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Would You Make a Good Franchisee?

Craig Dunaway

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Franchisee

If you are thinking about becoming a franchisee, you might be wondering if you have the right skill set or job experience. While having industry experience is often helpful, the repertoire of useful skills exceeds far beyond industry experience. It can be difficult, however, to truly pinpoint exactly what produces a successful franchisee.

There typically is not a single unique trait required for success or one that guarantees success. In fact, shortcomings on one end (e.g., industry experience) can often be overcome by strengths in other areas (e.g., leadership and communication skills). At Penn Station, we have meticulously studied what makes a franchisee successful and have pinpointed five key traits each franchisee must have: P&L knowledge, small business experience, personnel management skills, process compliant and financial wherewithal. While having these skills don’t guarantee success, it often enhances the opportunity for success.

P&L experience is a must.

A study conducted at Penn Station on the most and least successful franchisees in the system, as defined by sales, profitability, employee retention and turnover, operational compliance and performance evaluation scores, showed that the least successful franchisees most often did not understand how to read a P&L statement.

The restaurant’s bottom line is what keeps the franchisee making a profit and aids the franchisor to continue selling the concept to more franchisees. Thus, it is critical a franchisee intimately understands every line item on their operating income statement and not simply the bigger line items such as food and paper costs, labor and rent. Without P&L experience and understanding, there is little chance for success. As the owner, you should know the numbers better than anyone in your organization. While the process can be outsourced, success ultimately will come back to the franchisee and their personal knowledge of P&L.

A small business experience is helpful.

Those who come from a smaller business environment can often prosper because their diverse experiences allow them to wear a variety of hats on any given day in that smaller business environment. This flexibility helps franchisees succeed in a variety of ways.

Small business owners tend to not shy away from the daily grind of running a company. Answering the phone, taking out the trash and filling the copy machine with paper is simple, yet vital, tasks to the success of any organization. These finer details give franchisees experience with the front line of their business.

Those who have worked in a large office environment may not be used to doing certain tasks personally, as many menial tasks might have been outsourced in their experience. Successful franchisees need to know the ins and outs of operations, and outsourcing or delegating such tasks can cost money, limiting your profitability, or send the wrong message to your team.

Many small business owners started from the beginning of their company and have experienced what growth looks like. They know how to cast a vision for their restaurant (or any business) and for their employees. Nothing can teach success better than having experienced success. While success is certainly not limited to small business owners, building something from the ground up simply gives you a vision that is different from stepping into an already-successful company. As the owner, ask yourself if you would follow your own vision if you were one of your employees.

Personnel management competence is important.

A critical skill for a franchisee is the ability to relate to multiple walks of life. You may be investing $5 million into a multi-unit deal, but you need to be just as comfortable managing hourly employees as you are finalizing a multi-million-dollar transaction.

After that one big transaction, you will probably do hundreds of smaller transactions to build your business. For example, Penn Station sales rise and fall on several hundred transactions of $10 or less a day, all managed and overseen by employees making less than $10 an hour. Emotional intelligence and the ability to lead all your employees—from the entry-level hourly employee through general managers—is one of the most important skills for franchisees. Simply stated, do you treat your employees as if they are part of a team, serving a greater purpose, or do you treat them as if they owe you something because you have offered them a paycheck?

Additionally, it is one thing to ask the HR department to fire your employee, it is another to be the HR department and do the firing (and hiring) yourself. The importance of smoothly transitioning employees out of the business and recruiting superstars cannot be minimized.

Following a system leads to success in franchising.

Franchising is about process and repetition. You are buying into a brand, so entrepreneurs who want to constantly create new ways of doing things by changing the system from day one probably are not a good fit for franchising. The ability to follow a system that someone else built is important for success as a franchisee. You are not creating the brand or the processes—you are repeating it in your market. Never tear down a fence until you find out why it was installed. It might be holding in a bull, or the bull might have died 10 years ago. The Stephen Covey adage of “seek first to understand, then be understood” is vital in this instance. You’ve bought into a system, so use it to your advantage.

Some franchisors only care about a potential franchisee’s financial wherewithal, but brands that want you to be successful long-term will care about your potential longevity. That means skills like communication, organization, diligence, and leadership are important. Throughout the process of signing a single- or multi-unit deal, you’ll have to be compliant and timely. This shows the franchisor if you’ll be able to be compliant and meet deadlines as a franchisee as well. Staying on top of your documents and meetings during the onboarding process is a preview of your ability to follow a system.

You must have the financial wherewithal.

Not only is a good franchisee willing to invest time and shoe leather into their business, he or she is also able to invest liquid capital into the business on the front-end. For example, at Penn Station, we require franchisees to have at least 50 percent of the liquid capital required for build-out so that the franchisee does not get strapped for cash and become unable to invest money back into the business, especially at the grand opening with marketing costs. While the National Advertising Fund aids in some marketing, the best franchisees invest their own money in their marketing campaigns and that can only happen if a franchisee has money available to do so.

Future success as a franchisee can be difficult to measure or predict. Ultimately, you need a culmination of skills and experiences combined with the drive and desire to succeed. If you have P&L and small business experience, focus on leading all your employees at all levels, follow the system in place and have the financial wherewithal, you will have a greater chance for success.

Craig Dunaway has been president of Penn Station since 1999. Before joining Penn Station Inc., Dunaway was a partner at the regional accounting firm of McCauley, Nicolas & Company, LLC in Jeffersonville, Indiana, where he had worked since 1982 in various staff and managerial positions. Dunaway has a bachelor’s degree in accounting from Indiana University and is still a licensed CPA. Dunaway formerly had ownership interests in a Papa John’s® franchisee that owned 11 stores, and he served as the secretary/treasurer for that Papa John’s® franchisee. In addition, he had ownership interests in Coastal Cheesesteaks, LLC (headquartered in Raleigh, North Carolina) until June 2011 and in Louisville Cheesesteaks, LLC (headquartered in Louisville, Kentucky) until January 2014, both of which are Penn Station franchisees. While a shareholder in those Penn Station franchisees, Dunaway served as secretary/treasurer. Penn Station was named one of the Best Franchises to Buy by Forbes in 2016 and 2018 and one of the Best Franchise Deals by QSR Magazine in 2016 and 2017.

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