One focus of any business investigation, especially a synthetic grass franchise business, should obviously be the economics of the business. In franchising this is called unit economics. What are the economics of an individual location, from all the start up expenses, rent, insurance and any ongoing costs to the potential revenue which leads you to profit. At the first of each month, week or even one work day, how much money is going out if you don’t sell any service or product to any customer? How much are you burning through and what do you have to provide or sell to get back to even?
Understanding the cash outflow per day, week or month is the number one accounting effort every business owner has to make. You have to know how much all this costs and what amount of activity has to take place to get you and your business out of the red and back to solvency.
In the first few months, a poor estimation or knowledge of this simple cash outflow number kills thousands of businesses every year. As the business grows to a point where it is producing some decent revenue through services or products, the expenses also rise.
For any enterprise to stay in business, the amount going out has to be less than the amount coming back in. In franchising, every location is different and every owner is different. A system of doing business must exist that is flexible enough to ensure the revenue (sales) is more than expenses. For individual locations in franchising this is referred to as Unit Economics.
This cash outflow number is referred to as the burn rate, at what rate per day, week or month are you going through the money you put up to get started and as you continue in business, at what rate are you burning through the revenue to keep the business running.
Keeping a low burn rate with properly priced desired products or services can grossly improve the chances of any business succeeding. The monthly out-flow for most IntelliTurf franchisees is no more than their insurance bill, cell phone bill and gas they burn going to appointments. Other companies require $30,000 or more per week to get to a break even point. For most IntelliTurf locations, the break even point can happen with just a few transactions per month. We intentionally set the business up so that 90+% of all expenses happen after we have signed a contract or sold some synthetic grass.
As products mature and as business locations mature, outside forces can start to move the expenses and revenues of a business. In the good times, scaling up an IntelliTurf location will take some work but does not have to be overly taxing on the expense side. Scaling back down if the economy hits a wall gets you right back to a cell phone and gas bill.
Whether a start up or a mature company, understand the burn rate and make sure the the unit economics of the franchisees you talk to is working out in their favor.