New Year review tips for your franchise from HSBC
Cathryn Hayes - HSBC Head of Franchising
2012 is set to be another challenging year, with growth seen as a major concern for all of us.
The beginning of a New Year is a time when we think of changes that we hope will make our business leaner, more productive and more profitable. Here are our 2012 tips to consider for your franchise.
Maintain healthy cashflow
Effective cashflow management begins with minimising cost. Only buy what you need and bargain hard with suppliers. Aim to maximise your margins and sales. Ensure your invoices are sent out promptly and chase when due. Request deposits on order or cash on delivery for high-value sales and consider discounts for early payment. Get into the cashflow forecasting habit. It can help you identify potential cashflow crises in advance — and act to avoid them.
Read advice about cashflow management.
Stop doing things that don’t work
Sometimes in franchising, as in life, things don’t succeed — whether it’s a product that isn’t selling well, or a way of doing something that doesn’t have the desired effect. Sometimes it’s better to accept defeat and find a better way. It’s a New Year, so ‘out with the old and in with the new’. Doing things differently or stopping something can often materially affect profitability.
Find out how to increase profitability.
Strengthen your brand
Successful franchises are built on strong brands. Does yours need improving, or maybe even a total overhaul? And we’re not just talking about your logo, website, leaflets and stationery. ‘Brand’ means the entire customer experience, including how you answer the phone. Your brand is your personality; it’s what you stand for. How can you take it to new heights?
Learn how to create a strong brand.
Win new customers (and hang on to your old ones)
Inevitably you will lose customers, often through no fault of your own. So even if you just want to remain where you are now, you must win new franchisees, and that requires investing time, effort and usually money. But you also need to stay close to your existing customers and keep them happy if they are going to stay with you. Where possible, find ways to sell more to your existing customers.
Find out how to build customer loyalty.
Try something different
Trying something new can prove shrewd, perhaps by developing or introducing a new product or service, which could enable you to outflank your competitors. You might try to target a new market or diversify within an existing territory.
Get advice on new product development.
Harness the power of online social media
If you haven’t done so already, why not make 2012 the year your business finally embraces the marketing potential of Facebook, Twitter and LinkedIn? It takes time to build relationships and reputation, but such sites can deliver many more visitors to your website and drive sales. For more information on Internet Marketing Strategies contact Nick Strong at Select your Franchise
Learn how to make the most out of online social media.
Revisit your business plan
A well-produced, regularly updated business plan can keep you focused on your development strategy and key business goals. And while you’re at it, why not revamp your marketing plan?
Get advice about writing business plans.
Work more on your business — and less in it
Allowing yourself to get bogged down in the daily demands of running your business is a common mistake, but it can mean your business fails to develop — at least in the way you want it to. Try to make regular time when you can step back from the daily grind to focus on the bigger picture and help your franchisees to do the same thing.
Find out how other businesses plan to achieve growth.
Good luck!
Posting from the monthly HSBC Connections newsletter. For more information or to get on the mailing list for the newsletter please email franchiseunit@hsbc.com
Prospects for franchise lending in 2012
Cathryn Hayes - HSBC Head of Franchising
There can be no denying that 2011 has been a challenging year. However, HSBC lent at record levels to franchised businesses in 2011, and we are continuing to actively support the sector with the aim to further grow our lending book in 2012.
Banks are more likely to support a business with a well-researched and structured business plan, particularly those that demonstrate a strong understanding of their finances. Franchising has a number of advantages here. Although not recession-proof, the wide spectrum of sectors covered by franchising means that the UK franchise industry is likely to fare better in these difficult times. The failure rate for franchises is much lower than for standalone start ups. This is predominantly due to the support of the franchisor and other franchisees in the network, who can help new franchisees avoid the pitfalls associated with starting up a business.
So, how can franchisors help to support their franchise owners both new and existing? Monitoring and control is even more important than ever – knowing what is happening in your network has never been more important.
