Building the Platform
The Client: The Franchise Management Company Limited is a young company with a dual mandate: Establish a regional management hub to bring a proven restaurant concept to Asia Pacific markets, and to provide market entry services to other international franchise brands considering an Asia presence. FranManCo already had commitments in place and an experienced management team with deep expertise in franchising, restaurant management, finance, general business administration, and even international tax.
The challenge: FranManCo approached Deep Water Management in June 2017 to build out the financial model. The challenge was quite complex, with dozens of Individual restaurants, the regional management company, the FranManCo consultancy, the overseas owner of the intellectual property, and potential investors at each level of the structure. Plus there were intercompany service agreements and royalty arrangements that materially affected the financials. There were many moving parts, as these arrangements were still under negotiation and renegotiation. The cash flow model had to include lead times for leasing, build-outs, and other material working capital assumptions at every level, as well as intercompany activity, debt and chargebacks. The model could not be consolidated or simplified, as there could be separate outside investors in every entity in the structure.
The Result: Success! We produced a model with complete front-to-back integrity, with restaurant-level activity flowing to all stakeholders, and entity-level activity inputs for all tiers in the structure (including flow-thrus for intercompany transactions). Consistent output formats made comparative reporting straightforward, with graphs and summaries easily produced for investors/stakeholder in any particular entity/restaurant. Input fields were clearly marked and overrides were easily identified. The model had redundant data integrity checks to flag any errors or intentional overrides.
The final product will also be used to model out future franchises brought to the region. Yes, the businesses may be materially different, perhaps retail or luxury goods instead of restaurants. Fortunately, these adjustments will be straightforward thanks the the flexibility and standardization of the model’s design.
More good news: FranManCo offered the COO role to Deep Water Principal Steve Stanton. Steve became interim COO for several months. In that time, he prepared and delivered presentations for prospective investors in the consultancy, the management hub, and individual franchise outlets. Steve set up the consultancy’s technology platform and managed a great many issues around the simultaneous launch & pre-launch of a consultancy, a management hub, and a number of franchise outlets (and “company owned” restaurants).
Steve concluded his COO assignment and resumed his work for other Deep Water Management clients in November 2017. FranManCo continues its progress, and we are keen share the name of the restaurants when the announcement is official. (We are also keen to eat there… The food is DELICIOUS in the overseas locations, and quite a good value.)