Multi-Unit Franchisee Magazine Issue IV, 2011 | Page 53

Sink or Swim? Mesa, Calif.-based Gala Corp., which operates 25 Applebee’s and Famous Dave’s restaurants in Southern California and Phoenix. “The franchisee is now shouldering 90 percent of the risk associated in the business. Previously it was closer to 50 percent.” These financial challenges, heightened by lackluster sales, governmental regulations, taxes, healthcare uncertainty, labor costs, and tight credit, mean multi-unit franchisees today have much less operating margin for error, says Gala, whose company also provides consulting and management services to franchisees. Data-based prayer? Can you control what is ailing your business? Franchise attorney J. Michael Dady, whose Minneapolis-based firm Dady & Gardner has represented more than 350 franchise and supplier organizations, says that when a unit underperforms this is a great first question to ask. His firm even provides a kind of franchisee “Serenity Prayer” that seeks the wisdom to be able to determine what can, and cannot, be changed and the courage to know the difference, move forward, and make changes—even after you’ve been told there is nothing more for you to do. If a unit’s location is good and the brand is solid, problems with operations can usually be fixed, says Thomas. The swiftest way for a multi-unit operator to get a feel for a unit’s controllable issues is to know its numbers—and study every line. Thomas likes to look at P&Ls month-to-month, rather than annually. “I concentrate on sales, sales, sales— nothing else,” says Thomas, who operates 32 Great Clips units with partner Grant Simon. “I know how much money each store should be making, and if it’s not making that much money I raise prices. If my store is not growing double-digits, I want to get rid of it.” The numbers also help Thomas target his strategy during the acquisition stage. A look at the P&L of one struggling unit pointed to internal theft. He fired the suspected employee and sales instantly “When something is distressed, saving a few nickels, dimes, and pennies doesn’t do anything. You have to increase sales 25 to 50 percent overnight.” —Greg Thomas rose 25 percent. Cash flow at another poor performer was positive within a week after Thomas took over, just by reconfiguring employee pay. With a restaurant, for instance, says Gala, analyze the core operating costs of goods, food, beverage, merchandise sales, and labor and compare them with locations that have similar volume. If there is a disparity, there is a problem. If your portfolio is smaller, don’t be afraid to seek guidance from someone muf4_f_distressed(50-52,54).indd 51 you trust within your brand. When Gala suggested this tactic to a client, the restaurateur initially balked, concerned that revealing this information would somehow undermine his recovery efforts. Once that hurdle was cleared, the client met with another franchisee within the brand and the two operators shared menu, pricing, and sales data. The client also sent managers to his fellow franchisee’s restaurant to train for three days, a move that instantly raised service and quality at the struggling restaurant. The result? “Everyone’s sales went up,” says Gala. Also, when studying the numbers of a struggling unit, don’t overlook the middle of the P&L sheet, says Gala. A lot of wastefulness can occur over time when