You want a franchise business, but not just any old thing – you want a multimillion-rand enterprise. So how do you turn a pipedream into accomplishing that goal?
The easiest way is to simply start at that level. Buy yourself a multimillion-rand operation from the get-go, and you’ve already arrived. Of course, most people don’t have that kind of capital lying around or the experience to run a large operation effectively once bought.
If you want to hit the big time, you’re going to need to grow to that point rather than start there. It might take a little longer, but the advantage is that you’ll have learnt everything you need to know to run the big operation. You’ll also have built a huge equity stake that belongs to you.
Your passage to millions
You can use a number of different strategies in this building process. First you have to decide what type of franchise business model you want.
Most franchises fall into either the ‘owner-operator’ or the ‘investor’ model. In the former, the owner will work full-time in the business. In the investor model, the owner will hire a manager to fulfil these tasks at the individual unit level.
To build a really big owner-operator business, make sure the concept you’re starting with has the potential to grow a single operation to this level. If it’s a territory-based service business, the territory must have sufficient population to support a multimillion-rand volume of sales.
Even though, in this circumstance, you’re focused on an owner-operated business, be aware that most owners who grow operations to this size end up adding layers of management to help deal with the volume.
The more common form of business model for franchisees wanting to build a huge business is the investor version. Here, you’ll build a number of units that operate independently of one another, each managed by different people who report to you.
The advantage of the owner-operator model is that it’s usually easier to exert greater personal control over the operation of the business while it’s growing, and it almost always requires significantly less capital to grow big, though the process may be slow.
The advantage of the investor model is that it’s specifically designed to grow big, and does so much more rapidly than an owner-operator model, though it may require more capital.
Either of these models can provide you with the opportunity to potentially build your business big. The trade-off between these two strategies often comes down to a simple question of time versus money – which is the critical path for you?
The million rand question
Another significant consideration is the typical amount of profit produced by the business. Most people who decide to grow a huge business rather than just buying one immediately, do so because they don’t have capital to buy it now.
That means they must depend on the business to generate profits in excess of what they need to live on, in order to fund their expansion.
The challenge is, if you want to build something really big, you’ll probably need a business that both supports you and provides additional capital to grow. You need to conduct a careful analysis to make sure any business you contemplate has the ability to get you to where you need to go within the timeframe you’re willing to allow.
Start by figuring out how much capital you have to work with, how much you need to support your lifestyle while you’re building your business, and how long you’re willing to allow for the business to be built. Now you have the parameters to determine whether a concept can meet your goals.
A numbers game
For example, let’s assume you’re evaluating an investor model business. Each unit costs R1 million to open, has average revenue of R3 million and makes R500 000 per year in profit.
Your research shows that aggressive franchisees can open one new unit every six months, assuming they have the necessary capital. Your goal is to build a business that generates R10 million per year in profits, which will require opening 20 total units. Is this business the right one for you to meet your goals? The answer depends on your resources, needs and goals.
If you have a total of R5 million in capital to invest, need to take no more than R500 000 per year out of the business for lifestyle support during the first three years, and want to build a business to the point of making R10 million a year within 10 years, you’re all set with this business!
If, on the other hand, you only have R2 million to invest and need to take out R1 million per year to support your lifestyle, you’re never going to grow this business beyond two units.
There are lots of great franchise businesses that can be used as a platform for building a very large and successful multimillion-rand business.
Take the time to understand what you have to work with in terms of resources, what you want to accomplish, and what you need the business to contribute to meet your goals. Then you can determine whether a specific franchise is the vehicle you can use to reach the destination you seek.