Four must-dos before expanding your brand
By Lauren Fernandez
Franchising is the default mode of growth for many restaurateurs. In this country, we celebrate entrepreneurship; our love of franchising is not just because we invented the model.
We love the rags-to-riches story of McDonald’s founder Ray Kroc, memorialized in movies like The Founder. We watch Shark Tank and root for the inventor whose idea may make it big.
As alluring as franchising can be for business owners, though, there’s an alarming number of people who invest $50,000 to $125,000 to get a Franchise Disclosure Document (FDD) and never do anything with it.
In today’s competitive landscape, it is more important than ever to ask hard questions before assuming the role of the franchisor and then taking the leap. Are you profitable already? Do you have the team to support multiple entrepreneurs in your business model? Are there competitors for your franchise offering? Are you prepared to be in a 20-year relationship with franchisee partners?
Do you have a contingency plan if a franchisee closes? Do you have the capital to buy it out and fix the store? Are you prepared to invest in operational support and manage marketing for your franchisees?
If you’re able to check the questions off satisfactorily and are ready to scale your concept to grow, here are the first steps to creating a solid foundation.
Clean Your Books
Are you ready for others to take a look under the hood?
Over the years, I’ve seen a lot of “monkey business” in the way business owners keep their books. Sometimes I’ve seen owner cars, cash payments being made to employees who don’t work there and owners paying themselves in “creative” ways. I’ve seen no inventory and therefore unreliable costs of goods sold.
Your books should reflect a true and accurate picture of the business. The business financials are about to be laid bare in your FDD, and you’ll want to scrub the books clean before the whole world is able to look at them.
If your books are on a cash basis, we recommend adopting Generally Accepted Accounting Principles (GAAP) to be able to produce audited financials for the FDD. It can take three to six months to get your books GAAP friendly.
Also consider both the level of skill for data entry and coding to an industry-specific chart of accounts. The person doing the data entry should be someone who understands restaurant accounting. If they don’t understand what Restaurant Depot is, they won’t necessarily know this is a place where you can buy small wares and food that are both recorded differently. Bad data in means bad data out, no matter what your chart of accounts or accounting standard.
Know Your Key Metrics
Are your unit-level economics compelling, and how do they compare to industry standards?
Even if you have decent in-house accounting, I find that restaurant owners often don’t know how to use accounting data as a management tool.
For example, identify at least three key performance indicators (KPIs) that drive your profit margin such as: topline sales, food costs and labor costs. Then track month-to-month changes on these KPIs, and even year-over-year, or location-to-location. Spotting trends early is critical to solid KPIs and protecting solid profit margins.
Document Your Procedures
Can you clone your day-to-day operations effectively?
If you are in control of everything and know how to do everything in your business, who is going to take over tomorrow if you were not there? That’s the mindset needed if you prepare to franchise.
How are things done? What are the step-by-step processes of how to do them? You’ll need to document the processes, procedures and policies for the organization in a way that works to train people.
You should expect to invest six months to a year to develop these procedures before franchising. This can be overwhelming for most owner/operators, so I recommend tackling one section of the day or one area of the restaurant at a time.
Define Your Brand
Is what you have unique and distinguishable?
Fundamental to a franchise in its legal definition, including a trademark license to use the brand. That can include the trademark itself and the name of the restaurant, but it also includes the “trade dress,” the way the restaurant looks and feels. This will require a federal trademark registration, which can be secured with the assistance of an intellectual property attorney.
You’ll also need to have a way to define all aspects of the brand, including: rules on how the brand is used, what marketing approvals process is, what the interior design package looks like, and more.
How do you accomplish this? First and foremost, a best practice is to develop a brand book or style guide that allows you to create tight specifications and “rails” of how to use the brand for franchisees.
By taking these important steps to create a solid foundation before taking the leap into franchising, business owners will set themselves up for success and be in a better position to grow their brands.
Lauren Fernandez is the Founder and CEO of Full Course (fullcourse.com), a non-traditional restaurant investment group created for operators by operators that is changing the way new businesses grow their brands. The company partners with restaurants in the early stages of development to optimize existing operations, develop strategies for sustainable growth and bring the right investors or franchise partners to the table. Fernandez is a restaurant industry veteran with two decades of experience. She previously served as general counsel and head of franchise administration for FOCUS Brands, a multi-brand restaurant company with more than 4,000 restaurants (including Carvel, Cinnabon and Moe’s Southwest Grill) in over 15 countries, and was co-founder, president and operating partner for multi-unit franchise developer Origin Development Group, acting as a strategic growth partner for brands such as Chicken Salad Chick. She also is a frequent speaker in the areas of organic business growth, licensing and franchise operations across the country.
