to business owners not being able to let go as their business grows. If you’re unwilling (or unable) to delegate, then expanding beyond your capacity probably isn’t the best option. Better to do what you do well at a scale you’re happy with.

But don’t take this as a list of reasons not to grow – they are all perfectly manageable if planned for effectively. It just all comes down to your own personal risk appetite and tolerance of pressure and weighing the risks of growth against the benefits. Can you tolerate the economic risk of the growth and likewise, can you tolerate the risks of not growing?

Put simply, I’m certainly not saying don’t grow. I’m saying grow properly, with your business and personal goals in mind. Don’t rush and don’t risk stability unless you truly have the appetite to. Change and growth are important in business but that doesn’t apply only to size. Choose the growth that suits your needs and income requirements. 

About the Author

Dave Galvin

Dave Galvin

The operations director at d&t chartered accountants is sitting on a wealth of knowledge about the sector, having previously held the roles of head of franchising and senior business advisor.

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