Planning is vital – even though none of us know what is round the corner, a robust business plan can help to keep a business on track and ensure that franchisees know which areas to focus on to keep their businesses healthy.
Try to ensure that your franchisees are working well with their bank. These are the problem areas – things which can lead to a breakdown in the relationship:
- not supplying agreed information on time
- failing to make loan repayments
- repeatedly exceeding overdraft limits
- unexpected or persistent trading at a loss
- not using facilities for the agreed purpose (such as personal expenditure)
Look at your own requirements as a franchisor too. We deal with a wide range of franchisors, from fairly small businesses setting out on the franchise route, to major corporates. Regardless of size, it is important to:
- Have a clear view of where the business is going – what are your aims for expansion? How much are you going to need to spend to achieve that?
- Keep good financial records and forecasts. In this way you can apply for new finance before you need it urgently. Banks will look more favourably on such requests as it shows you are in control and can plan.
- Understand how financial ratios work. They are good indicators of a business’ health and these are what banks use to assess your financial health and that of your franchisees.
Consider alternative methods of funding working capital, like invoice finance, which involves raising finance using your debtor book. The advantage of this is that cashflow is directly linked to business expansion. This method is not suitable for all businesses – your bank will be able to advise you.
Another funding method to consider is asset finance to fund the purchase of equipment for the business. This can help ease cash flow by spreading repayments over a period of time instead of making a one-off investment.
It is worth investing time to develop a strong relationship with your bank, making sure they understand your business model and can work with you to develop financial packages tailored to your individual needs and those of your franchisees.
To conclude, HSBC is definitely open for franchise business and finance will be available to quality applicants who can demonstrate they have a good understanding of their chosen franchise model and the financials of their business. We look forward to working with you and your franchisees in 2012!
Posting from the monthly HSBC Connections newsletter. For more information or to get on the mailing list for the newsletter please email franchiseunit@hsbc.com
HSBC franchise unit shares their top tips for writing a business plan
Cathryn Hayes - HSBC Head of Franchising
We thought we’d share some tips to help franchisees present a strong business plan and help them to raise finance.
Other sources of income
It is vital for a new franchise to provide enough income for the owner to live on, in addition to servicing any borrowing they have, particularly in the early years. Many franchisees have a supportive partner behind them who often continues to earn a regular wage. This additional household income reduces the franchisee’s dependence on the profits of the business. It is therefore important that a franchisee provides a summary of all their domestic income and expenditure, demonstrating just how much money needs to be taken out of the business.
Understand the figures
We see many examples of franchisees simply presenting figures given to them by their franchisor, without really understanding what they mean. As franchisors it is essential that you encourage your prospective franchisees to take ownership of their figures, particularly the cash flow forecast. If they are unable to explain these to the lender in a convincing fashion, they could be turned down for the finance they need to get their business off the ground.
Cash flow forecast
In contrast to the above, we are sometimes presented with a cash flow forecast and little else. The bank won’t just focus solely on figures. The business plan needs to demonstrate the franchisee’s business skills and experience and that they have fully researched the local competition and understand their market etc. Whilst the cash flow forecast tells a lender what should happen, the business plan explains how it could be achieved.
It’s not just about the franchisee
It is important that Franchise Unit hold up to date information on your franchise to share with lending managers. It would therefore be helpful if you forward your audited accounts to us on an annual basis and provide details of any management changes, franchise cost increases, modifications to the franchise model or legal agreement. These regular updates will provide the franchise team and the lending manager with a good understanding of the franchise.
Whilst the majority of business plans we receive are perfectly suitable, we hope these few pointers will help make it easier for franchisees to obtain the finance they need.
Additional help and assistance on writing a business plan can be found at HSBC’s Knowledge Centre, an online resource to help small business owners whatever stage their business is at.
Posting from the monthly HSBC Connections newsletter. For more information or to get on the mailing list for the newsletter please email franchiseunit@hsbc.com
