the
Unofficial Guide ®
to
Opening a
Franchise
the
Unofficial Guide ®
to
Opening a
Franchise Jason R. Rich
Copyright © 2007 by Wiley Publishing, Inc., Hoboken, NJ Published by Wiley, Hoboken, NJ No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning or otherwise, except as permitted under Sections 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600, or on the web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Legal Department, Wiley Publishing, Inc., 10475 Crosspoint Blvd., Indianapolis, IN 46256, (317) 572-3447, fax (317) 572-4355, or online at http://www.wiley.com/go/permissions. Wiley, the Wiley Publishing logo, Unofficial Guide and all related trademarks, logos, and trade dress are trademarks or registered trademarks of John Wiley & Sons, Inc. and/or its affiliates. All other trademarks are the property of their respective owners. Wiley Publishing, Inc. is not associated with any product or vendor mentioned in this book. The publisher and the author make no representations or warranties with respect to the accuracy or completeness of the contents of this work and specifically disclaim all warranties, including without limitation warranties of fitness for a particular purpose. No warranty may be created or extended by sales or promotional materials. The advice and strategies contained herein may not be suitable for every situation. This work is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional services. If professional assistance is required, the services of a competent professional person should be sought. Neither the publisher nor the author shall be liable for damages arising here from. The fact that an organization or Website is referred to in this work as a citation and/or a potential source of further information does not mean that the author or the publisher endorses the information the organization or Website may provide or recommendations it may make. Further, readers should be aware that Internet Websites listed in this work may have changed or disappeared between when this work was written and when it is read. For general information on our other products and services or to obtain technical support please contact our Customer Care Department within the U.S. at (800) 762-2974, outside the U.S. at (317) 572-3993 or fax (317) 572-4002. Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books. For more information about Wiley products, please visit our web site at www.wiley.com. Library of Congress Cataloging-in-Publication Data is available from the publisher. ISBN: 978-0-470-08951-4 Manufactured in the United States of America 10
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Page creation by Wiley Publishing, Inc. Composition Services Wiley Bicentennial Logo: Richard J. Pacifico
This book is dedicated to everyone with the determination and dedication to pursue their dreams of becoming franchisees. I wish you all the best of luck in your endeavors.
Acknowledgements
F
irst, I’d like to thank Pam Mourouzis at Wiley Publishing for inviting me to work on this project. I am proud to be able to contribute my fourth book to the Unofficial Guides series. Also, thanks to Tere Stouffer, my editor on this project, for all of her hard work and dedication. I’d also like to thank all of the franchising experts whom I had the opportunity to interview as I was writing this book. I am grateful for all of their support on this project. On a personal note, thanks to my closest and dearest friends, Mark and Ellen, as well as Sandy, Emily, and Ryan. I’d also like to give a shout out to my puppy Rusty (www.MyPalRusty.com). As always, my thoughts and best wishes go out to Ferras.
Introduction.....................................................xiii
I Franchising Basics .............................1 1 What’s a Franchise, Anyway? ......................3 Reviewing a brief history of franchising .........5 Understanding how franchises work ...............5 Determining whether you’re a good fit for a franchise ............................................6 Discovering the biggest misconceptions about franchises .........................................9 Recognizing the differences between a franchise and a traditional business ..........12 Choosing the best franchise for you .............15 Just the facts ...........................................19 2 Are You Franchisee Material?....................21 Do you have what it takes to be a successful franchisee? ................................22 What to expect from the experience.............31 Just the facts ...........................................38 3 Choosing the Right Franchise for You........39 Defining your short-term and long-term goals .......................................................40 Considering your interests ..........................59 Researching franchise opportunities .............61 Preparing for your new life as a franchisee....67 Just the facts ...........................................68
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Contents
About the Author ..............................................xii
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CONTENTS
4 Franchise Opportunities............................................69 The latest franchising trends .......................................70 How to learn more .....................................................74 A sampling of twenty franchise opportunities ................75 Entrepreneur magazine’s top twenty-five franchises for 2006 ...................................................................95 Just the facts............................................................97
II Before You Open Your Doors ...........................99 5 Lining Up Your Finances .........................................101 Analyzing whether you’re creditworthy ........................101 Developing a detailed business plan ...........................105 Calculating the total capital needed ...........................106 Financing options for franchisees ...............................111 Keeping the books....................................................117 Just the facts ..........................................................117 6 Legal Issues Relating to Your Franchise ...................119 Why you need a franchise attorney .............................120 Preliminary questions to ask a franchise attorney .........122 Understanding the UFOC............................................124 Making sense of your Franchise Agreement...................127 Other legal matters you’ll need to deal with.................128 Just the facts ..........................................................130 7 Choosing Your Location ..........................................131 There are many types of locations...............................132 Analyze your customer base . . . again!.......................141 Determine whether your targeted customer base is large enough ..........................................................142 Figuring out your real estate needs.............................142 Key points to consider when choosing a location..........144 Strategies for negotiating your lease...........................147 The next step: construction .......................................149 Just the facts ..........................................................151
CONTENTS
8 The Training You’ll Need .........................................153 Training basics.........................................................153 The training you can expect from your franchisor .........155 Take advantage of all learning opportunities available.................................................................161 Rounding out your business education ........................163 Passing on your knowledge to employees.....................164 Just the facts ..........................................................164
III Getting Ready for Opening Day .....................167 9 Hiring and Managing Your Employees.......................169 Defining your staffing needs......................................170 Create job titles and descriptions, and then set expectations............................................................171 How and where to find the best employees..................172 Having applicants complete a job application...............176 The art of interviewing job applicants .........................177 Hiring employees you can trust..................................182 Managing your employees..........................................183 Creating an employee manual ....................................184 Rewarding your employees.........................................184 Setting salaries, benefits, and bonuses........................186 Dealing with common staffing problems ......................187 Firing bad employees................................................187 Just the facts ..........................................................188 10 Seeking Business Help from Professionals ...............191 What constitutes an expert? ......................................192 Determining what types of experts your business could benefit from ...................................................194 Steps for finding and hiring the best experts ..............204 Obtaining the additional training and education you need ................................................................206 Just the facts ..........................................................207
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CONTENTS
11 Working with Suppliers and Vendors ........................209 Understanding the jargon ..........................................210 Following the rules and guidelines of your franchisor ....211 Selecting vendors.....................................................213 Establishing credit with your vendors..........................216 Inventory-management techniques .............................217 Just the facts ..........................................................218 12 Marketing Your Business Locally..............................221 Defining marketing, advertising, and PR ......................222 Promoting and advertising your business ....................224 Creating an overall plan that works.............................226 What is marketing?...................................................231 What is public relations? ...........................................233 What is advertising? .................................................240 Why becoming active in your community is important ...............................................................244 Focus on always providing top-notch customer service....................................................................245 Planning your opening-day events ..............................248 Just the facts ..........................................................248
IV Gathering Expert Advice ...............................251 13 Getting Insight from Franchising Experts .................253 Lawrence J. “Doc” Cohen, CFE ....................................254 Tom Buxton.............................................................265 William Killion .........................................................270 Just the facts ..........................................................275 14 Successful Franchisors Reveal Their Secrets for Success ............................................................277 Lynette McKee .........................................................279 Stuart Mathis...........................................................287 Jeff Schenck............................................................293 Joy Flora.................................................................297 Don Slifer ...............................................................297
CONTENTS
Ken Sully ................................................................305 Amy Nichols ............................................................312 Just the facts ..........................................................319 15 Advice Directly from Franchisees .............................321 Joy Hofmeister ........................................................322 Tom Kilkelly.............................................................331 Just the facts ..........................................................337
V Appendixes .................................................339 A Franchising Glossary...............................................341 B Franchise Directory.................................................349 Top ten low-cost franchises .......................................352 Top ten new franchises .............................................353 C Recommended Reading and Other Resources ............355 Web sites ................................................................355 Magazines ...............................................................356 Trade journals and directories ....................................357 Other......................................................................358 Index ..............................................................................359
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About the Author
J
ason R. Rich (www.JasonRich.com) is the bestselling author of more than 35 books, including The Unofficial Guide to Starting a Business Online (1st and 2nd Editions). He has also written a wide range of other books, including Pampering Your Pooch: Discover What Your Dog Wants, Needs and Loves (Howell Book House) and Self-Publishing For Dummies (Wiley). For Entrepreneur Press, he is the series editor and author of Entrepreneur magazine’s Personal Finance Pocket Guides, as well as Entrepreneur magazine’s Business Traveler book series.
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Introduction
W
e’ve all heard inspirational stories about people who quit their grueling, dead-end, unrewarding 9-to-5 jobs in order to pursue their dreams of starting a small business. Pursuing this career path requires an incredible amount of courage, the need to take significant risks, and a commitment of time, hard work, and relentless dedication. If you think you have what it takes, keep reading! If you look at statistics, only a small percentage of start-up businesses actually achieve success, and that’s for a wide range of reasons. One way to increase your chances of success as a small business operator is to become a franchisee. As you discover from this book, franchisees benefit from being able to follow a proven system for success and can also take full advantage of the company and brand-name recognition of their franchisor. No matter where you travel throughout the United States (and in many other parts of the world), franchised-based businesses have become commonplace. In this book, you learn all about what it takes to become successful, no matter what type of franchised-based business opportunity you choose to pursue—and there are literally thousands to choose from.
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INTRODUCTION
What you’ll also learn is that opening a franchise can give you a significant edge as a small business operator. Aligning yourself with even the best franchisor is definitely not, however, a guarantee of success. Contrary to popular belief, in almost all cases, becoming a franchisee does not provide a get-rich-quick business opportunity either. (Anyone who says it does is lying!) So, if you’re looking for a quick and easy way to become a millionaire without having to work really hard, go buy lottery tickets. If, however, you’re willing to make the necessary financial investment, put a lot of hard work, time, and dedication into your business, and follow the franchise system you choose to pursue, your chances of success increase dramatically. For many people, becoming a franchisee and operating a franchise-based business allows them to pursue their dreams, achieve financial independence, and lead extremely happy and rewarding professional lives. The Unofficial Guide to Opening a Franchise is jam-packed with useful information to help you become a successful franchisee. You’ll also have the opportunity to learn from several franchising experts through in-depth interviews. If you’re interested in becoming a franchisee, this book is an extremely valuable resource in helping you get started in a fast, efficient, and costeffective way. It also helps you avoid many common mistakes made by first-time franchisees. Once you become a franchisee, you’ll be embarking on an exciting, potentially profitable business venture—that is, if you’re willing to do the necessary work. By reading this book, you’ll be able to overcome many of the common misconceptions people have about franchising and learn exactly what it’ll take for you to get started, and then achieve your goals. As you embark on your quest to become a franchisee, I invite you to share your experiences with me by sending me an e-mail (
[email protected]) or by visiting my Web site at www.JasonRich. com. Best of luck on your endeavors!
INTRODUCTION
Special features Every book in the Unofficial Guide series offers the following four special sidebars, which are devised to help you get things done cheaply, efficiently, and intelligently. ■
Watch Out!: Cautions and warnings to help you avoid common pitfalls.
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Moneysaver: Tips and shortcuts that help you save money.
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Bright Idea: Smart or innovative ways to do something; in many cases, the ideas listed here will help you save time or hassle.
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Quote: Anecdotes from real people who are willing to share their experiences and insights.
We also recognize your need to have quick information at your fingertips and have provided the following comprehensive sections at the back of this book: ■
Franchise glossary: Definitions of complicated terminology and jargon.
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Franchise directory: Lists of the top franchises in the United States.
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Recommended reading and other resources: Lists of relevant agencies, Web sites, books, and magazines that can help you get more in-depth information on related topics.
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Index
xv
PART I
Franchising Basics
What’s a Franchise, Anyway?
T
he American dream for many businesspeople and entrepreneurs involves launching a business that achieves an impressive level of success, provides at least some level of financial security, and allows them to become their own bosses. The goal of most business owners is to have independence, retain control over their professional futures, and be able to reap the financial benefits of their business ventures. Launching a start-up business takes a tremendous amount of time, knowledge, capital, and business savvy. The business owner must simultaneously be able to handle a wide range of responsibilities and make many important decisions. Even for an experienced businessperson, owning and operating a business venture can be extremely risky. The fear of failure, inadequate capital, and/or a lack of core business knowledge often keep people from achieving their professional goals, especially when launching a successful business.
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Chapter 1
GET THE SCOOP ON . . . What a franchise is and why you might want to operate one ■ The history of franchising ■ The types of franchising opportunities available ■ The benefits and drawbacks of operating a franchise
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FRANCHISING BASICS
To help eliminate fear, reduce the risk of failure, and provide the training that entrepreneurs need to successfully launch their businesses, one option is to operate a franchise. One of the benefits of operating a franchise is that most franchisees (that’s you) are provided with a proven roadmap for how to operate the business, along with all the training needed to make the business successful. A franchise is a proven business model developed by the franchisor (the company that has created the business and is making it available to franchisees through a Franchising Agreement), which allows the franchisee to utilize its established trademarks, proprietary business plan, and methods of doing business, in exchange for a recurring payment, which often involves a percentage of gross sales or gross profits, along with an annual fee. The franchisor usually provides its franchisees with training, a proven business model, a well known and well established brand name, and a wide range of other tools and resources to help ensure success. This support greatly reduces the time needed to open a business, and it eliminates the need to do a lot of preliminary research, like lining up suppliers, for example. In Chapter 2, you find out more about what you (as a franchisee) can and should expect from the franchisor you choose to work with. The support provided varies greatly, based on the type of franchise opportunity you’re pursuing.
Watch Out! An advertised “business opportunity” can be very different than a legitimate franchise opportunity. Multi-level marketing companies, opportunities in which you pay a lump sum for the rights to operate some type of business (such as a vending machines business), and even pyramid schemes (which are illegal) are considered business opportunities, not franchise opportunities. If the opportunity you’re being offered involves selling other people that same business opportunity (in addition to, or instead of, selling the company’s primary products or services), this is probably a multi-level marketing operation, not a legitimate franchise opportunity. Virtually all reputable franchisors are registered with the International Franchise Association (IFA).
CHAPTER 1
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WHAT’S A FRANCHISE, ANYWAY?
Reviewing a brief history of franchising Although the concept of franchising as a business model has been around since the 1850s, it wasn’t until the 1930s that it become commonplace in America, thanks to franchise-based restaurants like Howard Johnson’s. By the mid-1950s, with the proliferation of fast-food establishments like McDonalds, franchising became extremely popular and continues to grow to this day. In fact, McDonald’s now has over 2,400 individiual franchisees (owners/operators) in the United States, and they collectively operate over 13,000 retaurants. But franchising isn’t limited to fast food. Today, franchise opportunities are available in virtually every industry. How to choose the right opportunity given your personal and financial situation, is explored in Chapter 3.
Understanding how franchises work A franchise opportunity is a formal business relationship between the franchisor and the franchisee. The franchise itself is an established business that has a name, along with products or services that it sells using a business model that’s proven to be successful. The franchise follows an established method of doing business that often utilizes proprietary business models, practices, tools, and/or resources, including trademarks (such as a well known brand name and logo), all of which have allowed the business to achieve success and consumer recognition. The franchisor and franchisee engage in an ongoing business relationship. The franchisee is typically the proprietor of his or her own business. However, the way in which the franchisee operates the business is often overseen and somewhat controlled by the franchisor. The franchisor provides the product(s) or service(s), or at least lines up suppliers and provides the entire system for operating that business. How the franchisee/franchisor relationship takes shape varies greatly, depending on the franchisor and type of business.
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In exchange for the services, tools, and resources provided by the franchisor, the franchisee pays a variety of different fees. These are explained in greater detail in Chapter 3.
Determining whether you’re a good fit for a franchise People who own and operate franchises come from all walks of life. Franchise owners and operators in the United States and throughout the world include ■
Businesspeople with an entrepreneurial spirit
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Homemakers and single mothers looking to break into the business world
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Retired people looking for a new source of income
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Married couples wanting more financial independence
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Working people looking to make a career change
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Recent graduates looking to launch their careers but also be self-employed
Chapter 2 focuses on what it takes to become a franchise owner and operator, in terms of the necessary business-related experience, training, and finances. It’s important to understand right from the start, however, that the most successful franchisees all have several similarities, including the following. ■
They’re extremely excited and dedicated to the business opportunities they choose to pursue.
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They’re willing to work hard and take on a tremendous amount of responsibility to operate their businesses.
Moneysaver A growing number of franchise-based businesses are owned and operated by veterans. As you learn in Chapter 5, special financing opportunities are available to veterans through the International Franchise Association’s Vet-Fran program (www.franchise.org), as well as the U.S. Department of Veterans Affairs (www.vetbiz.gov).
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They’re willing to participate in training and education programs in order to obtain the business knowledge and skills needed to manage their businesses, while following the mandates and business practices outlined by the franchisor.
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They’re willing to make an often significant financial investment in their businesses using savings, investments, a second mortgage on their homes, or a variety of different types of small business loans.
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They’re able to work well with and develop ongoing positive relationships with the franchisor and suppliers/distributors, as well as with their own employees, customers, and the other vendors they need to do business on an ongoing basis.
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They’re able to juggle a wide range of responsibilities simultaneously and are willing to dedicate the time necessary to meet those responsibilities, even when it requires working well beyond a traditional forty-hour work week.
If you believe you’re able to meet these demands, the next step is to ensure you go into this new business venture with all of the resources you need at your disposal. Although you can typically assume the franchisor will provide training, few offer the core business education you’ll probably need to successfully operate any type of business. Thus, in addition to the specialized skills and knowledge needed to operate the specific type of business, it also becomes your responsibility to learn a wide range of core business-related skills, including the following. ■
Accounting, bookkeeping, recordkeeping, and money management
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Hiring, training, and managing employees
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Marketing, advertising, and public relations
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Developing and implementing top-notch customer service
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Inventory management (if applicable)
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Basic computer skills
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Time management and scheduling
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FRANCHISING BASICS
Bright Idea If you don’t have the core business knowledge you determine will be required to successfully operate the type of franchise-based business opportunity you want to pursue, you have a couple of options. You can participate in collegelevel courses and other training programs, or you can take on a business partner who possesses the knowledge, skills, and experience you lack.
These skills can be obtained by participating in college-level courses or adult education programs, or they can be self-taught using books and other training materials. Having these skills before you attempt to start operating your own business definitely gives you an advantage and helps guarantee your success. Having a core business knowledge can also keep you from making common, yet costly mistakes. Is it necessary to have graduated from an Ivy League college and have years of business experience under your belt in order to be a successful franchise owner and operator? In most cases, it’s not. However, keep in mind that the core business knowledge your franchise will require varies greatly based on the type of opportunity you choose to pursue. By doing research about the specific franchise opportunity, the franchisor, and the industry you plan to work in, you should be able to develop a good assessment of what will be required of you, and then do what’s necessary to acquire the necessary knowledge and skills.
Watch Out! One way to develop specific types of skills and knowledge is to first become an employee for another franchisee in order to learn the business and gain valuable experience. After you’ve mastered the core skills you’ll need to own and operate your own franchise, you can then take the next steps toward becoming a business owner. Never rush into a situation or take on responsibilities and financial obligations you’re not fully prepared for.
CHAPTER 1
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WHAT’S A FRANCHISE, ANYWAY?
Discovering the biggest misconceptions about franchises Almost anyplace in the United States that you travel (and in many parts of the world, for that matter), you’ll encounter countless franchise-based businesses. They’re everywhere! With these businesses so prevalent in our everyday lives, it’s easy to jump to the conclusion that they’re extremely profitable, easy to operate, and guaranteed to be successful. That’s not always the case. This section focuses on clearing up some of the most common misconceptions people have about franchises.
It’s a get-rich-quick scenario Despite what you’re told by franchisors or other sources, owning and operating any type of franchise is never a get-rich-quick opportunity. You will not be able to simply make an initial investment to open the business, hire a bunch of minimumwage employees to operate it on your behalf, and then become an absentee owner who enjoys the good life lounging on a beach somewhere. Some franchise owners are able to achieve this lifestyle, but only after successfully managing, building up, and expanding their businesses over many years. If this is your objective, think of it as a long-term goal, not a short-term one. The vast majority of franchise owners and operators are married to their work, especially during the first few months or years, until their businesses becomes profitable. Not only will operating a successful business require a significant financial investment, but it will also require you to dedicate a tremendous amount of time and effort to your business on an ongoing basis. When almost any type of problem arises, it will be your responsibility, day or night, to pinpoint the problem and achieve a resolution,. Even the best-known and most successful types of franchises require time, dedication, and a financial commitment. In fact, even if you do absolutely everything correctly—have enough
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FRANCHISING BASICS
financial capital on hand to launch your business, possess the core business knowledge and experience needed, and are selling a product or service that people in your geographic area want or need—don’t expect to start generating huge profits overnight. It realistically takes months or years before your business becomes profitable, so plan accordingly. It’ll ultimately be your responsibility to develop an operating budget for your business and make sure you have the financial resources necessary to sustain the business until it becomes profitable.
Good employees are a dime a dozen Another common misconception is that finding, hiring, training, and managing reliable, dedicated, trustworthy, hard-working, and customer-service-oriented employees (who will most likely be crucial for the successful day-to-day operation of your business) will be easy. Chances are, it won’t be easy and could become one of the biggest ongoing challenges you face as a business owner. See Chapter 9 for more on hiring employees.
Location doesn’t matter Yet another misconception is that location doesn’t matter. Although a franchisor might offer assistance in choosing a location or site for your business, it’s ultimately your responsibility to become extremely familiar with the area and ascertain for yourself whether the location where you plan to open your business is suitable. The location should be easily accessible and
Bright Idea Don’t just assume that if you build it, they will come. Just because a franchise opportunity has been successful in certain geographic areas doesn’t guarantee success for the location where you choose to open your business. It’s important to determine exactly who your target customers will be, and then determine whether an adequate customer base exists in the area where you plan to open your business. From a marketing, advertising, and promotional standpoint, you need to have a detailed plan in place to attract local customers to your business.
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WHAT’S A FRANCHISE, ANYWAY?
ideal for the type of business you’re opening, plenty of parking should be available for customers, and the building or office must be adequate in terms of layout and size to meet your needs. Chapter 7 focuses on choosing a suitable location for your business.
You don’t have to market your business Although you can rely on the brand name and reputation of the franchise to initially attract some customers, and also expect that you’ll benefit from the regional or national advertising done by the franchisor, you will ultimately need to handle marketing, advertising, and promotions on a local level for your business. This will become another of your important and ongoing responsibilities as a business owner/franchisee. See Chapter 12 for details.
Success is guaranteed Finally, don’t assume that just because you’re buying into an established franchise, your business will automatically become successful. Throughout this book, you’ll read about “franchise opportunities,” not “franchise guarantees.” As you start evaluating opportunities, you’ll realize that not every available franchise represents a viable business venture. Your own experience, knowledge, the geographic area, the local economy, your available finances (start-up capital), the type(s) of products or services you’ll be offering, who your customer base will be, the quality of training you’ll receive from the franchisor, and the overall business plan and methodology offered by the franchisor all play vital roles in your potential for success. After deciding on the type of franchise you’d like to open, one of the first steps is to develop a comprehensive business plan. By creating such a plan, you’ll more easily be able to identify your proposed business’s strengths and what pitfalls you’re likely to encounter. Chapter 5 will help you create a detailed business plan.
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Watch Out! The sales pitch you receive from a franchisor will almost always provide you with the best-case scenario in terms of the opportunity’s profit potential. Instead of relying exclusively on what the franchisor has to say, talk directly to several existing franchisees. It’s important to develop realistic expectations about potential earnings and profit projections right from the start. This will help you plan your finances accordingly and predict how long it’ll take to recoup your initial investment and begin generating a profit. Remember, if what you’re being told sounds too good to be true, it probably is! Even the most carefully calculated projections are seldom totally accurate, so plan accordingly.
Recognizing the differences between a franchise and a traditional business When you decide to launch your own business, you become your own boss. This means that you take ultimate control over your professional and financial future. If you open a traditional mom-and-pop business, it becomes your sole responsibility to plan and then manage all aspects of the business, with little or no outside support or guidance. You need to develop your own business plan; find your own location; handle all your own marketing, advertising, and promotions; train yourself and your employees; manage your own finances; establish relationships with distributors and supplies; and establish your company’s reputation in the community in order to build awareness and customer loyalty. The benefit to owning and operating a franchise is that some (although not all) of the preliminary research and planning is done for you. As a franchisee, you’ll be starting off with a business model and plan that has already proven itself to be viable. You’ll also be offered training and ongoing support, have access to suppliers and distributors (if applicable), and be able to capitalize on the name recognition and logo(s) of the franchise. Although a potential customer probably has no clue what to expect from Joe’s Burgers or Joe’s Sub Shop, virtually everyone in
CHAPTER 1
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WHAT’S A FRANCHISE, ANYWAY?
America knows when to expect when they step into a McDonald’s restaurant or Subway sandwich shop. Whether you walk into a McDonald’s in New York City or Houston, Texas, your experience as a customer will be virtually identical. This consistency is perhaps one of the biggest benefits of operating a franchise. One potential drawback to operating a franchise (as opposed to an independent, stand-alone business) is that you must adhere to the guidelines and operating procedures outlined by the franchisor, whether or not you agree with them. You must also pay the required franchisor fees on an ongoing basis. In some situations, these fees make sense. In others, however, like when the brand name isn’t well known and the national or regional advertising isn’t helping your business, these ongoing fees may not make financial sense. In Chapter 3, we’ll take a closer look at the fees associated with owning and operating a franchise. Franchise opportunities vary greatly. Some franchisors offer single-unit business opportunities. This means you (as the franchisee) obtain the right to open one single location or unit. There are also multi-unit franchise opportunities that allow you to open several locations, often within a specific region or territory. This means that as the franchisee, you’re given an exclusive territory or region. Some well established franchisors look only
Bright Idea Every franchisor is required by the Federal Trade Commission to create and offer to prospective franchisees a detailed disclosure document. This document must contain details about more than twenty different aspects of the business opportunity, including the history of the business, its current financial statement(s), and the required fees and investment costs. Earnings claims for potential franchisees may or may not be included. Before pursuing any type of franchise opportunity, request a disclosure document from the franchisor and review it carefully. Franchisors are also required to be registered with most of the states in which it plans on doing business and to adhere to local laws and government regulations in those states, both in regards to iranchisees and consumers.
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for franchisees who will ultimately want and be able to open multiple units within a predetermined time period. In some situations, the franchisor might offer you what’s often referred to as a Master Franchise. This means that in addition to being the exclusive franchisee for a specific region or area, you have the right to sub-franchise (sell additional franchises) to other prospective franchisees, and thus benefit financially. When opening up discussions with a potential franchisor, make sure you fully understand the business arrangement and the type of franchise opportunity that’s being offered. As you begin negotiating with a potential franchisor, seriously consider hiring a lawyer who specializing in franchising to represent you (see more on lawyers in Chapter 10). Becoming a franchisee requires you to sign a variety of binding legal documents and engage yourself in a potentially long-term business relationship with the franchisor. It’s vital that you understand what you’re signing, know what you can expect from the franchisor, and understand what’s expected of you. You can find referrals for experienced attorneys who specialize in franchising through the International Franchise Association (www.ifa.org) or through your state’s bar association. Early on, develop a relationship with an attorney whom you can trust and who can guide you through the process of acquiring, opening, and then managing a franchise-based business.
Moneysaver To help match up qualified potential franchisees with established franchisors, independent consulting companies, such as FranChoice, Inc. (800-678-2802; www.franchoice.com) exist. Operated by franchising specialists, these firms spend time carefully evaluating potential franchisees and help to match them up with suitable franchise opportunities. In many cases, this service is paid for by the franchisor and is offered free of charge to potential franchisees looking to explore various business opportunities. If you’re having trouble deciding what type of franchise opportunity to pursue or have questions you’d like answered by an independent third-party that is knowledgeable about franchising, utilizing one of these services is a smart decision.
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Choosing the best franchise for you What most people don’t realize is that there are literally thousands of franchise opportunities available in America. In fact, one out of every twelve businesses currently operating in America is a franchise. This translates to more than 550,000 franchised businesses generating more than $900 billion in annual sales. Although most people think of McDonald’s or Dunkin Donuts when they hear the word “franchise,” there are more than 3,000 different franchise opportunities available in more than seventy-five industries, many of which go well beyond the realm of fast food. Chapters 3 and 4 introduce you to many different types of franchise opportunities. As a consumer, companies you see in your neighborhood or at the mall and perhaps do business with on a daily basis may actually be franchises. For example, McDonald’s, The UPS Store, H&R Block Tax Services, Dunkin’ Donuts, Midas, General Nutrition Centers (GNC), Subway, 7 Eleven, Ramada hotels, 1-800-Flowers florists, Party America, ACE Hardware Stores, FastFrame, Minuteman Press, Payless Car Rental, Kumon Learning Centers, Curves Fitness Centers, Mrs. Fields Original Cookies, Dairy Queen, Pizza Hut, KFC, Taco Bell, Supercuts, Merry Maids, Pearl Vision Centers, Fast Signs, and Jenny Craig are a random selection of well known franchisebased businesses you’re probably already familiar with and that may already be present in your community. Ideally, what a franchise offers is the closest thing someone can get to a complete turnkey solution for achieving success when operating a business. For many people, opening a franchise is the added edge needed to become their own bosses and launch their own successful businesses, because much of the fear and some of the risk associated with this process is eliminated by the franchisor.
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Sorting through the opportunities available today As you can discover in Chapters 3 and 4, there are a wide range of franchise-based business opportunities available that extend beyond the fast food industry. Before you start evaluating specific franchise opportunities, it’s important to consider the following. ■
Where your interests lie and what type of business you’re interested in operating
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What experience you already have that will prove beneficial
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What your current financial and credit situation is like
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What your long-term professional and financial goals are
Only by knowing this information can you accurately determine which of the thousands of franchise opportunities are best suited to meet your wants and needs. Unless you have access to hundreds of thousands of dollars to invest in your business (including funds available through loans) and still meet the prerequisites of the franchisor, chances are, opening a McDonald’s or other high-profile and expensive franchise isn’t a viable option. Even if you have the investment capital available, perhaps you have no interest in getting into the fastfood industry. Chapter 4 shares profiles of twenty franchises available in the United States. These profiles give you an overview of what’s available, but it’s not a complete list of available opportunities. There are several comprehensive directories that profile hundreds or thousands of potential franchise opportunities, including the following. ■
The Franchise Handbook: This is a quarterly publication published by Enterprise Magazines, Inc., that’s distributed through newsstands nationwide. For more information, point your Web browser to: www.franchisehandbook.com.
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Franchise Opportunities Guide: This is the official directory published by the International Franchise Association
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(800-543-1038; www.franchise.org). Thousands of franchise opportunities are profiled in each issue of this magazine, which is published semi-annually. ■
Entrepreneur Magazine’s Franchise 500: The publisher of Entrepreneur magazine offers an online database profiling the top 500 franchises in the United States. To access this Web site, point your browser to: www.entrepreneur.com/franzone/listings/fran500/.
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Entrepreneur Magazine’s Ultimate Book of Franchises: The Publishers of Entrepreneur magazine publish this soft-cover directory ($23.95) describing over 1,000 franchise opportunities. It’s available from bookstores everywhere or online at www.EntrepreneurPress.com.
Lining up your finances The initial investment capital required to own and operate a franchise can be anywhere from a few thousand dollars to well over $1 million, depending on the opportunity you pursue. In some cases, the franchisor will assist potential qualified franchisees in acquiring financing. However, you’ll need to determine in advance your net worth, your credit potential (based on your credit rating and credit score), and the sources of financing that may be available to you. For first-time franchisees, some potential sources of financial capital, which are described in greater detail within Chapter 5, include the following. ■
Personal savings and investments
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Borrowing from friends and family members
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Taking out a small business loan from a local bank or credit union
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Obtaining a second mortgage on your home
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Working with outside investors or investment capital firms
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Obtaining a loan from the U.S. Small Business Administration (SBA)
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Obtaining direct financing from the franchisor
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Utilizing government-supported programs available to minorities, veterans, and others who meet qualification guidelines
Additional considerations as you get started As you begin to evaluate various franchise opportunities described in this book and elsewhere, focus on the following: ■
Whether you have any interest in working in the type of business and industry in which the franchise opportunity is involved
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The costs involved, including the franchise fees, along with the continuing royalty fees, advertising fees, and other expenses
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The control you’ll have over your business versus the control the franchisor maintains
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Your ability to either terminate the relationship with the franchisor or renew it
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Whether or not you have the knowledge, experience, and skills necessary to successfully operate the business
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Whether the franchise opportunity will ultimately allow you to meet or surpass your long-term personal, professional, and financial goals
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Whether there’s a demand for the products and/or services you’ll be offering after you open the franchise
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How much local competition you’ll have and whether or not you’ll be able to effectively compete in your geographic area
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How much value the franchise’s name recognition, logo(s), and consumer awareness is worth
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The training and support offered by the franchisor
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What similar opportunities are available from other franchisors
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I delve deeper into each of these considerations, discuss why they’re important, and offer advice on how to deal with them throughout the rest of this book.
Just the facts ■
A franchise is a proven business model, developed by the franchisor, that allows the franchisee to utilize its established trademarks, proprietary business plan, and operating methods, in exchange for a recurring payment (which often involves a percentage of gross sales or gross profits, along with an annual fee). The franchisor potentially provides its franchisees with training, a proven business model, a well known and well established brand name, and a wide range of other tools and resources to help ensure success.
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There are more than 3,000 different franchise opportunities available in more than seventy-five industries, many of which go well beyond the realm of fast food.
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The franchisor and franchisee engage in an ongoing business relationship. The franchisee is typically the proprietor of his or her own business. However, how the franchisee operates the business is often overseen and somewhat controlled by the franchisor.
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Franchisees come from all walks of life.
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Owning and operating a franchise-based business is rarely, if ever, a get-rich-quick business opportunity for the franchisee. It can take months or years before you recoup your investment and generate a profit.
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Never assume that just because you’re buying into an established franchise that your business will automatically become successful. Achieving success will require you to invest a significant amount of time, hard work, dedication, and money.
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R
egardless of what type of franchise opportunity you ultimately choose to pursue, becoming a franchise owner/operator is a life-changing decision and one that will require a significant commitment, investment, and risk-taking on your part. This chapter helps you determine whether you currently have the knowledge, skill set, experience, mind set, and willingness to take on the many varied responsibilities of becoming your own boss, should you choose to pursue this type of business venture. Operating any type of business involves risk. Unless you’re willing to take on this risk and you have all of the resources needed to successfully operate your new business, don’t move forward. Make sure you fully understand exactly what will be required of you financially, as well as how much time and effort will be needed to get your new business launched, fully operational, and profitable. Do you
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Chapter 2
GET THE SCOOP ON . . . What will be required of you to become a franchisee ■ The level of risk you’re willing to accept ■ What to expect from the franchise experience ■ The management and leadership skills you’ll need to achieve success
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Watch Out! Becoming a franchisee is not a business decision to make impulsively, especially if it requires a significant financial investment that will involve you taking out personally guaranteed loans, mortgaging your home, or putting yourself into serious debt. Before committing, ask yourself the two following questions: If your business fails, do you run the risk of losing your home to foreclosure? Will you be able to deal with and recover from the negative financial ramifications if your business fails?
understand the commitment you’re making to the franchisor and what ongoing fees you’ll be responsible for? Also, make sure you have, or will be able to obtain, the business-related skills and knowledge you’ll need to achieve success, based on the specific type of franchise opportunity you choose to pursue.
Do you have what it takes to be a successful franchisee? Chapter 3 focuses on finding the type of franchise opportunity you’re best suited for, based on your knowledge, skills, experience, and financial resources. In this section, however, I focus on what becoming a franchise owner/operator will require of you personally. Do you fit the personality profile of a typical franchisee? To find out, this section explores what the franchisee personality profile consists of. There’s a lot to think about before making the commitment to become a franchisee. To help determine whether you have what it takes, ask yourself these questions. ■
Are you an independent self-starter looking to take more control over your professional destiny?
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Are you willing to make a long-term commitment to starting, managing, operating, and growing your business?
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Do you have a support system in place to help you manage your business and make important decisions? Family
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members, mentors, and experienced businesspeople can be part of your support system. ■
Do you possess at least some core business-related knowledge, education, skills, and experience? Do you know the difference, for example, between accounts payable and accounts receivable?
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In addition to the knowledge you already possess, are you willing to learn new skills, develop operating procedures for your business, and adopt the strategies outlined by the franchisor?
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Do you have enough of a cash reserve to launch your business, and then support yourself, your business, and your family until the business becomes profitable? Can you successfully operate the business without putting yourself and family in financial jeopardy if the business isn’t immediately profitable?
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Do you have the personality to be the boss and properly manage your employees, while at the same time, accept mandatory direction from the franchisor?
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Will you be truly passionate about your business? Will you be willing to make sacrifices in order to make it successful? In addition to financial sacrifices, will you be willing to work nights, weekends, and holidays? Will you forego vacations and time off in order to meet your responsibilities as a business owner? If you’re willing to work only a standard forty-hour work week (five days per week, eight hours per day), you’re probably not cut out for this type of business venture.
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Depending on the type of business you plan to operate, will you be comfortable and successful working directly with customers and clients? Will you be able to manage and grow relationships with employees, suppliers, distributors, and representatives of the franchisor?
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Are you a people person, a team player, and a good written and verbal communicator?
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Are you comfortable using computers and any specific software required to operate the franchise, such as bookkeeping, point-of-sale, and inventory-management software?
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Do you or will you be able to obtain the technical knowledge needed to operate the specific type of franchisebased business you’re interested in?
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What is most appealing to you about the prospect of becoming a franchisee? What are your expectations? Are you willing to do the research necessary to insure that your expectations are realistic before proceeding? Have you spoken with other franchise owners/operators to learn firsthand about their experiences?
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What are your long-term financial goals? How quickly will your business need to become profitable after it’s launched in order to keep you from experiencing financial problems? Based on the research you conduct about the specific opportunities you’re interested in, is this financial goal feasible? What type of income are you looking to earn from this business? Based on the success of other franchisees, is this a realistic income expectation?
By the time you’re done reading this book and exploring a handful of franchise opportunities that interest you, you should have no trouble answering these questions. Based on your answers, you should then be able to feel confident and excited
Moneysaver When you express interest in becoming a franchisee, the franchisor should spend time initially getting to know you, develop an understanding of your background, and evaluate you as a potential business owner/operator. If the franchisor doesn’t make this time investment in evaluating you and your situation, yet claims you possess all of the personality traits, skills, and knowhow to be successful, put your checkbook away and look for another franchisee opportunity.
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Bright Idea The franchisor’s goal is to expand its business by alluring potential franchisees to its business opportunity. Whenever you receive assurances or promises from the franchisor, make sure the details are put in writing to ensure you’ll ultimately receive the support and services you need.
about the prospect of becoming a franchisee. If there are areas that are causing trepidation or making it difficult to move forward from a psychological or emotional standpoint, seek out the necessary guidance from friends, family, your accountant, an attorney, a financial planner, or an independent business advisor (with franchise expertise) before moving forward. A reputable and successful franchisor will have already developed a successful play book or operational manual for you to follow as you set up and operate your business. You’ll need to put some trust in this guidance and direction. Your franchisor should have already calculated approximately what your expenses will be, what will be required of you, and how much risk you’ll need to take in order to be successful. In addition to the emotional support you receive from friends and family, rely on your franchisor for support in terms of handling business procedures and learning how to successfully set up, launch, and operate your business.
