Small Business Networking | Information for small business owners

By Jeff Elgin, Entrpreneur Magazine Sept 2008

A Question of Time vs Money

The advantage of the owner-operator model is that it’s usually easier for you to exert greater personal control over the operation of the business while it’s growing, and it almost always requires significantly less capital to grow the business big, though the process may be slow. The advantage of the executive model is that it’s specifically designed to grow big, and it usually does so much more rapidly than an owner-operator model, thought it may require more capital.

Either of these models can provide you with the opportunity to potentially build your business over time into a very large operation, but the path will be different depending on which one you select. The trade-off between these two strategies often comes down to a simple qiestion of time versus money – which is the critical path for you in terms of reaching “big” status.

Evaluating profit potential

Though it might sound obvious, another very significant consideration if your goal is to build a huge business is the typical amount of profit produced by the business. The fact is that most people who decide to grow a huge business rather than just buying one immediately make the decision because they don’t have enough money to buy it now. That means they must depend on the business to generate profits, in excess of what they need to live on, in order to fund their expansion.

The challenge is, if you want to build something really big, you’ll probably need a business that both supports you and provides additional capital to grow. Those types of businesses exist, but they aren’t common, and you need to conduct a careful analysis to make sure any business you contemplate has the ability to get you where you need to go within the time frame you’re willing to allow.

Start by figuring out how much capital you have to work with, how much you need to support your lifestyle while you’re building your business and how long a time frame you’re willing to allow for the business to be built. Now you have the parameters to determine whether a concept ca meet your goals.

For example, let’s assume you’re evaluating an executive model business. Each unit costs R 100 000 to open, has average revenue of R 300 000 and makes R 50 000 per year in profit. You research shows that aggressive franchisees can open one new unit every six months, assuming they have the necessary capital. Your goal is to build a business that generates R 1 million per year in profits, which will require opening 20 total units. Is this business the right one for you to meet your goals? The anser depends on your resources, needs and goals.

If you have a total of R 500 000 is capital to invest, need to take no more then R 50 000 per year out of the business for lifestyle support during the first three years and want to build a business to the point of making R 1 million a year within 10 years … you’re all set with the business! If, on the other hand, you only have R 200 000 to invest and need to take out R 100 000 per year to support your lifestyle, you’re never going to grow this business beyond two units.

There are lots of great franschise businesses that can be used as a platform for building a very large and successful multimillion-rand business. If this is your goal, the secret to finding the right one for you is to take the time to understand what you have to work with in terms of your resources, what you want to accomplish in terms of your goals and what you need the business to contribute to meet your goals. Then you can determine whether a specific franchise is the vehicle you can use to reach the destination you seek. Good luck on the journey!