Page 148 - Business Plans that Work A Guide for Small Business

Financial Plan: Telling Your Story in Numbers • 139

first is ServiceMaster. It is a larger franchisor that is the umbrella organi-
zation for such service brands as Merry Maids and Terminex. Since they
are in the space of providing services, including housecleaning, to the end
user, it seems to be a good match. We also looked at Yum Brands, the
franchisor of such name brand fast food restaurants as KFC, Taco Bell,
and Pizza Hut, among others. Exhibit 10.1 shows Lazybones, Service-
Master, and Yum Brands side by side. We can see that the Lazybones gross
margin is 37 percent and 51 percent higher than ServiceMaster and Yum
Brands, respectively. ServiceMaster, like Lazybones, provides services
to its end customers through a combination of company-owned stores
and franchisees. Its costs of goods sold (COGS) may be higher because
the services are often provided at the customer’s location. Lawn services
have to happen at the customer’s lawn. Pest control has to happen at the
customer’s place of residence or business. Thus they may need consider-
ably more people to conduct the services. Considering that Yum Brands
operates a number of restaurants, their COGS includes food and direct
labor, whereas Lazybones only has direct labor and minimal expenses
for detergent and other cleaning products. Thus the higher gross margin
may make sense, but the magnitude would cause us to take a closer look
to make sure that we aren’t neglecting some major cost items.
The large difference in gross margins translates to larger earnings before
interest, taxes, depreciation, and amortization (EBITDA) margins, even
though Lazybones is expecting to spend more on sales, general, and admin-
istrative (SG&A) costs. One last area of analysis might be sales per employee.
We counted 14 corporate employees per Lazybones headcount chart, and
we assumed four full-time equivalents for each of the eight company-
owned stores. In this situation, Lazybones falls between the two compara-
ble companies in sales per employee. This suggests that Lazybones is likely
in the right range for the number of employees they are projecting.
Remember, gross variance, positive or negative, from the comparable
companies will draw investor attention and should draw your attention.
If you understand these discrepancies, you can address investor concerns
with confidence, increasing your credibility. If we were potential inves-
tors in Lazybones, we would want Dan to clearly articulate how he can
manage such impressive margins. While we understand that his company-
owned stores are likely to perform similarly to the existing units in Mad-
ison and Syracuse, we wonder if he has accurately captured the costs
and margins of being a franchisor. We would expect that the franchised
units might dampen margins while the company is putting franchisor