Running a business requires risk-taking This may sound like a cliché, but without risk, there can be no reward. This is certainly true when operating any type of business. Entrepreneurs and other businesspeople are risk-takers. What sets most successful entrepreneurs and businesspeople apart from the rest of the world, however, is that they take calculated risks and always make educated decisions based on well researched information. Not everyone has the personality or confidence (in themselves and their abilities) to be a risk-taker. Many people prefer to take the safe route and avoid any potential situation that
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could result in failure. Unfortunately, this isn’t the mindset that works well for franchisees. One of the biggest risks you’ll take when you become a franchisee is with your money. If the business is successful, you’ll potentially earn a profit, generate a good income, and become financially stable. If the business doesn’t do well, however, the money you initially invest in the business could be lost. If you’re currently working for another employer and deciding whether or not to pursue a franchise opportunity in order to achieve independence and become your own boss, some of the immediate risks you’ll be taking include the loss of: ■
Job security
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A guaranteed salary
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A regular and fixed work schedule
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Benefits, such as health insurance (currently paid for by the employer)
In addition to the personal risks you’ll need to take on a daily basis, you’ll need to take risks when operating your business. For example, you’ll need to risk investing money in advertising in order to generate new customers. If the advertising works, you’re in good shape. If, for any number of reasons, the advertising fails to generate the desired results, that’s money you’ll lose. This risk can be reduced by working closely, at least initially, with an experienced advertising agency to help you create your ads and place them in the appropriate media based on the results you’ll be looking to achieve. Whenever you hire new employees, you’ll be taking a risk as a result of relying on them to be responsible, hard working, dedicated to their jobs, and capable of meeting your expectations and their job-related responsibilities. You can, of course, reduce this risk by performing a detailed interview with the applicant, checking all references, and performing a background check. Unfortunately, any time you rely on people, whether they’re employees, customers, the franchisor, suppliers, distributors, or
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the people providing you with a loan to start your business, there’s always some level of risk involved. Not everyone is trustworthy and reliable, despite outward appearances. Although you must be willing to take some level of risk, for any type of financial decisions, you can seek out the guidance of a professional (an accountant or financial planner, for example) to help you make intelligent and financially sound decisions that will reduce the risk associated with those decisions. As you’ll discover, when you attempt to raise the necessary investment capital to launch your franchise-based business, you’ll have a wide range of potential options. Some of these options will be far more risky and potentially costly than others. In Chapter 5, you learn ways to reduce your potential risk as you take on new loans or financing. Another way to reduce your overall risk as you choose what type of franchise to own and operate is to focus on the longterm viability of the business. Ideally, you want to offer an evergreen product or service, which means that people will want and need it throughout the year, for many years to come. Avoid offering a product or service that’s currently trendy or that can quickly become obsolete. Make sure you’ll be offering something that your customers won’t quickly lose interest in. Especially if you’ll be opening your business in a small to medium-size city or town, chances are, you’ll need to rely on repeat customers.
Watch Out! Being willing to take a risk is different from being able to deal with the emotional ramifications once the risk is taken. You could, for example, take out a $300,000 mortgage on your home to raise the money needed for your business start-up capital. While you may be willing and needing to do this, once its done, will you be willing and able to deal with the mental stress and emotional ramifications associated with now having this significant debt? Will this stress impact your ability to make intelligent business decisions? Refrain from taking risks you’re not comfortable with or that could result in catastrophic results if the desired outcome isn’t achieved.
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Become a juggler, but don’t join the circus As the owner/operator of your own franchise, you’ll be taking on the role of boss, not only of yourself, but to your employees, who will be relying on you for their livelihood and financial well being. You’ll also need to juggle or at least oversee a wide range of other responsibilities, including: ■
Advertising
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Bookkeeping (including accounts payable and accounts receivable)
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Computer network maintenance (if applicable)
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Customer service
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Human resources
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Inventory
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Marketing/public relations
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Payroll
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Sales (if applicable)
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Retail store management (if applicable)
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Acting as a liaison between your business and the franchisor
In addition to these general business responsibilities, you’ll also need to handle responsibilities that are specific to the type of business you’ll be operating. So, before you proceed further, take an inventory of what skills, work-related experiences, and useful personality traits you currently possess. With that information in hand, you’ll be able to more easily figure out what you still need to acquire as you move forward with your business venture. Start by making a list of all of your past jobs, as if you’re creating a resume. List the following information for each previous job: ■
Employer
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Dates of employment
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Job title
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Primary responsibilities
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Biggest accomplishments in the job
Next, make a list of the specific skills you utilized in order to meet the responsibilities of your past jobs. This list should include both general skills, like using a computer for word processing, and the specific skills required for that particular job. Include in your list of skills various software programs and applications you’ve become proficient using, plus any specific personality traits that allowed you to excel at what you did. For example, if your past work experience involved sales, related personality traits might include being highly motivated, goaloriented, deadline-oriented, or customer-service-minded. Be sure to list any managerial responsibilities or experiences you’ve had, as well as experiences with teamwork. Once you’ve developed your list of professional skills, build on this list further by adding other skills you utilize in your personal life, when participating in your hobbies or spending time with your family, for example. This list you’re creating will help you match up what you already know you can do with what will be required of you once you begin discussing job responsibilities with potential franchisors. Ideally, you want your list of current skills to be compatible with what will be required of you to operate the franchise opportunity you pursue. If your skill set doesn’t yet
Bright Idea As you compile your list of useful skills, on a separate sheet of paper list your potential drawbacks or problem areas. For example, if you suffer from severe pet or outdoor allergies, you shouldn’t be looking to own and operate a doggy daycare, pet grooming, or landscaping franchise. If you don’t consider yourself to be a people person, pursuing an opportunity that will require topnotch customer service or interaction with customers or clients probably isn’t the best path to pursue. Knowing what types of industries and business ventures to avoid will help narrow your decision about what to pursue.
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meet the requirements of what the franchise opportunity mandates, you’ll need to identify what skills you’re lacking and develop a comprehensive plan for obtaining those skills and acquiring the additional knowledge and experience needed. Understand that as you embark on this new business opportunity, you will face challenges, no matter how much knowledge, how many skills, and how much experience you already possess. Through research and by having open discussions with the franchisor, as well as with current franchisees, you’ll be able to accurately ascertain the types of challenges you’ll encounter, so when you actually face them you’ll be amply prepared. It’s this research and preparation that will help you succeed by avoiding unnecessary complications, stress, and costly mistakes. As the boss, you’ll be handling many different types of responsibilities simultaneously, so the skills you’ll most likely need to perfect are your abilities to jump easily from one problem to the next, multitask when necessary, prioritize your time and resources, and find quick solutions to the problems you face. When necessary, you’ll need to identify when you’ll need help from others and know exactly who to turn to. If you’ve surrounded yourself with competent and responsible people, you’ll also need to learn how and when to delegate certain responsibilities in order to maximize the use of your time.
Moneysaver Many franchisees find it useful to have family members as part of their support team. These are people who also get to know the business and can step in on a part-time basis, as needed, to help solve problems, overcome lastminute staffing issues (as a result of employees not showing up or calling in sick), and can be trusted to handle various types of problems using skills they posses. As you make a list of your own skills, in a separate column make a list of the skills your spouse, working-age children, or other nearby friends and relatives possess, and determine whether they’ll be available to help you when needed. It’s important to line up these additional resources early on.
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What to expect from the experience Your experience as a franchisee will be determined by the type of business opportunity you choose to pursue. The experience of someone operating a motel will be vastly different from someone operating an ice cream shop or doughnut shop. Franchises are available in over seventy-five different industries, so you can expect huge deviations in what a franchisee’s experience actually is. As the franchisee, you will be responsible to handle the core operations of the business (which will involve juggling many responsibilities that are common to almost all types of businesses). The type of business you ultimately pursue, however, will directly impact how you spend your time, the type of work environment you encounter, the types of demands put on you, the types of risks you’ll need to take, and what your overall experience will be like. The best way to determine what to expect from the type of experience you have as a franchisee is to speak with several franchisees who are currently involved in the type of business venture you’re hoping to pursue. This is in addition to whatever information and insight the franchisor supplies. (In Chapter 3 is a list of questions to ask potential franchisors in order to learn more about the business opportunity that is being offered.) As part of your initial research as you investigate potential business opportunities, some of the questions you’ll want to ask other current franchisees (as well as managers or employees working for those franchises) include: ■
What type of previous work experience did you have?
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What primary skills or experience would you say are most important to have in order to own and operate this type of franchise?
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What other franchise opportunities did you research? Why did you choose the one you did?
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Has the experience been what you expected? If not, why?
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Where is your franchise located?
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What type of time commitment has been required of you, both in the first few months and after the business was fully operational?
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How helpful was the franchisor in terms of getting the business launched and operational?
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What problems did you initially run into?
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How did you overcome the initial problems? Did you have help from the franchisor or outside parties? If so, who provided the help?
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How much of an initial financial investment did you make?
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Were there any hidden or unexpected costs associated with opening and operating the franchise?
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How quickly did you recoup your investment and start generating a profit? Is this timeline consistent with what was initially indicated by the franchisor?
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Did the franchisor provide quality and comprehensive training to you and your employees? Was it adequate? In what areas did the training fall short or not meet your expectations or needs?
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Has the franchisor met all of its obligations and lived up to its promises?
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What problems, if any, have you experienced with the franchisor?
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Were you been able to meet or exceed you initial sales projections for the first three, six, and twelve months of your business operation? If not, why not?
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If you had the choice to start your experience all over again, would you still pursue this franchise opportunity? If not, why not?
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What additional advice or warnings can you offer to me so that I might be successful operating this type of franchise?
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Bright Idea The more information you can gather, in advance, about the specific business opportunities that interest you, the easier it will be to decide which franchise-based opportunity is right for you.
By obtaining answers to these questions from the people who are currently operating or working for the type of franchise you’re interested in, you’ll get a clear and accurate perspective of what’s really required and what the experience will actually be like, without hearing the best-case scenario sales pitch often offered by the franchisors themselves. Keep in mind that franchisors are not legally obligated to make earnings claims. When these claims are made, however, they typically describe an absolute best-case scenario or showcase the earnings of the most profitable franchisees or units. When a franchisor makes earnings claims, be sure to obtain them in writing and make sure they can be substantiated. Determine what the numbers you’re quoted actually mean, how they were calculated, and whether or not you can rely on them to be accurate. If a franchisor releases average gross sales figures, for example, this number can be extremely misleading. Average gross sales do not indicate profits. Also, the average could be significantly inflated by a few extremely successful franchisees or units and may not be representative of a typical franchisee’s experience. This also holds true of stated average income figures among franchisees. Even if all of the stated earnings claims are accurate, there is no guarantee that you will be able to match that success. Try to learn as much as possible about actual earnings from a handful of current franchisees that you speak with directly. If you’re able to speak with a current franchisee who is looking to sell his or her business, try to discover why he or she is looking to get out. Determine whether that reason in any way impacts your ability to achieve future success.
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Watch Out! As you open discussions with other franchisees from around the country, keep in mind that market conditions and the local economy vary by region. Even if a franchisee continues to experience success in one part of the country, this doesn’t guarantee you’ll experience similar success in your geographic region. Before opening for business, do additional research to determine whether the community where you plan to establish your business can support it, given the local economy, potential customer base, and other localized factors (discussed in Chapter 7).
Developing leadership, management, and interpersonal skills As a business owner and operator, part of your daily responsibilities will be interacting with people in a variety of capacities. For your employees, you must provide leadership, guidance, support, a friendly work environment, and (at times) discipline. For your suppliers, distributors, and franchisor representatives, you must be able to develop a strong, positive, ongoing business relationship in order to achieve your objectives. Finally, for your customers, you must be able to provide them with top-notch customer service, support, and a welcoming environment, regardless of the type of business you operate. Being able to accomplish this requires that you possess excellent leadership, management, interpersonal skills, and communication skills (verbal and written). Your skills must also include being able to negotiate, listen, speak effectively, oversee and manage others, and always maintain a professional demeanor regardless of the situation. If you’re having a bad day dealing with various problems, and didn’t get a lot of sleep the previous night, you can never take this out on your customers, employees, clients, or anyone else with whom you do business.
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Moneysaver In addition to community colleges and adult-education programs, you can participate in seminars and workshops designed to teach useful business skills. To learn about these programs in your area, one resource is The Learning Annex (212-371-0280; www.learningannex.com), which offers hundreds of different classes, workshops, and programs in over a dozen U.S. cities. Online courses are also available.
Some people are born good communicators and have a natural ability to interact well with others in almost any situation. If you already possess this natural ability, you’ll certainly have an advantage as you embark on your business venture. If you determine that you’re lacking certain skills, one of your top priorities should be to attain them, because they’re typically not what will be included in the training provided by the franchisor. Your local community college or adult-education program is an excellent place to start. Reading a variety of books that cover the core principles of leadership, management, and communication skills will also be extremely valuable. When possible, learning directly from other people who possess these skills is also beneficial, which is why spending some time working as an employee for other franchises may prove useful.
Bright Idea Nightingale Conant (800-560-5973; www.nightingale.com) offers a large selection of audio programs and training videos that provide self-paced programs for learning core leadership, management, and communication skills. Another excellent source for audio self-improvement courses is Audible.com (www.audible.com).
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What to expect from the franchisor The main reason to consider pursuing a franchise opportunity, as opposed to starting your own business from scratch, is to be able to capitalize on and benefit from the knowledge, experience, training, resources, and assets of the franchisor. In a nutshell, in exchange for paying an initial franchise fee and then an ongoing fee (royalty payments and advertising fees), you should expect the following from the franchisor: ■
A proven format or system developed by the franchisor for operating the business
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The right to use the franchisor’s name, logos, and other trademarks for a predetermined amount of time (usually at least fifteen to twenty years)
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Assistance finding the ideal location for your business and acquiring, renting, or leasing that space
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Initial in-person training and a detailed operating manual
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Advice on local marketing, advertising, public relations, and promotions
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Advice on hiring and managing personnel
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The ability to utilize existing relationships with suppliers, distributors, and wholesalers
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Ongoing support and training through newsletters, publications, a toll-free advice line, and periodic workshops or seminars
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Sufficient financial assets and adequate staff to support the franchisor’s ongoing operation, growth, and expansion
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Assistance in obtaining the loans/financing you’ll need to become a franchisee
Depending on the company and type of business, the right of a franchisee to use the franchisor’s name and logo(s), plus take advantage of the franchisor’s brand name recognition and build on its positive reputation can be a huge factor in the success of your business.
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Beware of limitations and controls imposed by franchisors In addition to the support and guidance you receive from the franchisor, your responsibilities and obligations as a franchisee could limit the creative control you have over your business and force you to adhere to the guidelines and rules imposed by the franchisor. For example, many franchisors insist on having site approval regarding the location of your business. As the franchisee, you also may have to adhere to strict design, décor, and appearance standards, which could impact the overall appearance of the According to research conducted in early 2006 location itself. by the International As a franchisee, you Franchise Association, may be limited in terms of “franchisors have a very positive outlook on the the products and services current economic condiyou’re able to offer. For tions and are optimistic about the future . . . example, if you’re operat70 percent say that curing a restaurant, the franrent business conditions chisor may dictate are good overall for franchising . . . 74.1 specifically what menu percent believe that items you can and can’t their system-wide gross sales will increase in offer, plus insist that you 2007 (48.4 percent of use specific suppliers or franchisors stated that distributors. gross sales are projected to increase by 11 Most franchisors also percent or more). offer specific guidelines for other aspects of your business operation, including signage, the design and appearance of employee uniforms, operating hours, bookkeeping and accounting procedures, and local or regional advertising. These guidelines are put in place to ensure continuity and a high standard among all franchisees. Failure to adhere to these guidelines could result in the termination of your franchise contract and the loss of your investment.
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Just the facts ■
Becoming a franchisee is not a business decision you should make impulsively, especially if it requires a significant financial investment that will involve your taking out personally guaranteed loans, mortgaging your home, or otherwise putting yourself into serious debt.
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Operating any type of business involves risk. Unless you’re willing to take on this risk and have all of the resources needed to successfully operate your new business, don’t move forward.
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A reputable and successful franchisor will have already developed a successful play book for you to follow as you set up and operate your business. You’ll need to put some trust in this guidance and direction.
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As the owner/operator of your own franchise, you’ll be taking on the role of boss, not only of yourself, but to your employees who will be replying on you for their livelihood and financial well being. You’ll also need to juggle or at least oversee a wide range of other responsibilities.
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The type of business you ultimately pursue will directly impact how you spend your time, what your work environment is like, the types of demands put on you, what types of risks you’ll need to take, and what your overall experience will be like. The best way to determine what to expect from the type of experience you will have as a franchisee is to speak with several other franchisees who are currently involved in the type of business venture you’re hoping to pursue.
Choosing the Right Franchise for You
A
fter you’ve determined that owning and operating a franchise-based business is the right career move for you, you have to choose the very best business opportunity to pursue. This means deciding what type of business you want to operate (in what industry), selecting a franchisor you’d like to work with, and then doing what’s necessary to become a franchisee. Before you can accomplish this, however, you need to set goals for yourself, and then determine whether the business opportunity you choose can help you achieve those goals. Chapter 4 provides an overview of the many types of franchise-based business opportunities available and showcases a sampling of franchise businesses; this chapter helps you pinpoint what you should be looking for when evaluating your own needs, as well as what’s being offered by the franchisor you ultimately choose to work with. Before embarking on a long-term relationship with a franchisor (the success of which will directly impact your
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GET THE SCOOP ON . . . Defining your goals ■ Understanding what type of businesses are available ■ Getting tips on choosing the right franchise to meet your needs and goals ■ Buying an existing franchise versus opening a new location ■ Preparing for life as a franchisee
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ability to do business and achieve your goals), it’s vital that you ensure a perfect fit. Your needs, interests, and goals should all be capable of being met by the franchisor and the business opportunity being offered. After you pinpoint exactly what type of business you’d like to own and operate and you’ve selected the franchisor you’d like to work with, you may need to decide whether it makes more sense to open a new location or take over an existing franchise location. This chapter helps you make this determination, and then assists you in preparing for your new life as a franchisee. Without a doubt, no matter what type of franchise-based business opportunity you choose to pursue, you can expect significant changes in your personal, professional, and financial life. It’s important to understand what changes you’ll encounter, be prepared for them, and understand exactly how to deal with the challenges and obstacles you’ll face.
Defining your short-term and long-term goals Deciding to pursue a franchise opportunity as opposed to starting an independent business from scratch might be a wonderful idea. After all, the U.S. Small Business Administration has released statistics showing that upwards of one-third of all new, independent businesses fail within the first three years. Meanwhile, the failure rate of franchise-based businesses is less than five out of every 100.
Watch Out! Although operating a franchise-based business gives you an edge, especially as you’re establishing your business and nurturing it, there’s no such thing as a guaranteed successful business or franchise model. Many variables will come into play as you begin operating your business, and there is always the possibility that it could fail. Proper research, hard work, and core business knowledge helps prevent potential failure, regardless of what type of franchise opportunity you pursue.
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Bright Idea Need help deciding whether a franchise-based business opportunity is right for you? Consider seeking guidance from the Small Business Administration (SBA), which offers the combined expertise and resources of private business operators, educational institutions, as well as local, state, and federal government offices. Free information and guidance is provided to small business operators, potential franchisees, independent business owners, and entrepreneurs. For more information, point your web browser to: www.sbaonline. sba.gov.
There are many reasons for a franchisee to have a better success rate than an independent start-up business operator. Perhaps the biggest reason is that when you work with a franchisor, you’re adopting its already-proven business model and business practices. You’re not reinventing the wheel, so to speak. So when you invest your time and money in a franchisebased business, you’re starting off with an edge. For the edge offered by a franchise opportunity to prove beneficial, the business, the overall experience it offers, and its financial potential must be able to help you meet or exceed your own personal, professional, and financial goals. Otherwise, what’s the point? Even knowing that a franchise opportunity can give you an edge as you launch your business, you still must decide whether the opportunity makes sense for you, based on your knowledge, experience, finances, geographic area, and the industry you hope to work in. Remember that it is possible to launch an independent business and be successful. Unfortunately, the decision falls in your lap as to whether a franchise or independent business is right for you. There is no solution that is right for everyone.
What is a goal? For the purpose of this book, a goal is something you’d like to accomplish in a predefined period of time. Goals can and should be divided into categories, such as personal, professional, and financial, as well as given time frames in which they
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should be accomplished. A short-term goal is something you’d like to accomplish within a week, a month, or a few months, while a long-term goal is something you’d like to achieve in a time frame longer than one year. When defining your long-term goals, consider creating a one-year, three-year, five-year, and tenyear plan. Although a short term goal should be very specific and have a deadline attached to it, such as “Researching five franchise opportunities by next Monday,” a long-term goal can be a bit more open ended and should be more adaptable as your situation changes. As you proceed with becoming a franchisee, you’ll want to set a wide range of short-term and long-term goals that fall into the personal, professional, and financial categories. Write these goals down, review them regularly, and adapt or modify them as needed. Writing down your goals is important. However, what’s equally important is discovering how to go about achieving each one in a systematic way. For each goal you add to your list, write down a realistic deadline for achieving that goal. Next, break down that goal into a series of five or ten individual steps that you’ll need to complete in order to achieve it in a timely and efficient manner. Each step you list should be considered a separate mini-goal, complete with its own deadline. By completing these mini-goals, you’ll be following a preplanned route for achieving your ultimate objectives. Plus, as you complete each mini-goal, you’ll be able to track your overall progress. Keeping track of your goals, mini-goals, deadlines, and to-do lists can be done using a printed day planner (available from any office supply store) or using a scheduling program on your computer. A personal digital assistant (PDA) or smartphone with PDA or scheduling capabilities can also be an extremely valuable tool for keeping track of your goals, scheduling, and todo lists on a daily basis. But a low-tech, low-cost paper-based calendar can work, too.
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Each goal you create for yourself needs a pre-defined purpose and benefit attached to it. You should be able to say to yourself, “by accomplishing this goal, the benefit to me will be. . . .” You want to understand how and why accomplishing the goal will benefit you, your family, your business, and your finances. You also want to think about how accomplishing each of your goals will impact your other goals, as well as your overall success, happiness, quality of life, and wellbeing. As you define your goals, it’s also important that they be realistic. Having the short-term financial goal of earning a $1 million profit within the first two months of your business operation simply isn’t realistic. If you set this as one of your short-term goals, you’re setting yourself up for failure, because no matter how hard you work, how organized you are, and how much planning you do, achieving this goal simply isn’t going to be possible. If your goal, however, is to earn a $1 million profit, begin by sitting down with your accountant and looking carefully at your business model. Do some preliminary number crunching and financial projections in order to determine, realistically, how long it should take you and your business to achieve that goal. Set that timeframe as your deadline, and then start working diligently toward achieving it. Likewise, make sure that your goals and deadlines actually make sense. If one of your goals is to open for business in three months, but you don’t yet even know what type of business you’d like to operate, your financing hasn’t been lined up, you
Watch Out! One of the most common reasons people fail to achieve their goals is that the goals and/or deadlines they set are not realistic. If you want to achieve success, start by setting goals for yourself that pose a challenge to accomplish, but are realistic and actually achievable. Then create a detailed game plan for achieving each of your goals. Remember, having a goal is worthless unless you’re willing to work hard and do exactly what’s necessary to achieve it. There are seldom any shortcuts, so plan accordingly and be willing to make sacrifices in order to ultimately achieve your success.
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have not yet selected a location for your business, and you haven’t begun the sometimes lengthy process of becoming a franchisee, there’s no way you’ll be able to accomplish everything necessary in order to meet this self-imposed deadline.
Types of goals For the purposes of this book, the difference between a goal and a dream is that a goal is something you can work hard to accomplish. A dream is something that’s abstract, nice to think about, but not necessarily realistic or achievable. There are many types of goals, and each is discussed in the following sections. In this section, you’ll be asked to start creating your own list of short-term and long-term goals, in the following three categories.
Personal/family-oriented These are goals that relate to your personal or family life. Getting married, having children, being able to send your kids to private schools, planning to go on a vacation, or planning to retire at age sixty-five are all examples of personal or family-oriented goals.
Professional This type of goal relates to your professional life or career. Quitting your existing job to become a franchisee and opening your own business within the next year is an example of a professional goal. Building your franchise and being able to open multiple units in the next three to five years is another example of a professional goal.
Financial A financial goal deals with money issues. For example, the goal of becoming financially independent and debt-free in the next three years is a financial goal. The goal of earning a $150,000 per year salary is another financial goal.
The anatomy of a goal No matter into which of the three categories each of your goals fall, they should have the following in common:
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Bright Idea Before embarking on any new business opportunity, focus carefully on how that opportunity, as well as the time commitment, financial investment, overall risk involved, and the emotional impact of pursuing the opportunity will impact your ability to achieve each and every one of your short and long-term personal, professional, and financial goals. Focus on what sacrifices you’ll need to make and how you’ll deal with them. Also, think about what lifechanging decisions you’ll be responsible to make and what impact these decisions will have on your life and the lives of those close to you. Consider what challenges you’ll face as you attempt to achieve your goals and begin creating a detailed game plan for overcoming those obstacles.
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A clear benefit that will be realized upon achieving it
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A specific deadline for achieving it (to help you determine whether each goal is a short-term or long-term goal)
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A predetermined list of mini-goals, steps, or to-do items that must be accomplished in order to achieve the larger goal
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An understanding of how achieving the goal will impact you, your family, your business, and your finances
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An understanding of how each goal fits in with your other short-term and long-term goals and objectives
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A method for tracking the progress of your goals. Each goal should be reevaluated periodically to make sure it’s still viable and relevant to what you’re ultimately trying to accomplish. Remember, it’s common for goals to change over time. It’s also common to have a need to modify existing goals based on events that transpire after the goal is set, but before it’s achieved.
Putting your goals on paper After you create a list of personal, professional, and financial goals for yourself, you’ll want to refer to this list constantly, especially as you’re evaluating potential business opportunities to
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pursue. As you evaluate each business opportunity or research a specific franchisor, ask yourself the following. ■
Which of my goals will this business opportunity help to achieve?
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By pursuing this opportunity, will I be prevented from achieving any of my personal, professional, or financial goals? If so, am I willing to sacrifice that goal or modify it accordingly?
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Will the franchise opportunity allow me to accomplish my goals within a realistic timeframe?
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Does the franchise opportunity offer me the income and profit potential necessary for achieving my financial goals?
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How will the hard work and long hours that will be necessary to operate my business impact my ability to achieve my personal goals?
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Taking this business opportunity into account, which of my personal, professional, and financial goals will be easily achievable? Which will require significant work to achieve? Which goals simply won’t be achievable and why not?
Now that you know what’s involved in setting a goal, begin creating your own list of short-term and long-term goals and objectives. After you list these goals, rearrange them so they’re arranged in order of importance to you.
Watch Out! In addition to focusing in on your own goals, consider the goals of your spouse or partner as you embark on this new business venture. Because you’ll probably need your spouse’s support and assistance, plus he or she will be directly impacted by how you proceed, it’s important to ensure that everyone’s goals, willingness to make sacrifices, and willingness to assume risk are consistent. If your goals don’t match those of your spouse, you could encounter serious problems with your relationship down the road, especially if you run into business challenges or unexpected financial problems.
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My short-term personal goals Short-term personal goal #1 The goal: Proposed deadline: Steps to complete to accomplish this goal:
Benefit of or purpose for accomplishing the goal:
Short-term personal goal #2 Proposed deadline: Steps to complete to accomplish this goal:
Benefit of or purpose for accomplishing the goal:
Short-term personal goal #3 The goal: Proposed deadline: Steps to complete to accomplish this goal:
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Benefit of or purpose for accomplishing the goal:
Short-term personal goal #4 The goal: Proposed deadline: Steps to complete to accomplish this goal:
Benefit of or purpose for accomplishing the goal:
Short-term personal goal #5 The goal: Proposed deadline: Steps to complete to accomplish this goal:
Benefit of or purpose for accomplishing the goal:
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My short-term professional goals Short-term professional goal #1 The goal: Proposed deadline: Steps to complete to accomplish this goal:
Benefit of or purpose for accomplishing the goal:
Short-term professional goal #2 The goal: Proposed deadline: Steps to complete to accomplish this goal:
Benefit of or purpose for accomplishing the goal:
Short-term professional goal #3 The goal: Proposed deadline: Steps to complete to accomplish this goal:
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Benefit of or purpose for accomplishing the goal:
Short-term professional goal #4 The goal: Proposed deadline: Steps to complete to accomplish this goal:
Benefit of or purpose for accomplishing the goal:
Short-term professional goal #5 The goal: Proposed deadline: Steps to complete to accomplish this goal:
Benefit of or purpose for accomplishing the goal:
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My short-term financial goals Short-term financial goal #1 The goal: Proposed deadline: Steps to complete to accomplish this goal:
Benefit of or purpose for accomplishing the goal:
Short-term financial goal #2 The goal: Proposed deadline: Steps to complete to accomplish this goal:
Benefit of or purpose for accomplishing the goal:
Short-term financial goal #3 The goal: Proposed deadline: Steps to complete to accomplish this goal:
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Benefit of or purpose for accomplishing the goal:
Short-term financial goal #4 The goal: Proposed deadline: Steps to complete to accomplish this goal:
Benefit of or purpose for accomplishing the goal:
Short-term financial goal #5 The goal: Proposed deadline: Steps to complete to accomplish this goal:
Benefit of or purpose for accomplishing the goal:
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My long-term (more-than-one-year) personal goals Long-term personal goal #1 The goal: Proposed deadline: Steps to complete to accomplish this goal:
Benefit of or purpose for accomplishing the goal:
Long-term personal goal #2 The goal: Proposed deadline: Steps to complete to accomplish this goal:
Benefit of or purpose for accomplishing the goal:
Long-term personal goal #3 The goal: Proposed deadline: Steps to complete to accomplish this goal:
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Benefit of or purpose for accomplishing the goal:
Long-term personal goal #4 The goal: Proposed deadline: Steps to complete to accomplish this goal:
Benefit of or purpose for accomplishing the goal:
Long-term personal goal #5 The goal: Proposed deadline: Steps to complete to accomplish this goal:
Benefit of or purpose for accomplishing the goal:
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My long-term (more-than-one-year) professional goals Long-term professional goal #1 The goal: Proposed deadline: Steps to complete to accomplish this goal:
Benefit of or purpose for accomplishing the goal:
Long-term professional goal #2 The goal: Proposed deadline: Steps to complete to accomplish this goal:
Benefit of or purpose for accomplishing the goal:
Long-term professional goal #3 The goal: Proposed deadline: Steps to complete to accomplish this goal:
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Benefit of or purpose for accomplishing the goal:
Long-term professional goal #4 The goal: Proposed deadline: Steps to complete to accomplish this goal:
Benefit of or purpose for accomplishing the goal:
Long-term professional goal #5 The goal: Proposed deadline: Steps to complete to accomplish this goal:
Benefit of or purpose for accomplishing the goal:
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My long-term (more-than-one-year) financial goals Long-term financial goal #1 The goal: Proposed deadline: Steps to complete to accomplish this goal:
Benefit of or purpose for accomplishing the goal:
Long-term financial goal #2 The goal: Proposed deadline: Steps to complete to accomplish this goal:
Benefit of or purpose for accomplishing the goal:
Long-term financial goal #3 The goal: Proposed deadline: Steps to complete to accomplish this goal:
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Benefit of or purpose for accomplishing the goal:
Long-term financial goal #4 The goal: Proposed deadline: Steps to complete to accomplish this goal:
Benefit of or purpose for accomplishing the goal:
Long-term financial goal #5 The goal: Proposed deadline: Steps to complete to accomplish this goal:
Benefit of or purpose for accomplishing the goal:
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Watch Out! As a franchisee, your personal, professional, and financial life will all begin to intertwine and ultimately become inter-elated. Make sure that you consider each of your goals carefully, focusing specifically on how each will be impacted (positively or negatively) before jumping head first into a business opportunity that will require your absolute commitment and dedication in order for it to achieve success. Ideally, the franchise opportunity you ultimately pursue should allow you to achieve most, if not all of the goals you’ve listed here (or will create in the future.) If this isn’t the case, proceed with caution and be prepared to make sacrifices, or consider a different opportunity altogether.
When comparing your goals to what a franchise opportunity offers, look at the short-term as well as the long-term picture. For example, perhaps in your current job, you earn $85,000 per year and require at least that much to maintain your current standard of living. Upon doing research on a specific franchise opportunity, you determine your initial “salary” for the first twelve to eighteen months of operation will be around $72,000 per year. However, after two to three years of operation, typical franchisees earn upwards of $125,000 per year or more. Are you willing and able to take an initial pay cut in the short term in hopes of earning considerably more money in the not-so-distant future? Only you can determine how your own personal, professional, and financial goals jive with what a specific franchise opportunity potentially offers. Then, it’s up to you to decide whether any risk or sacrifices you’ll need to make over the short term are worthwhile in order to achieve your long-term goals.
Considering your interests In addition to focusing on your personal, professional, and financial goals as you evaluate franchise opportunities, consider carefully where your interests lie. It’s vitally important that you ultimately enjoy the work you pursue. Thus, the type of business you decide to open should be consistent with your interests, and should also capitalize nicely on your strengths, skills, and personality.
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Bright Idea As you move forward, get to know yourself better. Think about what you’ve liked about past employment experiences and what you’ve hated. Also, focus on your successes. In your past jobs, what allowed you to succeed? What kept you motivated? In which type of work environment did you best thrive? With what type of people did you enjoy working?
Ideally, as you move forward and launch your own franchisebased business, you’ll want to pursue the opportunity that allows you to exploit your strengths and spend as much time as possible doing tasks and managing responsibilities you really enjoy. It’s important that you are excited, motivated, and willing to wake up every morning to experience another day on the job in order to successfully run your business. Otherwise, the stress and responsibilities, combined with the dread of having to suffer through so much that you dislike, will ultimately get the best of you and could easily lead to failure. Even if a franchise opportunity looks great on paper and you’re extremely excited by the sales pitch offered by the franchisor, invest some time and visit some of the existing franchise locations. During your visit, watch how the business operates, focus on the overall work environment, and evaluate the stress level of the franchisee and the employees. Ask yourself whether you could thrive, long term, in a similar environment. Remember, once you launch your business, if you’re a hands-on franchisee, you’ll probably spend forty, fifty, or even sixty hours per week on the job. Will the work provide enough entertainment, challenge, and excitement to keep you happy and motivated? Matching your interests as closely as possible with the work that’ll be required of you will definitely give you an added edge as you start running your business. Your ability to stay motivated, interested, challenged, and happy with your job is absolutely essential.
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Moneysaver As one of the final steps before paying all that money when you sign on with a specific franchisor to become a franchisee, ask whether you can spend a full week working as an employee or observer at an existing franchise location. This will help you to start learning the business, plus it’ll help you determine whether you’re cut out to run this specific type of business and work within the environment that the business creates.
Researching franchise opportunities One common trap potential franchisees fall into is relying exclusively on the help of a franchise broker to decide what type of franchise-based business opportunity to pursue. A franchise broker is a third-party consultant who matches up franchisees with franchisors based on common goals. Some franchise brokers are truly independent and have the interests of potential franchisees in mind as they offer their services. Other brokers, however, represent only a handful of franchisors and get paid based on creating matches with franchisees that may or may not be suitable. As a result, the brokers’ focus is on matching up the best potential franchisees with specific franchisors, based on the specific qualifications a franchisor is looking for. Thus, the information and guidance you receive might be biased. On paper, using a franchise broker might appear to make sense. After all, they’ll supposedly help you narrow down your many options and assist you in choosing what the broker believes is the perfect opportunity for you, based on an in-depth personality profile, financial evaluation, review of your business experience, and a look at your goals. Before working with a broker and relying on his or her advice, however, determine for whom they’re actually working. Does he or she represent you or the franchisor? Also determine exactly how the broker is compensated and what criteria are used to help the broker make recommendations.
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Instead of relying exclusively on a franchise broker, seriously consider doing your own research, making contact with potential franchisors yourself, and then hiring your own attorney and/or business advisor to provide the guidance you need. For help finding the experts you need, every September, Franchise Times (an industry trade publication) publishes an annual Professional Services Directory. This publication lists details about legal, consulting, and executive services of interest to (potential) franchisees. To obtain a copy of this directory or subscribe to Franchise Times, call 800-528-3296, or point your Web browser to www.franchisetimes.com. In addition to the franchise opportunities listed and profiled in Chapter 4, there are many additional resources for learning about potential franchise-based business opportunities you could pursue. As you rely on these resources, whether you read The Franchise Handbook (www.franchisehandbook.com), review Entrepreneur magazine’s Franchise Zone (www.entrepreneur. com/franzone), attend a Franchise Expo (hosted in major cities across the country, these are trade shows in which many franchisors have booths and try to recruit prospective franchisees; visit www.franchiseexpo.com), or read one or more of the franchise industry’s trade magazines, be sure to gather information from multiple independent sources, and then contact specific franchisors directly to learn more about the opportunity. After you open discussions with a specific franchisor, remember that what you’ll initially be receiving is a well designed sales pitch. It’ll be your responsibility to sift through the hype and determine what facts and figures are accurate and relevant to you, so that you can make intelligent business decisions, again always keeping your personal, professional, and financial goals in mind. Regardless of what promises are made verbally and what’s said during the franchisor’s sales pitch, what you need to pay particular attention to is the information, facts, and figures listed in the Uniform Franchising Offering Circular (UFOC)
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Bright Idea Part of your research about business opportunities should involve reading business-oriented newspapers and magazines on a regular basis. Doing this will help you learn about specific industries, the state of the economy, specific franchisors making news, as well as current business and consumerrelated trends. Some of the publications you should consider reading include BusinessWeek, Entrepreneur, Inc., The Wall Street Journal, The New York Times, and USA Today. Many of these publications offer online editions. The traditional print editions can be purchased at your local newsstand.
provided by the franchisor. Learning about a franchisor directly from some of its current and past franchisees is also an excellent strategy. Simply by entering the name of the franchisor into any Internet search engine, you can follow links that’ll provide a vast amount of information about companies you’re interested in. Although you’ll definitely want to visit the franchisor’s own Web site, chances are you’ll find many other information resources online. When utilizing these resources, however, make sure they’re credible. Determine how timely, accurate, unbiased, and relevant the information actually is.
Questions to answer before committing Choosing the best possible franchise opportunity to pursue is a lot more complicated than looking at a top twenty-five list of successful franchises and choosing one of them arbitrarily. Yes, every business on a top twenty-five list (whether it’s published by Franchise Times, Entrepreneur magazine, the International Franchise Association, or some other source) has the potential to be a successful and extremely viable opportunity for franchisees. However, you must determine whether that opportunity is right for you. Just because Franchise Times listed McDonald’s as the numberone franchise in 2006, this doesn’t mean that you personally should strive to become a McDonald’s franchisee, unless running a well known fast food restaurant is something you’re
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extremely interested in, is something you’ll be good at doing, and is an opportunity that’ll allow you to achieve most or all of the goals you outlined earlier in this chapter. Here’s a quick list of some additional questions you’ll want to answer when evaluating any franchise opportunity: ■
Does the franchisor offer a viable business opportunity in general?
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Is there a demand in your area for the products/services being offered?
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Is the franchise opportunity worth the financial investment that will be required to become a franchisee?
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Will the opportunity being offered allow you to achieve your short-term and long-term personal, professional, and financial goals?
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Does the opportunity being offered directly conflict with your spouse’s goals?
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Will becoming a franchisee for the specific franchisor you’re considering allow you to exploit your interests and existing skills?
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Will the franchise opportunity allow you to be happy, challenged, and motivated over the long-term?
