What you should know before buying a B2B franchise

Jason Gehrke, Director, Franchise Advisory Centre

If you’re thinking of buying a franchise that has a business-to-business (B2B) franchise model, then there’s a few things to consider that may be substantially different from franchises that operate a business-to-consumer (B2C) model.

Goods or services?

Firstly, there’s very few dedicated B2B franchises that actually sell goods to other businesses.

Franchised retailers such as Harvey Norman may sell office equipment to small businesses, but this is not their only market. Those B2B franchises that cater only to a business market may sell highly specialised equipment that may be manufactured or exclusively distributed by the franchisor. If this is the case, you should explore what (if any) inventory you are required to hold, and how much of your available capital this will consume, and what the stock turn on this inventory will need to be to justify the investment level required.

Alternatively, if you are not required to hold inventory of the equipment you are selling, you should research the franchisor’s inventory management and delivery systems to ensure that your sales and reputation are enhanced by rapid and efficient delivery.

Most B2B franchises however are servicebased, rather than based on the sale of goods alone.

Typically, these service franchises will fall into two categories – white or blue collar.

White or blue collar?

White collar B2B franchises will generally provide some kind of expertise that can augment a business’ existing management capabilities, such as in bookkeeping, expense management, HR, business coaching and performance management, finance broking, insurance and other services.

Blue collar franchises will be more technically-oriented on the specific execution of certain business activities, such as the provision of security services and the installation and maintenance of alarm and monitoring systems, or the maintenance of facilities or assets owned or managed by the business (eg. cleaning franchises, and pool, air-conditioning or vehicle repair franchises). Arguably, there are also hybrid B2B service franchises, such as in IT (informationtechnology) where operators offer a mix of white collar services (eg. reviewing business processes to recommend appropriate software solutions) as well as blue collar services (eg. building networks, repairing computers, etc).

Irrespective of whether your B2B franchise sells goods or services, your business’ customers will be fundamentally different from B2C customers in three key ways: they will be harder to acquire, expect more, and take longer to pay.

Understand client acquisition processes and timeframes

Almost every business faces competition at some level, and chances are that your B2B franchise will be no different.

This means that for you to get clients, you might have to take them off someone else, or find them before someone else does. Taking clients away from a competitor can be a long and tiring process.

Firstly, you have to find the right person to deal with in your target business, which is often easier said than done as large organisations become increasingly cautious about giving out names of key personnel (although for small business clients, the key contact could in fact be the person who answers the phone).

Researching online directories, business websites and cold-calling (by phone and inperson) are the best ways to build a database of key contacts to start the client acquisition process. Next you will need to gain an interview, or create an opportunity to make a presentation,
demonstration or similar, to start building the relationship with the business. Maybe the value proposition of what you have to offer will be so great that your business prospects will drop any existing suppliers and give you sales orders straight away.

More often than not however, you will have to wait for a triggering event, such as the replacement of a decision-maker with someone more open-minded to your offer, or the inability of an existing supplier to deliver in the time, quantity, quality or price required.

Opportunities created by the inability of an existing supplier to deliver are golden, rare and must be acted on immediately and comprehensively. One slip-up by a competitor can open the door for you, and it’s your job to open it as wide as possible, then slam it on the competitor afterwards. This process of collecting data, making presentations, responding to RFP’s (requests for proposals) and building relationships with decision-makers who might ultimately elevate you from their fourth, third or second choice to first choice takes time.

Weeks, often months, and sometimes years are required to acquire business clients. The best operators are not always the most successful in a B2B environment. Those with the nerve, patience and capital to go the distance are the ones who make it.

Manage client expectations

The potentially long, slow and painful process of acquiring clients, particularly against an entrenched competitor, can provide an incentive to create the perception that your products or services are not just the equal of your competitors’, but vastly superior in every way, if only you could be given the chance to demonstrate.

It is only natural to be passionate about the products or services offered by the franchise in which you have invested, but overselling them creates a level of client expectations you may not be able to live up to when the time comes.

Underselling and over-delivering is a hallmark of successful B2B operators, and while it is desirable for your clients to think that you can perform miracles and walk on water, you’d better be sure you can do so whenever required.

Get paid on time

While a B2B franchise can generate much higher sales volumes per customer than a B2C business, B2C businesses are generally paid upfront for their products or services, whereas B2B businesses are paid after the sale, service or installation is complete. Businesses will expect to be invoiced, and depending on their relative size and the industry in which they operate, may expect to be given seven day trading terms, 30 days, or even longer.

Coupled with potentially long client acquisition timeframes, a long payment cycle could potentially be the kiss of death for a B2B franchise if the operator doesn’t hit critical mass quickly enough, or have sufficient working capital to keep them going in the meantime.

Strategies to improve on-time payment include charging deposits and progress payments, keeping payment terms to the shortest possible timeframe, and to offer a variety of payment methods that make it as easy as possible for a client to pay their bills. The measure of the length of time it takes for a client to pay their bill is known as debtor days (ie. the number of days).

This is a key performance indicator for any B2B business, and a high number of debtor days (eg. 90+) means that a business is offering too much credit to too many clients, and may well face a serious cash flow squeeze. Those businesses with low debtor days (eg. 15 days) tend to have much better cash flow and clients who can be relied to pay regularly and in full.

Continue your journey of learning

By investing in a B2B franchise, you are not planning to undertake your business journey alone, and you should look to your franchisor for guidance where possible.

If at least you have an understanding of the B2B environment beforehand, you can better assess the franchisor’s ability to help you manage key performance areas such as debtors, client acquisition, and service delivery, in addition to the technical expertise you will need to sell, advise, install, maintain or otherwise do what the business does.

When you have a basic understanding of these generic B2B issues, you are better placed to identify the best franchise that suits your interests and the market it will service. Finally, you should recognise that you will need to embark on a continuous journey of learning to ensure that you are up to date with the latest information, technology, practices and skills to maintain your relevance and usefulness to your B2B customers.

Your franchisor should provide this development pathway for you, but you might also consider what association memberships, courses and programs of formal study can also help you maintain your competitive edge, and to help you master these key challenges of operating a B2B franchise.

Jason Gehrke is the director of the Franchise Advisory Centre and has been involved in franchising for 20 years at franchisee, franchisor and advisor level. He advises both potential and existing franchisors and franchisees, and conducts franchise education programs throughout Australia, and publishes Franchise News & Events, a fortnightly email news bulletin on franchising issues and trends.

Contact Jason at:
Phone: 07 3716 0400
Email: jason@franchiseadvice.com.au
Web: www.franchiseadvice.com.au