There are many aspects to consider when starting out, first of all being: is the business replicable, and how it will run in each territory. However, one of the key areas to look at is the financials.
A lot of focus is often on the financials of the prospective franchisees to make sure the numbers work for a successful business. Which is extremely important, and a strong financial model is key to showing your new franchisees how the business will work, as well as the banks and lenders needing to see this to be able to fund.
These models can help a franchisor to set the franchise fee and royalty fees to a figure that is realistic both in terms of being affordable for both the franchisee and the franchisor. The franchise fee needs to be set at a figure so a return on investment can be reached by the end of the first term. A franchisor often does not make any profit on the initial fee, as it is just there to cover costs of the initial set up and training.
The royalty fee is the monthly, quarterly, or annual fee for the rights to continue operating the franchise. This is what also helps to keep the franchisor business ticking over. This is vital to not only supporting the franchisees but being able to keep improving the brand, monitoring the network, and also recruiting for new franchisees. When deciding to franchise it is extremely important to work out if the royalty fees are subsequently enough. A franchisor financial model can help with this.
A financial model can be useful for many things, if the franchisor needs funding, this will form part of the business plan. As well as helping to set targets for recruiting new franchisees. A model can be created to show different scenarios, so a franchisor can budget correctly and know what they can spend and when. Having an adaptable model where you can also track real life against the projection can help keep you on the right road ahead.
Creating a franchisor financial model is also key as it can show the expected income into the business. Often a new franchisor will have their first territory owned and run by them, however this can often be difficult to maintain as more and more franchisees come onboard. A financial model will help indicate at what point the franchisor business will be sustainable without the help of the initial territory.
Getting a professional involved in building a franchisor financial model is also well advised. An expert can help to make sure the model encompasses every angle, so it is an accurate as possible. As well as being able to adapt it to enable accurate achieved numbers to go alongside the predicted to make sure everything stays on track. When starting up often a franchise specialist lawyer is involved, the financials should be no different. A franchise specialist accountant with expertise in franchisors is ideal. As well as being able to support your growing network, picking a supplier who can also support you on the funding is also a great idea. Even better if they are fully independent with access to a good selection of quality lenders. Contact d&t today to see how we can assist with this and how we can support both a franchisor and franchisee network.