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Will you be comfortable within the work environment you’ll need to establish in order to operate the franchise?
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What sacrifices will you need to make in order to achieve long-term success? How will these sacrifices impact your personal, professional, and financial life? What about the lives of your family members and those who rely on you?
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Will operating the franchise keep you from being able to meet your existing or future family or personal obligations (such as caring for an elderly parent, spending quality time with your kids, doing charity work, and so on)?
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Taking over an existing franchise In some situations, once you focus on a specific franchisor you’d like to work with, you’ll have the option of taking over an existing franchise (as opposed to opening a new location from scratch). Taking over an existing business has many benefits, including the following. ■
The location has already been selected, and the business is fully built and operational.
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There’s already a staff in place, so you won’t immediately have to hire and train a new team of employees.
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The businesses’ customer-base is established. The business has a local following and reputation within the community.
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You can evaluate the past financial records of the existing business and more accurately calculate profit projections for the future.
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You can potentially save a fortune in startup costs.
Of course, if the opportunity to take over an existing franchise location exists, there must be a reason for it. It’s important that you determine this reason and make sure you’re not buying into what was a huge problem or burden for someone else. If an existing franchisee is simply retiring, that’s one thing. If, however, he or she is disgruntled or is on the verge of bankruptcy, those are other situations altogether. If you decide to take over an existing franchise location, you’ll need to negotiate with the existing franchisee as well as the franchisor. The process is somewhat different than starting
Moneysaver Keep in mind that as someone taking over an existing franchise, you’ll probably need to pay the franchisor a transfer fee, in addition to buying the franchise from the existing franchisee. There will also be legal costs associated with taking over an existing business, so calculate all the costs before making your decision.
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a new franchise location from scratch; however, for the right person and when the right situation exists, this can be an extremely viable option. Along with negotiating purchase terms of the existing franchisee, you’ll need to work with the franchisor to make sure you can easily take over the existing franchise term (from the previous franchisee), plus have renewals available to you. Make sure you understand exactly what’s being offered by the franchisor and that your interests will be protected over the long-term. Some attorneys that specialize in franchising also offer legal services for potential franchisees looking to take over existing franchises. It’s important that you hire an attorney with this type of experience. In addition to relying on specific franchisors to tell you about existing franchise locations that are available to be taken over, there are companies and resources that specialize in promoting the sale of existing franchises. Some of these companies and resources include the following. ■
Entrepreneur: A monthly business-oriented magazine that has a classified advertising section that lists existing franchise-based businesses for sale (www.entrepreneur.com)
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Franchise Update: A quarterly print magazine (www.franchise-update.com)
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Franchise.com: An online service with the goal of expediting the franchise buying and sales processes for franchise buyers and sellers (www.franchise.com)
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National Business Exchange: A quarterly print publication and online database that lists existing franchises for sale by their current owners or franchisors (www.businessexchange.com)
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The Business Resale Network: One example of a company that brokers existing franchises (www.br-network.com)
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USA Today: A national daily newspaper that often runs classified ads for existing franchise-based businesses for sale (www.usatoday.com)
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Watch Out! If the existing franchise location is struggling in any way whatsoever, don’t assume that with your experience, knowledge, expertise,or willpower, you’ll simply be able to step in, turn things around, and make the business profitable. It’s important to determine exactly where the problems lie, find the cause of them, and find out what mistakes were made in the past. Is it possible the demand or market simply diminished or disappeared? Did the location of the business become less desirable based on new construction in the area? It’s important that you ascertain exactly why the current franchisee is in trouble.
Preparing for your new life as a franchisee Assuming you’re able to find and select a franchise opportunity that’s appealing to you and that meets all your criteria for becoming a viable business opportunity, after you actually sign the paperwork to become a franchisee, you can expect your life to change dramatically. As a business owner, you’ll be taking on a tremendous level of responsibility, taking financial risks, and working extremely long hours (at least initially). Every franchise opportunity has its own set of responsibilities and obligations, which you’ll want and need to adhere to. This is another reason why conducting as much research as possible early on is important. After all, if you know what to expect, you’ll eliminate potential unpleasant surprises. As a soon-to-be franchisee operating your own business for the first time, the day-to-day schedule you’ll need to adopt can be summed up in two words: “extremely busy.” Ask yourself the following. ■
Are you ready for the personal, professional, financial, and emotional challenges that lie ahead?
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Are you prepared to make the necessary changes and sacrifices in your life in order to achieve your goals and make your business a success?
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Are you capable of handling the stress and emotional implications of owning your own business and being responsible for its operation?
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Are you capable of making the difficult decisions that will undoubtedly be required of you in the days, weeks, and months ahead?
One additional note: If you decide to open a new franchise location (as opposed to taking over an exciting unit), you should receive extensive help with every step of this process directly from the franchisor. This includes help finding the ideal location, obtaining permits, finding contractors, hiring and training employees, lining up distributors and suppliers, and so on.
Just the facts ■
Setting your own short-term and long-term personal, professional, and financial goals is essential to your success.
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Each goal you create should have a clearly defined purpose or benefit associated with it, along with a detailed plan for achieving it within a specific timeframe.
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Make sure the business opportunity you choose to pursue allows you to achieve most or all of your goals. If not, make sure you’re willing to make the necessary sacrifices.
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In addition to matching up your goals with the business opportunity you choose to pursue, make sure your personal interests, personality, and skills are also compatible with what the business will require.
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Upon becoming a franchisee, expect to take on many additional responsibilities and obligations. Your new business will require a significant and ongoing commitment on your part in order to succeed.
Franchise Opportunities
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his chapter showcases a handful of franchise opportunities in a variety of industries, including the top twenty-five most popular franchises for 2006 according to Entrepreneur magazine, and helps you identify consumer trends and demand, so you can better choose the type of opportunity you want to pursue. In Chapter 3, you get a chance to choose the type of franchise opportunity you’re interested in pursuing, or at least narrow your choices to one or two industries. You may be thinking about a retailoriented business, a service business (requiring you to be out in the field visiting customers), a business that operates out of a traditional office, or a homeoffice-based venture. After you narrow down the possibilities, you can begin learning about specific industries, and then focus on specific franchise opportunities within that industry. For example, if you decide you’re interested in owning and operating a fast-food franchise, you have many options. Likewise, if you’re more 69
Chapter 4
GET THE SCOOP ON . . . An in-depth sampling of franchises from a variety of industries ■ The top twenty-five most successful franchises according to Entrepreneur magazine ■ The most popular franchise opportunities according to the International Franchise Association
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interested in tax preparation, doggy daycare, carpet cleaning, or a florist business, you also have many choices and should carefully evaluate each available franchise opportunity.
The latest franchising trends Like the latest fashions, it’s possible to follow the latest trends in franchising. Based on what’s being offered by new franchisors (including new business concepts), it becomes relatively easy to see what’s hot right now. Consumer demands, the economy, and a variety of other factors all play a part in this phenomenon. When you had attend the annual International Franchise Expo (www.franchiseexpo.com), you see hundreds of franchise opportunities showcased. At this year’s expo, franchise opportunities focusing on doggy daycare, eBay consignment stores, elderly care, and child services were in abundance, but were rounded out by plenty of fast food and other opportunities as well. Several years ago, mail box rental companies and signmaking companies were all the rage in the franchise world. As a potential franchisee looking for the type of business you’d like to own/operate, you could easily follow the latest trends. Doing this, however, has two potential drawbacks. The first is that, just as you’re following the latest franchise trends, so are many other potential new franchisees. This means that in your geographic area, several similar types of franchises could open. This could result in increased competition right from the start. As you evaluate potential need in a community for a specific type of business that doesn’t yet exist, such as doggy daycare, consider what would happen if within a ten- or twenty-mile radius, one or two additional doggy daycare facilities (operated by other franchisees representing other franchisors) also opened for business. Many franchise or business opportunities that are focused exclusively on the latest trends run the risk of fizzling out in popularity in a relatively short time. Unless you’re looking specifically for a short-term business opportunity, focus on finding a business
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that will remain popular and maintain a constant demand from customers year after year. Most people should look at their business ventures as long-term opportunities. Following the latest franchising trends can give you ideas for business opportunities to pursue. But if you’re following a trend, it’s important to do extra research to ensure that after your business opens, it can and will be supported by the local community immediately and in the future. According to Entrepreneur magazine, several new franchise trends in the areas of do-it-yourself meal preparation, pets, kids’ specialty services, business services, home improvement, and fast food are all evident. In the kids category (which includes tutoring, daycare, and activity services), in 2004, there were 5,622 franchise units in the United States. In 2005, there were 6,422 units. In one year, out of the 39,680 new franchise units that opened for business in America, 800 of them were kidoriented services or businesses. Discovering the latest franchising trends is easy. Simply by looking at the franchise opportunities being advertised in trade magazines, business opportunity directories, or at franchise expos, you can spot up-and-coming trends. One way to evaluate whether a business opportunity has staying power is to see how it has performed over the past three, five, seven, or ten years. Has the franchisor experienced constant growth that is consistent with or that exceeds overall growth among all franchisors? Between 2004 and 2005, for example, Entrepreneur magazine reported that Franchise 500 companies (franchisors listed in
Bright Idea If you’re interested in seeing what current franchising trends exist and want the opportunity to meet face-to-face with hundreds of franchisors in a single day, seriously consider attending a Franchise Expo, which is sponsored by the International Franchise Association. Franchise Expos are held annually on both the east and west coasts. To learn the specific locations and dates of upcoming expos, point your Web browser to www.FranchiseExpo.com or call 201-226-1130.
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the magazine’s annual list of the top 500 franchise-based business opportunities), experienced an average 11 percent growth in the number of new franchise units opened that year.
Will current franchising trends last? In 2005 and 2006, eBay consignment shops from several different franchisors became popular and showed dramatic growth in the number of units that were opened nationwide. These businesses are, of course, based on the incredible worldwide popularity and success of eBay online auctions (www.ebay.com) and provide a way ordinary people can buy and sell new and used goods via the web. eBay itself is an online based auction site. The franchise opportunities available allow people to drop off their items at a retail location in order to have someone else (an independent party, in this case the franchisee, sell those items on eBay in exchange for a flat-fee and/or commission on the sale. The franchises offering these business opportunities are not directly owned or affiliated with eBay, but they rely almost entirely on the ongoing popularity and success of this service. Computer and online technology changes extremely rapidly. Although online auctions using eBay are popular right now and probably will be for several years to come, will this still be a popular trend in ten or fifteen years, when technology will have evolved dramatically? As a potential franchisee, always consider the long-term viability of a business opportunity and how the evolution of technology might impact the viability of your business. Another popular tend in franchising is pet-based businesses, including pet supply stores, grooming services, dog-walking services and doggy daycare. The American Pet Products Manufacturers Association reported that in 2006, there were 69.1 million homes in the U.S. that had a pet. In 2005, this translated into a $35.9 billion per year industry that continues to show impressive growth. Pet-related businesses rely on an unwavering trend in America, which is pet ownership. They also capitalize on the fact
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that people tend to work all day and need to arrange for their pets to be cared for while they’re at work, traveling for business, or on vacation. Pets also need to be fed, entertained, and cared for, which opens up a wide range of business opportunities in virtually every community across America. Because pet ownership is not a trend that’s likely to diminish anytime soon, several viable business opportunities exist on which franchisors have only begin to capitalize. Working parents tend to be spending longer hours on the job and focusing more on their professional lives, a phenomenon that continues to reveal new opportunities for franchisebased kid-oriented services. Parents want to see their kids cared for, entertained after school, and able to stay up-to-date on their schoolwork, even if the parents aren’t around to help their children with homework. Franchise opportunities that provide fitness programs, art classes, science-activities, tutoring, and enrichment programs to young people continued to show steady growth potential, with no end in sight.
Franchises are available in more than seventy-five industries The International Franchise Association (www.franchise.org) has created a print and online directory listing of thousands of individual franchise opportunities and has categorized them by industry for easy reference. In some cases, larger industries or categories, such as food and recreation, have been divided into subcategories to make classification of certain opportunities easier. As you conduct research and narrow down your area of interest, while you consider what type of business opportunity to pursue, here are five basic steps to follow: ■
Focus on your own experience, knowledge, skills, and areas of interest.
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Determine what type of work environment you’re best suited for (retail, service-oriented, home-based, office, or other).
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Narrow down your area of interest and potential business options to a handful of industries (see the following bullet list).
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Research specific franchise opportunities within that industry.
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Focus on the finances; see whether you can afford to own or operate this type of franchise and whether it’s capable of helping you to meet or exceed your long-term financial goals.
How to learn more There are many things to look at when evaluating a franchise opportunity and a specific franchisor. It’s vitally important to do your homework. Some of the steps you should take once you narrow down your options to a handful of potential franchise opportunities include the following. ■
Research the franchise opportunity online by visiting one or more of the following Web sites: Franchise Opportunities Guide: www.franchise.org Entrepreneur magazine’s Franchise Zone: www.entrepreneur.com/franzone The Franchise Handbook: www.franchisehandbook.com
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Obtain an information kit or franchise package directly from the franchisor.
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Visit the franchisor’s own Web site.
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Consult with an accountant, an attorney (who specializes in franchising), and/or a franchising consultant who represents franchisees.
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Meet with a representative of the franchisor in person and obtain a Uniform Franchise Offering Circular (UFOC).
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Speak with at least three different owners/operators of franchises you’re interested in.
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Visit the franchisor’s corporate offices.
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Check with the Better Business Bureau (www.bbb.org) to determine whether any complaints have been filed against the franchisor or its franchisees.
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Contact your state attorney general’s office (as well as the attorney general’s office where the franchisor is based) to determine whether any complaints or lawsuits have been filed against the franchisor or its franchisees.
A sampling of twenty franchise opportunities Although it’s easy to find a list of the top-grossing or fastestgrowing franchisors in America based on revenue or number of new units opened, these lists typically don’t include the lesser known franchise opportunities. So, in this section, I’ve given you descriptions of twenty franchise opportunities selected randomly. The idea is to offer you a broad overview of the many different types of opportunities that are available. The fact that a franchisor has been included within this list is not a representation of its success, nor is it an endorsement of its viability as a profitable business venture for potential franchisees. This section simply offers a sampling of what’s available and provides some of the basic information you’ll want to gather about whatever franchise opportunities you ultimately become interested in learning more about.
Franchise name: 7-Eleven, Inc. Summary Industry/type: Convenience store Address: 2711 North Haskell Avenue, Dallas, TX 75204 Phone number: 800-255-0711 Web site: www.7-eleven.com Year established: 1927 (began franchising in 1964)
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Initial franchise fee: Approximately $107,000, but this could vary by geographic area Required capital investment: $164,000 (including franchise fees, inventory, supplies, business license, permits, and so on) Number of established units (as of mid-2006): 25,796 franchised units; 2,446 company-owned units
Description 7-Eleven convenience stores are one of the most well-established, non-fast-food franchises in America. To make this opportunity affordable by the average small business owner, 7-Eleven obtains and bears the ongoing cost of the land, building, and store equipment. The company then leases (or subleases) a fully equipped, ready-to-operate 7-Eleven store, complete with inventory, to a franchisee. This means that the franchisee retains no ownership interest or equity in the store or equipment, but he or she does receive 50 percent of the store’s gross profit. (This amount is reduced after a variety of monthly expenses for which the franchisee is responsible are paid.) 7-Eleven currently has franchise opportunities available in more than twenty-three states. The company has become a globally recognized icon in the convenience store industry. In fact, the company reports that “in a four week period, customers visit a 7-Eleven store an average of seventeen times, 80 percent of their total trips to any convenience store.” A typical 7-Eleven store in the U.S. maintains an inventory of approximately 2,500 different items in a store that requires between 2,400 and 3,000 square feet. The ideal 7-Eleven franchisee candidate already possesses a retail management background; however, six weeks of in-store training and other educational resources are provided. Through it’s well-known chain of convenience stores, 7-Eleven caters to over six million customers daily. The franchisor and its franchisees focus on providing thousands of fresh, high-quality, name-brand products and services at competitive prices. The
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company also strives to offer retail locations that are clean, safe, and conveniently located and that provide for a friendly shopping environment.
Franchise name: Ace Hardware Summary Industry/type: Retail hardware and tool store Address: 2200 Kensington Ct., Oak Brook, IL 60523 Phone number: 630-990-6900 Web site: www.myace.com Year established: 1924 (began franchising in 1976) Initial franchise fee: $600,000–$1 million Required capital investment: $250,000 (net worth); $150,000 (cash liquidity) Number of established units (as of mid-2006): 4,603 franchised units; twenty-eight company-owned units
Description Ace “The Helpful Place” is a retail hardware store with a reputation for offering helpful service and widely recognized brands of tools and products. The ideal franchisee has established retail or hardware industry experience; however, the company offers what it refers to as “rigorous” training to its franchisees. The company is currently looking to open new franchisee-owed units in a variety of states across the country and offers an online prequalification form for potential franchisees (https://getqualified. franchisehub.com/aceownership/index.cfm). The company enjoys sales in excess of $13 billion annually. Because more and more people are opting to take a do-it-yourself approach to home repairs and improvement, the company reports this trend represents a growing business opportunity for franchisees. In 2007, home improvement sales is expected to exceed $270.1 billion nationwide, according to Do It Yourself Retailing magazine.
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Franchise name: Auntie Anne’s Hand-Rolled Soft Pretzels Summary Industry/type: Food: baked goods/donuts/pastries Address: 160-A Rte. 41, Gap, PA 17527 Phone number: 717-442-4766 Web site: www.auntieannes.com Year established: 1988 (began franchising in 1989) Initial franchise fee: $30,000 Required capital investment: $192,600–$383,000 Number of established units (as of mid-2006): 825 franchised units; thirty-six company-owned units
Description For people on-the-go who crave a snack, Auntie Anne’s offers the perfect solution: a freshly baked soft pretzel. The over 800 Auntie Anne’s locations are located in malls, airports, train stations, and other high-traffic areas. Some U.S. territories are still available to franchisees; however, the company is aggressively looking to open additional units overseas. As with most franchise opportunities, franchisee candidates must complete both a written pre-qualification form as well as an in-person interview with the franchisor. Franchisees have the opportunity to open multiple locations within their regions or territories. Although the company does not release earnings claims for its locations, the amount of money individual locations can expect to earn will vary depending on the location(s) and demographics, operating costs, sales, and the overall ability of the franchisee to operate and manage his or her franchise. Auntie Anne’s locations hand-roll and bake the pretzels, right in front of the customers. Menu items include pretzels, dipping sauces, and drinks.
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Franchise name: Aussie Pet Mobile Summary Industry/type: Pet Services Address: 34189 Pacific Coast Hwy. #203, Dana Point, CA 92629 Phone number: 949-234-0680 Web site: www.aussiepetmobile.com Year established: 1996 Initial franchise fee: $35,000–$125,000 Required capital investment: $47,100–$74,000 Number of established units (as of mid-2006): ninety franchised units
Description Why make dog owners travel with their pet(s) to the groomer when the groomer can come directly to the dog and the owner, at the owner’s convenience? That’s the philosophy behind Aussie Pet Mobile. The franchisee operates a complete petgrooming service on wheels that comes directly to the customer’s home. The company emphasizes the use of environmentally friendly products, plus the fact that their services are less stressful for the dogs, because the pets remain in their own environment. Aussie Pet Mobile offers a business opportunity for professional groomers; however, the company emphasizes that business owners can hire groomers. The company reports, “franchisees don’t wash dogs; they manage people who wash dogs.” Some franchisees operate multiple vans, which are custom designed with proprietary grooming equipment and tools, including the FURminator, a tool that, if used every four to six weeks on a dog, will reduce shedding by sixty to eighty percent.
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Franchise name: CertaPro Painters Summary Industry/type: Painting services Address: P.O. Box 836, Oaks, PA 19456 Phone number: 800-462-3782 Web site: www.certapro-franchise.com Year established: 1991 Initial franchise fee: $15,000 Required capital investment: $60,000–$75,000 Number of established units (as of mid-2006): 232 franchised units
Description To be a successful CertaPro franchisee, the company reports that you do not need to be a painter or even be familiar with the home-improvement industry. A successful franchisee is someone capable of operating a business and managing people. It’s an executive business model utilizing employees to do the painting. The company offers a free information kit and CD to potential franchisees, which is available online (www.paintingfranchise-opportunity.com/application.asp). CertaPro is the largest professional interior and exterior painting service for homes and businesses in America. CertaPro can potentially be a home-based business. Approximately 23 percent of its franchisees operate more than one unit. The company emphasizes the name and brand recognition it has established nationwide. The focus is on customer satisfaction, from providing the initial estimate through the completion of the work.
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Franchise name: Geeks On Call Summary Industry/type: Business services Address: 814 Kempsville Rd. #106, Norfolk, VA 23502 Phone number: 757-466-3448 Web site: www.geeksoncallfranchise.com Year established: 1999 (began franchising in 2001) Initial franchise fee: $25,000 Required capital investment: $53,400–$82,200 Number of established units (as of mid-2006): 332 franchised units
Description This franchise is designed for business-minded entrepreneurs who want to manage multiple territories, as well as individual certified techs who are interested in being their own bosses. The company provides same-day, on-site computer services and support, does repairs, performs system upgrades, handles networking, and can provide training to small and medium-sized businesses that do not possess in-house IT departments. According to the company, prior experience in computer repair is not mandatory. Instead, franchisees can hire certified technicians to do the work. What you can expect from the franchisor is comprehensive training in all aspects of the business, along with a business builder plan designed to help franchisees establish a successful business from the ground up.
Franchise name: Gymboree Play Programs Summary Industry/type: Children’s services Address: 500 Howard, San Francisco, CA 94105 Phone number: -800-520-7529
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Web site: www.gymboree.com Year established: 1976 (began franchising in 1978) Initial franchise fee: $45,000 Required capital investment: $142,600–$286,800 Number of established units (as of mid-2006): 526 franchised units; 4 company-owned units
Description Gymboree is the country’s largest play program in the world, with activities that involve developmental play in conjunction with music and art for kids (newborn to age five), along with their parents. The company also has its own clothing line. The ideal franchisee has a background in business, sales, marketing, finance and/or education. The company insists that all franchisees actively run their businesses and not be absentee owners. Almost half of the company’s franchisees operate more than one unit.
Franchise name: Happy Tails Dog Spa Summary Industry/type: Pet services Address: 8528-F Tyco Rd., Vienna, VA 22182 Phone number: 703-821-1777 Web site: www.dogfranchise.com Year established: 2002 (began franchising in 2005) Initial franchise fee: $35,000 Required capital investment: $121,000–$200,000 Number of established units (as of mid-2006): 6 franchised units; 2 company-owned units
Description There are over 50 million dog owners nationwide. Becoming a Happy Tails Dogs Spa franchisee provides the chance to work in
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the thriving pet-care industry and work directly with pets (and their owners). According to the company, in 2005, total pet expenditure reached $34.3 billion, meaning that more and more dog owners are providing dogs with the kind of care they would give their own children. Each Happy Tails Dog Spa location offers a variety of upscale pet services, including doggy daycare, overnight boarding, grooming, training, and a pet supply boutique. The company offers franchisees extensive training and a wide range of support materials and services. Franchisees are current sought in all states.
Franchise name: Home Instead Senior Care Summary Industry/type: Senior care Address: 13330 California St. #200, Omaha, NE 68154 Phone number: 888-484-5759 Web site: www.homeinsteadfranchise.com Year established: 1994 (began franchising in 1995) Initial franchise fee: $25,500 Required capital investment: $35,100–$47,500 Number of established units (as of mid-2006): 600 franchised units; 2 company-owned units
Description Home Instead Senior Care provides part-time, full-time, and live-in non-medical services for the elderly. The company’s elderly clients can manage their physical needs, but require some assistance or supervision. Provided services include light housework, meal preparation, errands, shopping, and companionship, thus allowing seniors to remain in their homes. Home Instead Senior Care offers the opportunity for franchisees to operate a service-based business that’s potentially
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both profitable and highly rewarding. This type of business allows you to serve elderly customers who opt to live at home, as opposed to within a retirement community or nursing home. In terms of market potential, the company reports that 60 million North Americans will be sixty-five years of age and older by the year 2020. This represents a 62 percent increase over a twenty-year period. With one-third of North Americans who care for aging parents or relatives spending twenty hours or more per week doing so (20 percent spend forty hours or more), there is no end in sight in the demand for senior care services. Current franchisees come from a wide range of backgrounds, including executives, teachers, nurses, social workers, musicians, teachers, and people with other vocational backgrounds.
Franchise name: iSold It Summary Industry/type: Online auction consignment Address: 401 Huntington Dr., Monrovia, CA 91016 Phone number: 626-739-9200 Web site: www.i-soldit.com Year established: 2003 Initial franchise fee: $22,000 Required capital investment: $85,500–$105,500 Number of established units (as of mid-2006): 179 franchised units (almost 900 units under contract); 1 companyowned unit
Description Taking advantage of the incredible and growing popularity of online auctions, iSold It is a chain of stores that make it very easy for everyday people with something to sell to offer their item(s) on eBay (and other online auction Web sites), without ever having to use a computer, interact with bidders, or ship
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their own items. Instead, an iSold It customer simply drops off his or her item(s) to sell, and iSold It representatives do the rest. The services offered include professionally photographing each item, writing descriptive copy about it, and then listing it on eBay. iSold It handles payment collection, packing, shipping, and customer service. When the customer’s item sells, iSold It sends the seller a check for the sale price, minus fees and a sales commission. The company is currently expanding its nationwide lineup of franchisees and has plans to open over 3,000 franchised units nationwide. iSold It is currently the country’s largest drop-off store network, with a new store opening on average every other day. The company reports, “the clout of our network gives your local store a national presence and immediate brand recognition with your customers.”
Franchise name: Jenny Craig Summary Industry/type: Diet/weight loss Address: 5770 Fleet St., Carlsbad, CA 92008 Phone number: 888-848-8885 Web site: www.jennycraig.com/franchise Year established: 1983 (began franchising in 1987) Initial franchise fee: $25,000 Required capital investment: $165,600–$350,500 Number of established units (as of mid-2006): 212 franchised units; 429 company-owned units
Description Jenny Craig is a popular weight-management service that has been helping people live healthier, happier lives for more than twenty years. Statistics show that over 60 percent of Americans are considered overweight. This translates into a diet industry in America that’s worth over $40 billion.
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As a Jenny Craig franchisee, you’ll be able to tap into this growing market by offering a well known and highly respected diet program. Plus, you’ll be able to capitalize on the company’s well established name recognition and its tremendous brand awareness among consumers. In addition to following a proven business model, the actual Jenny Craig program was designed by a team of registered dietitians, in consultation with an expert medical advisory board. The company reports that the ideal franchisee should have prior business ownership experience and/or management skills. An extensive knowledge of financial management and accounting principles is also required. Potential franchisees are encouraged to complete an online questionnaire (https://omega.fran connect.net/jenny/leadBusinessProfile.jsp).
Franchise name: Kumon Math & Reading Centers Summary Industry/type: Children’s services Address: 300 Frank W. Burr Blvd. 5th Floor, Teaneck, NJ 07666 Phone number: 866-633-0740 Web site: www.kumon.com/franchise/default.asp Year established: 1958 Initial franchise fee: $1,000 Required capital investment: $25,000–$50,000 Number of established units (as of mid-2006): 22,400 franchise units worldwide; twenty-two company-owned units
Description Kumon is an international chain of tutoring centers offering after-school programs designed to teach math, reading, and other skills to elementary through high school students in order to help them achieve their true potential. The company was
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founded over fifty years ago in Japan by a parent named Toru Kumon who simply wanted to help his son perform better in school. Using a series of proprietary teaching methods that Kumon created, his son was able to excel in calculus by the time he was in the sixth grade. Since this training method was developed, Kumon centers have been opened in forty-three countries around the world. In the U.S. and Canada alone, currently more than 130,000 students are enrolled at Kumon centers. The ideal franchisee is someone who can encourage, impel, and coach children toward happiness through learning. Previous experience working with children and having business management skills are definitely beneficial.
Franchise name: Lawn Doctor Summary Industry/type: Lawn, garden, and agricultural Address: 142 State Route 34, Holmdel, NJ 07733 Phone number: 800-452-9637 Web site: www.lawndoctorfranchise.com Year established: 1967 Initial franchise fee: $25,000 Required capital investment: $88,100–$108,300 Number of established units (as of mid-2006): 489 franchised units
Description Lawn Doctor offers a home-based lawn, tree, and shrub care and pest control franchise opportunity. According to the company, the green industry as a whole is a $40 billion industry that continues to grow because people don’t have time to care for their own lawns and prefer to enjoy their limited free time, as opposed to using it to do household (and lawn) chores. With more than
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forty years experience, the company offers a proven business model. Proprietary tools and equipment are also provided to franchisees. Potential franchisees are encouraged to complete an online questionnaire (https://lawndoctorfranchise.com/ cqsecure.htm).
Franchise name: Merry Maids Summary Industry/type: Maids and personal services Address: P.O. Box 751017, Memphis, TN 38175-1017 Phone number: 800-798-8000 Web site: www.merrymaids.com Year established: 1979 (began franchising in 1980) Initial franchise fee: $19,000–$27,000 Required capital investment: $25,000–$56,000 Number of established units (as of mid-2006): 1,437 franchised units; 154 company-owned units
Description With more than twenty-five years in business, Merry Maids is the world’s leader in the residential home-cleaning industry. The premise for business success is that people are starved for time and are increasingly willing to pay for services that afford them more leisure time. Industry experts predict demand for maid service will grow at an accelerated rate as time-starved consumers continue to buy time-saving services well into the twentyfirst century. Utilizing two-person cleaning teams managed using a proven business model, the Merry Maids professional home cleaning system offers a proven, systematic approach to training, cleaning, office management, marketing, and developing a loyal customer base.
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In 1988, Merry Maids became part of ServiceMaster, which owns a handful of well known companies, including Terminix, TruGreen-ChemLawn, American Home Shield, Furniture Medic, AmeriSpec, Rescue Rooter, ARS Service Express, and ServiceMaster Clean. According to the company, Merry Maids enjoys the highest brand-name awareness in the home cleaning business.
Franchise name: Midas Summary Industry/type: Automotive products and services Address: 1300 Arlington Heights Rd., Itasca, IL 60143 Phone number: 800-365-0007 Web site: www.midasfran.com Year established: 1956 Initial franchise fee: $20,000 Required capital investment: $243,000–$329,700 Number of established units (as of mid-2006): 2,600 franchised units; sixty-nine company-owned units
Description Unlike many franchise opportunities, Midas offers a worldfamous brand with a proven record of success. Midas is known as a premiere brake and exhaust repair and replacement specialist throughout in North America. For over fifty years, the company has been building consumer awareness by investing more than $50 million annually in strategically placed advertising, promotion, and public relations efforts throughout the United States and Canada. This national and regional advertising is then supplemented on a local level by franchisee-funded phone book advertising and other promotional efforts.
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According to the company, Midas is focused on establishing long-term relationships with its customers by offering ■
Brake service
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Exhaust service
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State emissions inspections
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Starting and charging systems (batteries)
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Tire sales
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Steering and suspension service
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Heating and air-conditioning service
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Preventive maintenance (oil changes, brake fluid service, coolant service, transmission service, power steering fluid service, fuel injection service, factory scheduled maintenance, tune-up, and winter maintenance package)
In addition to the ability to open new shops, Midas and its franchisees also have a handful of existing shops available for purchase by new franchisees. Potential franchisees are encouraged to complete an online questionnaire and application (http:// franconnect.midas.com/midas/personalDataSheet.jsp).
Franchise name: Re/Max International Summary Industry/type: Real estate services Address: P.O. Box 3907, Englewood, CO 80155-3907 Phone number: 800-525-7452 Web site: www.remax.com Year established: 1973 (began franchising in 1975) Initial franchise fee: $10,000–$25,000 Required capital investment: $20,000–$200,000 Number of established units (as of mid-2006): 6,100 franchised units; twenty-eight company-owned units
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Description As one of the most successful chains of real estate agents in America, Re/Max now has franchises in sixty-two countries. The ideal franchise owner/operator, according to the company, is someone who is financially stable, assertive, personable, and who wants to surround him- or herself with success-oriented real estate professionals. The RE/MAX organization was created by top real estate professionals. Those same founding leaders remain active within the company after more than thirty years.
Franchise name: Snip-Its Summary Industry/type: Children’s services Address: 85 Worcester Rd., Natick, MA 01760 Phone number: 508-651-7052 Web site: www.snipits.com Year established: 1995 (began franchising in 2003) Initial franchise fee: $25,000 Required capital investment: $164,700–$273,200 Number of established units (as of mid-2006): forty-four franchised units; two company-owned units
Description What happens when you combine a trip to a theme park or arcade with a boring haircut? For kids, the answer can be found at any Snip-Its location, where getting a haircut has been transformed into a fun-filled event. In addition to haircuts, Snip-Its locations host children’s “glamour” and “style-a-doll” birthday parties (for young girls). Overall, the hair care industry is estimated to generate over $40 billion in annual sales, with the children’s sector of the market responsible for generating an estimated $5 billion. By creating a fun and non-threatening environment for kids using
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Snip-its cartoon characters, computer play stations, and proprietary hair care products, the company offers a perfect hair-care solution for kids. The company reports that the Snip-its brand stands for quality, consistency, and unparalleled customer service.
Franchise name: Subway Sandwich Shops Summary Industry/type: Food: restaurants Address: 325 Bic Drive, Milford, CT 06460 Phone number: 800-888-4848 Web site: www.subway.com Year established: 1965 (began franchising in 1974) Initial franchise fee: $15,000 Required capital investment: $72,000–$223,000 Number of established units (as of mid-2006): 26,164 franchised units worldwide
Description Anyone who enjoys a good sandwich probably knows the “eat fresh” advertising slogan that Subway has become famous for. For an established fast food franchise, the start-up costs and franchise fees are relatively low. The franchisor reports, however, the operation is straightforward and easy to learn. The ideal franchisee has pre-existing business knowledge and experience, is goal-oriented, and is willing to work within a proven structured system. Potential franchisees are encouraged to complete an online questionnaire (www.subway.com/applications/AdditionalInfo App/index.aspx). Both single unit and territory-based franchise opportunities are available.
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Franchise name: The Coffee Beanery Summary Industry/type: Beverages Address: 3429 Pierson Place, Flushing, MI 48433 Phone number: 888-385-2326 Web site: www.coffeebeanery.com Year established: 1976 (began franchising in 1985) Initial franchise fee: $27,500 Required capital investment: $300,000–$450,000 Number of established units (as of mid-2006): 161 franchised units; 9 company-owned units
Description The Coffee Beanery currently offers single unit, area development, and territory-based franchises for its gourmet coffee retail locations. According to the company’s Web site, “When you are shopping for a franchise, one of the most important elements that should be considered is the franchisor’s business system. The Coffee Beanery system is proven and powerful. The Coffee Beanery system is engineered to provide the tools and support to maximize our franchisee’s success.” The location of this type of franchise is critical to its success. For The Coffee Beanery, the right places are neighborhood shopping centers and other highly visible, high traffic locations. The Coffee Beanery works with each franchisee in selecting and approving the location using The Coffee Beanery’s proven criteria. Over twenty site success factors are considered, including demographics (population, income, education, and so on), tenant mix, traffic patterns and counts, physical attributes, competition, and residential/small business mix. Potential franchisees are encouraged to complete an online questionnaire(www.coffeebeanery.com/franchising/dom_ application.asp).
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Franchise name: The UPS Store Summary Industry/type: Package preparation/shipment/mail service Address: 6060 Cornerstone Ct. W., San Diego, CA 92121 Phone number: 877-623-7253 Web site: www.theupsstore.com Year established: 1980 Initial franchise fee: $30,000 Required capital investment: $160,900–$266,500 Number of established units (as of mid-2006): 5,600+ worldwide
Description Formally known as Mail Boxes, Etc., The UPS Store has become a well known option for packing and shipping packages, making photocopies, and renting post office boxes. The UPS brand resonates strongly with current and potential customers and is among the top brands in the world. The company’s network revenues exceed $1.8 billion annually. According to the company, the ideal franchisee includes “people who enjoy working with the public, know how to provide the world-class customer service expected from one of the world’s most well known brands, know how to use a computer, have experience working with budgets—either for business or personal, and are comfortable following established business guidelines.” The company is currently seeking out veterans interested in franchise ownership through the Veterans Transition Franchise Initiative (“VetFran”). Potential franchisees are encourages to complete an online questionnaire (https://mars.franconnect.net/ups/control/ requestInformation).
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Entrepreneur magazine’s top twentyfive franchises for 2006 Every year since 1980, the publisher of Entrepreneur magazine has compiled a list of the top 500 franchisors in the world. This list, published annually, is known as the Franchise 500. To qualify for this list, a franchisor must have at least ten units, be actively seeking new franchisees in the United States, and must not currently be in Chapter 11 bankruptcy. All of the companies are judged using the same criteria, which include what the publisher calls “objective, quantifiable measures of a franchise operation.” These criteria also include the franchisor’s financial strength and stability, growth rate and size of the system, start-up costs for franchisees, length of time in business, litigation the franchisor has been involved with, and whether or not the franchisor itself provides financing. This list is created to be a research tool for prospective franchisees, but it’s not meant to endorse, advertise, or recommend any specific franchisors or opportunities. For more information about the Entrepreneur Franchise 500 or to view the current year’s list, point you Web browser to www.entrepreneur.com/franzone. From this Web site, you can research each franchisor. Franchise Ranking Opportunity
Startup Costs
Web Site
1
Subway
$72K–$223K
www.subway.com
2
Quiznos Sub
$71.7K–$251.1K
www.quiznos.com
3
Curves
$38.4K–$53.5K
www.buycurves.com
4
The UPS Store
$160.9K– $266.5K
www.theupsstore. com
5
Jackson Hewitt Tax Service
$49.8K–$94K
www.jacksonhewitt. com
6
Dunkin’ Donuts
$179K–$1.65M
www.dunkin franchising.com
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Franchise Ranking Opportunity
Startup Costs
Web Site
7
Jani-King
$11,3K–$34.1K
www.janiking.com
8
RE/MAX Int’l., Inc.
$20K–$200K
www.remax.com
9
7-Eleven, Inc.
Varies
www.7-eleven.com
10
Liberty Tax Service
$43.8–$54.9K
www.libertytax franchise.com
11
Domino’s Pizza, $141.1K–$415.1K LLC
www.dominos.com
12
Pizza Hut, Inc.
$1.1M–$1.7M
www.yumfranchises. com
13
Sonic Drive-In Restaurants
$710–$2.3M
www.sonicdrivein. com
14
Century 21 Real Estate, LLC
$11.8K–$522.8K
www.century21.com
15
Jan-Pro $3.3K–$49.9K Franchising International, Inc.
www.jan-pro.com
16
McDonald’s
$506K–$1.6M
www.mcdonalds.com
17
ServiceMaster Clean
$26K–$109.2K
www.owna franchise.com
18
Kumon Math & Reading Centers
$15.2K–$37.8L
www.kumon.com
19
Coldwell Baker Real Estate Corp.
$23.5K–$490.5K
www.coldwell banker.com
20
Jiffy Lube $214K–$273K International, Inc.
www.jiffylube.com
21
Arby’s
$336.5K–$2.43M
www.arbys.com
22
Baskin-Robins USA Co.
$135K–$522K
www.dunkinbaskin.com
23
KFC Corp.
$1.1M–$1.7M
www.yumfranchises. com
24
Cold Stone Creamery
$294.3K–$438.9K www.coldstone creamery.com
25
Jazzercise, Inc.
