H l i F hiHelping Franchisees Drive Profitabilityve o tab ty

International Franchise Association ConventionInternational Franchise Association Convention

Las Vegas, NV

February 14, 2011

Helping Franchisees Drive Profitability

PANELISTS

J ff M d CFE• Jeff Moody, CFEVice President of OperationsMr. Rooter Plumbingg

• Joe LindenmayerP id t/COOPresident/COOTSS Photography

• Steve LeFeverChairman & FounderBusiness Resource Services / Profit MasteryBusiness Resource Services / Profit Mastery

How to help Franchisees DriveHow to help Franchisees Drive Profitability

IFA Convention 2011 Las VegasgJoe Lindenmayer: President/COO 

TSS Photography IncTSS Photography, Inc.

How to help Franchisees Drive Profitability

• Using franchisee goals to help drive profitabilityUsing franchisee goals to help drive profitability

• Tools for helping franchisees understand their financial health

• How employees can buy into company profitability

• How to help franchisees cut expenses in the right area

• How to easily make the Balance Sheet and Income Statement work togetherwork together

• Are you benchmarking the right information?

Performance Enhancement ToolboxPerformance Enhancement Toolbox

• A series of tools to first understand the long term goals of a franchisee, to provide analysis g , p yin monitoring performance towards those goals and to drive action steps needed when g pthere is a performance gap. This is based on the belief that “Business is All About Results”. 

Performance Enhancement ToolboxPerformance Enhancement Toolbox

l l l l• Financial Prosperity Tool – A macro level view of the company, and the goals projected to be h dachieved over time. 

• Determine goals for: Net Operating Income, Wealth Accumulation, Debt Reduction, Business Valuation, Capital re‐investment, and Residual Cash Income to the franchisee.

Performance Enhancement Toolbox

• Cash Flow Tool – Helps a franchisee quickly understand their monthly or weekly break even sales and deposits needed to cash flow

Performance Enhancement Toolbox

• Big Board Evaluation Tool – The Mr. Rooter scoreboard rolled up from all franchisees toscoreboard rolled up from all franchisees to determine averages of Truck Sales, Closing Ratios and Job Averages This tool also allowsRatios, and Job Averages. This tool also allows a franchisee to compare themselves against the system average and top franchiseesthe system average and top franchisees.

Performance Enhancement ToolboxPerformance Enhancement Toolbox

• Budget Tool – By utilizing prior year financial information assists the franchisee ininformation, assists the franchisee in developing a budget to be input into their accounting system for monthly monitoring ofaccounting system for monthly monitoring of performance to the predetermined goal. 

Performance Enhancement ToolboxPerformance Enhancement Toolbox

• Profit and Loss Evaluation Tool – Monitors a franchisees performance against the p gConcept’s averages on variable and fixed costs.

Performance Enhancement ToolboxPerformance Enhancement Toolbox

• Business Valuation Tool – Series of questions with weighted answers used to estimate thewith weighted answers used to estimate the multiplier used to value the business

Performance Enhancement ToolboxPerformance Enhancement Toolbox

• Key Performance Indicator Tool – Monitors the franchisee in the ability to take a servicethe franchisee in the ability to take a service request and turn that into sales. Monitors several key statistics on a monthly basis toseveral key statistics on a monthly basis to highlight areas needed for improvement.  

The Performance Enhancement Toolbox

• Financial Prosperity Tool

• Cash Flow Tool

• Big Board Evaluation Tool

B d t T l• Budget Tool

• Profit and Loss Evaluation Tool

• Ratio Analysis ToolRatio Analysis Tool

• Business Valuation Tool

• Key Performance Indicator Tooly

Jeff Moody, CFEVice President of OperationsMr. Rooter Plumbing

Email: jeff.moody@mrrooter.com

Twitter: jeffmoodywaco

Linkedin: Jeff Moody - CFE

“Paradigm Blindness”Paradigm Blindness

C b d th d f thi kiCan be summed up as the mode of thinking, "The way we do it is the best because this is 

th ' l d it "the way we've always done it." 

