MANY FRANCHISE BUSINESSES REACH BEP IN LESS THAN TWO YEARS

Sutikno seemed to be happy. He finally achieved his dream to establish a pharmacy. On 24 August, his Apotek K-24 outlet started to open. That pharmacy is located on Jl. Pajajaran Bogor and it was the first Apotek K-24 in that city. That moment became a very important moment for the pharmacy chain managed by Gideon Hartono since 2002 as well. Gideon then decided to choose Apotek K-24 Pajajaran as the “base camp” of simultaneous launching of 24 new outlets on 24 August 2008. It is obviously important moment for Sutikno as well because by assigning Apotek K-24 Pajajaran as the host for Apotek K-24 national event, it means the pharmacy will get more chance to promote.

Maybe Sutikno did not realize it. For him, the success of launching that invites the vice governor of West Java and other officers is not easy to achieve, It was not only a deal for Gideon, but also his deal as well.

Thankfully, it was successful. Apotek K-24 Pajajaran owned by Sutikno now ran smoothly. People do not need to worry to get medicine in the middle of the night. With the opening of Apotek K-24 Pajajaran, now medicine purchasing can be focused there because that pharmacy opens for 24 hours a day, 7 days in a week, and 365 days in a year. This pharmacy, just like the other Apotek K-24 outlets, surely never closed. It will always be opened all the time. Now, for Sutikno, he just waited for the result. Will this investment succeed? By reviewing the other previous outlets, this business is supposed to be successful as well.

However, Sutikno had other reasons why he picked Apotek K-24 franchise in the middle of franchise offers or business opportunity (BO-partnership similar to franchise) for fast foods which are guaranteed to get quick turnover. “For me, investing in pharmacy is simply because pharmacy has strong social factors.

BEP or ROI?

For investor, the term to get ROI (Return of Investment) is one of measurement to be the main consideration in picking the right franchise with initial investment. However, there is also another measurement used which is Break Even Point (BEP). The unique thing is BEP is often mistaken as ROI which means turnover.

In accounting term, BEP means the revenues needed to cover a company's total amount of fixed and variable expenses during a specified period of time. Generally, this measurement is related to the comparison between monthly revenue to fixed cost and variable cost at the same time. This point is also called as BEP operational as the match for BEP which is considered as turnover.

In the case of Apotek K-24 for example, the ROI is three years. However, the BEP operational can happen in the third to twelfth month. The benefit he got after BEP will be used to cover the total investment so that in the third year all budgets will be covered. Therefore, in the three year there will be turnover.

It is not that easy to count BEP. Trend Valasindo, money changer that offers partnership since last 2004, stated that they did not get BEP in the business transaction because they are the kind of business that exchanges currency. We will understand if we see its transaction type.

With operational capital (to buy currency) Rp. 1 billion, this capital can be used to shop twice a day. For example, Rp. 1 billion to buy US$ 10.000 (with currency rate Rp. 10.000/US$) in the morning which can be exchanged to Rupiah by their clients. The result of that exchange by Trend Valasindo is spent to buy new US$ with the same currency. Therefore, in a day they can get revenue for about Rp. 2 billion. Therefore, if BEP is the income break even compared to revenue, it will happen in the morning. That is why, as written on its website, that becomes the measurement is the turnover.

With average revenue for about Rp. 24 billion in a month, investment in the establishment of Trend Valasindo outlet can get turnover in less than 6 months. This measurement is only operational budget outside of the capital (to buy currency). However, it is just an illustration, it does not mean that every outlet of Trend Valasindo works that way.

It is different from counting BEP or turnover for educational franchise. An owner of educational chain once said, running educational business is the easiest one because the capital is collected from the educational tuition paid by the students and it is paid initially. Therefore, it is possible if BEP is gained initially before turnover or it is even possible to get turnover initially. However, generally, educational franchise (including courses) only puts BEP which means turnover. The period varies from less than a year to three years. For potential investors, in order to know if BEP is operational break-even or turnover, we have to ask them directly.

In this main report, DUIT! Magazine collected several franchise and partnership opportunities type BO which BEP happens in less than two years. BEP here refers to turnover or operational break-even, depends on what they publish. It is true that not everyone offering this type of partnership publish their BEP, either at brochure, franchise offer, exhibition, media publication, website, or others. Some of them want to tell that information to the investor that they thought to be potential as their franchisee.

DUIT! purposely did not seek deeper because we think openness factor is important in this industry. Moreover, in the latest government regulation of franchise, every franchise business required to register their franchise proposal to the authorized institution. Here, openness is an important factor which has to be fulfilled by franchisor.

Well, from the research that DUIT! did, from about 650 to 700 offered business, either franchise, BO or franchise-like license in Indonesia, those with openness in their business by showing their BEP period (available in brochure, website, media report, and others), are 450 business in average. Later, we gather it in 350 Directories of Franchise and Business Opportunity with BEP less or two years. That amount represents 70-80% of franchise, BO, and other similar partnership that offers their business opportunity with BEP period that is published openly. It also represents that most franchise, BO, and other business opportunities offer BEP in less than two years (70-80%).

COMPETE TO INCREASE REVENUE

The question is, how does a franchise handle its chain so that the BEP can be achieved quicker or close to target? The first step is obviously in the first month of operation, the revenue has to be optimal. This is the benefit of franchise or other similar partnership compared to self-own business from zero. The system developed in this business pattern runs well, especially in marketing and branding, the most important factor in this business.