$3K–$33.1K
www.jazzercise.com
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Watch Out! When utilizing any type of franchise directory or database to learn about business opportunities, determine whether the service is advertiser supported, meaning that in order to be listed in the directory or online database, the franchisor needed to pay a fee. Depending on the purpose of your search, you’re often better off using a more comprehensive, non-advertiser supported and totally unbiased directory or database service, such as the one published by Entrepreneur magazine.
Franchise Times ($35.00 per year; published ten times per year; 800-528-3296; www.franchisetimes.com), an industry trade publication that focuses on franchise opportunities, also publishes an annual list of its top ranked franchises, ranked by worldwide sales. In 2005, the publication listed the following companies as its top fifth franchises: (1) McDonalds, (2) 7Eleven, (3), Carlson Wagonlit Travel, (4) Ace Hardware, (5) Kentucky Fried Chicken, (6) Burger King, (7) Pizza Hut, (8) Wendy’s, (9) Coldwell Banker Real Estate, (10) Circle K Stores, (11) Subway Restaurants, (12) Blockbuster, (13) Marriott Hotels, Resorts and Suites, (14) Taco Bell, and (15) Holiday Inn Hotels and Resorts. Also in the top 100 list for 2005, published by The Franchise Times, were Dunkin Donuts (21), Radisson Hotels (33), H&R Block (41), The UPS Store (49), Jiffy Lube (58), Curves (70), TruGreen ChemLawn (74), Hooters (82), Pearle Vision Centers (94), and Sbarro the Italian Eatery (100).
Just the facts ■
Start by focusing on an industry within which you’d like to work. Then learn about specific franchise opportunities within that industry.
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When researching the latest franchising trends, make sure it makes sense for you to follow them as a prospective franchisee. Make sure the business concept won’t become
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outdated or lose popularity among consumers/customers too quickly. ■
You can learn about the latest franchising trends by attending one of the Franchise Expos held throughout the country each year.
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Franchise opportunities are available in more than seventy-five industries—well beyond just fast food.
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Be sure to read the Uniform Franchising Offering Circular (UFOC) provided by the franchisor before committing to become a franchisee.
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Even after you choose a specific franchise opportunity to pursue, research what similar opportunities are also available from other franchisors.
PART II
Before You Open Your Doors
Lining Up Your Finances
S
o, you want to be your own boss and operate a franchise? You have all of the skill, energy, dedication, and motivation required to accomplish that goal. But one additional component involves coming up with the cash needed to buy the franchise and establish your business. Opening a franchise requires a significant financial investment. This chapter focuses on how to determine how much money you’ll need to get started, and then offers strategies for obtaining those funds through loans and other financing options. You also discover many of the financial considerations involved with becoming a first-time franchisee and find out how to avoid some of the common and costly mistakes people often make.
Analyzing whether you’re creditworthy Before beginning the process of filling out loan applications, determine whether you are creditworthy. As
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GET THE SCOOP ON . . . Analyzing your current financial situation ■ Creating a detailed business plan ■ Gathering your start-up capital ■ Understanding financing options for franchisees
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the franchisee, virtually all lenders will carefully scrutinize your personal financial situation, including your available cash and personal assets, plus your credit history, credit score, and credit rating. If you have a troubled financial past or a below average credit score (or credit rating), you can expect to experience diffi—Research results released culties in getting approved by the International Franchise Association (IFA) on September 7, for many types of loans. If 2006 (www.franchise.org). you are approved but have a low credit score or poor credit history, you will almost always be required to pay higher interest rates and fees.
“
Total initial fee estimates for a single unit . . . can range from a minimummedian of less than $5,000 for some sports and recreation franchises to a maximummedian of nearly $6.5 million for hotels. Fast-food concepts can begin at less than $180,000 and reach nearly $3 million.
”
Your credit report Invest the time to research your own credit situation. Start by obtaining copies of your credit report from each of the three credit bureaus (also referred to as credit reporting agencies): Experian, Equifax, and TransUnion. The fastest and easiest way to do this is to utilize the Internet and visit the www. AnnualCreditReport.com Web site, which is a service sponsored by all three credit bureaus. (You can also call 877-322-8228.) This site gives you access to a free copy of your credit report from each bureau, once every twelve months. The free credit reports you’ll receive, however, will not include your credit score.
Your credit score The information that appears on your credit report is provided by all the lenders and creditors you’ve done business with over
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your lifetime. This information is constantly updated and is used to calculate your credit score, which is a three-digit number between 300 and 850. Your credit score is used to measure your credit worthiness. A credit score below 678 (the national average) is considered poor, while a credit score above 700 will typically help you get the best possible rates and financing deals from creditors and lenders. To obtain your credit score, you’ll need to spend a little money. You can obtain your credit score, along with your credit report from each credit bureau, by contacting each credit bureau directly. ■
Equifax: 800-685-1111; www.equifax.com
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Experian: 888-397-3842; www.experian.com
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TransUnion: 800-916-8800; www.transunion.com
You can also contact Fair Isaac Corporation (www.MyFICO.com), the company that calculates the credit scores for the credit bureaus. The cost of each credit score is between $6.00 and $8.00. A credit report/credit score combination should not cost more than $15.00. TransUnion’s TrueCredit online service (www.truecredit.com) offers a three-in-one credit report with credit score for a flat fee of $29.95 or unlimited access to this information for a fee of $24.95 (for the first month), and then $14.95 per month thereafter. If you discover there is a lot of negative, but accurate, information on your credit report(s), or you discover inaccurate information, you’ll want to take steps to improve this information or have it removed before applying for any type of loan or financing. Inaccurate information can be removed from each of your credit reports by contacting each credit bureau separately and filing a dispute. (The fastest way to do this is online by visiting each credit bureau’s Web site.) Having negative but accurate information changed or removed from each of your credit reports will require you contact your individual creditors/lenders, pay off
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Bright Idea For help understanding everything you need to know about your credit score, credit reports, and credit history, read Entrepreneur magazine’s Dirty Little Secrets: What The Credit Bureaus Won’t Tell You ($12.95; Entrepreneur Press).
your debts, or settle them. Allow at least thirty to sixty days to have negative or inaccurate information removed from your credit report. Ideally, you want to present to potential lenders a credit report that contains little or no negative information, especially no current negative information. Information can remain on your credit report for seven years. Details about bankruptcies, tax liens, and court judgments will remain on your credit report for up to ten years. Remember, the higher your credit score, the better off you’ll be when negotiating with lenders for any type of loan or financing.
The five Cs With any type of loan or financing you pursue, the lender will be evaluating how the five Cs of credit apply to you, the borrower. ■
Your capacity to replay the loan
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The capital you have invested or will be investing into the business
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The collateral that will guarantee the loan
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The conditions relating to the loan, including its intended purpose and how the funds will ultimately be used
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Your character, which is the personal impression that the lender has about you, the borrower. Are you trustworthy? Will you repay your debt? Is your education, skill set, and experience suitable for the type of business you plan to operate?
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Developing a detailed business plan Before investing your time and money into becoming a franchisee, create a detailed business plan that specifically defines your business, identifies the goals of the business, and includes a balance sheet and cash flow analysis. As soon as you decide what type of business you want to get into, even before signing a franchise agreement, sit down and create your detailed business plan. For the financial portion of this plan, work closely with an accountant. Ultimately, when you begin applying for small business loans or searching for investors, you’ll need to present this document. Your business plan will also force you to look at the big picture and analyze the viability of the business opportunity before you actually launch it. A business plan is like a resume for your business, as well as a road map for how you’ll operate and manage it. This is a professional-looking and comprehensive document that combines text and graphics (charts, graphics, pictures, and so on), as well as a spreadsheet with projected financial information. As you begin formulating your business plan, do extensive research. Analyze the demand for the products or services your business will offer. With the help of your franchisor (and information included within the UFOC, for example), you should be able to accurately predict start-up costs, operating costs, revenues, and profits (keeping in mind that revenues and profits are two very different numbers). By speaking with existing
Moneysaver Many franchisors offer a template for creating a customized business plan specifically for the type of franchise-based business you’re planning to start. In this case, some of the research necessary for developing the content for your business plan is already created for you. Be sure to utilize whatever resources or tools the franchisor makes available to ensure your business plan is comprehensive, accurate, and realistic, based on the type of business you’re planning to operate.
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Watch Out! Upward of 84 percent of all small business loan applications are initially declined by lenders, often because of poor presentation and improper completion of the necessary applications and paperwork.
franchisees, you should also be able to gather enough data to anticipate profits. Keep in mind that accurately predicting initial traffic to your business and customer demand for your products or services may be a bit challenging. The more you know about your target customers, however, the easier time you’ll have putting together this element of the business plan. Creating a well-thought-out business plan is an important first step for any small business owner or franchisee. This document will help you determine whether or not your idea for a business is viable, and can later be used to attract potential investors or help you obtain loans from financial institutions. The more detail your business plan offers, the better your longterm chances for success will be. Once your business plan is complete, make sure that you have it reviewed and critiqued by your lawyer, accountant, and/or someone who is an expert in business before submitting it to potential investors or financial institutions (to apply for a loan). One of the biggest reasons lenders initially reject small business loan applications is because the business plan submitted does not contain enough information or the right information to properly educate the reader about the business or its projected financials.
Calculating the total capital needed Launching a new business can be expensive. Becoming a franchisee and launching a franchise-based business involves additional costs. As you create your budget and determine how much capital you’ll need to get your business off the ground,
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here are some of the major expense categories you’ll need to consider. ■
Franchise fee: This is the initial fee you’ll pay to the franchisor to become a franchisee. Depending on the type of business and the franchisor, this fee can be anywhere from a few thousand dollars to over $1 million.
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Royalties, licensing fees, and ongoing franchise fees: In addition to the initial franchise fee, this expense category includes all the ongoing fees you’ll need to pay the franchisor. Depending on the type of business, these fees will be called different things; however, they’re usually based on a percentage of either revenue or profit that your business generates.
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Lease (real estate): The monthly cost associated with leasing, renting, or purchasing the real estate from where your business will operate.
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Marketing and advertising: One of the ongoing fees most franchisees are required to pay the franchisor is for ongoing marketing, advertising, and public relations on a regional/national basis. This fee goes, for example, toward building overall brand awareness.
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Required purchases: This expense category refers to the ongoing purchases you’ll need to make in order to operate your franchise. These purchases can include everything from inventory to employee uniforms.
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Training costs: Depending on the franchisor, you may have to pay for training materials (or additional training beyond what’s initially offered to new franchisees). This expense category might also include outside training you opt to pursue, plus the added expense involved with training your employees.
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Startup costs: There are many expenses involved with establishing a business and getting it up and running.
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You’ll begin to incur these expenses long before your business begins to generate any revenue or profit. (A partial list of start-up expenses can be found in the following bullet list.) ■
Living expenses: During the period when you’re working full-time on the establishment and operation of your franchise-based business, but that business is not yet generating any revenue or profits, your personal living expenses will need to be covered. It’s essential that, as a franchisee, you set aside enough money to maintain your style of living, even when no regular paycheck is coming in. The period of time this will be necessary can be twelve to eighteen months, and sometimes longer, depending on the type of business you’ll be running.
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Other costs and fees: Being a responsible business owner means being prepared for the unexpected. Having adequate capital on hand to deal with unexpected problems and expenses is essential. As you’ll read several times throughout this book, being undercapitalized as you’re establishing your franchise-based business is one of the most common mistakes first-time franchisees make, and it’s one of the leading reasons why new businesses fail.
In addition to the fees listed in the previous section, some of the initial start-up costs and fees you’ll most likely be responsible for include the following. ■
Employee payroll: The salaries and benefits you’ll need to pay your employees, starting from the day each person is hired.
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Grand opening expenses: The costs involved with any special promotions, marketing, or advertising you utilize in conjunction with your grand opening. The cost of giving away product samples or free gifts to customers should be calculated into this portion of your budget.
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Insurance: No matter what type of business you’ll be operating, it’ll be necessary to have insurance. Be sure to consult with your franchisor and several insurance companies about the type of insurance that’s necessary, as well as the amount of coverage you’ll require.
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Inventory: The costs associated with establishing and maintaining the inventory for your business.
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Leasehold improvements: Any construction you do to your location to prepare it to meet the requirements of your franchisor will fall into this category. This might include adding store fixtures, painting, lighting, flooring, making interior or exterior renovations, and so on.
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Legal and accounting: As soon as you decide to become a franchisee, you’ll want to hire a franchise attorney and accountant (CPA). The costs associated with hiring these experts need to be incorporated into your overall budget.
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Licenses and permits: This expense category includes the fees associated with acquiring any and all licenses and permits required to open for business.
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Local marketing, PR, and advertising: In addition to the ongoing fee franchisees pay to the franchisor to cover marketing, PR, and advertising on a national/regional level, as a franchisee looking to generate local business, you’ll need to establish a budget to handle these tasks on a local level.
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Office equipment and supplies: Depending on the type of business you’ll be opening, this expense category can include everything from computers and telephone equipment to paperclips and business letterhead.
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Signage: Interior and exterior signage is an important promotional tool and is a necessary expense for many types of franchises, particularly retail-based businesses.
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Taxes: As a franchisee, you’ll be responsible for paying a variety of different types of taxes, based on the type of business you’ll be operating. Paying your taxes late, not properly filing tax information with the IRS, or miscalculating tax payments can all lead to serious financial penalties and problems with local, state, and/or federal authorities.
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Training (including travel and lodging): Even if all necessary training is included within the franchise fee paid to the franchisor, as the franchisee, you’ll typically need to pay your own travel expenses (airfares, lodging, meals, rental car, and so on) for the trips you take to the franchisor’s corporate offices or training facilities. You may also be required to purchase training manuals, videos, audio programs, or other supplies for yourself and your (future) employees.
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Utilities: Gas, electricity, water, Internet access, and telephone service are among the monthly utility bills your business will most likely incur. If your business is operating from a mall or shopping center, for example, in addition to the utility bill for your own location, you’ll probably be responsible for paying a portion of the common areas’ utility bills, such as parking lot lighting.
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Working capital: The day-to-day operations of a business cost money. In addition to all of the expenses listed here, keeping your business running will involve a wide range of other expenses you need to be able to cover, including taxes.
Bright Idea A Web site operated by Palo Alto Software and the SBA offers a variety of online calculators to help you determine start-up costs and assist you in compiling accurate financial data for your business plan. Visit www.bplans.com/ contentkit/index.cfm.
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Financing options for franchisees After you’ve done all of your homework, carefully analyzed the business opportunity you’ll be pursing, and formulated a comprehensive business plan, the next step is to seek out the financing you’ll need. After calculating how much of your own money you’ll be investing (utilizing savings, cashing in investments, and so on), you can determine how much additional financing you’ll need. Based on your personal credit rating and credit history (discussed earlier in this chapter), and whether or not you have assets you can use as collateral, the financing options used by most first-time franchisees include: ■
Utilizing a home equity loan from a local bank or financial institution (using this type of financing to open a business is not permissible in some states)
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Utilizing a home equity line of credit (HELOC) from a local bank or financial institution (using this type of financing to open a business is not permissible in some states)
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Obtaining a small business loan from a local bank or financial institution
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Obtaining a small business loan from the SBA (an SBA lender)
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Obtaining financing through an independent lender that specializes in working with franchisees
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Obtaining financing directly from the franchisor
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Applying for money from independent venture capital companies
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Taking on a business partner willing to invest in your business
Start by defining your needs, and then figure out (with the help of your accountant and franchisor) which financing options are best suited to fit your needs and which options are the most cost effective over the long term.
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Moneysaver When considering your financing options, refrain from obtaining cash advances on personal or company credit cards. This is an extremely costly way to obtain money (the interest rates and fees are high), plus if you’re late on a payment or miss a payment, you put your credit rating at risk.
Any time you take advantage of any type of loan or financing, there are costs associated with borrowing money. These costs include loan application/processing fees, as well as interest over the life of the loan. The term of the loan, your credit rating, and the interest rate for the loan will play a huge factor in how much you actually pay over time for the financing you need. Thus, it’s extremely important to shop around for the very best financing deals you qualify for. This often means discussing your needs with multiple lenders and negotiating their best possible rates before making any financing decisions.
Local banks and financial institutions In your immediate geographic area, there are probably a handful of local banks, credit unions, and financial institutions that specialize in offering home owners home equity loans and/or home equity lines of credit. These same banks will most likely offer small business loans to qualified applicants. Once you have your business plan in hand and have done the necessary financial projections, sitting down with a few local banks to discuss your financing options is an excellent place to start.
Watch Out! There is always risk involved in starting any type of business. It’s important to avoid over-leveraging yourself to the point where if the business fails, for whatever reason, you find yourself at risk of losing your home and/or needing to declare bankruptcy. An accountant or financial planner will be able to help keep you from taking on too much debt.
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Many local banks and financial institutions are interested in offering small business loans to businesses that will be established in the local community. Because you’ll be a franchisee with a well established company, bankers know your chances of achieving success are significantly higher than if you were to launch a stand-alone, independent business.
Small Business Administration (SBA) A loan through the Small Business Administration (SBA) is one of the most common ways first-time franchisees obtain the initial funding needed to buy the franchise and open their businesses. During the SBA loan application process, as the prospective borrower/franchisee, you’ll need to provide the following information. ■
Business profile: This information will come directly from your business plan and should include a detailed description of your business and the franchisor.
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Loan amount: Part of your loan application will involve setting a specific loan amount you’re looking for, plus providing a detailed description of how the funds will be used. Again, this is information that should already appear within your business plan.
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Collateral: As a borrower, you’ll most likely need to provide collateral to guarantee the loan. Depending on the type of loan, the amount of required collateral and the type of collateral required will vary greatly.
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Business financial statements: With the help of your accountant and franchisor, you’ll need to provide detailed
Bright Idea Get a jump-start on filling out SBA loan applications. To download the necessary forms, point your Web browser to www.sba.gov/library/forms.html.
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financial statements and projections. Financial statements include a balance sheet, income statement, and/or cash flow statement. ■
Personal financial statements: As the business owner/franchisee, you will be required to provide detailed information about your own finances and assets. This will include copies of tax returns. It’s vital that all of the financial information you provide about yourself and your business be up-to-date and 100 percent accurate.
The SBA requires borrowers to have an equity investment in their businesses. The level of this investment varies, based on the type of loan and business. When evaluating an application and a business plan, the SBA lender will ensure that revenues from the business will be able to cover all operating expenses, not just loan-related expenses. Part of the loan approval process will also involve evaluating the business’s working capital, credit history, equity, collateral, and resource management. The business owner’s (franchisee’s) own credit history, experience, and qualifications will also be evaluated. One of the most important parts of an SBA loan application is the written loan proposal. This document (much of which can be lifted from your business plan), is a sales tool designed to convince the lender that your business is worthy of the loan and that you, as the franchisee, are capable of operating the business and making it successful.
Watch Out! A common mistake made by first-time franchisees is taking on too much debt too quickly. This limits your ability to easily pay off the loans, especially if your business gets a slow start in terms of generating revenues and profits. It can also negatively impact your personal finances and the long-term stability of your business. Before taking on loans, make sure you’ll be able to afford the monthly payment over the long term.
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Bright Idea If you’re a woman interested in obtaining an SBA loan and operating your own business, point your Web browser to the SBA’s MyBiz For Women Web site (www.sba.gov/women). The Online Women’s Business Center is also an excellent resource (www.onlinewbc.gov).
Upon making contact with the SBA or SBA lenders, you’ll discover that a variety of different loan and financing programs (and grants) are available. It’s important that you pursue the program that you’re most qualified for, based on your background and the type of business you’ll be operating. Special financing and grant programs are available, for example, to women, minorities, and veterans. Before submitting your SBA loan application, make sure you’ve gathered all of the information that’s listed on the SBA’s Loan Package Checklist (supplied with your application). You can access a copy of this checklist at www.sba.gov/starting_ business/financing/loanpackagechecklist.html. Failing to provide specific information that’s requested will either delay the processing of your loan or result in a rejection, even if you’re otherwise a qualified borrower. For more information on what’s required to apply for and be approved for an SBA loan, contact any SBA lender, or visit the SBA’s Web site at www.sba.gov. You can also call the SBA answer desk at 800-827-5722.
Your franchisor and other lenders Many larger franchisors either offer their own financing opportunities to qualified franchisees or have well established relationships with independent financing companies that already know all about the franchisor. Although you’ll certainly want to investigate all financing opportunities available to you, ultimately you want to pursue the option that offers the most favorable rates and terms.
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There are many financing companies that specialize in offering potential franchisees loans for establishing their new businesses. One such company is CIT Small Business Lending (800-713-4984; www.franchiselending.com), an SBA lender that offers qualified franchisees loans from $100,000 to $3 million. Diamond Financial (888-238-0952; www.easysba.com) is another SBA lender that caters to franchisees. The IFA (www.franchise.org) or your franchisor can provide referrals to other lenders.
Financing options for veterans In conjunction with the IFA and a wide range of franchisors, the Vet*Fran program makes it easier for veterans of the U.S. Armed Services who were honorably discharged to obtain the financing needed to open a franchise-based business. According to the IFA, over 200 participating member franchisors have agreed to help qualified veterans acquire franchise businesses by providing financial incentives that are not available to other franchisees. For more information about the Vet*Fran program, visit the IFA’s Web site at www.franchise.org and click on the Franchising for Veterans icon. The Center for Veterans Affairs (866-584-2344; www. vetbiz.gov) is a national clearinghouse of business-related help services designed to aid veterans in establishing their own businesses. This includes applying for SBA business loans. Also visit the SBA’s Veterans Business Development Web site (www.sba.gov/vets).
Moneysaver Consider subscribing to MBE: Minority Business Entrepreneur magazine ($18.00 per year; 310-540-9398; www.mbemag.com). This monthly print publication covers a wide range of topics, including financing options for start-ups. Reprints of articles and other resources are available, free of charge, from the magazine’s Web site.
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Keeping the books One element of operating a successful business is to ensure that you will have a comprehensive bookkeeping and accounting system in place, right from the start. Whether you plan on doing the necessary recordkeeping and accounting by hand or using an off-the-shelf computer software program is up to you. Many franchisors help you establish a bookkeeping system through their own proprietary software. However, with the help of your accountant, you can easily develop your own accounting and bookkeeping system, using off-the-shelf accounting software. QuickBooks Premiere Edition (www.quickbooks.com), from Intuit, Inc., for example, is an excellent accounting and bookkeeping software package that’s ideal for small businesses, including many types of franchises. Maintaining a current balance sheet and income statement (a profit and loss statement) along with accurate banking records is important for keeping your business on track financially.
Just the facts ■
Before you start applying for any type of financing or small business loan, evaluate your own credit history by obtaining current copies of your credit report and credit score from all three credit bureaus (also called credit reporting agencies), which include Experian, Equifax, and Trans Union.
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The lender you choose to work with will carefully evaluate your loan application, along with your business plan. They’ll also consider the five Cs of credit: capacity, capital, collateral, conditions, and character, and how each relates to you, the borrower.
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After you determine what type of business you plan to operate, invest the time needed to create a comprehensive and well written business plan. Be sure to seek the help of an accountant as you create the necessary financial statements.
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Based on the information in your business plan, make sure that, from a financial standpoint, the business you plan to operate is viable and that it will allow you to achieve the long-term personal income you want and need, based on the time and financial investment you’ll be making.
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When applying for financing or a small business loan, you have many options. Some of the most popular include working with a local bank or utilizing an SBA loan (through an SBA lender).
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In some situations, your franchisor may be able to provide you with financing directly, or it may already have an established relationship with an independent financing company that specializes in working with new franchisees.
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Always shop around for the very best loan or financing rates you qualify for. Focus on fees, interest rates, and terms. You’ll find different lenders, banks, and financial institutions offer vastly different loan and financing options to qualified borrowers.
Legal Issues Relating to Your Franchise
E
stablishing a business, especially a franchisebased business, is a huge undertaking and one that has a wide range of legal implications. In order to become a franchisee, you’ll first need to undergo a series of interviews with the franchisor. As the franchisor is evaluating your ability to operate a business, as well as your personal and professional background and your finances, you’ll have the opportunity to learn about the franchisor by reading the Uniform Franchise Offering Circular (UFOC) that’s provided. If you decide to move forward and become a franchisee, you’ll be required to sign a Franchisee Agreement, which is a legal agreement between you and your franchisor that establishes, describes, and enforces the relationship. This chapter focuses on some of the legal issues you’ll need to deal with in your quest to become a franchisee. It examines the types of legal documents and contracts you’ll be required to sign, explains why hiring a competent and experienced franchise
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GET THE SCOOP ON . . . Knowing why you need a franchise attorney ■ Understanding the UFOC ■ Making sense of your Franchise Agreement ■ Recognizing other legal matters you’ll need to deal with
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Bright Idea Although some of the content in this chapter is repeated or elaborated on elsewhere in this book, it’s important to understand that the foundation of your relationship between you and your franchisor (which could last several decades) will be determined by the content of the UFOC and Franchise Agreement that you sign. Be sure you understand everything you’re signing.
attorney is essential, and puts you into the mindset of thinking like a businessperson as you review, negotiate, and sign a wide range of legal documents, contracts, and agreements. It’s essential that you understand that by becoming a franchisee, there is no legal partnership agreement between you and your franchisor. You are technically an independent business owner and operator. Although the relationship may be described to you as as a marriage or a partnership, in the sense that you’re both working toward the same goals, legally, you are not partners. The Franchise Agreement you’ll be signing outlines the actual legal and business relationship you’ll have with your franchisor. It’s absolutely vital that you understand the true nature of this relationship.
Why you need a franchise attorney A franchise attorney is a lawyer who has an expertise in franchising. Your franchise attorney will understand the legal nuances of a UFOC and Franchise Agreement and truly understand how franchising works. This area of expertise is very different from that of a general business attorney or another type of lawyer, which is why hiring a franchise attorney for this process is so important. The nature of the relationship between a franchisor and franchisee is unlike other types of traditional business relationships, including partnerships. Thus, the documents used to solidify this relationship are vastly different from those with which most general business attorneys are accustomed to dealing. The concept behind a franchise system is that every franchise unit follows exactly the same cookie-cutter approach to
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Watch Out! Documents such as the UFOC, the Franchise Agreement, your lease, and any contracts you may ultimately need to sign with vendors, suppliers, wholesalers, contractors, architects, and other companies are all binding legal documents. Upon signing any of them, you’ll be legally bound to what these documents say. Thus, it’s essential that you fully understand each and every document before you actually sign it. Never try to review or negotiate any of these contracts yourself. This is when working with a franchise attorney can be extremely beneficial.
operating the business. From a franchisor’s standpoint, every franchisee needs to adhere to the same set of rules, guidelines, and contracts. Thus, while you’ll be provided with a UFOC and Franchise Agreement, both of which are legal documents, as a potential franchisee, you will not be able to negotiate the terms of either of these essential documents. These two documents often contain a significant amount of “legal speak” and technical information pertaining to the specific franchise opportunity. Both documents outline the obligations of the franchisor and franchisee. The purpose of hiring and working with a qualified franchise attorney (who represents your interests) is to help you fully understand each and every line contained within these documents. For the purpose of reviewing these two documents, your attorney is not being hired to negotiate or modify them. If your attorney indicates items in these agreements that are not favorable to you (as a franchisee), before signing them, you have the option to walk away from the opportunity. As soon as you sign these agreements, you’re fully obligated to all of the terms described within them, for the entire length of the agreements (which will probably be anywhere from ten to twenty or more years). Aside from the UFOC and Franchise Agreement, there will be a handful of other contracts you’ll want and need your franchise attorney to review, help you negotiate, and potentially modify before these documents are signed. Depending on the
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Bright Idea Make sure you fully understand your obligations (financial and otherwise) to the franchisor upon becoming a franchisee. Make sure you’re comfortable with all of these obligations and responsibilities. Keep in mind that there are strict guidelines, rules, and operating procedures you’ll have to adhere to as a franchisee after your business is operational. How much creative and decisionmaking control over your business you’ll have varies by franchisor.
type of business you’ll be operating, the lease you’ll probably be signing with your new landlord is an example of a contract that can be negotiated and altered by you and your attorney (assuming the landlord agrees to the modifications). Chapter 13 contains an interview with William Killion, a franchise attorney and partner with the firm Faegre & Benson, LLP. Killion offers additional insight into why working with a franchise attorney is worthwhile.
Preliminary questions to ask a franchise attorney Chapter 10 focuses on advice for finding and hiring a competent, experienced, knowledgeable, and reputable franchise attorney. As you utilize referrals and interview potential lawyers to work with, here are some basic questions to ask the attorney: ■
Are you licensed to practice law in my state (or the state where I’ll be establishing my franchise-based business)?
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How much franchise-related experience do you have?
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How many franchisees have you represented in the past?
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Have you worked with other franchisees who are now involved in the same type of business as mine? Have you ever worked with my franchisor before?
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If you’re hired, what services can I expect from you and your firm?
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How will you be compensated? What are your rates? What services are included?
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How long should the process of reviewing the UFOC and Franchise Agreement take?
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Will you be able and willing to explain all of the information outlined within the UFOC and Franchise Agreement, so that I fully understand everything?
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What are some of the pitfalls you’ve seen first-time franchisees make that you’ll be able to help me avoid?
After you hire your franchise attorney, you’ll want that person to be on call throughout the process of your becoming a franchisee. This period is when you’ll need their expertise the most. Later, after you become a franchisee and your business is operational, it’ll be convenient to be able to call an attorney you already have a relationship with, should legal questions arise. However, the further need for an attorney should be minimal until you’re ready to grow your business—by opening additional units, for example. The law dictates you must be in possession of the UFOC for at least ten days before signing it or paying any money to the franchisor. This gives you an ample opportunity to review the terms and content of this document with your attorney. After you receive the document, as a potential franchisee you’re allowed to take as long as you wish to decide whether to actually sign it and move forward.
Watch Out! If you violate the terms of the UFOC or Franchise Agreement, your right to operate your franchise-based business can be revoked by the franchisor. This could put you out of business and result in significant financial losses. In addition to understanding what could cause the franchisor to revoke your rights to operate, be sure to determine what rights you, as the franchisee, have to leave the franchise system before the agreement actually expires. Also determine what rights you’ll have to renew the agreement and what the costs associated with renewal will be.
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Moneysaver To avoid making a big mistake with your financial investment, never allow yourself to be rushed into signing legal documents or making a decision to move forward with a specific franchisor. Take your time and evaluate the opportunity being offered. At the same time, evaluate other potential opportunities to make sure you ultimately commit to the one that makes the most sense for you, based on your lifestyle, interests, goals, and finances.
Understanding the UFOC When you read the interviews with franchising experts in Chapters 13 though 15, you’ll hear repeatedly that one of the most common mistakes first-time franchisees make is that they don’t thoroughly read or fully understand the UFOC and Franchise Agreement before they sign them. This oversight leads to a wide range of potentially costly problems down the road and could impact your ability to achieve long-term success and profitability. Take the advice of these franchising experts and make sure you read and understand these two documents! The UFOC that every franchisor is legally obligated to provide to potential franchisees is a detailed description of the business opportunity being offered. The contents and format of this document must adhere to guidelines outlined by the Federal Trade Commission (FTC). Upon becoming a franchisee, you will be making a significant financial investment. This document describes in detail the investment you’ll be making. It’s like the prospectus you’d receive if you were to invest in a mutual fund or other stocks. Every UFOC contains twenty-three areas of disclosure that are designed to help you determine whether the opportunity being presented is right for you. Upon reading this document, you’ll obtain a detailed understanding of the franchisor and its history. You should also understand the scope of the financial investment you’ll be required to make in order to become a franchisee. The UFOC will list the franchise fee and all other fees you will be required to
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Bright Idea Franchisors sometimes provide claims about potential earnings for new franchisees. There are many reasons, however, why a franchisor might not want to disclose information about what a franchisee may earn. If your franchisor does not provide any earnings claim, find out why.
pay to the franchisor, both up-front and over time. Within the UFOC will also be a detailed description of the initial investment required, beyond the fees you’ll need to pay to the franchisor. This list of expenses should be comprehensive and should help you formulate a detailed financial plan for your business. Topics such as what products and services you’ll be allowed to offer as a franchisee, plus how you’ll acquire inventory, for example, will be explained within this document. You may discover that your franchisor must become your sole supplier of all inventory. This potentially limits your ability to shop around for the best deals in order to save money. All the obligations the franchisor has to you, the franchisee, are also listed in the UFOC, just as your obligations to the franchisor are described. Any limitations you have, in terms of the territory or geographic area in which you can do business will be outlined. Remember, this is a non-negotiable document. If you sign it, you automatically agree to all of the terms and conditions, regardless of whether they’re in your favor. One of the common reasons someone becomes a franchisee with a specific company is because of its well established brand name and brand recognition. Although as a franchisee, you’ll
Watch Out! Only about 25 percent of all franchisors include earnings claims in their respective UFOCs. This is the only place where it is legal or appropriate for a franchisor to discuss the sales, income, profit, or revenue potential for a franchise unit. Any claims made verbally or in other documents should not be considered binding and may not be accurate.
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have the right to utilize the franchisor’s name, logo(s), trademarks, copyrights, patents, and other proprietary information as you conduct your business, there are definite guidelines you must follow and limitations you’ll need to adhere to, both of which will be spelled out within the UFOC. Upon signing the UFOC and later the Franchise Agreement, you are committing to following and adhering to the franchise system established by the franchisor. Thus, you give up control over what products or services you can offer, and you’re committing yourself to operating your business in exactly the same manner as every other franchisee. Another important section of the UFOC describes the length of the agreement, renewal options, termination rights, your ability to transfer your business (that is, sell it to another franchisee), and how any disputes will be resolved between you and your franchisor. Although not all franchisors opt to include earnings claims within their UFOC, those that do never describe, predict, or promise profits. It’s essential that you understand what these earnings claims mean and how they impact your ability to operate a profitable business. Understanding this section of the UFOC is one area where your accountant will be extremely helpful (see Chapter 10 for more on hiring an accountant). You’ll also want your accountant to review the financial statements from the franchisor that must be included within the UFOC. The franchisor is obligated to provide three years worth of audited financial statements (assuming the company has been in business for at least three years).
Bright Idea Some of the information given in a UFOC deals with the financial implications of the opportunity. Have your accountant review this document to make sure the business opportunity is financially viable for you, based on your unique situation and finances.
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Watch Out! Although UFOCs are supposed to be written in “plain English,” they are created by experienced attorneys. Even if you think you understand all the implications and contents of this document, make sure you review it carefully with your franchise attorney.
One of the most useful pieces of information all UFOCs contain is a listing of all existing franchisees. This list provides you with the opportunity to begin making contact with current business operators to learn about their experiences and discover what’s truly involved in operating this type of franchise-based business. Communicating with existing franchisees is an essential tool when becoming a franchisee. This network of franchisees can also provide ongoing support and guidance after your business is fully operational. As you reach the end of the UFOC, you’ll see a listing of all contracts and legal documents you’ll be required to sign with the franchisor during the process of becoming a franchisee. This list includes the Franchise Agreement and any other licensing agreements or contracts that relate to the specific type of business you’ll be operating. Signing the UFOC is one of the first major steps involved in becoming a franchisee. At the time you sign this document, many franchisors require a non-refundable deposit or that a portion of the initial franchisee fee be paid. Make sure you’re serious about pursuing the business opportunity before signing the UFOC.
Making sense of your Franchise Agreement The process of becoming a franchisee will conclude after you sign the Franchise Agreement. This agreement is, like the UFOC, another legally binding document that your franchisor will create
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Bright Idea One thing to consider as you review the UFOC and Franchise Agreement is whether the terms stipulated in writing are consistent with all of the information that was given to you verbally and was presented in the marketing materials provided by the franchisor. You should be looking for absolute consistency. Remember, only what’s in writing within these documents will be binding.
and provide. Like the UFOC, it is typically a non-negotiable document, because the franchisor wants all of its franchisees to have signed identical paperwork. The Franchise Agreement will actually control the relationship between you and your franchisor (not just describe it, as does the UFOC) and will list all the terms of this relationship. It’s essential that you carefully read and fully understand the entire contents of this document, in addition to what’s included in the UFOC. Although you typically can’t negotiate the terms of the UFOC or Franchise Agreement, your attorney will be able to help you negotiate certain other aspects of the deal, such as the amount of support you receive from the franchisor or the payment terms for the franchise fee. Your attorney will know where there may be some flexibility.
Other legal matters you’ll need to deal with In addition to helping you establish your relationship with your franchisor, and then reviewing the UFOC and franchise agreement, your franchise attorney will also look out for your best interests when signing other types of contracts with third parties. Here are some instances during which you’ll want to utilize the expertise of an attorney: ■
Setting up your business as a legal entity: Whether you set your business up as a sole-proprietorship, partnership (with co-owners, not with your franchisor), or corporation,
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you’ll need to file the appropriate forms with various state and federal government agencies. Your attorney can expedite this process and make sure you set up the type of business entity that makes the most sense, based on your personal situation. ■
Signing your lease: When you agree to work with a commercial Realtor and later begin negotiations with your new landlord and sign your lease, your attorney can review all pertinent legal documents and assist with the negotiation process.
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Contracts with contractors, architects, and other construction professionals: Depending on the type of business you’ll be operating, you may need to work with contractors, architects, construction workers, electricians, plumbers, and other experts who will prepare your location for occupancy. Chances are, you’ll need to sign contracts with these experts when you hire them. Having an attorney review all contracts will help to ensure that your legal and financial interests are protected.
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Contracts with vendors, suppliers, and wholesalers: In some situations, you may need to sign specific types of contracts in order to begin working with vendors, suppliers, and wholesalers who will provide the inventory needed to operate your business. If your franchisor does not review these agreements on your behalf, it’s an excellent strategy to have the documents reviewed by your attorney.
Being a good businessperson and successful entrepreneur does not mean you must know absolutely everything about all aspects of business. What it does mean, however, is that you have the common sense and wherewithal to always make intelligent business decisions, and to obtain legal guidance when appropriate in order to protect your interests. Obviously, to keep your legal fees down, you don’t want to go running to your attorney every time you have a question.
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However, as a general rule, before signing an important legal document or contract, have it reviewed by an attorney. This can save you a fortune down the road by preventing lawsuits and disagreements with the individuals and companies with whom you do business.
Just the facts ■
As soon as you decide you want to become a franchisee, start looking for an experienced, knowledgeable, and qualified franchise attorney who will represent you throughout this process.
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Although your attorney will not be able to negotiate the terms of the UFOC or Franchise Agreement, your attorney should sit down with you and review these documents, line-by-line, to ensure you understand their contents.
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The UFOC and Franchise Agreement outline and govern the relationship between you (the franchisee) and the franchisor. These are legally binding documents that must be adhered to by both parties after they’re signed.
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Upon reading the UFOC provided by your franchisor, you should have a thorough understanding of the business opportunity being presented to you, including the initial costs (financial investment) that are involved.
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During the process of becoming a franchisee, be prepared to sign a variety of different contracts with your franchisor and other third-parties, such as your landlord. Utilize the services of your attorney to help you negotiate these contracts and to explain each of them to you before you sign them.
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For additional information about what’s included in a UFOC and a Franchise Agreement, contact the Federal Trade Commission (www.ftc.gov) and/or the International Franchise Association (www.franchise.org).
