This is the first in a three-part series called “Blueprint for Growth”. In this first column, I outline three options for growth, and then I focus on option 1: grow your core business. In my next column, I will focus on option 2: expand your range of services and end with option 3: expand your territory.
There is no greater loss than an unfunded opportunity. Do you have a long-term plan to maximize your profit potential by taking advantage of every growth opportunity? Is every growth strategy fully developed with measurable goals for the activities that, if carried out, would deliver the results you are looking for? Does the math pencil come out?
A Actionable Growth Plan outlines the financial metrics and business milestones needed to accelerate profitable growth through a combination of these possible strategies:
1) Develop your core business (organic growth; same services, same territory)
2) Expand your range (more products and services, same territory)
3) Expand your territory (add a location to expand the geographic reach)
Do the math!
To set achievable goals and measurable milestones for each strategy, you must do the math. If you like numbers, you say “Yes! It’s in my comfort zone. If you say, “I don’t like numbers” instead, learn to use basic business analysis tools to describe your path to success. Here is an overview of the financial foundations of your growth plan.
Develop your core business
In this article, I share my take on the first strategy, Grow Your Core Business. In the following columns, you will find detailed perspectives related to expanding your range of products and services or expanding your geographic territory.
What is your core business? Are you looking after seniors at home or caring for fur babies in your facility? Delivering tonight’s curbside dinner? Either way, your first opportunity for growth is to do more as efficiently as possible. How much more? Do the math.
What sales are needed to break even (step 1) and which sales would produce the return required to meet your investment goals (step 2, which we call Breakeven PLUS)? With a basic understanding of your cost structure, the break-even analysis will reveal sales goals that you use as milestones. Unfortunately, you cannot manage sales. You can only manage activities that drive sales.
To make your sales goal achievable, set goals for three sales drivers (leading metrics): 1) How many customers? 2) Buy how often? 3) At what average ticket price?
You will need goals and strategies for all three. Use past customer data for your location or franchise system as benchmarks, and set achievable goals to stay focused on these key growth indicators. If you know your lead conversion rate, you can work backwards to determine the number of leads needed to acquire the new targeted customers. You can even use your cost per lead to set a marketing budget. The process provides measurable goals that keep your entire team on track. There is no shortcut. You have to do the math!
How Can Franchisors Help You?
Every franchisor must have a solid infrastructure to help franchisees develop their core business. POS or CRM systems should track and report key indicators of success. And there’s more…
- Recommend a sound chart of accounts. Enable variable cost tracking separately from fixed costs. This usually requires tracking the different payroll types separately. For example, direct labor is usually a variable cost, while sales and administrative pay are usually fixed. If the chart of accounts provides only one compartment for payroll, it is difficult to assess the cost structure, i.e. the true percentage of variable costs and the average monthly fixed costs.
- Provide financial education. Provide knowledge, financial skills and tools. Make sure franchisees have numbers they can trust and know how to use financial information to make better, more profitable decisions. This includes a solid understanding of the many uses of break-even analysis, an essential skill for any business owner and franchise consultant. Check out our website for a scalable and fast solution to get your team on the right financial track.
- Benchmark your KPIs. Collect, analyze and share information that demonstrates what “good” (and achievable) performance looks like at different stages of the unit’s maturity. Compare measures of sales, productivity and profitability as well as risk, debt service and cash flow ratios. With these benchmarks, franchisees can build reliable plans and get the financing they need to be successful.
You wouldn’t build a house without a plan, and neither should you try to build a business without a plan. Be the architect of your future by creating your own plan outlining the financial foundations for growing your core business.
Next time, I will detail the growth plan as you expand your range of products and services.
Barbara nuss is the President and Founder of Profit Soup, a financial education organization specializing in providing services to franchisors and franchisees to empower them to trust their numbers, focus on priorities, make better decisions and make more profit. Learn more at www.profitsoup.com or call 206-282-3888.