In Government regulation (PP No. 42 year 2007 about Franchise) and the latest Regulation of the Minister of Trade (Permendag 31/M-DAG/PER//8/2008), this problem is ruled clearly, In PP 42, it is explained in article 5 that franchise agreement includes support from the franchisor to the franchisee in facilities, operational support, training, and marketing. Moreover, in article 8 it is stated that franchisor has to give guidance in the form of training, management operational support, marketing, research and development to the franchisee continuously.

Permendag, which is the implementation instruction of PP, gives a list related to it in attachment VI. It is mentioned there that the support given by the franchisor to franchisee is divided to four parts. On the third point, it is mentioned that franchisor has to develop marketing by promoting with advertisement, leaflet/catalogue/brochure or exhibition. Therefore, it is already arranged the responsibility to promote in order to push the revenue.

Luckily, even though Permendag is quite firm in regulating franchise business, the partnership pattern non-franchise such as BO and license, adopts the same system. It makes marketing or pre-operational promotion to be common in this industry (franchise, BO or similar partnership). It also becomes the reason of new outlets to get optimum income since the first day of launching.

An interesting thing can be seen from MagFood Amazy’s experience. This is a fried chicken outlet that is original from Indonesia. In the early August 2008, this company opened its new outlet in Papua. The interesting thing is on the first day, the revenue has reached Rp. 10.4 million. That is the highest income ever earned by MagFood Amazy. That what makes revenue in Papua to set a new record in its chain, “Actually, in the front of Amazy outlet there is franchise outlet of international fried chicken,” said Suwarno, one of the founders of MagFood Amazy.

Various Business with Quick Turnover

With the system which is arranged well and the experience of the franchisor in handling previous business, it causes buying franchise (being a franchisee) to be more interesting compared to open your own business from zero. In the order of this industry in the developed country like United States, there was research said that franchise business has success rate up to 90%. It means, if you buy franchise, your success rate will reach 90%. It is much higher than creating your own business because of the success rate is under 50%. It is true that there are some researcher that doubt this research. Even so, that result will still be a guidance in world’s franchise business.

In Indonesia, the success rate of franchise business is still under it. However, it is believed to keep increasing. Some franchisors DUIT! met last time also admitted that the success rate of franchise business in Indonesia is still low. Yet, what they refer to franchise has to be re-checked. if it includes BO or other similar business, it can be understood because those types of business still has lower success rate compared to franchise. There should be special research about the success rate in franchise category only according to the existed regulations (PP 42 and Permendag 31/M-DAG/PER//8/2008). Perhaps, the type of business which is actually franchise already has success rate more than 90%. If it is right, it can be proven that franchise has high success rate.

We can check statement from Hendy Setiono, a young man who manages kebab business called Kebab Turki Baba Rafi. According to Hendy, Kebab Turkey now has chain until 360 outlets across Indonesia. Lately, he joined exhibition in Malaysia to go international by entering the market in that neighbor country,”I got two master franchises there,” he said.

The awesome thing is his achievements in opening 360 outlets pursued in less than five years. “Well, there are several outlets that failing but our failing rate is just 4%. This is better because generally franchise has success rate for about 91% to 93% while ours is higher than that. It means the success rate of Kebab Turki Baba Rafi is still in the track of franchise industry,” said Hendy while attending exhibition in Malaysia.

Maybe because of his business in food industry, just like what people believe, food industry almost always gives turnover faster than other industries. Even if the investment budget is huge, turnover in food industry is faster than other industries. You can check the one offered by Izzi.

On the advertisement in national newspaper last August, Izzi which is a pizza and Asian cuisine outlet offers franchise with investment from Rp. 900 millions to Rp. 2.5 billion. However, even though its investment is high, Izzi’s turnover can be achieved around seven years. Do not be surprised if Izzi’s revenue is extremely high. Just like published in the advertisement, Izzi’s revenue is around Rp. 60 million to Rp. 400 million in a month. Robert Eskapa, the owner of Izzi whom we encountered moments ago, also said that Izzi’s revenue in a month can reach Rp. 400 million. You can imagine if you manage a restaurant with Rp.. 400 million revenue in a month. It is sure that you will get turnover quickly.

Besides food, there is also other industry with quick turnover. Auto Bridal that offers car modification, detailing, and treatment offers investment package up to Rp. 700 million. However, that investment will get turnover in less than two years. That number is the result of calculation of the revenue in Auto Bridal in average is Rp. 50 million. It is tempting, isn’t it? It makes sense if its outlets keep expanding. Until now, Auto Bridal opens 54 outlets accross Indonesia opened by Hendry Indraguna, its founder, since 2003.

Looking at their performance now, managing franchise business can be more tempting. Moreover with the stricter rules, this business can give better success rate guarantee in the future, even though it is temporary, as explained by The Chief of Franchise Community and License Indonesia (WALI), Amir Karamoy, as cited in Bisnis Indonesia. By the publication of Permendag 31/M-DAG/PER//8/2008, the amount of franchise business in franchise market Indonesia will be cut up to 95%. From this eradicating, the left franchise business might only 30 business. However, the leftover which is real franchise really has high success rate. You can imagine if the rest of it included in BO, shortly, both franchise and Indonesia economy will be pushed greatly (DEN).

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