Choosing Your Location
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any factors go into the creation and operation of a franchise-based business; no simple or single formula exists for achieving success. The location you choose for your business, however, is extremely important if you’ll be operating a retail or service-based business. Even if you’ll be operating a business from your home or an office space, it’s important that the space you intend to occupy is adequate in terms of space and functionality. This chapter focuses on choosing the ideal location for your business, based on who your customers are, the population density of your targeted customer base in your geographic area, the physical needs of your business, your budget, and a wide range of other factors. For many types of franchise-based businesses, the location you select can greatly improve your chances of success or play a significant role in your business failure. Choosing a location is both a science and an art form that real estate and franchising specialists spend years perfecting. When choosing the location for your business, especially for a retail-based business,
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GET THE SCOOP ON . . . Analyzing your customer base ■ Determining your real estate needs ■ Finding the perfect location ■ Evaluating your competition’s location(s) ■ Negotiating your lease
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Bright Idea Don’t even consider embarking on the site selection process alone, especially if you’re a first-time franchisee with no previous commercial real estate experience.
rely on the expertise and experience of your franchisor. This holds true regardless of whether the franchisor has final approval over your site selection. Did you get that? I’ll repeat for emphasis: Rely on the expertise and experience of your franchisor! Also invest time and resources in conducting your own research, and seriously consider hiring your own expert(s), including a qualified and knowledgeable commercial Realtor. Then, after you’ve pinpointed what you believe is the ideal location, get your attorney involved in the negotiation process with the landlord, and get your accountant involved to make sure you can afford it. Finally, work with your attorney to review the entire lease, so that you fully understand all of its terms before you sign it.
There are many types of locations One of the first decisions you and your franchisor will need to make related to location is what type of site is most suited for the business you’ll soon be operating. You also need to define how much space you’ll need, plus determine some of your other requirements that relate to the location. This information should be provided by your franchisor, including within the UFOC (see Chapter 6). There are several types of locations you can look into, based on the type of business you’ll be operating and what the needs are for your business. Part of your decision should also be impacted by the wants and needs of your target customer base. Popular types of locations for franchise-based businesses include those discussed in the following sections.
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Home office A home-based business, as opposed to a traditional office, is operated from your place of residence. Some categories of franchise-based businesses suitable for home offices include a housecleaning service, such as Merry Maids (see Chapter 14), a carpet cleaning business, or a computer technical-support business, all of which involve managing a team of people who travel to your customers’/clients’ locations. Although working from a home office can save you a small fortune, it also takes an added level of discipline. After all, it’s extremely easy to simply stay in bed, watch TV, play with your dog, or hang out with your kids if you don’t have to get up, get dressed, and commute to work every day. Before deciding to work from a home office, make sure your home offers ample space and a suitable work environment. Ideally, you want to set aside an entire room or area of your home to be your office. This area should allow you to focus on your work as opposed to household activities.
Advantages to operating a home-based business For certain types of franchise businesses that can efficiently be operated from a home office, here are some benefits of this type of work arrangement: ■
If you’ll be operating your business from home, there’s never a commute to and from work (and no traffic jams).
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You can work at your own pace and set your own work hours.
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There’s no dress code. Many people who work from home report that their typical business attire (at least until midmorning or lunchtime) is a robe or pajamas.
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It’s usually easier to juggle your personal and professional life.
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There are excellent tax advantages to owning and operating your own home-based business. You’ll want to contact your accountant or financial planner (see Chapter 10) for details.
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Watch Out! Home-based businesses are typically suitable if they’ll be staffed by only one or two people. If you’ll be having employees or customers coming and going from your home throughout the day, you may run into zoning and insurance issues, among other problems (like an infringement on your personal life).
Supplies and equipment you’ll need Operating from a home office will require an investment in supplies and equipment. Although your franchisor should supply you with a complete list of needs, the following sections share some of the basics you’ll probably need to run your business from a home office. Computer and software A core business tool needed in virtually any office is a desktop or laptop computer equipped with a high-speed Internet connection (a DSL or broadband connection is definitely preferred). The computer should also have an assortment of core applications installed, including a word processor, spreadsheet, database, contact manager, scheduler, and any specialized programs (such as accounting, inventory control, credit card processing, and shipping software) your business needs to operate. Many franchisors also provide you with the proprietary software required to operate your business. Printer, fax, and data back-up device Your home office should also be equipped with a laser printer (preferably a color laser printer) and a data backup device (so that you never lose information, even if your computer crashes). Another important tool is a plain-paper fax machine. You may also need between two and four telephone lines to accommodate a personal phone number, a work/business phone number, a fax line, and a modem line (if you’ll have a dial-up Internet connection).
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If you don’t want to invest in a traditional fax machine and a separate phone line for it, an alternative is an online-based service, called eFax (www.efax.com). This transforms your computer (that’s connected to the Web) into a virtual fax machine. Upon registering for this inexpensive service, you’ll be provided with a fax telephone number in your local area code. Your incoming faxes, however, will arrive as email messages in whatever email account you specify. You can then view and print incoming faxes using your computer. One advantage of this service is that you can send and receive faxes from anywhere using your laptop computer. Telephone Your telephone should be capable of handling at least two phone lines and should have a hold feature, along with an auto dialer in which you can store your most frequently dialed numbers. Depending on the size of your home office, consider connecting a high-quality cordless telephone to give you added convenience and mobility. When ordering telephone service, consider adding call waiting, three-way calling, caller ID with name, call forwarding, and call answering (voice mail) to your plan. All are optional services offered for an additional monthly fee from your local phone company. Call answering will replace the need for an answering machine or a separate voicemail system. Having the ability to retrieve messages remotely from a touch-tone phone is also a must. Many local phone companies across the United States now offer unlimited local and long distance calling services for a flat monthly fee of about $40.00 (or less) per month. This service includes many of the added calling features, like call waiting and caller ID, that most small business operators will appreciate. For people who travel a lot or spend time on the road, a cellular/PCS phone is a critical tool for staying in touch with business associates and clients. Sprint PCS/NEXTEL (800-480-4727; www.sprintpcs.com), Cingular (800-331-0500; www.cingular.com), Verizon (866-868-3882; www.verizonwireless.com) and T-Mobile
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Bright Idea Contact your franchisor for a complete list of supplies, forms, software, and other business tools you’ll need to efficiently operate your franchise-based business from home.
(866-464-8662; www.tmobile.com) are among the companies that offer nationwide digital (PCS) cellular service, often at competitive rates. You can also go with one of the many pre-paid cellular services available throughout America. Many business leaders are opting to utilize only cellular phone service and have given up traditional phone service. This allows them to be reachable almost anywhere and not have to worry about forwarding calls and/or checking multiple voice mail accounts. Other business tools for a home-based business If you have the money available, a desktop copy machine or scanner is also a valuable business tool in any home office. You’ll also need basic supplies, such as business letterhead, envelopes, business cards, and everything from pads of paper to paper clips. (For basic office supplies, visit your local office supply superstore, such as OfficeMax, Office Depot, or Staples.) If you have the space, set up two desks for yourself to help boost productivity and organization. One desk can be used for your computer and another for your paperwork. The desk used for your computer should have a built-in keyboard drawer or keyboard arm. This ensures that you’ll have ample desk space and helps you avoid clutter. Make sure the desk chair you select is comfortable and provides adequate back support. Other furniture and home office equipment you should consider purchasing include the following. ■
A desk set (desk pad, business card holder, letter tray, and so on)
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Bookshelves
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Briefcase and pad/paper folio (for when you go out on appointments)
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Calculator
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Cassette, microcassette, or digital recorder (for dictation or keeping track of ideas)
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Credit-card processing software and equipment (if your business will be accepting credit cards as payment for your products or services)
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File cabinets
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Floor lamps and a desk lamp
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Office supply storage cabinet
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Postage machine and postage scale
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Printer stand
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Telephone answering machine (if you don’t have call answering from your telephone company)
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Wastepaper basket and paper shredder (if you deal with confidential documents)
Non-traditional sites A non-traditional site refers to franchise-based business operated from places like an airport, train station, stadium/arena, or school campus, or near a tourist attraction. These sites tend to be small, sometimes kiosk-based, and often allow you to reach a captive audience of customers (such as airline travelers navigating their way through a busy airport).
Moneysaver Home-based business operators can save money on a wide range of products and services simply by shopping around for the best prices. LowerMyBills.com (www.lowermybills.com), for example, helps you find the best rates for telephone service, cellular service, insurance, Internet access, credit cards, and a wide range of other services. Nextag.com (www.nextag.com) helps you find the lowest prices for virtually any item or product, such as home office equipment, computers, telephones, and furniture.
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Before you set up shop in such a non-traditional location that offers a steady flow of people (such as airline passengers, sports fans, or train commuters), ensure that these people are your potential customers—people who will want or need what you’re offering. Assuming your business caters to this type of general audience, one benefit to operating from a nontraditional site (even if you have to pay high rent) is that minimal advertising and marketing is required. In some situations, franchisees who have licensed a territory (as opposed to a single-unit franchise) opt to open multiple units in non-traditional sites. Keep in mind, however, that only certain types of businesses are suitable for non-traditional sites.
Downtown retail area A downtown retail area is a retail-based location in the heart of a city, town, or community that is not part of an indoor mall or strip center. For example, it can be a store found along Main Street in Anytown, USA, or a store location along Fifth Avenue in New York City. Because your site is in a busy part of town, it’s regularly exposed to a high volume of driveby and pedestrian traffic, and it benefits from high visibility. From a franchisee’s standpoint, one drawback to this type of retail location is the potentially high rent. As with any location, you also need to concern yourself with whether the local traffic (driveby and pedestrian) includes your target customers, and whether there’s easy access to your store and nearby ample parking. Busy downtown areas are often congested and have inadequate or inconvenient parking for customers.
Retail mall Malls are indoor, fully enclosed, and centrally located shopping areas that contain dozens, perhaps hundreds, of individual retail stores and one or two major department stores (called anchor stores), as well as restaurants and, typically, a food court. Malls also often contain several kiosk-based businesses.
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Indoor malls are typically filled with franchise-based businesses, as well as with popular chain stores. A successful mall draws a steady flow of traffic throughout the week, offers plenty of convenient parking, and hosts ongoing special events to draw additional traffic to the mall. From a franchisee’s standpoint, malls can be very attractive sites because of the steady flow of traffic. The potential drawbacks include not just the potentially high rent, but the additional fees that mall tenants are required to pay, including a common-area maintenance fee, a mall-wide advertising/marketing fee, merchant’s association dues, and perhaps even a percentage of profits. Businesses that operate within malls are also typically required to remain open during all hours the mall is open, which can mean operating from 10:00am until 9:00pm or 10:00pm Monday through Saturday, a partial day on Sunday, and extended hours during the holiday shopping season. Another drawback to locating your business in a mall is that you may encounter significant competition within that mall, unless you negotiate an exclusivity deal with the landlord, which, as a franchisee, may be difficult.
Retail shopping center (strip center) A retail shopping center (also referred to as a strip center or strip mall) is a string of attached stores located outdoors that share a common parking lot. They’re typically anchored by a large supermarket, pharmacy, movie theater, or mass-market retailer (such as Target or Wal-Mart) that attracts a regular flow of traffic to that center. Depending on the population density of the area, these types of retail centers tend to attract mainly local customers (people willing to travel only a short distance—say, less than five miles). The advantage for franchisees is that rents are often affordable, plus there’s usually space to display high-visibility signage. From a convenience standpoint, it’s important that your location
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have ample parking directly in front of your store, in order to cater to your customers. Ideally, your business should attract customers on their way to or from the supermarket or anchor store, for example.
Stand-alone retail location This type of retail location is not part of a mall, shopping center, or downtown area. It’s truly a stand-alone location that may or may not be located along a major street or busy thoroughfare. As a franchisee, this type of location can provide its own set of challenges, because your business must become a destination for your customers. In other words, your customers need to make a point to drive or walk out of their way to visit your business. Hairstylists, oil change companies, automotive repair shops, pet service shops, and convenience stores are examples of businesses that are typically housed in these standalone locations.
Traditional office For non-retail-based businesses, operating from a traditional office is typically necessary, but your needs will vary dramatically based on the type of business you’ll be operating. A traditional office might be utilized by a franchisee offering a service that involves traveling to the customer’s location. A traditional office can be located in an office park or corporate park, or a high- or low-rise office building located almost anywhere (consumer traffic isn’t important for many types of office-based businesses). An office may include a handful of individual offices or rooms to accommodate your staff, a reception area, conference room, storage area, filing area, and allocated space for your other business needs. Office space is typically rented or leased by the square foot. Rates vary greatly, based on the location and the amenities offered by the landlord.
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Warehouse Warehouse facilities are typically vary large, hollow buildings (meaning that they have few interior rooms, if any). They’re often located out of the way (in not-so-busy, more industrial areas) and have little or no commercial traffic. This type of site is suitable for franchise-based businesses that have a lot of inventory, need an exceptionally large amount of space in which to operate, or are considered destination businesses, meaning that customers are willing to drive out of their way to visit them. The benefit to franchisees is that warehouse real estate is typically inexpensive. The drawback is that you’ll need to invest a lot into advertising and marketing to make people aware that your business exists. A doggy daycare/boarding facility or furniture showroom is an example of a franchise-based business that might operate from warehouse space.
Analyze your customer base . . . again! Getting to know your customers—who they are; their specific demographics; how they think; and their needs, wants, and buying habits—is absolutely essential. Before choosing a location, focus on all those The absolute most people who comprise your important thing is to identify scientifically is target customer base. who your customers are. Make sure you underEven if people look stand your target customers’ identical when you review their demobuying habits, and then graphic data, their buyselect a location that caters ing habits could be vastly different. to their needs and that provides the ultimate in conve—Tom Buxton nience for them. Keep in mind that customers are lazy. In most cases, they will not travel out of their way or be willing to subject themselves to any inconvenience, unless it’s
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absolutely necessary and they have a significant need or demand for your products/service that can’t be met elsewhere.
Determine whether your targeted customer base is large enough As you begin looking at potential sites for your business and discussing your needs with your franchisor, commercial Realtors, potential landlords, and other location selection experts, the concept of population density will come up often. This term refers to the size of the local population that has a definite want or need for your business products or services (your target customer base). Within a specific geographic area surrounding your ultimate location, the population density of your target customers must be large enough to be able to support your business on an ongoing basis and keep it profitable. If this population density doesn’t exist in your geographic area, the demand for what you’re offering won’t be adequate to sustain your business, and you’ll have trouble with the long-term viability of your business. To determine whether the local population density is adequate, you and your franchisor (with the help of the commercial Realtor you hire) will need to conduct research about the area and obtain important traffic information from your potential landlord and local government. You’ll need to analyze census data, demographics, traffic patterns, and a wide range of other factors to determine whether the sites you’re looking at are capable of sustaining your franchise-based business over the long term. Remember that generating ongoing, repeat business from your customers is a key component to the success of many types of businesses.
Figuring out your real estate needs When evaluating the real estate needs for your franchise-based business, rely on your franchisor to provide you with a detailed description, blueprint, or floor plan. With that description in hand, you can then begin working with your franchisor’s site
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selection and evaluation specialists and/or your own commercial Realtor to find appropriate sites. The site requirements outlined by your franchisor should include the required square footage, any design requirements, and other information that will help you in choosing the most ideal location. Keep in mind that from an in-store design and appearance standpoint, you’ll need to adhere to the guidelines of your franchisor, especially in terms of store fixtures, signage, décor, and overall appearance. At the same time, you must keep the needs of your customers in mind as you choose the ideal location. You must stick to your budget, too. You’ll probably want to begin working with a local commercial Realtor. This is someone who knows the local real estate market and can help you match up your needs with real estate options that currently are or will soon be available. Finding a local commercial Realtor can be done through a referral from your franchisor, by utilizing your local phone listings, by contacting the local Chamber of Commerce, or by contacting the National Association of Realtors (www.realtor.org/ commercial/index.html) and utilizing this organization’s nationwide Commercial Information Exchange. It’s important that you work with an experienced Realtor who represents you (not your potential landlord) and who understands your business needs, budget, timeframe, target customer base, and, most importantly, the local real estate market. Instead of, or in addition to, a local Realtor, consider hiring the services of an independent site selection company that specializes in working with franchisees. You can learn about these companies from the International Franchise Association (www.franchise.org) or from ads that appear in the various trade magazines and publications that cover franchising (see Appendix C). The Franchise Times Professional Services Directory (www.franchisetimes.com) lists a wide range of franchise development, valuation services, and franchise consulting companies that specialize in site selection.
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Bright Idea Most franchisors require site approval, so before signing a lease, make sure your franchise has approved the location, one that will adhere to the franchisor’s design and appearance guidelines.
In addition to helping you find the right site, an independent Realtor, real estate attorney, or site selection company will assist you in negotiating with landlords, understanding the lease, and, in many cases, helping you find reliable contractors and other professionals you’ll need after you acquire the space. Keep in mind that finding the right site can be a timeconsuming process. As a franchisee, you want to wait until you find what you believe is the ideal site, without having to compromise or overspend. Based on recommendations from your Realtor and/or franchisor, consider looking at up-and-coming locations or sites that are yet to be developed (that is, future construction sites).
Key points to consider when choosing a location In addition to looking at the bigger picture when selecting the location for your business, you’ll need to analyze a wide range of additional factors, which include the following. ■
Costs and fees: In addition to monthly rent, as a franchisee, you’ll have an assortment of other real estate-related fees that must be calculated into your overall budget. In addition to the base rent (which is calculated based on square footage), you may be responsible for common area maintenance fees, real estate taxes, and merchant association dues, or you may have to pay the landlord a percentage of your sales. All of these fees should be spelled out in your lease and reviewed by your franchisor, financial advisor, and attorney before you sign the lease (see Chapter 10 for more on hiring professionals to assist you). Hidden costs that are not
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calculated into your budget can throw off your financial projections dramatically. ■
Ease of access and convenience for customers: How easy is it for customers to reach your location, park their cars, and gain access to your business? Is the location you’ve selected truly convenient to your customers? Will customers have to travel out of their way to do business with you? Keeping in mind that customers are rather lazy and not inherently loyal, will the location you select attract your target customers and keep them coming back? As people drive by your location, will they be able to slow down and turn into your parking lot or driveway?
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High visibility: One of your biggest and best marketing tools as a franchisee is the location itself. Between the size of the building you’re in and the signage you put up, you want your location to have as much visibility as possible and to fully utilize the brand recognition of your franchisor.
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Ingress and egress: These terms refer to the entrance and exit of the location itself, in terms of convenience, ease of use, and functionality.
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Nearby competition: How much competition is located within a short distance of your proposed location? How will this competition impact your sales and traffic? Does your competition have a better location that’s easier and more convenient to reach?
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Other draws to the location (traffic generators): What anchor stores, for example, can you count on to generate a constant flow of traffic to your location? Do these draws attract your target customers? How can you benefit from the draws?
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Parking: Parking is a huge issue that can greatly impact the convenience (or inconvenience) a customer experiences when visiting your location. Can customers park
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directly in front of your store, or will they have to park their cars and walk in order to reach you? Is there ample parking nearby, or will customers have to circle around waiting for parking spots to open up? ■
Security: Does the location offer a safe environment for your employees and customers? If the area is perceived to be dangerous, this could keep customers away from your location.
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Signage: How much signage will you be able to utilize to promote your business? What size signs? Where can they be located? Can the signage be seen from all directions? From what distance will the signs be seen? Will the signage have to conform to specific guidelines from the landlord?
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Size: Even if the location is ideal, the size of the space must also be suitable for the type of business you’ll be operating. If it’s too small, you could lose out on revenue or may not be able to operate efficiently. If it’s too large, you might wind up spending too much on rent and may not be able to fully utilize the space. Follow the guidelines from your franchisor in terms of space requirements—and stick to them.
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Tenant mix: If your business will be located in a mall, shopping center, or strip center, for example, who are the other tenants? Are any of them your competition? Conversely, will any other tenants help your business attract its target customers?
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Traffic: Traffic is a calculation of how many people walk or drive past your location on a daily basis. Keep in mind that even if the general traffic is in the thousands of people, not all of these people are considered part of your targeted customer base.
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Zoning: Based on local laws and zoning, will your business be allowed to operate from the location? Will you be able to acquire local licenses, permits, and so on? This is an area where your Realtor and attorney will be helpful.
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Watch Out! One of your most significant expenses as a franchisee will be securing your location and acquiring a lease, plus the other costs associated with constructing and preparing the location for opening day. Before you embark on your search for the ideal location, work with your accountant or financial consultant so that you know your overall real estate budget. Don’t waste time finding the perfect location, only to determine later that you can’t afford it.
Strategies for negotiating your lease Upon signing a lease with a landlord, you, as the franchisee, are obligated to adhere to all of the terms of that lease, including the length. Thus, if you sign a five-year lease, you personally could become responsible for paying for that space for Landlords want a busithe full five-year term, even ness that’s unique and if your business fails. You that will generate traffic to their center. When also have to adhere to all negotiating with a landthe rules and guidelines lord, all you can do is sell them on the concept required by the landlord. It behind your franchiseis extremely important that based business. you understand and are –Tom Buxton fully capable of adhering to all of the terms of the lease before you agree to sign it. Be sure to review the lease, line-byline, with your attorney and Realtor. The following are descriptions of some of the fees and costs associated with your lease. Make sure you have calculated for them within your operating budget. All these fees, combined, make up the total cost of the space, which is very different from the base rent (a much lower figure that the landlord might advertise). The most common ongoing fees associated with leasing commercial real estate include the following:
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Base rent: This is the cost per square foot of space. It is the primary fee you’ll need to negotiate with the landlord.
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Bright Idea Make sure you understand all the hidden or additional fees associated with the lease, including real estate taxes, merchant association dues, commonarea maintenance fees, and so on. Also be sure that all these fees have been properly calculated into your operating budget.
It’s important to do your research to determine what the other tenants are paying, and also to understand what the space is worth in the local real estate market. One way to estimate this price is to find out the going rate for similar space at nearby locations. ■
Common area maintenance: This will be your share of the cost required to maintain the common areas of the shopping center, mall, or strip center where your business is located. Your business will need to pay its share of security costs, snow removal, parking lot maintenance, common signage, common area lighting, sanitation, and so on.
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Leasable versus leased: This is legal terminology (used on the landlord’s behalf) to cover their losses for stores that close or space that goes unleased. Be sure to review this with your attorney to see whether this applies to the lease you’ll be signing and what financial impact it could have on your business.
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Real estate taxes: Your business will be responsible for paying the local real estate taxes for your portion of the shopping center, mall, or other location your business occupies. By determining the local real estate tax rate and calculating the size of your location, this is a cost that you can accurately predict, but it’s also one that can’t be negotiated down.
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Percentage rent: Many landlords will insist on receiving a predetermined percentage of your sales in addition to the base rent. The percentage you pay (if applicable) is typically
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Watch Out! Choosing the ideal location for your business will help your chances of success, but it won’t guarantee it. A lot goes into the operation of a successful franchise-based business beyond location alone. However, the location does play an important role.
negotiable with the landlord prior to signing the lease. Before agreeing to pay this additional fee, make sure there are no other nearby suitable locations available from landlords that don’t require it. ■
Merchants association dues: When your business is located in a mall, shopping center, or strip mall, a merchant association typically handles mall-wide promotions and advertising, plus oversees the maintenance of common areas and acts on behalf of other interests of the tenants as a group. Each merchant is typically required to pay its share of the overall expenses incurred by the merchant association.
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Utilities: Your business will be responsible for paying for the gas, electricity, water, and other utilities it utilizes on a monthly basis. You’ll also have to pay your share of the electric bill, for example, to light up the parking lot and common signage in your mall, shopping center, or strip center.
The next step: construction After you sign the lease for a space, the landlord will typically provide what’s referred to as a white box. This means the space is empty, in move-in condition, with all of the walls painted white (figuratively or literally). It then becomes your responsibility (with the help of your franchisor) to build out the location: Add your fixtures, lighting, signage, inventory, equipment, and so on, so that you can open for business. This site preparation often requires, among other things, hiring a contractor, applying for building permits, and acquiring a
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certificate of occupancy. Although your franchisor will typically provide blueprints, a layout, or a prototype for what the location should look like after it’s fully built, it may become entirely your responsibility to oversee the construction or remodeling efforts to build and transform your location. If it is your responsibility to hire an architect or contractor, and you have little or no experience with this aspect of real estate, hire an expert who can help you. Also, make sure the architect, contractor, or other professional you hire is experienced, licensed, has a good reputation, and is honest. After obtaining local referrals, you can conduct your own research about each person before hiring him or her. Obviously, it’s essential that the people you hire stay on-budget; start and complete the work within the time frame allocated; and do work that meets local legal guidelines, building codes, and safety codes. Before hiring someone, ask to see samples of his or her work at other locations; talk to past clients/customers; and determine whether the contractor has a good reputation with the local Chamber of Commerce, Better Business Bureau (BBB), and unions (if applicable). Check to make sure each person is fully licensed, insured, and bonded, and that there are no outstanding legal judgments or court cases pending against the contractor. Just as you would when hiring any type of expert, interview several architects and contractors, accept multiple bids and proposals, and then, with the help of your franchisor, choose the best people to hire.
Bright Idea One way to avoid having to deal with construction, major remodeling, or other pre-opening hassles is to take over an existing (already operating) unit from another franchisee. Depending on the franchisor you’re working with, this may or may not be a viable option, but it’s worth exploring, especially if you’re a first-time franchisee.
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Just the facts ■
The location you ultimately choose for your franchisebased business will typically play a tremendous role in whether the business achieves success and profitability.
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Before looking at real estate, determine your exact needs.
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Unless you’re already a real estate expert and have experience leasing commercial real estate, seek the help of experienced professionals in addition to your franchisor. Selecting your location is not something you should attempt to handle on your own.
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A lot goes into choosing the ideal location, especially for a retail-based business. Make sure you look at all the contributing factors and consider all the extra fees and charges associated with a lease.
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Finding the perfect location for your business is one thing. Being able to afford that location is another thing altogether. Determine what you can afford to pay for your real estate early in the process.
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By investing in prime real estate with excellent visibility and access, your advertising and marketing expenses could be reduced, because the site itself will be a powerful selfmarketing tool.
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When hiring experts, such as a commercial Realtor, architect, or contractor, do your research and make sure you hire the most competent, experienced, and reliable people for the job. You may pay a bit more for their expertise, but you’ll save time, money, and frustration in the long run.
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Rely on your franchisor to help you define your real estate needs, including space requirements. Then utilize whatever services the franchisor offers to help you find the ideal location for your business. Rely on the franchisor’s experience, success rate, and research.
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Remember, finding the perfect location is only one piece of the overall puzzle when it comes to achieving success. You’ll still need to operate your business properly and invest the time, money, and hard work needed to make every aspect of your business successful, even with the ideal location.
The Training You’ll Need
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hink about this: You don’t know what you don’t know. Plus, if you’re not already familiar with the business you’re about to be getting involved with, chances are, you don’t even know what you need to know! That’s where your franchisor is supposed to step in. Through training, your franchisor should provide you with all of the knowledge you need in order to operate your franchise-based business in accordance with the franchisor’s established system. This chapter focuses on how to best utilize the training you receive from your franchisor. It’s this training that’ll provide you with the foundation of knowledge your franchisor has determined you will need to achieve success.
Training basics During a relatively short training period, typically between one and four weeks, you’ll be provided with a vast amount of information from your franchisor. This isn’t theoretical, trivial, or esoteric information, 153
Chapter 8
GET THE SCOOP ON . . . Reviewing the training you should expect from your franchisor ■ Taking advantage of all learning opportunities ■ Rounding out your business education ■ Passing your knowledge to your employees
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Bright Idea Many franchisors allow you to record the training sessions in which you participate. Be sure to purchase a digital voice recorder, cassette recorder, or microcassette recorder (and an ample supply of tapes, if ncessary) for this purpose. Being able to go back and listen to important lessons will be highly beneficial.
like what you had to memorize in school when preparing for a mid-term or final exam. Instead, the information your franchisor provides during training is the core knowledge you require in order to successfully operate your business. One of the biggest challenges many first-time franchisors face during their initial training period is in taking in all of the information that’s given to them, processing and understanding it, and then being able to put it all into practice almost immediately. For many new franchisees, the training period is not only a time to learn all about an entirely new type of business, but also the time to learn how to exactly follow the franchise system developed by the franchisor. To make the learning process easier, take copious notes, ask lots of questions, and take full advantage of the printed (take-home) learning materials provided by your franchisor. A franchise system is the cookie-cutter process you’ll follow to operate your business, which is exactly the same system your franchisor provides to all of its other franchisees. There is no
Watch Out! The topics covered during your initial training are considered by your franchisor to be the most important knowledge you’ll need once you start setting up (and then operating) your own business using its franchise system. If there’s something you don’t understand during the training period, obtain clarification right on the spot by asking questions, rereading training materials, or rewatching training videos. Starting your business with an unstable foundation of knowledge can easily lead to unnecessary mistakes, or even failure.
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Bright Idea Need answers fast? Take full advantage of the operations manual, along with the training materials your franchisor provides. These documents will typically provide answers to questions and solutions to problems that first-time franchisees encounter. Before wasting time calling your franchisor or other franchisees, or spending money hiring an expert or consultant, see whether the information you need has already been compiled for you in the operations manual.
room for customization, personalization, or deviation from this system. One of your most important responsibilities as a franchisee will be discovering how to effectively and effectively follow this system, trust it, and develop a successful business for yourself using it. After all, the fee you pay to become a franchisee is, in part, so that you can benefit from utilizing this already-proven and established system. Although the training you undergo will teach you all about the franchise system you’ll soon be following, your franchisor should also provide you with a comprehensive operations manual. This is a printed how-to guide designed to provide franchisees with a detailed resource and answer book. After you begin running your business, you’ll need to refer to your operations manual often in order to discover how to handle a wide range of situations, manage various key operational processes, and get answers to many of the common questions you’ll no doubt have. For many franchisees, the operations manual they’re provided with becomes their bible for successfully managing their businesses.
The training you can expect from your franchisor This franchise fee you pay includes training from the franchisor, in order to acquire the knowledge you’ll need to achieve success operating your business. This training is, as you can imagine, extremely important and valuable. Thus, as you’re evaluating a
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franchise-based business opportunity, make sure the training provided is comprehensive and adequate. In fact, one of the initial questions to ask existing franchisees is whether the training they received from the franchisor was adequate. If you learn the training to be provided is not up to par, you’ll know you should either seek out another business opportunity or figure out your own methods for obtaining the knowledge you’ll need. In many situations, new franchisee training requires you to travel to the franchisor’s corporate offices or training center and remain there for between one and four weeks. Not only does this represent a significant time commitment, but the travel expenses (airfare, hotel, rental car, and meals) are not typically covered in your franchise fee. Thus, the training represents an additional expense you’ll incur before your business is even established, but after you’ve quit your old job and have given up your regular paycheck. During this training period, expect to work full-time (eight to ten hours per day) as you participate in the training opportunities your franchisor provides. Although most franchisors take steps to make the training entertaining as well as informative, it’s your responsibility to ensure that while you’re involved with training, you stay focused on the information being conveyed. Unlike in school, there are no mid-term or final exams to cram for and no opportunities to do extra credit work in order to make up for a bad grade. Instead, your comprehension of the information will be tested in real life, as you begin operating your own business. If you fail, your business fails. It’s that simple.
Watch Out! No matter what your professional background and experience, never assume you already know all there is to know about being a franchisee working within the specific system created by your franchisor. The training you’ll be provided will be extremely important, so take it seriously. Don’t look at your trip to the franchisor’s city as a vacation or an opportunity to go sightseeing and party.
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Expect to be trained either in a one-on-one situation or in a group setting (with other new franchisees) by experts employed by your franchisor. During this training period, be prepared to learn the following. ■
The core information you need to know about the type of business you’ll be operating, including all products and services you’ll be offering your customers
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Key information about how to operate within the established franchise system, including how to follow it to achieve success
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The skills necessary to handle the major operational aspects of your business, such as bookkeeping, management, human resources, marketing, inventory control, and so on
Depending on the type of business you’ll be operating and on your specific franchisor, the training you’ll be provided with can take many forms. Remember, learning is a lifelong endeavor. No matter how smart or business-savvy you are, you will never know absolutely everything there is to know about running a business.
Will you receive comprehensive training? At the very least, by the time you’ve completed the initial training provided by your franchisor, you should possess the following. ■
Bookkeeping and accounting knowledge necessary to manage the finances for the business
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Complete technical information about all products and services you’ll be offering
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Customer service skills and techniques that have proven successful for your type of business
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Detailed information about who your target customers are, how to reach them, and how to cater to their wants and needs
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Details about merchandising and pricing strategies
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Information about safety or security issues and procedures that relate to your business operation
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Instructions on how to use any proprietary software supplied by the franchisor that’s needed to operate or manage the business
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Inventory management skills, including information on how to find, negotiate with, and conduct business with suppliers, wholesalers, and vendors
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Knowledge of all basic operating procedures required to run your business
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Knowledge of how to find the ideal location for your business and handle all tasks associated with the location’s construction, design, and preparation
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Leadership and employee management skills
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Marketing, public relations, and advertising skills you can utilize on a local level (while taking advantage of the national and regional work done by the franchisor)
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Problem-solving skills, plus knowing where to turn if you encounter a problem
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Skills for finding, hiring, training, and successfully managing your employees
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Strategies for time management and scheduling for yourself and your employees
Bright Idea As a prospective franchisee looking into a specific franchise opportunity, make sure you will receive adequate training as soon as you become a franchisee and that the franchisor will provide ongoing support for the entire life of your business. This ongoing training will be essential to your business success. It should not be considered by you as a waste of time or an infringement on the operation of your business by the franchisor.
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Visiting the franchisor’s corporate offices or training center Most franchisors require new franchisees to spend time visiting the company’s corporate office or training center in order to learn from company’s executives, experts, and professional trainers. This aspect of your training will require a time commitment of between one and four weeks and is typically required prior to actually opening your own business. The training you receive during this period may be offered in a traditional classroom or hands-on setting (at an actual business location).
Training at your location After the initial training, many franchisors send one of their executives, experts, or trainers to your location as you prepare to open your business. This is one-on-one training, known as field support, that will help you acquire the last-minute knowledge you need as you become a business operator. Whether your franchisor offers on-location training when you first open for business or offers it periodically on an ongoing basis, this is an opportunity for you to receive personalized guidance and expert advice that you should fully take advantage of.
Franchisee meetings Almost all franchisors host quarterly, semi-annual, or annual franchisee meetings, during which additional training seminars are offered. This is an opportunity to learn new skills, acquire additional knowledge, discover new trends, and get your questions answered. In addition, these meetings provide for an excellent networking opportunity to share knowledge and experiences with other franchisees from around the country (or around the world). Consider these meetings to be mandatory (whether or not they actually are) and take full advantage of the learning opportunity they provide.
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Moneysaver Before becoming a franchisee, determine how much the training will cost. In many situations, initial training is included in your franchisee fee, but travel related to that training is not. Beyond the initial training, will you have to pay your franchisor extra to receive ongoing training and support? What about the cost of training materials for yourself and your employees?
The franchisor’s Web site and newsletters In addition to the operations manual and training materials you’ll be provided with once you become a franchisee, most franchisors host a Web site exclusively for its franchisees. This site provides an opportunity for the franchisor to distribute additional training information to all franchisees, plus it’s an opportunity for franchisees to communicate with each other. Less technically savvy franchisors share information through a regularly published newsletter.
Toll-free help line No matter how comprehensive the training you receive, you can bet that once you actually start operating your own business as a franchisee, you will have questions and encounter problems. Most franchisors offer a help line you can call in order to get those important questions answered in a timely manner by an expert employed by the franchisor. Instead of guessing how you should handle a situation, for example, and risking making a costly mistake, pick up the phone and check with your franchisor whenever you need to.
Bright Idea To save time, before calling your franchisor, make sure the question you have or the solution to the problem you’re experiencing isn’t already covered in your operations manual or training materials.
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Tapping the knowledge of other franchisees One of the best perks of being a franchisee is that virtually any problem you encounter has already been experienced by other franchisees in your network. Thus, answers to your questions and solutions to almost any problem or situation are typically only a phone call away. Learn to utilize the network of franchisees that’s available to you. Tap your networking skills and become friendly with as many existing franchisees throughout the country as possible, and then stay in touch with those people on a regular basis.
Take advantage of all learning opportunities available As a franchisee and small business owner, you will have many opportunities to obtain training and learn new business-related skills from your franchisor and through other resources. Chapter 10 offers additional advice on how to obtain the help you’ll need operating your business. As discussed in the preceding sections, the training you experience will come in many forms, including the following. ■
Traditional classroom instruction
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One-on-one instruction
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On-location instruction (at your location)
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Hands-on experience (working at an existing location)
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DVD/video instruction
Watch Out! Just like yourself, the other franchisees in your network are extremely busy operating their own businesses. Although franchisees are encouraged to support each other and are typically more than happy to interact with and help out other franchisees, don’t monopolize the time of other franchisees. Respect their time and their schedules when seeking help or advice.
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The franchisor’s operations manual and training materials
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The franchisor’s Web site and newsletter
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The franchisor’s toll-free help line
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Franchisee networking
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Business-related books, trade publications (magazines), and Web sites
The following five strategies help to ensure you go into any new business venture possessing the knowledge and skills you’ll need to achieve success. ■
Start with the basics. Before your grand opening, work with your franchisor (and outside trainers, if necessary) to ensure that you have the basic information and skills to manage the day-to-day operations of your business. After you have that core foundation of knowledge and skills, you can build upon it to give yourself added tools and resources for managing and growing your business.
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Ask lots of questions. When given the opportunity, ask questions and make sure you understand the answers. This strategy applies when being trained by your franchisor; when interacting with other franchisees; and when working with your lawyer, bookkeeper, or other expert(s). There’s no such thing as a stupid question. Even if you’re shy or worried about sounding inexperienced, if you have questions, ask them. The knowledge you acquire will ultimately prove extremely valuable.
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Do your homework. In addition to the training you’re provided, be sure to invest the time to thoroughly read the training materials and your operations manual on your own. You can also read other how-to and self-help books (like this one!) to acquire knowledge you want or need. Also, don’t forget to utilize the Web as a valuable, information-packed resource on virtually every topic imaginable.
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Follow the franchise system exactly. As a franchisee, it is essential (and mandatory) that you follow the franchise system outlined by your franchisor. The training the franchisor provides should teach you how to do this. Once you start operating your own business, however, it’s entirely your responsibility to make sure you follow the rules, practices, guidelines, and operating procedures outlined by your franchisor. Doing this will help your business run smoothly and help you avoid potential conflicts with your franchisor.
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Visit other franchisees. Spending time at another successful and experienced franchisee’s location helps you see firsthand how your own business should or could operate. It’s one thing to read how to operate a business from a manual; it’s another thing altogether to see the franchise system working firsthand by actually visiting other franchise units. Whether it’s required by your franchisor or not, visiting someone else’s established unit should be an important part of your initial training as a new franchisee. Other franchisees can be an extremely valuable source of information and a training resource. A franchisee who has been in business for a while will already have encountered and overcome many of the challenges and problems you may now be facing.
Rounding out your business education In addition to learning the core skills necessary to operate a business using the franchise system created by your franchisor, some of the other business-related skills that many first-time franchisees find useful include the following. ■
Accounting/bookkeeping
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Marketing, advertising, and public relations
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Personnel and business management
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Time management
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Bright Idea Upon joining the International Franchise Association (IFA), franchisees can participate in a wide range of online-based training programs that cover many specific topics, as well as attend seminars, classes, and trade shows sponsored by the organization (held in cities throughout the country). For more information, point your Web browser to www.franchise.org and click the Education icon.
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Operations
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Human resources (finding, hiring, and training employees)
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Specialized knowledge needed for your business
Be sure to read Chapter 10 for details on how to gain knowledge and experience in these and other areas that relate to the type of business you’ll be operating. Remember, it’s not necessary to become an expert in each of these areas, but having a basic understanding and working knowledge of them will be useful. You can always hire an expert or consultant to assist you in areas in which you’re not experienced.
