Buying a franchise? Ask the real questions

The real questions revolve around one issue: how much money can you make?

Yes, it is nice to be your own boss; and yes, it is good to work with an established brand; and yes, there are a bunch of other things that are good about franchising.

What is not good about franchises is when they don’t make any money. Or not enough.

So, when you’ve made the decision that you really want to do this, start drilling down on the serious matter of generating profits.

Creating value is a simple function of profit margin X volume. Look at each individually.

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Less Strategy. More Action.

How many times does this happen? Everyone arrives at the strategic offsite on Friday night. Most people party too hard that evening. More than a few of them state what needs to be done if things are going to be sorted out – whatever that means.

On Saturday morning, the session kicks off. There are a few hangovers but the facilitator is good at his job and by mid-morning a sense of inspiration is starting to emerge. There’s butcher’s paper on the walls. There are circles and arrows on the white board; and you’ve just bonded more closely with a difficult colleague.

It’s humming.

By Sunday lunch, everyone has agreed on the mission statement. The long term targets for the strategic plan are in place and with luck there will be time for golf.

A month later it’s not humming at all.

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Why budget forecasts are always wrong

Has anyone ever produced a budget that turned out to be right?

I haven’t. Even where the bottom line ended up roughly where I forecast it should be, it got there via an entirely different route to the way my spreadsheet got there.

Take breeding horses. That’s something I do as a commercial hobby. It’s not meant to make a lot of money. It’s more of a lifestyle thing – but it’s not meant to lose money either.

I started my breeding program over a decade ago. It ticks over OK, but not in the way I planned. Yearling prices go up and down regardless of the quality of my pedigree planning. Prices have been entirely unpredictable.

No one forecast the equine flu epidemic, which quarantined my broodmares and meant I couldn’t breed anything that year.

Stallions go in and out of favour. It’s a good year when I’ve got offspring from the popular ones; not so good the other way around.

And that’s all before I have factored in the Australian dollar for overseas demand, paddock accidents and vet costs, plus the performance of past progeny –  just to mention a few other variables.

This all about business risk. You can’t eliminate it. You can only manage it, and you can only make robust forecasts if you constantly stress test your assumptions accordingly.

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Should you start a business?

Type “business plan” into your search engine and you’ll find thousands of templates. People write lots of business plans. It's something you have to do if you are going to start a business. But before you do all that, there is one key question you have to answer: should I actually do this?

At a rough guess, probably two out of every three people I know who have started a business wish they hadn’t. That’s not necessarily because the business failed. A lot do, but a lot don’t. And a lot make very little money.

Nor is it because they didn’t have a good idea, or lacked commitment or energy. It is more that it just didn’t turn out to be as wonderful as they thought it was going to be. It’s a little like having a best-ever holiday. If you go back to the same place two years later expecting the same, chances are you’ll be disappointed.

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