FIRST SLIDE: Which is the "chemistry" of our brand?
Bearing in mind that should prevail the image on the written text, use in this first slide a strong and powerful image of your brand, and some tips about your competitive advantage, that which makes us unique, that nobody can copy or that it will take much time and money to copy. This is the "chemistry" of the brand. If you do not have a competitive advantage, you'd better find one before designing a franchise program.
SECOND SLIDE: Initial Fee
The calculation of the initial fee is a relatively complex task that involves some technical analysis. No need to delve into the discussion, only let the entrepreneur understand that our brand has been built through a big investment during the last years and thus, it has a great value and therefore, to be used in a given territory for a given period of time is a part of the franchise investment.
THIRD SLIDE: Commercial Premises Lease Costs
Any franchisor knows that this is the most crucial point when opening a franchise. Even if the territory is well chosen and dimensioned, still we cannot be sure that the franchise will operate according to current standards, if we fail in chosing a good location within the territory. The search for a commercial premise is complicated and full of misteries and wiles. It is therefore very important that the franchisor assist the franchisee in this instance, choosing the place, negotiating with owners, landlords and realtors, making sure that the location will be enabled by the government authorities, and many other complexities. It is really difficult to set an a priori value for this item of the investment, as there is a wide variation in the marketplace, realtor commissions, fees, taxes and other expenses. It is also important the current status of the premises we are renting in order to calculate the building work that has to be done to achieve the franchise's image. So we can only risk some value according to our previous experience in other locations.
FOURTH SLIDE: DECORATION AND EQUIPMENT
Unlike the previous item, in this case we can give a very-close-to-reality investment value, once we have selected the commercial premise and know the physical codition, the already installed equipment and the overall amount of work to be done. But we must be very especific in the detail of what we consider decoration and equipment, detailing each item, ie, building, furniture, appliances, special equipment, computers, software, shelves, paintings, posters, and all that means "dressing the place to achieve the brand image".
FIFTH SLIDE: INITIAL PURCHASE OF GOODS AND WORKING CAPITAL
In this item we can give a very accurate invetment idea, as it is the franchisor who sets the initial stock of goods and who has the enormous responsability of advising the franchisee in the complicated intricacies of handling cash, and about the cushion needed to meet the first months of the franchise operation, frequently known as the "learning curve". It should be made clear that the total investment should include this "cash forecast". The franchise should not be open with the "last breath", if not, there may be unfortunate consequences.
SIXTH SLIDE: STAFF
The franchisee must understand that from now on, he/she will be an employer, being him/her most likely unaware of what this means. We must explain what the personnel structure of his/her franchisee is, what are the job descriptions of each employee, and what are his/her responsabilities towards them, and towards the government regulations applicable to that type of business. It should be displayed how the employess will be compensated, salaries, bonuses, holidays, special assignments, the corresponding union regulations, and last (but not least) how the franchisee will withdraw money per month, if ever in the first year operation.
SEVENTH SLIDE: TRAINING PROGRAM
This is probably the biggest responsability of a franchisor, and from which it could be leveraged a real competitive advantage. Therefore it is necessary to dedicate an important part of the franchise program development time to design a detailed training program covering every aspect of the business in detail. Experience shows that successful franchises have great training programs for their franchisees and staff, covering production processes, storage, distribution, marketing, finance, new product development, setting shared values, the list can go on.
The very much sought excellence is achieved by each and every staff member. One immediately notices when entering a shop and watching if employees are trained and motivated or not.
The training process can mean an important part of the franchisee's initial investment, especially if he/she has to move long distances and pay staff travels and extended stays. But it will be the most important component of the franchisee's ROI too.
EIGHTH SLIDE: APPROXIMATE TOTAL INITIAL INVESTMENT
As some of the above items are not accurate, then, the total investment, which is obtained as the sum of all the above items, should also be approximate, and must be showed with a certain tolerance, ie, an up or down percentage that should not be greater than 10%.
It is important that both the franchisor and the fracnhisee are clear enough on this figure, and the franchisee must understand that, within the next 120 to 180 days which is the average period taken to build and equip premises, he/she will have to disburse all that amount of money, including working capital to cover learning curve process.
NINETH SLIDE: ROYALTIES AND ON-GOING INVESTMENT
Both variables are usually expressed as percentages of gross turnover. Royalties are the monthly payment to the franchisor for the use of the system, brand name and trademarks, and on-going investment corresponds to periodic investments that the franchisee must perform in his/her territory, guided by the franchisor to mantain competitive position. These investment include broadly, marketing, training, maintenance of the premises and new equipment for the franchise.
TENTH SLIDE: P&L
The most expected slide. All ends (or begin) here. Beware, you as a franchisor, must be very cautious with what is shown in this instance, so that there is neither misunderstanding nor false expectations.
First, the franchisee must understand that a franchise is (at least) a 5 year project, so it does not make any sense to talk about profit margins now. Second, the franchisee must remember that when we consider the staff estructure (sixth slide) we take into account a money withdrawal for him/her, which will alter the final result in the P&L. The project profitability dependes heavily on that withdrawal. Finally, considering that what we are measuring is a 5 year profit after taxes discounted cash flow, the most significant metrics to show seem to be the average revenues of the franchise and the internal rate of return of the project, so that the future franchisee can compare with other investments and draw a first conclusion.
Click here to see the whole presentation in Slideshare. Adapt this presentation to your franchise opportunity.
If this presentation results in a manifest interest of the entrepreneur to continue talks about your franchise opportunity, then several meetings to refine numbers and details will come in the near future. Besides reading and understanding the correspondent FDD, the entrepreneur must assess what kind of tax and legal corporate registrations are convenient, delimit the territory assisted by the franchisor and, ultimately and hopefully, start a long and successful franchisor-franchisee marriage relationship.