Passing on your knowledge to employees One of your responsibilities as a business owner is to take the information you receive during your training and pass along the appropriate aspects of that information to your employees. Thus, you will go from being the trainee to the trainer. It’s ultimately your responsibility to ensure that your employees are fully capable of doing their respective jobs and that you provide each of them with the information, knowledge, and skills they’ll need to meet their jobs’ responsibilities. Chapter 9 focuses on hiring and training your employees.
Just the facts ■
By offering training, your franchisor should provide you with the knowledge you need in order to operate your franchise-based business in accordance with the franchisor’s established system.
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One of the biggest challenges many first-time franchisors face during their initial training period is taking in all of the information that’s given to them, processing and understanding it, and then being able to put it all into practice almost immediately.
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There is no room for customization, personalization, or deviation from the established franchise system that’s been created by your franchisor.
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Learn to take full advantage of the operations manual and training materials your franchisor provides. These documents typically provide answers to questions and solutions to problems first-time franchisees encounter.
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Before becoming a franchisee yourself, one of the initial questions to ask existing franchisees is whether the training they received from the franchisor was adequate.
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The initial training you receive will typically involve traveling to your franchisor’s corporate offices or training facility for a period of one to four weeks.
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Be sure to take full advantage of all training and learning opportunities provided by your franchisor, even after your business is up and running.
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Hiring and Managing Your Employees
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lmost every type of retail or service-oriented business requires employees. Unless you’re going to handle every single responsibility involved with the operation of your business, every single day, all by yourself, with no assistance whatsoever, you’ll need employees. In fact, in most situations, the success of your business relies heavily on your ability to hire and manage a group of competent, qualified, motivated, hard working, loyal, and honest employees. These are the people who handle much of the day-to-day operation of your business and interact with your customers and clients. After you hire a group of exceptional employees, it’ll then be your job to handle their scheduling, training, and management. Failure in any one of these areas could have a disastrous and costly impact on your business. Knowing how to find, motivate, manage, promote, and fire employees is a skill set you’ll want to acquire as quickly as possible. Acquiring these skills will likely be an area in which your franchisor
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GET THE SCOOP ON . . . Finding the best employees ■ Hiring employees you can trust ■ Conducting successful interviews with applicants ■ Managing your employees after they’re hired ■ Solving common staffing problems ■ Firing bad employees
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Bright Idea Early on, ask your franchisor about the training or support provided to help you find, hire, and manage your employees. Some franchisors handle some or all of these responsibilities on your behalf, at least initially. Others teach you what to look for in a good employee, as well as how to find and hire them, and then provide training for you on how to best manage your staff.
can help, at least initially. This chapter focuses on how to find, hire, and manage your employees.
Defining your staffing needs Before you start hiring a bunch of employees to help operate your business, work with your franchisor to determine what your exact staffing needs are or will be. This is information your franchisor should already have figured out on your behalf, based on the size of your business, the number of hours per week it’ll operate, and the number of people needed for the business to operate efficiently. Figure out exactly what types of jobs you need to fill, how many people you’ll need to hire, and what, specifically, you’ll be looking for in each of your employees. For example, you may need to hire two managers, two assistant managers, and ten employees in order to properly staff your business and not have to pay overtime or require employees to work double shifts. As you consider your staffing needs, you’ll also need to consider budgeting issues. Can you afford to pay the number of employees you’re looking to hire? Will you be able to offer competitive wages? What about offering benefits, perks, and bonuses? Although you may want to hire the most experienced and knowledgeable managers possible, these people will expect to be paid what they’re worth in the current job marketplace. Likewise, if you seek out a staff comprised of highly experienced people who have plenty of previous work experience in similar businesses, you’ll be expected to pay them more than if
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you were to hire less experienced employees who require significantly more training. Learning how to find top-notch employees, yet stay within your overall budget, is a skill unto itself that you’ll need to master early on as a franchisee. Look to your franchisor for assistance, at least initially.
Create job titles and descriptions, and then set expectations For every position you need to fill, create a job title along with a detailed job description. Put this information in writing and make it available to applicants. Each job description should include exactly what’s expected of the person filling that job in general terms, as well as a description of their day-to-day responsibilities and overall goals. Set specific expectations and job responsibilities and be prepared to present this to the applicant before he or she accepts the job. The information, goals, and expectations in the job descriptions are in addition to the overall employment policies and rules you’ll want to establish and incorporate into your employee manual. This printed manual should focus on everything from customer service procedures to lunch breaks, taking vacation time, last-minute scheduling changes, and dress codes. The individual job descriptions you create should describe anything and everything you expect from the employee. Over time, however, you may find it necessary to modify your job descriptions.
Bright Idea In addition to seeking help from your franchisor when creating job titles and descriptions and setting expectations for employees, consider soliciting advice from existing franchisees who have already mastered the hiring and employee-management processes.
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Watch Out! Misrepresenting or poorly describing a job can lead to hiring the wrong employee to fill it. When someone accepts a job offer from you to fill a specific job, he or she should understand what the job entails and be able, willing, and excited to fill that position. If employees find themselves expected to fill jobs that were misrepresented, you may find yourself with frustrated and problematic employees.
How and where to find the best employees The process of putting together a fantastic team to help you operate your business begins with the recruiting and hiring process. As the owner/operator of your business, this is when you must put on your human resources cap and determine the very best ways to find the applicants you’re looking to hire. After you know the types of applicants you’re looking for, based on the profiles you create, and you have a good idea of the number of jobs and types of jobs you’re looking to fill, the next step is to find the most qualified people possible to fill those jobs, and still stay within your budget for payroll and employee compensation. There are many ways to recruit applicants. Depending on the types of applicants you’re looking for, and whether they need specific skills or experience, some of the following methods (listed in alphabetical order) may work better than others. This is an area where your franchisor should have already done a lot of research and should be able to assist you, at least early on as you establish your business.
Career centers at high schools, colleges, and trade (vocational) schools Many schools, including high school, colleges, and trade/ vocational schools, have career guidance offices and job counselors to assist soon-to-be and recent graduations with
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job placement, as well as help current students find part-time work. By contacting schools, you can add your available job listings to their databases or bulletin boards.
Career-related Web sites Many career-related Web sites can be used as powerful recruiting tools. Two of the more popular sites are the Monster Board (www.monster.com) and Yahoo! Hot Jobs (http://hotjobs. yahoo.com), both of which offer job listings on a national level, but allow job seekers to search by region, keyword, or job title, for example. Depending on the career-related Web site you utilize, as the employer, you may have to pay a fee to post your ads. One benefit to this type of service is that you can receive all your responses from applicants via e-mail or company Web site. Also, in addition to posting “help wanted” ads, you can gain access to vast databases containing resumes of available job seekers, so that you can conduct your own job search and sort through hundreds or thousands of potential applicants extremely quickly, based on keywords that appear within their resumes.
Employment agencies If you’re looking to hired experienced workers with specialized skills, as well as managers and assistant managers, an employment agency can be extremely helpful. An employment agency will seek out applicants, conduct pre-interviews, and provide you with a selection of what it believes are the most qualified people to fill your job openings, and in exchange for this service, you’ll have to pay the sometimes considerable fees.
Moneysaver The International Franchise Association (www.franchise.org) offers an online career center that can be used as a low-cost hiring tool, especially if you’re looking to fill management-level positions.
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Before working with a specific employment agency, set up meetings with several local agencies to discuss your needs and budget, and then choose an agency that is best equipped to handle your business needs. You can find listings for employment agencies in your local phone book or by contacting your local Chamber of Commerce. Many agencies also run ads in the Employment section of newspapers.
Franchisor In addition to training you (the franchisee) on how to find and hire the most qualified applicants, many franchisors actively recruit potential employees on a regional or national level and provide you with qualified leads. The franchisor can also be instrumental in helping you find employees currently working for other franchisees (in other locations) who are looking to relocate and possibly transfer to your location. Because your franchisor has experience staffing its companyowned units, as well as assisting existing franchisees with their own hiring, be sure to utilize the resources your franchisor offers to you in order to make the hiring process easier, more efficient, and successful.
In-store “help wanted” signage The traditional “help wanted” sign in your location’s front window is always a useful hiring tool. This approach allows you to recruit local people. If someone responds to a “help wanted” sign displayed in your store, he or she may already be a customer who is familiar with your business and what you offer. When you display a “help wanted” sign, be sure to list the job title(s) you’re looking to fill. When someone inquires about the job, be prepared to provide him or her with a detailed job description and application right on the spot. If possible, try to schedule a formal job interview with the applicant or have your employees collect the appropriate contact information from the applicant so you can contact him or her in a timely manner.
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Job fairs Local area or regional job fairs can be an efficient way to find larger quantities of applicants in a short period of time. When participating in a job fair, your business first sets up a table or booth. Interested applicants then approach you on the spot to drop off their resumes and learn more about the job(s) you’re offering. Most job fairs are relatively inexpensive (or even free). Job fairs are typically attended by large numbers of people looking for employment. These people usually have extremely diverse backgrounds, but not everyone attending the job fair will be a qualified applicant or the type of person you’re looking to hire. As the employer, it will be necessary to sort through many applicants and resumes in order to find those you’re most interested in.
Networking One of the very best ways to find qualified applicants is through networking; for example, your existing employees can provide referrals of people they know or people they’ve worked with in the past. It’s often much easier and more efficient to hire someone who comes with a personal recommendation than it is to hire a total stranger. In addition, when you’re looking to hire people, mention this to friends and family members, as well as people you interact with throughout your day on a personal or professional level. For example, people who are in constant contact with large numbers of people, such as clergymen, doctors, lawyers, waiters/waitresses, post office clerks, teachers/professors, librarians, and so on may be able to provide you with viable leads. Networking can be a powerful recruiting tool, especially if you incorporate some creativity in how you use it.
Newspapers Running “help wanted” ads in local newspapers is a proven and time-tested method for recruiting applicants. When using this
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recruiting method, pay attention to your budget so that you don’t overspend on ads that don’t generate the desired results. When creating your ads, be as descriptive, accurate, and detailed as possible. List specifically what job(s) you’re looking to fill and which skills, education, and experience you’re looking for in applicants. Also, describe basic job responsibilities. Following these tips will help ensure that only the most qualified candidates apply, which ultimately saves you time. Depending on the types of jobs you’re looking to fill, choose a newspaper that’s most apt to have those people as subscribers or readers. Beyond that, it becomes your responsibility to write an ad that’s accurate, descriptive, and detailed. In many situations, your franchisor will be able to provide you with sample ads that their professional human resources professionals have created. You might also be able to obtain sample ads from other franchisees.
Professional trade associations Depending on the type of business you’re operating, if the employees you’re looking to hire must have specialized skills, training, or licensing, chances are there is a professional trade association for people who work in that specialty or line of work. Most professional trade associations have Web sites, magazines, or newsletters that list job opportunities. Find them by conducting an Internet search.
Having applicants complete a job application In addition to submitting a resume, many employers insist that applicants complete a one- or two-page job application. This is a written questionnaire that requests that the applicant provide much of the same information that already appears on his or her resume. There are many reasons why employers require a job application, including the following.
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Watch Out! If you opt to create your own job application, be mindful that there are specific types of questions you, as the employer, are not legally allowed to ask applicants. Your attorney will be able to provide guidance, so be sure to have the document’s contents carefully reviewed by your attorney before actually using it as a recruiting tool.
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It is a test to see whether the applicant is literate, has good handwriting, and has good written communication skills.
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At the end of a job application is a statement that the applicant must sign indicating that all of the information he or she has provided is 100 percent accurate. This is a tool to help prevent applicants from lying about their credentials.
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It is a way to gather additional information not found on the applicant’s resume, such as his or her available work schedule, desired salary, and list of references.
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It’s a useful recordkeeping tool when interviewing many applicants.
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You can easily review information, such as the applicant’s contact details, employment history, skill set, education, schedule preferences, and so on, in a format that’s convenient for you.
If your franchisor doesn’t provide you with a pre-created employment application that specifically addresses the needs of your business, you can create your own application or purchase generic application forms from any office supply store.
The art of interviewing job applicants By reviewing an applicant’s resume, cover letter (if applicable), and employment application (if applicable), you can learn a lot about someone’s achievements and history, but it’s almost impossible to truly get enough information to make a reliable hiring
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decision based solely on facts that appear on a printed page. This is why the in-person job-interview process is so important. Through one-on-one interviews with applicants, you can learn about their ■
Personality and attitude
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Visual appearance
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Verbal communication skills
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Interpersonal skills
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Use of body language as a communications tool
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Details of work experience, education, interests, goals, skills, and other information that may or may not appear on their resume
By meeting with applicants and engaging them in a formal dialog, you have a tremendous opportunity to learn more and make intelligent hiring decisions. As the interviewer, there are several different styles you can adopt in your quest to learn as much about each applicant as possible. You can conduct a formal question-and-answer session, maintain an informal and open dialogue, or sit back and encourage the applicant to literally sell themselves and their qualifications to you. As you engage in each interview, focus on all of the qualities you’re looking for (discussed in the “What makes a star employee?” section earlier in this chapter). Ask yourself questions like the following. ■
Is the applicant honest, trustworthy, and dependable?
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Will the applicant be able to handle all the responsibilities of the job?
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Is the applicant’s visual appearance (grooming and wardrobe) professional and up to par with your business image?
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Based on his or her communication skills, will the applicant be able to provide the level of top-notch customer service your business relies upon for success?
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Is he or she a team player, who will get along with coworkers and superiors?
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If hired, will the applicant be able to excel within the work environment you’ve created?
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Is the applicant respectful of authority, able to listen, and able to follow directions?
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Did the applicant take the time and initiative to properly prepare for the interview?
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Is the applicant able to demonstrate a genuine interest in the job opportunity being offered?
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What is unique or special about the applicant that will allow him or her to succeed if hired?
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Is the applicant worth the salary you’re offering? Could the applicant become a valuable asset to your business?
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Does the applicant make eye contact when engaged in a conversation? Does he or she smile and utilize his or her body language effectively?
Many of these questions will answer themselves as the interview begins and you spend a few quality minutes with each applicant. To answer some of the questions will require you to ask more probing questions, read the applicant’s body language, and then draw on your own experience and people skills to make intelligent assumptions. Your ability to gather information from applicants during the interview process, however, will depend in large part of your interview skills and your willingness to ask the right questions. As a general rule, refrain from asking questions that simply require a “yes,” “no,” or one-word response. You’ll learn a lot more about an applicant, in a much shorter period of time, if you ask open-ended questions that encourage applicants to explain their answers and provide details about their life, work experiences, skills, accomplishments, and so on.
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Sample interview questions Although your franchisor may provide you with a detailed list of interview questions you can use when conducting job interviews, the following section provides a handful of sample questions to help you get started and gather the information you want and need from applicants. ■
What can you tell me about yourself?
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What is it about this job opportunity that is appealing to you?
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What related work experience do you have? Have you ever worked for one of my competitors?
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Why do you believe you’re qualified to fill this job opening?
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What skills and experience do you bring to the table that make you a qualified candidate?
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Tell me about your proudest accomplishment in your last job.
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What would you say is your biggest weakness, professionally speaking?
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What is your scheduling availability?
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Do you have flexibility in your work schedule?
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Are you available to work evenings or weekends?
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What are some of your long-term goals? Where do you see yourself professionally in three to five years?
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What did you like most about your last job?
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What did you like the least about your last job?
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What was your major in school? Why did you pursue that major? How will it help you pursue your current careerrelated goals?
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Why did you leave your last job?
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What do you know about [insert franchise name]? Why are you interested in working for this company?
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What else can you tell me about yourself that isn’t listed in your resume that will help me decide whether or not to hire you?
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How well do you deal with pressure or the need to handle multiple responsibilities simultaneously? Can you provide examples of how you’ve dealt with this successfully in the past?
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Is there anything about your past that I should know that might prevent me from hiring you?
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Would you describe yourself as a team player? Please provide a few examples of how you’ve worked well with others in a work-related situation.
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After reading the job description for this position, do you have any questions or concerns about what will be expected of you if you’re hired?
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Are there any questions you have about the job or company that I can answer before we conclude this interview?
What you can’t legally ask during an interview Your goal during the job interview process is to learn as much as possible about an applicant. During this endeavor, however, there are specific questions and topics you, as the employer, are not allowed to bring up. Whether applicants share this information of their own accord while answering your open-ended questions, however, is entirely up to them. As the interviewer, it is illegal to ask the applicant questions directly relating to the following topics. ■
Age
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Arrest record
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Disabilities (physical or mental)
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Marital status
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Native language or ethnic background
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Parental status (or future child-baring plans)
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Religious beliefs
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Sexual orientation
Hiring employees you can trust One of your responsibilities as you hire new employees is to look beyond someone’s resume, skill set, and educational accomplishments. During job interview(s) with applicants, you must also learn about them as people and determine whether they possess the personality, attitude, ethics, and work habits you believe are necessary to succeed in the jobs you’re looking to fill. Although you can simply ask someone, “Hey, are you honest?”, if he or she is an inherently dishonest person, you won’t get a truthful answer. This is why you must learn to rely on your instincts during job interviews, plus ask plenty of open-ended questions that will invite applicants to talk about themselves as much as possible. It’s also becoming much more common for employees to run background checks, credit checks, and drug tests on potential employees, as well as carefully check all references. It has become relatively inexpensive to hire an outside company to perform these background checks, credit checks, and drug tests in a timely and efficient manner. Doing this research about your potential employees helps you avoid hiring applicants who are lying about their work history, or who are trying to cover up something negative about their past. If someone was fired from his or her last job for stealing, for example, this is something you want to know before inadvertently hiring that person and granting access to your cash registers, inventory, or other company assets. Your franchisor and other franchisees can provide insight into how much research you should do on each applicant before making a hiring decision. You can also obtain referrals for outside agencies capable of conducting background checks, credit checks, and drug tests, as needed.
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Managing your employees After hiring your employees and providing them with the training they’ll need to succeed, your next major responsibility will be to properly manage all of your employees on an ongoing basis. Everyone has his or her own unique management and leadership style; however, some people are much better at managing people than others. One of your goals as a business owner/operator must be to develop the most effective management skills possible, so you can efficiently and easily manage your employees, plus handle all your other work-related responsibilities. Your franchisor should provide you with basic training when it comes to developing managerial skills. If these are skills you don’t possess or you’re simply not good at them, seriously consider hiring a qualified manager you can trust to take over some of these responsibilities. As discussed in Chapters 13 through 15, many of the franchising experts interviewed believe that developing a close bond with employees and creating a family-like environment is essential. Depending on the type of business you operate, this may or may not be feasible. The management style you choose to adopt should keep your employees motivated, dedicated, and loyal, plus allow employees to handle the responsibilities of their individual jobs in a way that benefits the business as a whole. Your ability to properly manage your employees may require you to be a disciplinarian at times, while at other times, you must be encouraging, supportive, and
Bright Idea Many managers find it effective to host a weekly, biweekly, or monthly mandatory meeting for all employees. This provides a forum for the manager (boss) to discuss any potential problems and also allows employees to voice their thoughts, grievances, and opinions in an organized and professional manner. These meetings can also promote a group bonding experience and enhance communication.
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Watch Out! Learning how to properly manage employees is a skill you’ll need to learn quickly, but one that could take months or years to perfect and fine tune. As a general rule, never publicly embarrass, chastise, or discipline an employee in front of a client, a customer, or a coworker (one of your other employees).
motivational. It’s ultimately your responsibility to make sure all your employees stay focused, are organized, and handle all their responsibilities. Part of being a good employer involves knowing how and when to reward people, how and when it’s appropriate to discipline them, and the very best ways to keep everyone working toward achieving the business’s overall objectives. Many bosses run into the problem of wanting to be a best friend to their subordinates, when at times, being in charge requires a tougher approach to employee management.
Creating an employee manual With the help of your franchisor, you need to create a written employee manual that outlines all the rules, policies, and operating procedures to which employees must adhere. This document should also describe, in detail, your expectations as the employer. Give a copy of your employee manual to each employee, in addition to a detailed job description. After you’ve created this document, one of your responsibilities is to ensure that everyone adheres to it. There can be little or no room for bending the rules or giving certain employees preferential treatment. Upon hiring each employee, he or she should agree, in writing if necessary, to adhere to the rules, policies, and procedures dictated in the employee manual.
Rewarding your employees Properly rewarding your employees will be extremely important over the long term in order to keep them motivated, loyal, and
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dedicated to their work and to your business. There are many ways to reward employees, including the following. ■
Additional on-the-job perks (employee discounts, a better parking spot, and so on)
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Extra vacation time
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Financial bonuses for achieving specific objectives or goals
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Hosting holiday parties for employees and their families
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Organizing company retreats
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Pay raise or promotion
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Providing an award, certificate, or plaque
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Public recognition (such as announcing an “Employee of the Month” and posting the recipient’s name and photo on a wall for all to see)
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Taking employees out to lunch or dinner; planning informal company events or outings
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Verbal praise (a “thank you”)
How and when you offer rewards or incentives to your employees is entirely up to you. By rewarding your employees, however, they’re more apt to be motivated, which means greater productivity. Greater productivity can easily lead to higher revenue and greater profits. So, when deciding whether to reward employees, and then when choosing how they’ll be rewarded, always look at the big picture in terms of how your business will benefit and what the cause and effect of having happy, motivated, and productive employees will be.
Bright Idea Don’t be afraid to use your creativity when deciding how you’ll reward your employees. Also accept input from your employees about how they’d like to be rewarded and what incentives will be valuable or meaningful to them.
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In addition to relying on your own management skills, experience, and creativity, look to your franchisor and other franchisees for ideas on how to effectively reward and motivate your employees on an ongoing basis.
Setting salaries, benefits, and bonuses Although your franchisor and other existing franchisees can provide you with guidelines in regard to how much to pay your employees and what type of compensation package (including benefits, perks, and bonuses) to offer, a lot will depend on the local economy and what nearby businesses (including your competition) pay their similarly qualified employees for comparable work. Before setting salaries and developing compensation plans, sit down with your accountant or financial planner to make sure you can afford the salaries you have in mind. Also, be sure to conduct research about local market conditions and average salaries. One excellent resource for determining average compensation for a wide range of specific jobs by geographic area is the Salary.com Web site (www.salary.com). Keep in mind that just because one franchisee pays its salespeople a certain salary in one city or geographic area, the economic conditions where you’ll be operating your business may be significantly different and require you to offer a significantly higher or lower salary. The unemployment rate, local economy, and a variety of other factors contribute to what salaries you’ll need to pay. In addition to a offering a competitive salary, one way to attract the best possible employees is to offer benefits (health insurance, paid vacations, paid parking, and so on). Every benefit you offer has a financial value associated with it. Based on who your employees are, figure out what benefits they’d appreciate the most and consider offering them (if you’re financially able to). Offering bonuses based on performance is another way to recruit and retain employees. A bonus can be offered as a onetime payment or prize for achieving a specific goal. It can be in
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the form of a cash payment, prize, or extra paid vacation days. Use some creativity! Offering bonuses is a great morale booster and is an excellent way to increase employee productivity.
Dealing with common staffing problems No matter what type of business you’re operating or how excellent your management skills are, there will be times when you encounter problems with one or more employees. Whatever the problem, make sure you address it in a timely and highly professional manner, without allowing your emotions to get in the way of achieving the desired objective or result. During the training you receive from your franchisor, ask specifically how you should deal with various staffing problems. Some of the most common problems include the following. ■
Bad attitude
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Dishonesty
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Hiring unqualified employees
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Insubordination
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Insufficient training
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Lack of motivation
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Poor scheduling or organization
It’s always best to think through how you’ll address staffing problems and challenges before they actually arise. Doing this will ensure that your response to the situation is well-thought-out, appropriate, and properly orchestrated. Advance planning will also reduce the stress you experience, plus allow you to handle the situation efficiently and effectively.
Firing bad employees Sometimes, problems arise with employees that can’t easily be fixed. Or an employee may do something that’s completely unprofessional, out of line, or in another way causes your business harm. In these situations, it may be necessary to fire that employee (or at the very least, insist on his or her resignation).
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There are many laws pertaining to how and under what circumstances employees can be fired, and what rights you have as their employer versus the rights of the employee. This should all be covered in the training you receive from your franchisor; however, it’s also an issue to review with your attorney. If you’re forced to fire an employee, always act professionally, even if you’re experiencing feelings of anger, hurt, or betrayal. Do what’s necessary to protect the interests of yourself, your existing employees, and your business. Obviously, having to fire an employee isn’t one of the more pleasurable responsibilities you’ll have to deal with, but it is something you will eventually need to do as a business owner/operator. The severity of the actions you take against an employee should be appropriate to the situation he or she has created. If the employee has stolen from you or your business or perpetuated some other form of crime, for example, you might opt to contact the police. If the employee simply doesn’t show up for work consistently, firing the employee or asking for his or her resignation will typically be more appropriate. Remember that most situations you face with your employees have already come up for other employers (including other franchisees). Don’t be afraid to seek out guidance before taking any actions. Then, as you take action, also take steps to insure that the overall morale of your remaining work force remains as upbeat and positive as possible.
Just the facts ■
Before hiring any employees, make sure you carefully define what types of jobs you’ll be filling, the intended size of your workforce, and what the responsibilities and expectations you have for your employees.
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There are many ways of finding and recruiting employees, including “help wanted” ads, utilizing career-related Web sites, participating in job fairs, networking, and tapping the resources of job placement offices at schools.
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When conducting job interviews, it’s important for you (the employer) to ask the right assortment of questions so you can learn as much as possible about each applicant.
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At the very least, check the references provided by applicants. It may also be necessary to perform detailed background checks, credit checks, or drug tests before making a hiring decision.
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Becoming an effective manager will play an important role in your ability to operate a successful business. This is a skill you’ll need to develop quickly, but you’ll also spend months or even years perfecting and fine-tuning.
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Creating a comprehensive employee manual, in addition to detailed job descriptions, will help you set expectations for your employees and provide guidelines for them to follow.
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Properly rewarding your employees will help them stay motivated.
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Be prepared to encounter common staffing problems. Before such problems arise, however, have a detailed and well-thought-out plan in place for how you’ll deal with them in a timely and efficient manner.
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ny competent franchisor will provide you with the tools and guidance you need to establish your business and successfully get it up and running. After all, that’s what you’re paying your franchise fees for, right? Ideally, you’ll also receive ongoing support to help you properly manage the day-to-day operations of your business, as well as promote it and nurture it so it can grow. No matter how much guidance, training, and support you receive from your franchisor, however, chances are you’ll still need the help of various experts to assist you in overcoming obstacles and ultimately achieving your long-term goals and objectives. Even if you already have many years of hands-on experience running a business, managing employees, negotiating with suppliers and distributors, and successfully interacting with customers and clients, there are still certain responsibilities involved with running a business for which it makes sense to hire experts to help you. Even if you have the expertise
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GET THE SCOOP ON . . . Hiring experts: an accountant, lawyer, publicist, or manager ■ Working with freelancers and consultants ■ Obtaining additional training
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Watch Out! One key to success, no matter what type of franchise-based business you operate, is to know how and when to seek the help you need before that need results in a large and costly mistake. Learning how to anticipate your needs for an expert and developing a plan for finding him or her in a timely manner are skills you’ll definitely want to develop as a business operator.
needed, it might make sense to hire an expert in order to free up some of your valuable time, allowing you to focus on more important tasks. A good business leader knows how and when to personally take on the responsibilities in which he or she is skilled. But a good businessperson also knows how and when to delegate certain responsibilities, and that’s anytime someone else’s expertise and/or experience can be beneficial to the business. This chapter focuses on determining what type of additional outside help you might benefit from. Here, you figure out what expertise you currently lack and decide how and when it’ll be beneficial to hire experts who can help ensure the success of your business venture.
What constitutes an expert? An expert is someone who has spent considerable time learning about a specific topic, acquiring a specific skill set, or developing vast expertise dealing with a particular type of situation. The expert has education, skills, and experience in a specific area that you potentially lack. He or she knows everything (or close to everything) there is to know about a specialized area, along with the latest developments and trends as they relate to their specialty. There are many ways someone can become an expert in a specific area. Experts can pursue formal and specialized education, be self-taught, and/or learn from years of hands-on experience. (A combination of all three of these elements is ideal.)
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A true expert understands the theoretical aspects of his or her specialty, plus knows how to apply concepts, theories, and textbook facts to real-life situations. Experts also have experience actually applying their knowledge to real-world situations in a business environment, and they’re able to successfully adapt their skills, knowledge, and experience to a wide range of situations as needed. While as a franchisee, you might possess a basic understanding of an expert’s specialty area, you might lack the hands-on experience, up-to-date knowledge, or skills necessary to A person with a high properly utilize that core degree of skill in or knowledge. For example, you knowledge of a certain might understand the basics subject. Having, involving, or demonstrating of bookkeeping and accountgreat skill, dexterity, ing but lack hands-on experior knowledge as the result of experience or ence managing the finances training. of an actual business. Thus, —Dictionary.com definition hiring an expert bookkeeper of an “expert” and/or accountant could potentially save you significant time and money, plus help you build a strong fiscal infrastructure for your business. Likewise, some people spend years learning and fine-tuning the skills necessary to be a successful advertising executive or public relations specialist. As they’ve acquired these skills, they’ve applied their knowledge to successfully create, launch, and manage advertising and/or PR campaigns for many types of businesses. They’ve also developed strong media contacts and have learned from the mistakes they’ve made in the past (or have seen others make). These experts also know and understand current advertising and PR trends, how to apply them to meet the ever-changing demands of consumers, and how to customize their knowledge to achieve a wide range of objectives relating to the promotion of a business. In a nutshell, these
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experts already know how to avoid the costly mistakes many business operators make when handling the advertising, marketing, and promotion of their own businesses. Understanding what an expert does is the first step in determining how you can benefit from what one has to offer as you operate your business. Many of the specialized skills offered by various types of experts can be utilized by almost any franchisee, regardless of the type of business they’re operating. Virtually every business will benefit from having a highly qualified accountant or bookkeeper (financial expert), lawyer, publicist, marketing specialist, and/or human resources professional onhand, for example. Based on the type of business you’re operating, you might also benefit from hiring people with other specialized skills, based on the needs of your business. By participating in the training offered by your franchisor and conducting your own research relating to the industry in which you work (or will soon be working), you should be able to pinpoint which type of highly specialized experts your business can use.
Determining what types of experts your business could benefit from This section focuses on several types of experts that virtually any type of franchise-based business could benefit from, regardless of what the business does or what industry it’s part of. Although your operating budget may not allow you to hire an expert in each of these areas on a full-time basis, investing in hiring freelance experts in some or all of these areas to work for you on a consulting or per-project basis might make sense.
Accountant or bookkeeper Some franchisors offer their franchisees a complete, turnkey solution to handle the franchisee’s financial management, bookkeeping, and budgeting needs. This system might include the use of specific financial software (and the training to use it).
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Moneysaver Hiring an expert should somehow allow your business to grow, increase its profitability, or overcome a specific obstacle or challenge. If the expert doesn’t allow you to achieve something specific, you’re either not properly utilizing that expert’s knowledge, experience, and skills or you don’t have a need for that type of expert after all. Focus specifically on the current needs of your business and what your needs will be in the near future.
If a complete solution is not provided, it’ll become your responsibility to immediately establish an accounting and bookkeeping system, and then properly manage that system and keep it up to date on a day-to-day basis. An accountant is a financial expert with specific expertise who can help manage all aspects of your business finances, plus help you keep track of tax-related information. A certified public accountant (CPA) is someone who has passed the CPA exam; has completed a predetermined amount of coursework; and has specific experience and expertise relating to financial matters, managing money, taxes, and financial record-keeping. A bookkeeper is capable of handling the day-to-day financial management responsibilities of your business (the bookkeeping). This includes paying bills, sending out invoices, handling collections, making bank deposits, budgeting, doing payroll, and completing other tasks associated with the management of your business money. A bookkeeper may have completed some accounting courses or specialized training, but is typically not a licensed accountant or CPA. When hiring a bookkeeper, whether it’s on a full-time or part-time basis, make sure he or she is knowledgeable about how to use the accounting system (and/or accounting/bookkeeping software) you or your franchisor have implemented. Most business owners benefit greatly from having an experienced accountant or bookkeeper helping them to establish and implement an accounting and bookkeeping system for their businesses. After ascertaining the business needs, that person
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would select, customize, and implement an appropriate solution for managing the businesses finances, bookkeeping, budgeting, and tax planning. After the businesses accounting system is put into place, it can then be managed and kept up to date by you, one of your employees, or a full- or part-time bookkeeper. First determine what support in this area you’ll receive from your franchisor. Then figure out whether you have the core knowledge and understanding of bookkeeping and accounting principles to properly handle the financial responsibilities related to your business operation. When preparing your business tax returns, you’ll probably want to hire a professional accountant or CPA. Depending on how your business is set up, properly preparing your business tax information could directly impact your own personal state and federal tax returns. Knowing what deductions to take will save you a fortune. Likewise, having a good bookkeeping system in place will dramatically cut down the time necessary for your accountant to prepare your business and personal tax returns, and that can also save you a fortune. Ideally, you want to find an accountant or bookkepper who has experience working with franchise-based businesses, as well as businesses within your industry. You can find a qualified accountant through a referral from your state’s Society of Certified Public Accountants, your franchisor, or the International Franchise Association (www.franchise.org), or you can use an online resource, such as the CPA Exchange (www.cpaexchange.com). The annually published Franchise
Bright Idea To find your local state CPA Society or other accounting-related professional association, point your Web browser to www.taxsites.com/associations2.html. The National Society of Accountants (www.nsacct.org/index.asp) can also provide a local referral.
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Times Professional Services Directory (800-528-3296; www.franchise times.com) includes a listing of accounting and CPA firms that specialize in working with franchise-based businesses.
Advertising/marketing/public relations specialist In Chapter 12, you discover the need to properly advertise, market, and promote your business on a local level. At the same time, you should definitely capitalize on the advertising, marketing, and promotional efforts of your franchisor that are being done on a regional or national level, plus take advantage of the brand name recognition your franchisor has built up. People who work as advertising executives, marketing specialists, or publicists often spend years fine-tuning their skills. Although anyone can throw together a print advertisement to promote his or her business, it takes creativity, experience, skill, and an understanding of your audience to create an ad that will generate the desired results. The same is true when it comes to implementing an effective PR campaign. You could take a trialand-error approach and try to develop your own relationships with the media, or you could hire an expert with established relationships, experience, and the skills needed to get your business the media coverage it needs and deserves. Any business that wants to attract new customers or clients, increase repeat business from existing customers or clients, and grow and expand over time will greatly benefit from implementing comprehensive, well-thought-out, and ongoing advertising, marketing, and PR efforts. Even if your business caters to the needs of other businesses (as opposed to consumers), it can still benefit from advertising, marketing, and PR, although the focus of these efforts will be slightly different. Over time, you can learn the basic skills necessary to handle these tasks yourself in-house. However, to avoid costly mistakes initially and to help you establish the needed skills and experience as they relate to your immediate business needs, consider
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hiring an advertising agency, marketing firm, and/or public relations firm, or freelance experts who specialize in these areas (based on the goals you establish in Chapter 3). Finding a public relations consultant or a freelance advertising specialist can be done online using a referral service, such as eLance (www.elance.com) or Freelance Work Exchange (www.freelanceworkexchange.com). You can also contact a professional association, such as the Council of Public Relations Firms (www.prfirms.org/who/glance.asp), the International Franchise Association (www.franchise.org), or your franchisor for a referral. If you want to work with a locally based advertising, PR, or marketing firm, your local Chamber of Commerce and business-to-business Yellow Pages are great resources for finding referrals.
Buyer As the job title suggests, a buyer is someone who handles the wholesale purchasing for your business. This may include the items needed to manufacture (or otherwise provide) the goods or services your business offers, or the inventory you’ll ultimately be selling to your customers. An experienced buyer knows how to negotiate with distributors (wholesalers) and sales reps in order to get the best prices and terms possible. They also have experience finding the best products from the most competitive suppliers and distributors, and they can help ensure that your business always has ample inventory on hand. Although the skills of a buyer can be acquired through training and experience, when hiring an expert, focus on someone who has knowledge and contacts in the industry you work in. Hiring someone with established relationships and who knows the current trends in the industry will be extremely beneficial. Some franchisors have in-house buyers and, therefore, require you (as the franchisee) to purchase all of your inventory or supplies through the corporate office. If this is the case, you won’t have a need for your own in-house buyer, but you may still
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benefit from having someone on hand who knows the basics of inventory management, for example.
Human resources professional One key to your success as a business owner/operator will be hiring competent, qualified, experienced, and highly motivated employees who are capable of following directions, understanding and implementing the knowledge they receive from training, and putting forth the effort and dedication needed to make your business successful. Because most businesses require employees in order to operate smoothly, it becomes your job as the boss to find, interview, hire, train, manage, promote, and potentially fire your employees. Large companies have in-house human resources (HR) departments that handle these responsibilities. However, as a small business operator, these responsibilities, like so many others, become yours. Finding, interviewing, hiring, training, and managing employees are tasks that require a separate set of specialized skills. For example, during an interview with a job applicant, some of the things you must be able to accomplish include the following. ■
Asking the right questions and engaging in an open dialogue with the applicant
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Knowing how to judge someone’s qualifications and experience based on his or her resume, cover letter, referrals, and performance during the interview
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Being able to determine whether the applicant will be able to meet the responsibilities of the job being offered
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Negotiating a salary and compensation package
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Being able to determine with some level of accuracy whether the applicant will be hard working, honest, and capable
Overestimating an applicant’s capabilities, qualifications, intelligence, motivation, and integrity could result in added
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Watch Out! Don’t just rely upon an HR professional to step in and do all your hiring for you. Whenever possible, sit in on the interviews so you can learn the skills you’ll need and, at the same time, gain valuable experience from which you’ll benefit in the future. If you choose to hire an HR professional to help you staff your business, make sure the person you hire truly understands the nature of your business and its needs and knows exactly what you’re looking for in your employees.
costs to your company, a reduction in the quality of the customer service your business offers, a significant decrease in overall productivity, and/or lower profits. And after the interview process, poorly training and managing your employees can lead to similar negative results. Because most businesses rely so heavily on employees, it’s vital that, right from the start, you have the ability to hire only the best people possible. Thus, utilizing the services of experts with extensive human resources experience will be beneficial to your business. Chapter 8 focuses on how to find, hire, and train employees, as well as how to identify and fire bad employees.
Lawyer Especially during the initial stages of becoming a franchisee and when signing agreements and contracts with your franchisor, suppliers, landlord, and other companies with whom you’ll be doing business, you want a qualified and experienced attorney. Simply understanding the legal jargon that’s often included in UFOCs, Franchise Agreements, and area development agreements will typically require the help of an attorney who has experience working with franchisees. Chapter 6 focuses on some of the legal issues you’ll need to deal with as you become a franchisee. In addition, later, when you operate your business, legal issues will arise from time to time. Unless you’ve graduated from
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law school yourself, don’t expect that you’ll be able to protect all your own legal interests, especially when you’re forced to interact with attorneys who represent your franchisor or the other people or businesses with whom you work. Lawyers typically have areas of expertise. For example, the lawyer who helped you with your divorce settlement or who appeared in court on your behalf for a personal legal matter probably does not have the experience and specialized knowledge necessary to provide legal advice relating to a franchisebased business. Be sure to find a competent, trustworthy, and experienced attorney who understands both franchising and the type of business you’ll be operating. You can obtain a referral from your state’s bar association, the International Franchise Association (www.franchise.org), or from the Franchise Times Professional Services Directory (800-5283296; www.franchisetimes.com). If you attend a Franchise Expo (www.franchiseexpo.com), attorneys from several different law firms will be on hand to answer your questions.