How Employees Buy Into Company Profitability: 4 E’s4 E’s…

•Engagement by Ownership

•Empowerment of Responsibility

•Execution of the PlanExecution of the Plan

•Expectation of Recognition

Engagement of EmployeesEngagement of Employees

• Is there a disconnect between perception & reality in the business?reality in the business?

• Is there a ‘Theme of the Month’?

• Does employee input matter?

• How would employees spend budget money differently if it were theirs?

Empowerment of ResponsibilitiesEmpowerment of Responsibilities

• Share Information: Vision & Goals & Obstacles

• Continuous Communication

• Must Have Trust!Must Have Trust!

• Ritz Carlton Model…

Execution of the PlanExecution of the Plan

• Solicit input and devise the plan:

–Have Employees provide input on customer surveys

–What results were expected/unexpected?

–What is the focus and timeframe desired?

• Buy‐In for the Plan:

–Set expectations for team support of the planSet expectations for team support of the plan

–Communicate the progress regularly (good & bad)

Expectation of RecognitionExpectation of Recognition

• Recognition drives employee morale

• High employee morale drives workplace satisfaction

• Workplace satisfaction drives customer pengagement 

• Customer engagement drives spending• Customer engagement drives spending

• Increased spending drives profits.

How to Help Franchisee Cut Expenses in the p pRight Area:

• What Do Your Franchisees See as the “Right A ”?Areas”?

• Benchmarking as a Starting Point: KPI’s

• Proof‐of‐Concept for Change Management

Cutting the Right Expenses:Cutting the Right Expenses:

• Use your FAC, Thought Leaders and Personal Use your FAC, Thought Leaders and PersonalExperience to gauge key expenses

• What is reasonable (Fat) and what is detrimental ( )(Bone)

• Questions:– Who has cut fees or royalties to Franchisees in past2 years?

– Are Franchisees cutting un/necessary expenses?– How do you factor top line revenues into cuts?

Benchmarking to Drive Desired ResultsResults

• What are your key metrics?

• Have they changed in past 2‐3 years? Trends?

• Has consumer behavior changed?Wh• What expenses can target desired results?

Joe LindenmayerPresident/COOPresident/COOTSS Photography

Email: joe@tssphotography.com

UNIT PROFITABILITY:ARE YOUR FRANCHISEES “ROAD WARRIORS” OR “ROAD KILL”?

Two Questions

VC% 70%(1) What are required sales? VC% = 70%

FC = $144 000(2) In this company, if FC   1.00, what sales are 

h

FC = $144,000

TP = $60 000necessary to cover that 1.00 increase?

TP = $60,000

A Rising Tide Lifts All Boats …

… the tide is out!… the tide is out!

Way out!

Franchisee Financial Performance

Our Perspective:

• Lots of talk about its importance

• Reality: virtually ignored as a cultural initiative

Lessons Learned From the Past 30 Months ?

MEASURE !

MEASURE

What Gets MeasuredGets Managed

andand

What Gets ManagedG t D !Gets Done!

Franchisee Financial Performance

Profit Mastery Process:

Education - Provides the Foundation

Benchmarking - Creates the Yardstick

Accountability - Drives the Discipline

Education

• Goal is to provide financial management literacy/acumen

• MUST train both field/corporate staff and franchisees- Same sheet of music- Common focus- Enhanced communications- Increased perception of service being received

Education

Th Fi i l O i C lThe Financial Operating Cycle

Balance SheetIncome Statement

Assets = Liabilities + Net WorthSales

Net Profit

Uses of Profits:

● To pay for new assets

Uses of Profits:

p y

Education

Th Fi i l O i C lThe Financial Operating Cycle

Balance SheetIncome Statement

Assets = Liabilities + Net WorthSales

Net Profit

Uses of Profits:

● To pay for new assets● To pay off debt

Uses of Profits:

p y

Education

Th Fi i l O i C l

Net Profits C h Fl

The Financial Operating Cycle

Balance SheetIncome Statement

Net Profits Cash Flow

Assets = Liabilities + Net WorthSales

EfficiencyNet Profit

Uses of Profits:

● To pay for new assetsTo pa off debt

Uses of Profits:

● To pay off debt● To pay out to the owners

EDUCATION

PERFORMANCE

SCORECARD

$60K (C)$126K $16K (C)(C)$ $ ( )( )

$38K (P)

$10K (P)

$10K (P) $22K (P)$38K (P) $10K (P) $22K (P)

$80K (P) $19K (P)

Profit Mastery Assessment (PMA)Cascade Office Systemsy

Cash NPBT1. Inventory $60,000

Hidden Costs & Interest

2. A/R

$ ,

$15,000$16,000

Hidden Costs & Interest

3. Labor

$ ,$4,000

$38,0004. Buying

5. Pricing$10,000$22,000

6. Cash Discounts

7. Refinance Building

8 Other:

$10,000$126,000

8. Other:

Totals $202,000 $99,000

Profit Mastery AssessmentCascade Office Systems

CASH Net Profit1. Inventory $ 60,000,2. A/R $ 16,0003. Hidden Costs & Interest $ 19,0004. Gross Margin $ 80,000• Productivity (Labor) 38,000

• Buying 10,000

• Pricing 22,000

• Discounts 10,000

5. Refinance Building $ 126,0006. Other:

Totals $ 202,000 $ 99,000

EDUCATION

Outcomes…

Actionable Financial Intelligence !g

BENCHMARKINGBENCHMARKING

BENCHMARKING

Goal: to MEASURE the key drivers of

• Profitability

• Productivity• Productivity

• Financial Position

• Cash Flow

BENCHMARKING

Franchisors are often unsuccessful in gathering data.

WHY ?

• Poor quality of financial data

• Inefficient system to obtain datay• Lack of trust between Zee and Zor

• N l t tili d t t d i f• No plan to utilize data to drive up performance

• No accountability / follow-up process

BENCHMARKINGBENCHMARKING

Group Data

BENCHMARKINGIndividual Company Consulting ReportConsulting Report

(CCR)

ACCOUNTABILITY

Peer Performance Groups• 10 – 12 Members

• Meet 2x/yr. for 2 – 3 days in host cityy y y

• 60 – 90 Minute conference calls in between

• Quarterly Group Benchmarking• Quarterly Group Benchmarking

ACCOUNTABILITY

Peer Performance Groups

A i i i d G lActivities and Goals:• Dig into financial statements

• Learn how to manage by the numbers

• Discuss other topics of common interest• Discuss other topics of common interest

• May include in-depth store visit / critique

• Create goals and related action plans

• Report progress quarterlyReport progress quarterly

• Establish best practices

ACCOUNTABILITYP P f GPeer Performance Groups

• Establish continuity• Establish continuity

• Provide a reporting mechanismp g

• Develop accountability

• Drive discipline

• Pr d m r bl r lt• Produce measurable results

• Increase franchisee satisfactionc ease a c see sat s act o

• Create a “culture of performance”

ACCOUNTABILITYRoger Baumgart, President Home Instead Senior Care

“….thank you for the very positive impact your Profit Mastery performance initiative has had on the company BRS hasperformance initiative has had on the company. BRS has helped focus the attentions of HISC’s franchisees on those critical tasks and issues that will help them build their businesses.”

Gerry Bergler, EVP Allegra Networks

“….through your education training, benchmark studies, and g y g, ,performance group initiatives, I am pleased to report that our franchisees’ discretionary income has increased by 30%”

Gigi Harding, CEO Kwik Kopy Printing Canada

“….Through our ongoing involvement in Profit Mastery, we have learned that Performance Group members consistently p yout perform non-members in growth, profitability, and efficiency.”

Franchisee Financial Performance

It’s a process:• Education

• Benchmarking

• AccountabilityAccountability

ANDAND

I ’ JIt’s a Journey:

from Profit Mysteryfrom Profit Mystery…

to Profit Masteryy

Just do it !Just do it !

P fit M t B th #517Profit Mastery Booth #517

For More Information Contact:

Steve LeFever, Chairman

Business Resource ServicesBusiness Resource Services

Phone: 206‐284‐5102

E il l f @b ttlEmail: lefever@brs‐seattle.com

Q & AQ & A