How an EBITDA Expert Can Boost Your Bottom Line: Bringing on an EBITDA expert can have an immensely positive effect on your system that creates an increasingly attractive opportunity for potential franchise partners.
As franchise brands grow, the responsibility to support each franchisee becomes even more important. Creating a franchise model that supports a stable, profitable small business in any market across the United States is no easy task, and that's where the EBITDA expert, a role that's utilized to assist with and improve local store profitability, comes into play.
From driving unit-level economics to boosting the bottom line for the franchise system, as a whole, what can an EBITDA expert do for your brand?
First, it's important to define what exactly EBITDA is and how it impacts a franchise organization--good and bad.
Earnings before interest, tax, depreciation and amortization--EBITDA--is a measure of a company's operating performance, and is a way for franchisors to evaluate the company's performance without having to factor in financing decisions, accounting decisions or tax environments. While EBITDA is a sound way to visualize the health of the business, how well the business model is working and how efficient the business is against its competitors, it does not account for changes in working capital.
That said, EBITDA is a useful measurement to be utilized as a "snapshot" of business performance on a local and system-wide level for franchise brands. While not an all-inclusive measurement, a strong EBITDA can be a major selling point to prospective franchise partners who are considering investing in your brand.
EBITDA isn't the only aspect of a healthy franchise system. Robust marketing, operations and development tactics are also crucial to helping a franchise grow. However, it's far rarer for a franchise brand to have an expert on staff specifically responsible for directly impacting and improving franchisees' bottom line--a role that can have an increasingly positive effect on the franchise system from the bottom up.
The EBITDA expert is tasked with level analyzing of vendors, profit coaching, dealing with P&Ls and giving guidance on cost and profitability. While these are all areas where franchisees need guidance and support, many brands do not have the bandwidth or staff available to provide this assistance to each franchisee on an individual and personal level.
In this designated role, the EBITDA expert meets one-on-one with franchisees to assist in managing and improving their profits and losses. The analyzation process includes reviewing current vendors and determining if a new vendor will reduce cost for all stores, monitoring cost of labor, addressing internal theft issues and, most importantly, helping franchisees recognize opportunities to reduce cost and increase sales.
Franchisees' profitability is extremely important not only for the franchisee and their personal wealth, but for the franchisor to continue to increase and sustain system growth. Whether the franchise system is 15 units large or 1,000, the EBITDA expert needs to be an available and valuable asset for the entire franchise system. In addition to assisting franchisees with specific needs on an individual basis, EBITDA experts can expand their services to the system through regular webinar presentations, where useful EBITDA-related tips can be shared and discussed. This not only educates the franchise system on a regular basis, but creates an attractive extra level of franchisee support that may very well be a selling point for a prospective franchise partner.
EFFECT ON BUSINESS PERFORMANCE
Since implementing a formal role as Vice President of Store Profitability into the system in 2014, Marco's Pizza's franchisees who have taken advantage of this one-on-one coaching have improved their EBITDA by an average of 74 percent, performing 25 percent higher than the system EBITDA average. Franchisees have access to various benchmarks that are updated every period, giving them the ability to compare their numbers to "ideal" numbers in an effort to identify opportunities to continue to improve profitability.
Not every franchisee will have a substantial background in business ownership and operations. Understanding how to minimize labor, utility, food and paper costs and having the ability to recognize potential cases of internal theft are areas of unfamiliar territory in which a franchisee who is launching their first business may need guided assistance. If it's becoming more common for franchisees to struggle to pay their royalties, or if a store is experiencing non-sales related issues, an EBITDA expert could be the solution.
When analyzing whether your brand is ready to bring on an EBITDA expert, there are a few things to consider:
How diverse is your franchise system? Do a majority have prior business ownership experience, or does your concept attract new entrepreneurs? A more diverse system of franchisees will benefit from an additional layer of local support.
Is your system comprised of more single-unit owners, or multi-unit? For a franchisor, it's more cost effective to support one franchisee with six stores than to support six franchisees with one store each. However, each single-unit owner will gain from the personalized attention that an EBITDA expert can provide, alleviating financial distress and stretched resources for the franchisor.
How fast is your brand growing? The faster you grow, the more critical individual attention will become to ensure that all new stores get off the ground running efficiently and that any issues are taken care of swiftly before they become larger problems.
Is your system experiencing many vendor-related problems? An EBITDA expert can provide seasoned insight into how franchisees can select vendors that will provide them with the best value, and can research potential national vendors to drive costs down for your franchisees on a local level.
Support systems are the backbone of a franchise. Investing in roles tailored to benefit franchisees is an investment in your franchise partners, your employees and your brand as a whole. To thrive and grow, your franchisees must prosper. Bringing on an EBITDA expert, or a role similar in nature, can have an immensely positive effect on your system that creates an increasingly attractive opportunity for potential franchise partners all while keeping your current franchisees happy and profitable.
BY JIM STRACHAN
Jim Strachan is Vice President of Store Profitability for Marco's Pizza which currently operates more than 800 stores in over 30 states, the Bahamas, India and Puerto Rico. For more information, visit franchise.org/marcos-pizza-franchise.
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|Date:||Oct 1, 2017|
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