Management Opening a franchise-based business gives you the advantage of utilizing the proven business model or formula created by the franchisor. Choosing the right type of business opportunity to get involved with, following the guidance provided by the franchisor, and hiring competent employees are all important. Properly managing the business and your employees is another extremely important responsibility you’ll need to take on. If you
Bright Idea Whenever you work with an attorney, make sure you understand exactly who that attorney represents, how he or she is being compensated, and what the attorney’s obligations to you and your business include. You also want to ensure that the attorney or law firm has experience handling the tasks you require, whether it relates to contract preparation and reviews; negotiation; litigation; intellectual property, copyright, or trademark issues; or dispute resolution.
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don’t have the experience, knowledge, personality, or skill set necessary to take a hands-on approach to managing your business, hiring someone to handle these responsibilities on your behalf could mean the difference between success and failure. Some franchisees choose to be absentee owners, meaning they hire the management and staff necessary to operate their business but aren’t involved on a day-to-day basis. (Keep in mind that some franchisors don’t allow for absentee owners.) However, being a hands-on owner, but not having the ability to properly manage your business, could have disastrous consequences. Your franchisor should sit down with you, early on, to ensure that you have the skills to manage a franchise, plus should be willing to provide you with any additional or specialized training that’s necessary. If, however, you lack the experience and confidence to manage your business, hire a manager to help. When looking to hire a manager, focus on finding someone with established skills, knowledge, and related experience. Make sure the applicant understands your business model and goals and has the competence to apply his or her experience and knowledge toward making your business successful. Someone with experience managing an office might have a wonderful résumé, but will likely lack some of the core skills needed to successfully manage a retail store or fast food restaurant, for example. A good manager will need to be compensated fairly, meaning you’ll need to pay him or her enough money to stay motivated, keep working hard, and be dedicated to you and your business. Your goal should be finding someone willing to make a long-term commitment to your business and help it grow. Avoid hiring someone who will jump ship the moment he or she receives a better offer from a competing business. By working closely with your franchisor, you should be able to develop a comprehensive job description for the management-level position you’re looking to fill, plus receive guidance on how to find the right person to fill that job. It’s important
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that you invest a tremendous effort in initially finding the right person to hire, because you’ll ultimately be placing a lot of responsibility and trust in that person and his or her ability to handle the job successfully. If your franchisor is unable or unwilling to help you find and hire the ideal candidate to fill your management position(s), consider hiring an outside HR professional to work with you on a consulting or freelance basis.
Sales professional Many businesses, in a wide range of industries, rely almost exclusively on a sales force to generate revenue. Like so many other jobs, people who work in sales require skill, knowledge, and specialized training. Highly competent and skilled salespeople will often have invested years fine-tuning their skill set to the point that they could successfully sell absolutely anything to anybody, regardless of the situation. While it’s possible for virtually anyone to learn basic sales techniques and skills, few people actually have the personality, confidence, motivation, intelligence, and ability to deal with and overcome rejection, which is a prerequisite to becoming a successful sales professional. As with so many specialties, simply memorizing a sales script or learning a handful of sales techniques won’t replace the need for actual hands-on experience when it comes to achieving success. If your business will rely on salespeople in any capacity, it’s important to find and hire the most qualified sales professionals, right from the start. After your sales team is in place, it’s vitally important to keep them motivated, using a variety of
Watch Out! Failure to offer competitive compensation to your sales force could result in high turnover, low motivation, and sluggish sales. Be willing to reward and fully support your sales team.
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incentives, including a competitive compensation plan. Offering bonuses or commissions, for example, puts each salesperson’s earning potential into his or her own hands. Paying salespeople a five-, ten-, or even twenty-percent commission on the new sales they bring in is often extremely beneficial for a business that relies on those sales for its revenue.
Trainer Unless your franchisor will take on the job of training you and all your employees, it’ll ultimately become your responsibility to train your own employees. Proper training will mean the difference between a smooth and profitable operation and utter failure. If you don’t have the personality, confidence, and skills needed to properly train your employees, hire a professional trainer. Seek the help of your franchisor to determine what training is needed, and then offer all your employees the best training possible. Properly training your staff will provide them with the skills and knowledge they need so that your business can operate at peak efficiency on a day-to-day basis. Trained employees will be more productive, confident, and able to better address the wants and needs of your customers and clients. They’ll also be better equipped to handle any problems or challenges that arise. Having a top-notch training program or training materials is important, but equally important is offering your employees a competent and well qualified trainer who can utilize those materials to generate the best possible results. Be sure to read Chapter 8, which focuses on utilizing the training offered by your franchisor.
Steps for finding and hiring the best experts There are many ways to go about hiring the experts you need. Here are ten basic steps to follow for finding and hiring almost any type of expert:
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1. Ascertain your exact needs. 2. Figure out whether you need an expert on a full-time, part-time, or consulting basis. 3. Determine your budget. 4. Begin seeking out potential candidates using online career-related Web sites, “help-wanted” newspaper ads, referrals (that is, networking), job fairs, and/or help from your franchisor. 5. Interview each expert carefully. Determine his or her skill level, area of expertise, level of experience, and ability to handle the responsibilities of the job you’re offering. 6. Evaluate each expert’s past accomplishments, professional successes, and achievements. 7. Check all the expert’s credentials and letters of recommendation. If necessary, have a background check performed. 8. Make sure you’ll be able to work well with the expert on an ongoing basis and that his or her personality and goals are in line with your business needs. 9. Have the expert explain exactly how he or she can help your business. This might include providing an in-depth written or verbal report, complete with a game plan on how he or she can help you achieve your specific objectives. 10. Figure out what sets each expert apart from the others. Determine how the expert’s unique skills, education, experience, and personality will benefit you and your business.
Bright Idea For some projects or responsibilities, hiring an expert even on a part-time basis might be overkill. In these situations, consider hiring a freelancer or consultant on an hourly, daily, or per-project basis. Freelancers or consultants can lend their experience and expertise toward achieving a specific objective, or offer you a fast and easy solution to a problem your business is facing.
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Obtaining the additional training and education you need As a franchisee, you already know you’ll have many responsibilities. Understanding right from the start that you are not an expert in every area in which you’ll need to eventually become proficient is an excellent mindset to be in. That way, you remain open-minded when deciding when to hire and rely on various experts that are provided by the franchisor or that you seek out and hire yourself. Whenever you begin working with any type of expert, never simply rely on him or her to fix a problem that exists or handle a specific set of responsibilities without your involvement. Instead, shadow your experts as they achieve the tasks you’ve hired them to handle, investing the time to learn as much as possible from them, so that in the future, you might be able to better handle some or all of those situations or tasks yourself in order to save money. Although you should never serve as your own lawyer (unless you’ve graduated from law school and have passed your state’s bar exam), nor should you represent yourself against the Internal Revenue Service (IRS) if your business gets audited, for example, there’s a lot you can learn from a wide range of experts who will help you better manage and grow your franchisebased business. Of course, if you determine that you lack specific skills or areas of knowledge, you can attend classes, workshops, or training programs, read how-to books (like this one!), watch training videos, learn from friends and mentors, and participate in all available educational programs offered by your franchisor. Just as operating your business is a long-term commitment and responsibility, your focus on learning, expanding your own skill set, keeping up-to-date on the latest technologies and trends, and gaining additional hands-on experience should be a neverending endeavor on your part.
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One of the key reasons you probably want to become a franchisee (as opposed to opening a non-franchise business) is to take advantage of the many resources available from the franchisor to help you manage and operate your business. Even after the initial training period, be sure to fully utilize all of the tools, resources, and training programs your franchisor offers. In addition, take advantage of programs and resources offered by applicable professional trade associations, the International Franchise Association, your local Chamber of Commerce, and SCORE: Counselors to America’s Small Business (www.score.org). Many useful and informative seminars are also held as part of each Franchise Expo trade show (www.franchiseexpo.com), plus you can benefit greatly from reading franchise and business-oriented magazines and trade journals. Ideally, you want to continue to utilize, on an ongoing basis, all the resources available to you, so you’ll be able to achieve all of the personal, professional, and financial goals and objectives you outline in Chapter 3.
Just the facts ■
No matter how much guidance, training, and support you receive from your franchisor, chances are you’ll still need the help of various experts to assist you in overcoming obstacles and achieving your long-term goals.
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A good business leader knows how and when to personally take on the responsibilities he or she is good at, yet also knows how and when to delegate certain responsibilities, for which someone else’s expertise and/or experience can be beneficial.
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An expert is someone who has spent considerable time learning about a specific topic, acquiring a specific skill set, or gaining experience dealing with a particular type of situation. The expert has education, skills, and experience in a specific area. He or she knows everything (or close to everything) there is to know about a specialized area, plus
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an expert is up to date on the latest developments and trends as they relate to your specialty. ■
Understanding what an expert does is the first step in determining how you can benefit from what they have to offer as you operate your business. Many of the specialized skills offered by various types of experts can be utilized by almost all franchisees, regardless of the type of business they’re operating.
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Hiring any type of expert should somehow allow your business to grow, achieve a goal, increase its profitability, or overcome a specific obstacle or challenge.
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An expert can be hired on a full-time, part-time, or freelance/consulting basis (by the hour, day, or project).
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Whenever you begin working with any type of expert, never simply rely on him or her to fix a problem that exists or handle a specific set of responsibilities. Instead, shadow the expert while he or she is achieving tasks to learn as much as possible.
Working with Suppliers and Vendors
I
f you’ll be operating any type of retail business, you’ll need inventory—that is, products to sell. If your franchise-based business will provide services, chances are, you’ll require a wide range of tools, equipment, and supplies in order to effectively provide those services. Either way, one of your many responsibilities as a franchisee will involve inventory management. This chapter focuses on inventory management and helps ensure that you work within the guidelines established by your franchisor. For most businesses, traditional inventory management involves the following. ■
Finding suppliers and vendors for the products or supplies you need, or working with suppliers mandated by your franchisor
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Developing an ongoing relationship with suppliers (which often involves establishing credit terms with them)
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Determining your current and ongoing needs for specific products and/or supplies 209
Chapter 11
GET THE SCOOP ON . . . Following the rules and guidelines of your franchisor ■ Selecting vendors ■ Establishing credit with your vendors ■ Mastering inventory management
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Bright Idea If a franchisor allows you to source your own inventory and supplies (that is, working with whatever vendors you choose), you should be provided with and taught an established inventory management system as part of your initial training. As a franchisee, you want to quickly develop or adopt an inventory management system, understand the process completely, and keep the system in use.
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Ordering the appropriate quantity of products and supplies (taking into account shipping time, how long it’ll take to sell or use those products and supplies, and how long it will take to replenish your inventory)
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Maintaining timely and accurate inventory records, so you know exactly what you have on hand and when to place new orders
As a franchisee, your inventory management will have one additional responsibility. The vendor(s) you utilize, and the specific products or supplies you acquire, will need to be approved by your franchisor and meet specific guidelines or specifications that the franchisor has outlined for all of its franchisees. In some situations, franchisees are required to purchase all inventory and supplies directly from the franchisor or from franchisor-approved vendors. In other situations, franchisees can find and do business with whatever vendors they choose, provided the products or supplies purchased meet the specifications of the franchisor. How much decision-making control you’ll have over your business inventory management is described, in detail, in the UFOC and Franchise Agreement (see Chapter 6).
Understanding the jargon For the purposes of this book, products are items you’ll be reselling to your customers or clients, and supplies are items you’ll utilize to run your business. Companies that provide your
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Moneysaver Your ability to choose your own vendors and suppliers—and shop around for the best deals—offers you the potential to save money. Being required to purchase inventory and/or supplies directly from your franchisor puts you at a potential disadvantage, because you have no say in what you can purchase or how much you’ll ultimately be forced to pay.
supplies are typically referred to as suppliers. Companies that provide the items you’ll be reselling are typically referred to as wholesalers or distributors. While products sit on your shelves waiting to be sold, they’re considered inventory. Vendors represent companies from whom you’ll be buying your inventory or supplies.
Following the rules and guidelines of your franchisor Referring to the cookie-cutter approach franchisors utilize to ensure that all the products and services offered by its franchisees are totally consistent, this concept comes into play when dealing with all aspects of inventory/supply acquisition and management. All the products and/or services offered by all franchisees must be identical for a franchise system to work properly. As a consumer, how annoyed would you be if you were on a business trip and walked into a McDonald’s, Pizza Hut, or Subway, ordered the same exact meal you typically order at the location near your home or office, but got something that looked and tasted totally different? If this were to happen, even at just one franchise location, the whole franchise system established by the franchisor would fall apart. Inconsistency hurts the franchisor, affects all the franchisees, and can destroy a company’s reputation with consumers. When you buy into a franchise system, you’re adopting a specific and proprietary formula, recipe, manufacturing process,
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preparation process, or way of doing business that must involve all of the franchisees using the same products, tools, ingredients, and processes, for example, to offer consumers total consistency for all products and/or services offered. This is typically achieved by the franchisor telling franchisees exactly what vendors they’re allowed to use to acquire most or all of their needed products and supplies. At the time you begin evaluating a franchise-based business opportunity, consider early on your limitations regarding inventory management. If you’re not allowed to shop around among many vendors for the most cost-effective products, tools, and/or supplies, how will this impact your bottom line? If your franchisor insists that you purchase or lease specific types of highpriced equipment, for example, this can dramatically impact your business finances. The controls put on inventory management by your franchisor can be a double-edged sword. These controls ensure total consistency among franchisees and help ensure that what you sell, manufacture, or offer as a service is up to par. But at the same time, putting limits on your ability to choose your own vendors can put individual franchisees at a financial disadvantage, plus it has the potential to create inventory shortages if specific vendors run into a backorder situation. One potential advantage of a franchisor having some control over inventory management and vendor selection is the franchise system’s ability to negotiate better deals with vendors when larger orders are placed. When multiple franchisees combine their ordering power and work with a single vendor, that
Bright Idea After you determine how your inventory management will work, based on guidelines provided by your franchisor, find out how well the system actually works by speaking with existing franchisees. Try to learn in advance about any potential inventory management problems or issues with vendors you might encounter, based on restrictions imposed by your franchisor.
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Watch Out! If your franchisor serves as a primary vendor to its franchisees, you want to make sure the profits the franchisor earns from your ongoing orders are offset by lower franchise fees or licensing costs, for example. Having to pay high ongoing fees (a percentage of revenue) to your franchisor, plus a significant markup on products or supplies purchased directly from the franchisor, can negatively impact a franchisee’s profit margin.
vendor benefits from a dramatic increase in business, and the franchisees potentially benefit from discounted pricing. Item number eight of the UFOC describes the restrictions franchisees will have when soliciting sources for products and services. This part of the UFOC informs you whether the franchisor will be your sole vendor for products and supplies, how much money (if any) the franchisor earns from mandatory franchisee purchases, what the franchisor’s guidelines are for finding approved vendors and suppliers, and whether or not a system is in place for franchisees to practice cooperative buying with vendors in order to increase negotiating power. Remember, upon signing the UFOC (and your Franchise Agreement), you are agreeing to all of the terms stipulated and must adhere to them when operating your business, even if it winds up costing you more money in the long run.
Selecting vendors If your franchisor doesn’t act as the sole supplier or vendor to its franchisees, chances are you will be provided with a list of approved vendors you’ll be required to deal with on an ongoing basis. By working with approved vendors, the franchisor still maintains control over product or service continuity among its franchisees, but those same franchisees have some leeway in terms of which vendors they do business with. A well established and reputable franchisor will do all the leg work for its franchisees when it comes to finding, negotiating with, and approving suppliers and vendors for its franchisees.
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Ideally, your franchisor should negotiate the best possible prices and terms with all of its approved vendors. This can be a significant time and money saver for the franchisee and is a key benefit to being part of an established franchise system. Every franchisor handles inventory management and relationships with vendors differently. Thus, it’s important to understand how the process works within the franchise system you’ll be adopting before choosing to pursue that business opportunity. If you discover that existing franchisees have ongoing problems with inventory management or the approved vendors with which they must do business, it should raise a red flag during your business opportunity evaluation process. If you’re forced to seek out your own vendors, negotiate with them as a sole franchisee, and rely on them for your inventory and supply needs, it’s essential that you have your franchisor evaluate the products and supplies you’ll be purchasing. This will ensure that everything meets the franchisor’s strict guidelines and specifications. Obviously, you’ll want to select only the vendors that are capable of meeting the product standards and specifications dictated by your franchisor. Beyond that, take steps to ensure the following. ■
The vendor is well established and reputable.
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You qualify for credit terms with the vendor.
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The vendor will offer you competitive pricing on an ongoing basis.
Bright Idea Before starting to negotiate with a new vendor, know exactly what product(s) or supply(s) you need, what quantity you need right away, and what your ongoing needs will be. Also be able to tell the vendor how quickly you need your order(s) filled and what deadlines you’re working under. If you’re a new business, your franchisor will be able to help you make educated projections for your future needs.
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Your orders will be processed and shipped in a timely manner. (For most franchisees, on-time delivery of orders is essential.)
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All orders will be filled accurately.
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The vendor is capable of meeting your ongoing demand for products and/or supplies.
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The vendor offers a professional and friendly sales force and customer service team that will cater to your needs.
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Merchandising assistance (when applicable) is provided. This often includes unpacking your orders and setting up retail displays that meet the franchisor’s guidelines. (Merchandising or product display guidelines from your franchisor are often referred to as a plan-o-gram.)
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The vendor has a system in place to quickly process emergency orders.
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The vendor can provide excellent references from some of its current customers or clients.
In some situations, depending on the type of business and the franchisor, franchisees may be encouraged to participate in buying cooperatives. This means that groups of franchisees (located in the same general geographic area, for example) will pool their ordering power with specific vendors to take advantage of bulk pricing, better credit terms, and potentially better service from the vendor(s). Along with giving franchisees added negotiating power with vendors, this same approach also works with regional advertising and marketing, and with purchasing other types of services or products that all franchisees require in order to do business. When franchisees work together as a cooperative, they work together in an organized way to achieve common goals or objectives. Decisions are typically made using a voting system, and all franchisees involved benefit from whatever perks are associated with being part of the collaborative.
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Watch Out! One service the International Franchising Association (IFA) offers its members is an ever-growing database of vendors that have agreed to adhere to a strict code of ethics when servicing franchisees. Before contracting with a vendor, check out this vendor database online at http://suppliers.franchise.org/Supplier/ Index.aspx, or by going to the IFA’s main Web site (www.franchise.org) and clicking on the Supplier Directory link.
Establishing credit with your vendors As soon as you decide to work with a new vendor, one of the first things you’ll need to do is complete a credit application. This will allow you to set up a line of credit with that vendor. A line of credit means you’ll have thirty, sixty, or ninety days, for example, to pay for your orders after they’re received. Without established credit, you’ll be required to pay for all orders in advance or upon receipt (also called C.O.D.). Filling out a credit applications is usually a straightforward process. As a franchisee, you’ll typically be required to provide financial and banking information to the creditor (the vendor). For this reason, during your initial training with your franchisor, obtaining credit with vendors is a topic that should be discussed in detail. If it’s not in your training, talk to your accountant or banker. Upon having a credit line approved by a vendor, you’ll often be given a credit limit (just like when you’re issued a credit card). You’ll be required to pay the outstanding balance within a predetermined period. Late payments will incur financial penalties. Extremely late payments will often result in having your credit privileges revoked. The creditor/lender could then report negative information to credit reporting agencies (such as Dun & Bradstreet), which will impact your ability to obtain credit with other vendors and suppliers in the future. Some vendors require new customers to develop a track record before credit terms are offered. This means your first few
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orders will need to be paid for in advance or C.O.D. (cash on delivery). Determine whether this will be the case and make sure you allocate sufficient funds in your initial operating budget. If you’ll be buying as part of a cooperative, credit terms may already be established on your behalf.
Inventory-management techniques After you’ve begun doing business with vendors and placing orders, you’ll start receiving shipments from those vendors. If you’re purchasing inventory, these shipments will fill your store shelves with products to sell. If you’re purchasing supplies, the items you receive will allow you to begin providing the services your business has been set up to offer. Either way, as a franchisee, you’ll need to adopt a well organized approach to managing your inventory, keeping track of outstanding orders, maintaining detailed records of received orders, and developing processes for unpacking orders and utilizing the products or supplies received. Part of your inventory management responsibilities will include being available to accept incoming deliveries when they show up at your door (and having staff on hand to deal with delivery people, without ignoring your customers). Ideally, you want to ensure that your deliveries arrive during your least busy hours. You’ll also need to establish an area for accepting deliveries, so that delivery trucks don’t block your store’s front door or impede customers from doing business with you. As orders are received, someone will need to be on hand to ensure the orders are complete, have been accurately filled, and have arrived undamaged. If the orders are arriving C.O.D., you’ll also need to ensure that cash is on hand to pay for the deliveries when they arrive. After orders are checked, items and supplies must be unpacked appropriately, placed on store shelves, stored in a stock room, or otherwise placed where they’ll be kept until sold or used. That inventory must then be tracked, so that you always know what you have on hand and what items need to be reordered.
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From an accounting and bookkeeping standpoint, all orders placed and received must be tracked, all invoices need to be checked for accuracy, and those invoices need to be paid in a timely manner (based on the credit terms you’ve established with each vendor). Copies of receipts and invoices should be kept in a safe place, and details relating to each transaction should be entered into your accounting/bookkeeping system quickly and efficiently. With the help of your franchisor, you’ll want to establish specific and consistent processes for dealing with each aspect of inventory management efficiently and accurately. This includes properly storing inventory after it arrives and, when appropriate, following specific merchandising techniques to ensure that products are properly displayed and accurately priced. Mistakes can be costly and may lead to shortages of much-needed products or supplies. One of the skills you’ll need to acquire is knowing when to place orders for new inventory and supplies, and accurately determining how much of each product or item to order to meet your needs. You’ll get some initial training on this from your franchisor, and you’ll get better and better at it as you run your business. If you’re at all unsure about your ability to order supplies and inventory, consider hiring a buyer (see Chapter 10).
Just the facts ■
When operating many franchise-based businesses, one of your responsibilities as a franchisee is managing inventory.
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Your franchisor should provide you with a comprehensive and preestablished inventory management system, based on the needs of your business. Training should also be provided to teach you how to utilize this system efficiently.
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Developing long-term relationships with your key vendors is important to your business’s success.
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Your franchisor should help you find vendors capable of meeting your needs by providing a list of preapproved vendors or suppliers. If this type of list is not supplied, you must, on your own, find vendors capable of providing products and/or supplies that meet the guidelines and specifications dictated by your franchisor.
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Every franchisor has different processes and guidelines for its franchisees when it comes to acquiring and managing inventory and supplies. It’s essential that you develop a thorough understanding of your responsibilities in this area of your business operations.
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After you’ve found your vendors and suppliers and have established relationships with them, you’ll need to implement a well organized system for managing, tracking, and maintaining your inventory of products and supplies to insure an ample supply is always on hand.
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All orders must be financially accounted for. This means that all transactions with vendors should promptly be entered into your business’s accounting or bookkeeping system.
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Marketing Your Business Locally
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he movie Field of Dreams was based on a very simple premise: If you build it, they will come. Well, in the business world, that isn’t the case. Building a business that offers products or services that people want or need is only part of the overall equation for success. Two other vitally important parts of the equation involve 1) promoting your business so people know about it, and 2) creating a positive and memorable experience for your customers so that they offer repeat business and refer your business to their friends, family, and coworkers. This chapter is about promoting your business through public relations (PR), marketing, and advertising. It also focuses on the importance of taking an active role in your community, getting your business involved in community events, creating happy and extremely loyal customers, planning your business’s opening day events.
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GET THE SCOOP ON . . . Promoting and advertising your business ■ Becoming an active part in your community ■ Building customer loyalty to generate repeat business ■ Focusing on providing top-notch customer service ■ Planning your opening day event(s)
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Defining marketing, advertising, and PR Before proceeding any further, let’s define what marketing, advertising, and public relations actually are, so you can see how these efforts must work together in order to properly promote your business. ■
Marketing: Although marketing can be used as a term that encompasses all your promotional efforts, including advertising and publications, for the purpose of this book, marketing will refer to any promotional activities that don’t fall into the advertising or public relations categories. The customer service your business offers and the steps you take to create a positive and long-term relationship with your customers or clients also fall into the marketing category.
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Advertising: Advertising refers to paying for your promotional message (advertisement) to appear in any genre of media. As a paid advertiser, you control exactly what’s said about your company, how it’s said, and when and where the advertisement runs. You have many options for paid advertising, including paying to advertise in newspapers, in magazines, online, on the radio, on television, in the phone book, in movie theaters, on outdoor billboards (including on the sides of busses and at bus stops), in local sports stadiums or arenas, or through direct mail. Many other paid advertising opportunities also exist.
Watch Out! Virtually all franchisors have strict rules about the types of marketing, public relations, and advertising efforts individual franchisees are allowed to utilize. Be sure to check with your franchisor before initiating any type of marketing that might infringe on your contractual obligations or conflict with the advertising, marketing, and public relations efforts already being done on a regional or national level by the franchisor. For continuity purposes, many franchisors insist on approving any advertising or promotions done by franchisors. This includes reviewing and approving artwork to be used in any form of advertising.
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Public relations (PR): Public relations refers to obtaining free publicity within the media, whether it’s through a feature article being written about your business, an interview with you as a local business leader or local expert on a specific topic, or any other media coverage you receive, without having to pay for it. Obtaining media coverage can be highly effective and inexpensive to generate. Aside from the cost factor, the difference between media publicity and advertising is that when you receive publicity, you have no control over what the journalist, writer, reporter, editor, or host says or writes about you or your business. Although the media will typically refer to your press releases and press kit to create their content or coverage, what’s said and how it’s said is up to the person doing the reporting, not you.
Large businesses have in-house public relations, advertising, and customer service departments or hire top outside agencies to handle many of these important tasks. If you’ve become a franchisee for a large and well established company, you’ll likely be able to capitalize nicely on the brand awareness, company reputation, and national or regional advertising and publicity campaigns that are designed to promote not only the company as a whole but also the local franchisees. No matter how much marketing, public relations, and advertising support you receive from your franchisor, however, you will need to handle these important tasks yourself on a local level in order to establish and grow your business. If it’s within your financial means to hire an outside public relations firm or advertising agency to help you, go for it! You’ll definitely be able to capitalize on that firm’s expertise and familiarity with the local media market. Otherwise, those tasks will become an important part of your responsibilities as a business owner. Using PR, marketing, and advertising to build awareness about your company and to generate customers will help you get the attention of the local community. However, it then
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Moneysaver Hiring an outside PR or advertising agency as you first launch your business can be extremely beneficial. It’ll not only allow you to capitalize on the expertise and experience of the people you hire but also help introduce you and your business to the local media market (newspapers, regional magazines, radio stations, TV stations, locally operated Web sites, and other influential media outlets). Ultimately, these professionals can save you money by targeting your campaigns.
becomes your responsibility to make sure your business offers top-notch customer service. This will help ensure repeat business (which you’ll ultimately need to depend on), plus encourage your customers to share their positive experiences with your business to their friends, coworkers, and relatives. As you’ll soon discover, word-of-mouth referrals translate into extremely powerful, yet totally free, advertising that works!
Promoting and advertising your business If you want people to know about your business and become customers or clients, you first have to educate them about the existence of it, where it’s located, and what it offers. You need to create a want or need for the products and/or services you’re offering, and ultimately drive potential customers directly to your door. With this goal in mind, you must also encourage existing customers to become repeat customers, plus constantly find new and innovative ways to expand your customer/client base and peak new interest in your business in order for it to grow. As a franchisee, you have an advantage over many small, independent businesses. Depending on the type of franchise you own and operate, you can capitalize on the brand name recognition, reputation, and logos of your franchisor. This makes your job easier, because as you advertise, market, and promote your business, you can focus exclusively on the local
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area and in many cases, take advantage of the fact that people already know what your company offers because they’re familiar with the brand on a national level. In other words, if you’re about to open a local Subway sandwich shop, 7-Eleven convenience store, Midas muffler shop, or Merry Maids house cleaning service, for example, chances are the people in your community already know exactly what these businesses offer. Your goal is to utilize marketing, advertising, and public relations to create a local demand for your products/services, plus make people aware that a new location is open(ing) in their community. Within your advertising, marketing, and public relations initiatives, build on the positive reputation of the franchisor. Doing this is a lot easier and cheaper than building up awareness, brand recognition, and loyalty for an independent business nobody has ever heard of. Right off the bat, people are more apt to trust and try out a new Midas for their car repairs, as opposed to “Joe’s Auto Repair,” because they know and trust the Midas name, immediately recognize the logo, and probably know several people who have already had good experiences utilizing a Midas shop somewhere in the country. As a franchisee who is probably working with a relatively tight budget, every dollar you spend on marketing, advertising, and public relations has to be used effectively. You can’t afford to throw away time or money pursuing campaigns that don’t generate the desired results. Thus, it becomes extremely important to keep careful track of your overall marketing budget, measure the results of everything you do, and constantly work
Bright Idea As a franchisee, when it comes to marketing, advertising, and public relations, your responsibility is to create, carefully plan, pay for, and then perfectly execute a comprehensive campaign that builds upon what’s already being done on a regional or national level by your franchisor.
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to fine-tune your campaign(s) in order to generate the best possible results for the lowest investment. Especially as a start-up business that’s able to capitalize on the name recognition of a well known franchisor, the more you can utilize low-cost or free marketing and public relations efforts, the better off you’ll be.
Creating an overall plan that works Before you create flashy (expensive) ads to run in the local media, send out press releases in order to generate free publicity, or kick off a handful of different marketing campaigns, the first step is to figure out specific information by asking yourself and your franchisor the following questions. ■
Who is your target audience?
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What message are you trying to communicate?
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What overall image are you trying to convey for your business?
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How will what you’re offering solve a problem, meet a demand, or satisfy your target customer’s wants and needs?
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What are the buying habits of your target audience?
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What are the very best ways to communicate your message to its intended audience?
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What is the goal or objective of your overall marketing campaign? What are the desired results?
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What resources do you have at your disposal to obtain the desired results?
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What type of budget can you allocate to your overall marketing campaign(s), including your advertising and public relations?
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Over what time period do you want or need to execute your campaign(s)?
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What limitations are being imposed on you (if any) by your franchisor?
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What support can you expect from the franchisor?
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How will your overall marketing plans capitalize on what’s already being done on a regional or national level by the franchisor?
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What are you offering that sets you apart from your competition? How will this be communicated to your target audience?
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Will any of your marketing efforts interfere with what your fellow franchisees are doing?
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How familiar are you with the local media outlets available in your community or region? What can you do to become more familiar with the local media, and specifically what audience each media outlet reaches?
After you’ve answered these questions, you’ll be in a much better position to begin creating, implementing, and managing highly effective marketing, advertising, and public relations campaigns.
Setting a budget for your marketing campaign Marketing, advertising, and PR initiatives can allow you to achieve your objectives, regardless of the size of your budget. Unfortunately, it’s impossible to provide a specific budget for you to spend in order to properly implement effective campaigns. The size of your budget will depend on a wide range of factors, including what you’re trying to accomplish, what type of advertising you utilize, how extensive your PR efforts are, who your target audience is, and the size of that audience. After you decide exactly what you’re trying to accomplish, you can create a preliminary budget and later build on it as you generate positive results. After reading this chapter and learning about some of the ways you can invest your money in advertising, PR, and marketing, you should be able to establish a preliminary budget for
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yourself and decide which techniques to utilize, based on what you’re trying to accomplish. Your franchisor will probably be able to help you establish a preliminary marketing, advertising, and PR budget, based on your geographic area, target audience, and objectives. If you don’t receive the information and support you need from your franchisor, consider working with a freelancer or agency. Making the wrong investment when it comes to marketing could result in huge expenses, without achieving the desired results. Remember, people spend years learning the skills necessary to plan, implement, and manage an effective marketing campaign. If you don’t have the experience and expertise to do this, find and hire someone who does.
Defining your target audience As you’re making plans to open your business, begin by articulating what your marketing strategy will be, focusing specifically on determining who your targeted audience is and the various ways you can effectively reach this audience. Once your business opens, you obviously want to generate as many new customers or clients as possible. A target audience can be any group of people with a specific need or desire to have or utilize your product or service. Your audience might be made up primarily of the following: ■
Males
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Females
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Adults
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Teens
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Married couples
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Singles
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Seniors
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People with a specific interest or hobby
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High-income professionals
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Homemakers
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Home-office workers (telecommuters)
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People with a specific career
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People with some type of physical disability
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Any other group of people you can define and reach through a targeted marketing, advertising, and PR effort
Of course, your business may have several distinct target audiences. If so, you’ll probably find it easier to implement one targeted marketing effort at a time. As you define your target audience, determine early on how these people can best be reached. Once you’ve determined your target audience, decide exactly what message you’re hoping to get across to this audience. What will you be trying to accomplish with your marketing, advertising, and PR efforts? Are you simply trying to make people aware of your business or brand? Do you want them to visit or call your store, retail location, restaurant, or office? Is your goal for potential customers to actually buy your product(s) or services? How you convey an advertising or marketing message can mean the difference between a one-percent and ten-percent response rate. The wording you use and the visual impact of your print ads (including the colors, fonts, and ad size), for example, will play a major role in getting potential customers to respond to your message. If you don’t have a well defined target audience, it will be extremely difficult to reach the people who will be most interested in what your franchised-based business has to offer. Knowing your audience, however, is only the first step in developing an effective marketing, advertising, promotional, and PR campaign.
Reaching your target audience After defining your target audience, the next step is to do extensive research to determine the best ways to reach this group of people. As you do this, always focus on the needs and wants of
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your target audience. Are you solving a problem for them? Are you offering a benefit? Will your target audience save time or money using your product or service? Determine exactly what feature(s) of your product or service your audience will be most interested in, and then develop a marketing message that will capture their attention. Having defined your target audience, focus on creating the strongest possible marketing message. Then discover the best ways to communicate your message using the appropriate form of media. Does your audience tend to read certain newspapers or regional magazines, attend specific events or functions, or have well defined buying habits? Do they listen to specific radio stations on their way to and from work or while running errands? Being able to effectively market any type of product or service requires specific skills, like the ability to communicate. You’ll also need to develop a very good understanding of your audience. In addition, you need to understand at least the basics of how various media outlets work and the benefits of advertising on them, including television, radio, newspapers, magazines, direct mail, e-mail, online advertising, billboards, as well as how to utilize PR. Spend time learning who the major players in the various media are and how you can best take advantage of those media outlets, whether it’s through paid advertising or public relations efforts. Unless you hire an advertising agency to do your media creation, placement, and buying for you, it’ll be your job to determine the best ways to spend your advertising, marketing, and PR dollars in order to generate the most impact. Initially, you’ll probably want to experiment with different marketing and advertising messages and use different promotional vehicles to determine what works best for reaching your intended audience within your geographic area. Just because one franchisee has had success with a specific marketing campaign in Chicago doesn’t mean using the same techniques will
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generate similar results in Salt Lake City, Boston, or upstate New York. Each time you execute any form of marketing, it’s important to carefully track the results in order to determine what works best and what generates the most positive results. One of the first things you should do is develop a strong understanding of what your business is all about, and then figure out exactly how to convey this information to others. On a sheet of paper, write down your business name and describe its target audience. Next, write down a list of five to ten keywords, phrases, or sentences that can be used to classify or describe your business and what it offers. If someone were to begin looking for your business or your product(s) using an Internet search engine or the phone book, for example, what keyword(s) or search phrase would they use? Next, write twenty-five-word, fifty-word, and seventy-fiveword descriptions of your business and what it offers. Choose the wording carefully, so that your description catches the attention of the reader, describes what your business is all about, and encourages the reader to become a customer or client. Be as specific as possible when writing your descriptions. This information will prove crucial when you send out press releases announcing your business to the media or begin creating paid advertisements.
What is marketing? Marketing can be an all-encompassing word that takes into account everything you do to promote your business—whether it’s through paid advertising, public relations, direct mail, sponsoring a local Little League team, or doing some other type of promotion designed to generate new customers or increase repeat business. For the purposes of this book, marketing refers to any promotional efforts you initiate that don’t easily fall into the public relations or paid advertising categories. Examples of marketing efforts might include the following.
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Becoming active with the local Chamber of Commerce or another groups that brings together local merchants, business owners and entrepreneurs
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Conducting a sale (tied into a holiday or special event, for example)
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Cross-promotions with other local businesses
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Distributing business cards, fliers, or catalogs to potential customers
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Distributing promotional items, such as T-shirts, refrigerator magnets, imprinted balloons, or pens with your company’s name, slogan, and other information
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Donating services or merchandise for local fundraisers or charitable events
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Exhibiting at or attending trade shows and conventions
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Hiring a Santa Claus, Easter bunny, or other character (or local celebrity such as a professional athlete) to visit your store/location
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Offering a “buy-one, get-one-free” or another type of instore promotion to customers
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Offering a frequent buyer program or discount to customers
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Offering a senior citizens’ discount
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Operating a Web site for your business and using e-mail as a promotional tool (but being careful not to inundate customers who don’t want to hear from you)
Moneysaver One example of an inexpensive and easy promotional opportunity is to print coupons and have them distributed through other nearby merchants or businesses. For example, if you’re opening a donut shop, you could offer a coupon for two free donuts to the customers of a nearby Jiffy Lube, if that Jiffy Lube location agrees to distribute your coupons. In exchange, you could offer a $5.00 off coupon for the customer’s next oil change.
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Bright Idea If Little League or another sport is popular in your community, consider sponsoring a team. For a relatively small investment, team members will wear your company’s name and logo on their uniforms. You may also be able to have display advertising at the field, stadium, or arena, as well as in the programs. You’ll generate goodwill and can expand your reputation as a supporter and active member of the community.
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Participating in a local fair, parade, or event
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Providing a special discount to customers who provide referrals
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Sponsoring a local Little League or other sports team
Depending on the type of marketing you do, it can be extremely inexpensive, yet highly effective, especially if it’s done synergistically with your PR and advertising efforts, and in conjunction with what your franchisor is doing on a regional or national level. When it comes to successful marketing, creativity is the key to success! Remember that the marketing efforts you launch must complete head-on with your competition and with many other businesses in your community that are also vying for the attention of the public. What you do needs to be unique or somehow stand out in the potential customer’s mind.
What is public relations? Public relations involves utilizing the media to communicate information, such as your marketing message, to the public, through the use of interviews, news coverage, or human-interest stories that involve your business. This is media or editorial coverage that you arrange to get published or broadcast by various media outlets. Unless you have established contacts or relationships within the media, your best bet for approaching reporters, journalists, editors, and publishers is to create and distribute press releases and/or a complete press kit. If you hire an outside PR firm or freelance PR consultant, this is something they’ll handle on your behalf.
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Writing press releases A press release is a document (usually between 500 and 1,000 words) about your company that’s designed to make a newsworthy announcement to the media. A press release is a key tool for public relations professionals. This type of document has a highly defined style and format, and it answers the basic questions on the minds of reporters who might be interested in reporting on the topic of your press release: who, what, where, when, and why. For tips on how to write a press release, visit Gebbie Press’ Web site (www.pertinent.com/articles/publicity/ gebbiePress1.asp). You can hire a traditional PR firm, an online-based PR firm (such as Press Flash, www.pressflash.com), or a public relations consultant to write and distribute your press releases to the media for a fee. To find a freelance PR consultant (which is typically less expensive than hiring a full-service PR firm), visit the eLance (www.elance.com) Web site. Press releases should be distributed to the media (such as newspapers, regional magazines, radio news outlets, television news outlets, Web masters, and online publications) via U.S. mail, fax, or e-mail. After you have a press release announcing your business (or some other newsworthy event relating to your business), your goal is to get it into the hands of the editors, reporters, producers, and journalists responsible for covering your type of business, human interest story, or newsworthy item. This can be done by manually compiling your own media contact list by reading bylines in newspapers and regional magazines or by purchasing a media directory. To help you compile your own customized media list, consider using any or all of these resources. ■
Broadcast Interview Source (www.expertclick.com) publishes a variety of media directories that list the contact names, phone numbers, addresses, fax numbers, and e-mail addresses of writers, reporters, producers, editors, and radio/television hosts.
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Gebbie Press’s All-In-One Directory (www.gebbieinc.com) lists contact information for over 25,000 media people from TV and radio stations, newspapers, magazines, African American and Hispanic media, news syndicates, networks, and AP/UPI bureaus.
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Bacon’s Media Directories (www.bacons.com) publishes a variety of directories containing contact information for local, regional, and national media outlets.
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Burrelle’s Media Directories (www.burrellesluce.com/MediaConnect) publishes a variety of directories containing contact information for local, regional, and national media outlets.
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PR Place’s Free Media Guide (www.prplace.com/mds_guide/index.html) offers a free online directory of media contacts.
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PR Newswire (www.prnewswire.com) is a fee-based press release distribution service. You supply the press release and pay the company’s fee, and your release gets distributed electronically to media representatives that you designate based on area of interest, industry, geographic area, or a specific topic.
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MarketWire (www.marketwire.com) is a fee-based press release distribution service. You supply the press release and pay the company’s fee, and your release gets distributed to media representatives that you designate based on area of interest, industry, geographic area, or a specific topic.
As you compile the list of media outlets to send your press releases to, don’t forget to include the following. ■
Local or regional television shows (especially those that cover business and human interest stories)
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Talk radio and news stations
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Newspapers (dailies, weeklies and local shoppers)
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Regional magazines
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Trade journals (if applicable)
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Newsletters
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Online publications (including popular blogs)
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Special interest groups/clubs
Using traditional PR efforts to contact media outlets in order to obtain free editorial coverage is a powerful way to reach potential customers. In order to generate the best possible publicity for your business, make sure your press releases contain only newsworthy information the media will be interested in covering. A list of potential newsworthy topics relating to your business is offered in the “Reasons to issue press release” section later in this chapter. If you’re promoting a product, your press release should discuss what the product is, why there’s a need for it, and why, for example, a magazine, newspaper, radio, or TV station’s audience would be interested in it. The press release should position the owner(s) of the franchise as experts in the field who are available to be interviewed. The media loves interviewing “experts” on topics they’re doing stories on. If you’re not familiar with how PR works, consider hiring a PR firm or consultant to assist you in generating media coverage for your franchise-based business. You can also read how-to books on the topic. Additional information about how to launch a PR effort for your business can be found online at the PR Place (www.prplace.com).
Tips for writing an effective press release Before sending out any press release, make sure you do the following. ■
Know who to send it to, not just where. If you’re approaching a newspaper, for example, find out who the editor or reporter is for the section in which you want your release to appear. For TV or radio, you’ll probably want to contact the show’s producer or guest booker.
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Send the release to only one person per news outlet. Any problems that develop from duplicate coverage and effort will be blamed on you.
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Don’t just send press releases—call the editor or writer directly. If you want your release covered, call the person before sending the release, and call a couple of days later to make sure he or she received it. Just don’t become a pest.
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Know your deadlines. Magazines, even weekly ones, are often planned months in advance. Seasonal events, such as Christmas and Easter, are great examples of this. For calendar items, know the news outlet’s deadline for the section.
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Keep it short and informative. Reporters and editors are notoriously busy. Most press releases should be kept to one page; two pages is acceptable. If a reporter wants more information, he or she will ask.
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Write it in a news style. That means putting the prime information (who, where, what, and when) into the lead (first) paragraph. It also means keeping the sales pitch subtle. No exclamation points!!! Many newspapers, for example, will directly reprint a press release, as long as it is written in a professional news style. Use short words and sentences. Make sure what you’re saying is very clear.
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Use one or two quotes that have meaning from your businesses’ executives. Position them as industry or product experts. Journalists will often reprint these quotes verbatum in their articles.
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Always include, at the top corner of every page, a two- or three-word description of the story, the name and phone number of key contact people (no more than two), the page number (if there is more than one page) and the release date (usually “For Immediate Release;” otherwise “Please hold until xx/xx/xx”).
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End a press release with ### typed across the center of the margin a couple lines below the end of your text. If a
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release is continued on another page, type “-more-” at the bottom of the page in the center. ■
Use standard 8 1/2” x 11” paper typed on one side only. Never break a paragraph across two pages. Leave plenty of margins for editors to write notes; an inch and a half all around should be fine.
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Make sure the press release clearly states how the reporter can contact you via telephone and e-mail. It should also clearly list your company’s Web site information.
Reasons to issue press releases As the owner/operator of a franchise-based business, here are just a few potential ideas or subjects that would be worthy of issuing a press release in hopes of generating local or regional press coverage. ■
The grand opening of your store/business
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The release of a new product/service
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Announcing that your business will be sponsoring a local sports team
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Announcing that your business will be involved with a local charity, participating in a charitable event, or making a charitable donation to a specific cause
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A special event happening at your business that the public would be interested in (such as Santa Claus or a celebrity making an appearance)
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Distributing timely or newsworthy information, facts, or statistics that tie into a major news story or that could promote you (the franchise operator) as an expert in your field
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Distributing how-to advice that could help a general audience (and that somehow relates to your business, it’s products or the services it offers)
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Pitching to the media a human interest story that somehow involves your business, products, or services. A human
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interest story is typically not timely or news-oriented but offers general information or advice of interest to a broad audience. Many news outlets rely on human interest stories as filler on slow news days.
Elements of a press kit While a press release is a one- or two-page document that announces your newsworthy information to the media in a specific format, a press kit offers more elaborate documentation, usually nicely packaged in a folder. An electronic press kit contains the same elements as a regular press kit, but in digital form (offered on CD or via the Internet). Elements of a press kit include the following. ■
Press releases from the company
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A one-page company description or background
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Bios of key personnel
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Relevant photos/artwork
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Product literature
All this information is offered to a reporter or journalist so that he or she can use it as background information when creating a story or producing a news feature. If you’re creating traditional printed press kits, you’ll probably want to have them custom printed. Many print shops can help you design and print your press kit folders and materials.
Moneysaver Folder Express (800-322-1064; www.folderexpress.com) is one example of a fullservice press kit folder printing company. For some of your other full-color printing needs, whether it’s for promotional items, catalogs, posters, or fliers, Getz Color Graphics (800-562-8052; www.getzcolor.com) can handle your printing needs inexpensively and in a timely manner. To have photographs duplicated for your press kit, ABC Pictures (888-526-5336; www.abcpictures.com) specializes in photo duplication for press kits and PR purposes. Using the services of these three companies (or companies like them), you’ll be able to create extremely professional, high-impact press kits for your business.
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What is advertising? The difference between advertising and publicity (generated through your PR efforts) is that advertising is paid for. As a result, you get to determine the exact wording, visuals, placement, how and when your ads are seen, and specifically where your ads will be displayed. In other words, you have total control over your message, including who will see it. The problem with advertising is that it can get extremely expensive, especially on a regional or national level. Plus, if you make one wrong decision relating to the creation or placement of your ads, your campaign might not generate the desired results. In addition to writing, designing, and/or producing an ad (depending on whether it’ll appear in print, online, on the radio, or on TV), you must decide when and where the ad will appear. Your goal is to buy advertising that’ll allow you to reach the largest number of people within your target audience for the least amount of money possible. When it comes to advertising, there are countless ways of paying to get your marketing message heard and/or seen by potential customers and clients. The more creative you are— not just with what your ads say and how you say it, but with how you present your message and the forum you use to communicate it—the better your results will be.
Watch Out! When planning and budgeting for your advertising, frequency is essential. Consumers typically don’t respond to or remember an ad the first few times they see or hear it. Thus, repetition is essential. Don’t expect to run one single print ad in a newspaper and generate dramatic results. Likewise, if you decide to run regional radio advertising, you might not begin to generate a response from your ads until they’ve aired ten, twenty, thirty, or more times. This is why creating a comprehensive ad campaign is important. Before investing in any form of costly advertising, make sure it has the potential to generate the desired outcome and/or response rate, and that the audience who will be seeing or hearing your ads is actually your target audience—not the general public who may or may not have an interest in what you’re selling.
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Moneysaver Many franchisors offer co-op advertising programs. This means that the franchisor will help you pay for local advertising, as long as the ads meet their guidelines and are pre-approved. As you begin researching advertising opportunities, determine what support you’ll receive from your franchisor or from other franchisees in your region.
The following are some of the most common types of advertising that will probably be available in your community. ■
Newspaper: Remember to focus on regional, local, and weekly newspapers and publications, including shoppers.
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Regional magazine: Although your franchisor will probably handle advertising on a national level (which includes ads in major magazines), chances are there are one or two regional magazines in your area that might assist you in reaching your target audience. Keep in mind that regional magazines, such as The New Yorker or Boston Magazine, for example, often cater to a more upscale crowd.
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Radio: Most localities are within the listening range of at least a handful of different local or regional AM and FM radio stations. Depending on the type of audience you’re trying to reach, you might want to focus on news/talk stations, sports/talk stations, adult contemporary music stations, top 40/pop music stations, country music stations—any radio station that you know caters to the audience you’re trying to reach. Keep in mind that when it comes to radio advertising, choosing the appropriate stations is an important factor. Promoting the right message, wording it correctly, having your ad professionally produced so it sounds good, and then choosing the best times of day and night for the ad to run are all key decisions you’ll need to make. On a regional or national level, satellite radio also provides a viable advertising option.
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TV: In addition to the main TV networks, including ABC, NBC, CBS, FOX, and CW (formally UPN and The WB), virtually every television market is also serviced by several independent, local TV stations. It’s also possible to advertise locally or regionally through cable TV, as well as satellite TV, which can allow you to truly target your ads to reach viewers with specific interests or who fit a specific demographic.
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Billboards: Outdoor advertising is a popular way to promote many types of businesses. Billboards, the sides of buses, ads at bus stops, and ads on taxis are all forms of outdoor advertising.
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Phone book listing: For franchises, one of the most costeffective ways to advertise is through the phone book listings. This is where many people still turn to find the local products and services they’re looking for. For more information about advertising in official Yellow Pages telephone directories, visit the company’s Web site (www.yellowpages.com/sp/advertise). Depending on where your business is or will be located, other companies might also publish similar phone directories in which you may choose to advertise.
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Direct mail: Using the United States Postal Service to deliver your advertising message or distribute coupons through direct mail is an excellent, but potentially costly,
Bright Idea When it comes to TV advertising, choosing the appropriate stations is an important factor. Promoting the right message, wording it correctly, having your ad professionally produced so that it looks and sounds good, and then choosing the best times of the day and/or night for the ad to run are all key decisions you’ll need to make. Television advertising can be very expensive compared to other forms of advertising. It should be used only if you can afford an ongoing or extended campaign that will guarantee repetition (that is, multiple views by potential customers).
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Moneysaver Chances are, your franchisor will be able to save you money as you create your advertising by providing you with already created and approved ad designs, artwork, or layouts of ad concepts that can be adapted or modified to meet your needs. Be sure to utilize these already created assets, if they’re available, as you begin to advertise your business.
way to attract new customers. In addition to the postage, you need to have the printed materials written, designed, professionally printed (preferably in full-color), stuffed in envelopes, and then mailed. There are companies that, for a fee, specialize in handling direct mail campaigns. Of course, you can also do this work yourself. ■
Movie theater: Before movies begin, most theaters show advertising in the form of slides or actual commercials before the previews and feature presentation. Movie theater advertising allows you to get the attention of a crowd as they enter the theater, take their seats, and wait for the movie to start. In 2005, more than 1.39 billion movie tickets were purchased nationwide. This presents a potentially large and captive audience for your in-theater ads. Velocity Cinema Advertising (888-826-3456; www.movieadvertising.com) is one agency that sells movie theater advertising nationwide. For local ad buys, contact your local movie theater(s) directly.
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Online/Web site advertising: Developing and maintaining a Web site for your business, and then utilizing various forms of online advertising, is a way to attract Internetsavvy people to your business. Many franchisors limit what individual franchisees can do online, so follow the guidance offered by your franchisor. The Unofficial Guide to Starting An Online Business, 2nd Edition (Wiley Publishing), is a useful resource if you’re looking to expand into cyberspace.
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Watch Out! Until you know that a specific advertising vehicle is going to work for you and you’ve had a chance to fine-tune your ad message and/or creatives (the design or production of the ads themselves), don’t invest too much money or pre-pay for a long-term advertising contract with any media outlet. Make sure you have the ability to make last-minute changes, modify your campaign, or pull the advertising altogether if you discover that a specific advertising vehicle is not generating the results you want and need.
Why becoming active in your community is important One of the best ways to build customer loyalty and generate goodwill in your community is for your business to become active within the area or region it does business. Beyond offering top-notch customer service (which is explored in the following section), reaching out to the community provides a way to promote your business, build its positive reputation, and generate new business—all for a relatively low financial investment. To become active in your community is an investment of your valuable time; however, this is an investment that will pay off over the long term. There are many ways to reach out and become active in your community. Some of these methods include the following. ■
Becoming an active member of the local Chamber of Commerce
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Donating products or services to local charities or fundraisers
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Finding creative ways to support the local public schools, whether it’s through donations, providing internships, or participating in a career day
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Providing discounts to families with members actively serving in the military
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Sponsoring a local sports team
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Bright Idea When participating in any type of community activity, be sure you and your employees wear shirts, jackets, and/or hats that clearly display your business name and logo. This will generate greater awareness and will better promote your business.
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Sponsoring or participating in local fairs, events, or parades
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Supporting the local police and fire departments
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Taking part in activities, groups, or organizations that’ll provide valuable networking opportunities for you and your employees
The goal of any type of community outreach is for you and your business to be perceived as having concern about the overall well-being of the community and its residents. In exchange for providing this goodwill, you’ll often have a chance to display your logo, banner, or advertising slogan. Many people will go out of their way to support local businesses, including franchise locations owned by local residents. By making your presence known in a creative and positive way, you’ll slowly be able to create an extremely positive reputation for yourself and your business in the community. This will translate into new business, as well as repeat business from existing customers and clients.
Focus on always providing top-notch customer service Assuming that, as a franchise owner/operator, you do absolutely everything correctly when it comes to marketing, advertising, and promoting your business, new customers or clients will begin knocking at your door. Each one of these people can become a potentially long-term customer or client and provide plenty of repeat business, plus valuable referrals, as long as you make their experience favorable, memorable, and hassle-free.
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Always providing top-notch customer service is, without a doubt, the most essential way of pleasing your customers and generating repeat business. As the business owner, it’ll often become your responsibility to resolve problems or disputes that arise with customers, which is a skill you’ll need to develop (hopefully with the help of your franchisor). On an ongoing basis, however, you must drill into the heads of your employees the absolute need to always provide the highest level of customer service and enthusiasm possible, regardless of the situation or the attitude they receive from customers. Getting your employees to offer this level of customer service will require training, monitoring, providing employee rewards/incentives, and at times taking disciplinary measures. Part of your training should include teaching your employees how to easily and favorably deal with any negative situation or problem that arises with a customer/client in order to quickly create a win-win outcome. Your goal must be to ensure that every single customer or client, without exception, is always treated professionally and in a friendly manner. Every customer should always receive the personalized attention and support necessary to make his or her experience interacting with your business one that is memorable and favorable. When was the last time you were shopping in a store, eating at a restaurant, or calling on any type of business and were forced to deal with an employee who was rude, condescending, impatient, unprofessional, or totally unhelpful? Chances are, it happens often in your daily life as a consumer. What did you do as a result of this treatment? Perhaps you decided never to do business with that company again. Even worse for that business owner, perhaps you told a handful of your friends, coworkers, or relatives about your negative experience and helped to tarnish that business’s reputation. Now that you’re a business owner yourself who relies on customers for repeat business and referrals, you can’t afford to
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anger any of these customers/clients or create a situation that causes them to speak negatively about your business to people they know. Always providing top-notch customer service is the easiest and most cost effective way to avoid these problems. The formula is extremely simple: Providing superior customer service results in happy customers. Happy customers become loyal customers. Loyal customers offer you repeat business and help you generate new business by making referrals to their friends, coworkers, and relatives. It becomes an endless cycle that allows you to grow a prosperous business. This is highly effective advertising you don’t have to pay for. Providing the best, friendliest, and most professional customer service possible means greeting your customers (by name if possible), offering them the products/services they want and need in a timely manner, making their experience working with your company as hassle-free as possible, and most important, making every customer feel important and valuable to you and your business. This is a long-term business strategy that will help you build a strong foundation within your community and grow your business over time. The importance of providing this high level of customer service can’t be understated and certainly should not be ignored. If your franchisor doesn’t offer specialized training on how to provide and maintain the best customer service possible, seek out the training or guidance you need for yourself and your employees from other sources.
Watch Out! The customer service you offer to your customers/clients will allow you to build a highly favorable or extremely negative reputation within your community. While a favorable reputation will increase new business, developing a negative reputation can and will hurt your bottom line over the long term. Plus, once your business has established a negative reputation, it will be extremely difficult, time consuming, and costly (and perhaps impossible) to repair it.
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Bright Idea To complement the guidance you receive from your franchisor as you plan for opening day, depending on the type of business you’ll be operating, consider hiring a local event planner and/or public relations firm to help you get the attention of the local community and fully utilize the media to accomplish this.
Planning your opening-day events Everything in this chapter will need to be in place before your opening day. Otherwise, the public won’t know your business even exists. When you actually open for business, not only must you be ready for the sudden influx of business, you must be able to handle the business. Leading up to opening day, however, you need to heavily promote your business and begin to build local awareness. Placing “grand opening” signage, launching special promotions and giveaways, inviting a celebrity guest (such as a local professional athlete) to visit your location and sign autographs, distributing balloons, and/or finding other ways of transforming your grand opening into an all-out event will help quickly establish your business. Your franchisor will be able to provide valuable guidance for planning an effective opening-day celebration.
Just the facts ■
No matter how much marketing, public relations, and advertising support you receive from your franchisor, you will need to handle these important tasks on a local level in order to establish and grow your business.
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Depending on the type of franchise you own and operate, you can capitalize on the brand name recognition, reputation, and logos of your franchisor. This makes the job of advertising and promoting your business that much easier, because you can focus exclusively on your local area and in many cases, utilize the fact that people already know what your business offers because they’re familiar with the brand on a national level.
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Hiring an outside PR or advertising agency as you first launch your business can be extremely beneficial. It’ll not only allow you to capitalize on the expertise and experience of the people you hire but also help introduce you and your business to the local media market (newspapers, regional magazines, radio stations, TV stations, locally operated Web sites, and other influential media outlets) by allowing you to capitalize on the PR and/or advertising agency’s already established relationships with the local media.
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Especially as a start-up business that’s able to capitalize on the name recognition of a well known franchisor, the more you can utilize low-cost or free marketing and public relations efforts, the better off you’ll be.
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Public relations refers to obtaining free publicity within the media, whether it’s through a feature article being written about your business, an interview with you as a business leader or local expert on a specific topic, or any other media coverage you receive that you don’t have to pay for. Obtaining media coverage can be highly effective and inexpensive to generate.
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Advertising refers to paying for your promotional message (advertisement) to appear in any genre of media. As a paid advertiser, you control exactly what’s said about your company and how it’s said, plus you decide specifically when and where the advertising runs. When it comes to paid advertising, you have many options.
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One of the best ways to build customer loyalty and generate good will in your community is for your business to become active within the area it does business. This can be done through many different types of community outreach programs and by participating in charity-oriented events and programs.
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Always providing top-notch customer service is, without a doubt, the most essential way of pleasing your customers and generating repeat business.
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Gathering Expert Advice
Getting Insight from Franchising Experts
T
he whole concept behind becoming a franchisee is that you can benefit from the experience, knowledge, and established system created by a specific franchisor. Thus, you can utilize all the research and hard work already put into that business by the franchisor, as well as the existing franchisees who have come before you. By leveraging this information, the theory is that you can easily avoid making mistakes, plus avoid having to invest the time, money, and effort into testing businessrelated theories, ideas, or practices to see whether they might work. All that has already been done for you and has been documented within an operations manual created by the franchisor. In this chapter, you have the unique opportunity to learn from a wide range of experts, many with decades of experience in franchising. These people are involved with many different types of franchisebased businesses and know exactly what it takes for a franchisee to be successful.
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GET THE SCOOP ON . . . Interviews with franchise experts ■ Information about the International Franchise Association from the organization’s chairman ■ Tips on how to choose the best location ■ Advice from a franchise attorney
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From these interviews, you’ll obtain the unique perspectives of these experts, plus have the opportunity to learn directly from people who have already achieved tremendous success. Much of the advice these experts offer applies to any type of franchise-based business. Keep in mind that the advice offered comes from the direct experience and knowledge of each expert, but is also based on his or her own options and philosophies, with which you and your franchisor may or may not agree. When you become a franchisee, you should have access to a vast amount of information, training, and assistance from your franchisor and existing franchisees operating within your franchise system. Within this chapter, you’ll learn from experts representing many different franchise opportunities and related services from across the country. The insight you’ll obtain should help you prepare yourself to become a franchisee and arm you with important knowledge that will become essential in the operation of your business.
Lawrence J. “Doc” Cohen, CFE Chairman, International Franchise Association (IFA) President, Doc & Associates, Ltd. Phone number: 202-628-8000 Web site: www.franchise.org Known in the franchising world as “Doc,” Lawrence Cohen has decades of experience working as the largest franchisee for the Great American Cookie Company and Pretzel Time. His company, Doc and Associates, Ltd., currently operates more than thirty units. Doc was the first franchisee to earn the Certified Franchise Executive (CFE) designation. As of 2006, more than 350 franchise executives are currently enrolled in the CFE program, which provides expanded knowledge, industry recognition, peer-level networking, and a professional standing as a result of
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Bright Idea You can get in touch with the IFA by calling 202-628-8000 or visiting the organization’s Web site at www.franchise.org. This is an excellent resource for prospective and existing franchisees.
meeting the requirements of the CFE program, which is administered by the International Franchise Association (IFA). Doc is also the chairman of IFA. Established in 1960, the IFA is a membership organization of franchisors, franchisees, and suppliers that has become the preeminent voice and acknowledged leader for franchising worldwide. With thousands of members representing virtually all of the most established and successful franchisors, the organization’s goal is to protect, enhance, and promote franchising. Through its robust and extremely informative Web site (www.franchise.org), printed publications (Franchising World and IFA Insider), meetings, workshops, and trade shows, the IFA offers a wide range of services to its members, as well According to the IFA’s as to prospective franWeb site, one of the chisees. Among the organiorganization’s primary zation’s initiatives are to goals is to “Educate the public about franchising promote the involvement and to educate lawmakof women, minorities, and ers and policymakers on a wide range of small veterans in franchising. business issues that In this interview, Doc affect franchising. shares his advice and experiences working with the IFA. He regularly interacts with both franchisors and franchisees from around the world. He also shares his own firsthand experiences as a highly successful multi-unit franchisee with decades of experience dealing with all of the challenges, issues, and obstacles that you’ll potentially face on your own quest to become a franchisee.
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How did you originally get involved in franchising? Cohen: “It was back in 1978 when I started looking into franchising. Prior to that, I had been involved in retail. I was vice president of a drug store chain that got into some trouble. The company needed to cut back, so I got laid off. Working as a pharmacist, which is how I got my nickname ‘Doc,’ just wasn’t fun anymore. I began looking for something different. “I soon got involved as a franchisee with Great American Cookie Company and founded Doc & Associates, Ltd., which is the general partner of the company that owns and operates the stores.” How did you first get involved with the IFA? Cohen: “The IFA was founded in 1960, but it wasn’t until 1993 that the organization made the decision to allow and encourage franchisees to become members. There was a need for one group to represent the interests of franchisees and franchisors. One of the two founders of Great American Cookie Company, my franchisor was a past chairman of the IFA. He asked me to sit on the board of a franchisee advisory council. I was one of the early participants with the IFA from the franchisee side.” What services does the IFA offer? Cohen: “IFA was primarily a lobbying organization for many years. Lobbying is still one of our principal activities, but we now also offer a host of other services to our franchisors and franchisees, including extensive research. For example, we recently spent $500,000 on a franchise-related research study conducted by PriceWaterhouseCoopers. We also provide online information and education for prospective and current franchisees. The IFA has a career center and special programs for veterans and minorities.” At what point should a potential franchisee get involved with the IFA? Cohen: “Once someone knows he or she is interested in becoming a franchisee, that person should get in contact with the IFA and begin to utilize our services and information, much of
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which is available through our Web site. Our members subscribe to a strict code of ethics. So, if you’re looking at a specific franchisor, for example, and that company is one of our members, you know it adheres to our standards. The IFA is also a great source of information about our members. From our Web site, you can conduct research about thousands of companies and franchise opportunities. This can help a prospective franchisee learn about opportunities, and then make contact with specific franchisors they’re interested in.” Once someone becomes a franchisee, how can the IFA help that person achieve success? Cohen: “There are a number of ways the IFA can actively help a franchisee after his or her business is established and operational. We offer national and regional meetings that feature seminars and workshops on a wide range of topics relevant to franchisees. We also provide a networking forum that allows our members to communicate and learn from each other. If you’re a franchisee and you have any type of problem, you are virtually guaranteed that when you seek assistance at one of our meetings or seminars, someone else in the room will have already experienced that same problem and will be able to offer free advice on how to handle it. “The IFA’s lobbying effort actively teaches its members how government works and how to interact with their local government representatives in order to convey what our concerns and needs are as franchisees, franchisors, and small business operators.” Based on all your experience, do you believe there’s still a viable opportunity for people first getting involved with some type of franchise opportunity? Cohen: “I think franchising is more viable than ever. In a franchise business, someone has already done the homework for you. The franchisor has taken a business concept, started the business, and developed and worked it into something that has become successful as a business venture.
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“From that, the franchisor has developed a system and has literally written the book on how to operate that same business. The franchisor has learned, made mistakes, corrected them, and created a detailed operations manual that franchisees can then use as step-by-step directions to try to achieve similar success. The franchisor will help its franchisees with a wide range of services, from choosing the ideal location and negotiating a lease, to training, finding suppliers, hiring employees, and teaching the franchisee exactly how to operate his or her business. Pursuing a franchise opportunity can help you avoid many of the common mistakes made by independent start-up business operators.” What are some of the drawbacks to becoming a franchisee? Cohen: “Most of us who want to go into business are entrepreneurs. We are independent people and have a good idea about how we want to run our businesses. When you buy a franchise, you buy into an established system. With a system, you, as the franchisee, are told exactly how to do things. You have to understand that while you’re an independent business owner, if you’re going to be in a franchise, you must conform to certain rules, regulations, and procedures that are prescribed by your franchisor. “For example, suppose you decide to become a McDonald’s franchisee and you live in a small town. You’ll be operating the only McDonald’s in the area. You open your unit, but eventually start thinking that you don’t like the sesame seeds found on the bun of a Big Mac. You believe that your customers don’t really like the sesame seeds either, so you decide to offer Big Macs with a plain bun. Well, as a franchisee, you can’t do that for a number of reasons. First, what you’re now offering is no longer a Big Mac. You’ve changed the recipe. By changing the recipe, you’re no longer operating within the franchise system. “With a franchise-based business, if a customer walks into a McDonald’s in Texas and orders an item off of the menu, that
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item must be exactly that same as what the customer would get if he or she ordered the same item at a McDonald’s in New York, Orlando, Chicago, or anywhere else in the world. This concept applies to all franchise-based businesses. If you’re not willing or able to follow the mandates of your franchisor, there’s no point in becoming part of a franchise system.” What makes the perfect franchisee? Is there a skill set, education level, or personality trait that will allow someone to achieve success? Cohen: “I don’t think there’s a specific education level or skill set. What is required is a desire to succeed and a dedication and commitment to running your business. The ideal franchisee needs to understand the nature of the relationship between the franchisee and the franchisor. A franchisee needs to understand that a franchise is a partnership in every sense of the word, except for a legal sense. In terms of a relationship, it’s like a marriage, and there is give and take. An ideal franchisee understands that there are times when as a franchisee, you have to put your personal agenda aside and do what’s best for the franchise system. In the long run, the stronger the franchise system is, the better off each individual franchisee within the system will ultimately be. “Another trait of an ideal franchisee is that he or she is willing to share his or her knowledge and experience with any other franchisee in that system, so that everyone involved in that system can achieve success. By examining what other franchisees are doing that works, you can emulate or learn from them and also become successful. This is possible only if franchisees are willing to share with each other.” What is the biggest misconception people often have about becoming a franchisee? Cohen: “Many people believe that if they become part of a franchise, they are guaranteed success. That’s simply untrue. There is no guarantee for success, whether you’re in a franchise or
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not. You have to work hard, have dedication, and possess good business sense. “No matter what type of franchise-based business you get involved with, you ultimately need to know how to operate that business and have a good general business sense.” What advice can you offer to a potential franchisee who needs to line-up the appropriate financing to buy into a franchise and get the business started? Cohen: “There are many sources of financing, including banks. Typically, bankers are more likely to consider approving a loan for a start-up if there’s a recognized franchise brand behind it. The Small Business Administration (www.sba.gov) has some good programs that are administered by SBA lenders. The SBA guarantees those loans, which typically make them easier to get approved. “There are also many companies out there that specialize in franchise lending. They’re typically affiliated with specific franchisors. These financing institutions already know all about the franchisor and have an established relationship with it. If the franchisor you’re working with has this type of relationship with a lender, it’s usually worth looking into when lining up your financing.” There are so many different franchise opportunities available. How can a potential franchisee make sure he or she is pursuing the right opportunity and getting involved with the right franchisor? Cohen: “This is a very important question. The best way to find out if the franchisor you’re looking at is one you want to be affiliated with is to call the other existing franchisees in the system.
Bright Idea A good source for funding, according to Cohen, is venture capital money from private equity lenders. This funding is best for people looking to expand their established businesses.
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When you first meet with a franchisor, you will receive a document called the Uniform Franchise Offering Circular (UFOC). This is a disclosure document that lists information a prospective franchisee needs to know and understand about the franchisor. “One of the most important things a potential franchisee can do is look at the existing franchisees listed within the UFOC and start calling them. When you get an existing franchisee on the phone, ask specific questions. One important question you should ask is, ‘Knowing what you know today, would you do this again?’ Obviously, the answer you’re looking for is an enthusiastic ‘yes’ from as many existing franchisees as possible. “One question many prospective franchisees want to know is, ‘How much money am I going to make?’ Typically, people are uncomfortable answering this question directly. You can, however, determine this information by asking other types of questions which those same people are more apt to answer. For example, you can ask about the existing franchisee’s sales volume and cost of goods. You can also ask about labor costs as a percentage of sales. Another good question is, ‘As a percentage of sales, what is your occupancy cost?’ With answers to these questions, plus information found in the UFOC and your own research, you can crunch the numbers and make fairly accurate calculations about earning potential, without directly asking a franchisee about his or her earnings. I recommend using this information to construct a detailed financial statement with the help of an accountant. “If you were going to open an independent store, you could never call up your competition and ask confidential information about the operation of that business. This is something you can and should do if you plan to become part of a franchise system, because most franchisees are willing to help each other.” What are some of the worst mistakes you’ve seen franchisees make? Cohen: “The worst thing I see people do is come into a franchise system, and then start telling the franchisor how they
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should be operating the business. I have seen new franchisees tell a franchisor they don’t know what they’re doing. “Another mistake I’ve seen people make is that they open a franchise unit thinking it’ll automatically be successful, and they wind up becoming an absentee owner. They pay little or no attention to the business. No matter what type of opportunity you pursue, you have to take responsibility for your own success. There is a famous quote in the franchising world that says, ‘In business for yourself, but not by yourself.’ You have a franchise organization that is there to help you, give you advice, and provide you with training, products, and marketing. The franchisor is not running your business, however.” Should someone begin a franchisee experience as a hands-on operator? Cohen: “I don’t think this is an absolute requirement, but I believe a franchisee gains a lot of insight into the business by starting off as a hands-on operator. I’ve seen many people who don’t run their own businesses or take responsibility for them wonder why they’re not doing well and not understanding how to fix the problems. “If you’re the owner of a business, you should know more than or at least as much as anyone else in your organization about the operation of the business. You should know the system backward and forward. You can read the operations manual provided by the franchisor and gain book knowledge, but this doesn’t replace the valuable insight and experience you develop from actually running that business. Until you’re out there actually running your business, you’ll be missing out on obtaining knowledge and experience that I believe is very important.” If someone is interested in taking over an existing franchise unit, do you have advice about how they should proceed? Cohen: “Do your research about that existing unit as well as the franchisor. The seller probably doesn’t want any of their employees to know the business is being sold, so you can rarely
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Watch Out! A reputable franchisor will warn a prospective franchisee if they’re about to pay way too much for existing unit, because if the selling price demanded by the existing franchisee (the seller) is too high, it could easily prevent the buyer from ever generating a profit.
go into the location and have a candid and open conversation with the employees. You must, however, make sure the financial records for that location are accurate and that the franchisee is in good standing with the franchisor. “You also want to make sure there are no taxes due and that no litigation is pending against the franchisee. If you’re in a situation where there’s a lease involved, you must make sure you can take over the lease and develop a good relationship with the landlord. “For example, if your business plan dictates it’ll take you five years to recoup your investment in that business, however, the existing lease is good for only two more years or the franchisee license agreement expires in three years, you’re potentially in trouble. Do your homework. “In addition to negotiating the purchase of an existing franchise unit with the seller, be prepared to enter into negotiations and discussions with the franchisor. Typically, the franchisor must approve the sale.” What types of advisors or experts should a prospective franchisee hire to help them as they get started? Cohen: “I can’t stress enough to people that they should enlist the services of qualified professional advisors early on in the process. This includes hiring a qualified and experienced franchise attorney and an accountant. A franchise attorney is very different from a general business attorney, who probably doesn’t have the expertise needed to evaluate a franchise agreement or UFOC. There are very different issues involved with franchiserelated contracts than there are with general business contracts.
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“An accountant or financial advisor can help you put a detailed business plan together. Developing a customized business plan is an extremely important early step in becoming a franchisee and opening your business.” What are some of the biggest challenges or obstacles that many first-time franchisees ultimately run into? Cohen: “There are many. One challenge for the franchisee is often keeping the business in conformance and in compliance with the franchisor’s system standards. Learning how to run a business smoothly is a challenge unto itself, no matter what type of business it is. The cost of opening a new business today is also much higher than it was years ago. “I opened my original Great American Cookie Company locations for an investment of under $60,000 each. Today, when I open a new location, I am looking at a several hundred thousand dollar investment, but the size of the location itself is smaller. Franchisees are often faced with a significant debt situation, which can add additional stress to their situation. “Two other sets of challenges first-time franchisees face are finding the very best location for the business, especially if it’s a bricks-and-mortar business, plus hiring and managing employees. If it’s a service-based business, the challenges involve building up a customer base, plus hiring and managing employees.” Is there a final piece of advice you can offer to a potential franchisee? Cohen: “The most important thing is to be sure you adequately research the franchise opportunity you’re looking at. If you do nothing else as part of your research, call as many of the existing franchisees in the system as you can. If possible, make plans to visit those franchisees and actually spend time observing how they operate firsthand. Talking to other franchisees to learn about a specific franchise system will provide extremely valuable information and insight. If you talk to multiple franchises, you should hear the same positive or negative stories over and over
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Bright Idea One reason people buy franchises is because they want someone to teach them how to operate a business. The challenge for the franchisee is then absorbing all of the information provided in the training sessions within a short period of time. A franchisee typically only has a few weeks, at best, to learn everything they need to know before they actually must start operating the business successfully.
again. If you can locate former franchisees who have left the system, ask those people why they left and learn from their experiences as well.”
Tom Buxton Founder and President, Buxton Phone number: 817-332-3681 Web site: www.buxtonco.com After you become a franchisee, one of the most important decisions you make before opening almost any type of franchise-based business is choosing the right location. The right location can make or break most types of franchise businesses, especially retailbased businesses that offer products or services to customers. Most franchisors take an active role in helping franchisees select the right location and in negotiating a lease with the landlord. As you discover in Chapter 7, many different considerations go into choosing an ideal location. Tom Buxton is the founder and president of a company that specializes in working primarily with large franchisors and other companies to help select ideal locations. With decades of experience relating to site selection, Buxton has developed proprietary and proven methods for helping franchisors, franchisees, and other types of businesspeople makes sure the sites they choose are perfect for that type of business. Based in Fort Worth, Texas, Buxton was founded on a unique premise—to assist enterprises in building success by
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accurately identifying their customers. Precisely defining and knowing who your customers are applies to virtually any concept imaginable. To achieve the right level of knowledge, the actual customers’ households must be the foundation for all research efforts. Buxton has pioneered the use of household-level data for research purposes. Millions of customer transactions are analyzed to determine purchasing habits and lifestyles, a process now known as psychographics. The success of Buxton’s company has and continues to be based on the philosophy that, in today’s competitive environment, where customer knowledge is the ultimate key to success, you can no longer afford to make decisions on the basis of generalized demographic data. It’s Buxton’s belief that the future of any customer-oriented enterprise will be determined by understanding the psychographic lifestyle of the customer. Buxton developed the philosophies and practices used by his company today after working for twenty years with the consumer electronics giant, Tandy/Radio Shack. He eventually earned the title of vice president and became responsible for the sales and operations of Radio Shack stores. Later, he was promoted to corporate vice president of real estate, design, and construction. It was in this capacity that he managed that aspect of the operations for all of Tandy/Radio Shack’s worldwide real estate. Currently, Buxton’s company has twelve branch offices and over 1,000 clients. What is it exactly that sets your company apart from others? Buxton: “I formed my own company in 1994, after leaving Radio Shack. We’re a company that helps other companies define who their customers are, understand where they are, and figure out how to reach them. All of our work is centered around understanding who a company’s customers are. No company will succeed unless it understands this. We work with information that goes well beyond demographic data.”
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When you begin working with a franchisor or an individual franchisee, what is the first step in helping him or her to select a location(s)? Buxton: “The absolute most important thing is to identify scientifically who the business’s customers are. Even if people look identical when you review their demographic data, their buying habits could be vastly different. We identify who specifically buys the franchisor’s products or services. Once we know who the customers are that we’re targeting, we can choose a location based on the population of those targeted customers. If a customer isn’t located close to you, you’ll get killed by competitors or by being inconvenient to customers. If you don’t know, scientifically, who your customers are, everything else is a guess.” When you refer to “scientifically” knowing your customers, what does that mean? Buxton: “We have compiled 27 terabytes of data about consumer spending. If you compare that to the Library of Congress and all of its information, it has only 16 terabytes of information. We have detailed consumer spending information about over 111 million households, and up to six individuals inside each of those households, not just the leader of the house. “Most people look at site selection and figure out within a five-mile radius, for example, how many households are potential customers. Typically, when this type of research is conducted, only the head of the household is looked at, as opposed to the actual buyers in that household. In many cases, the spouse or the children might be the buyers. “Our research doesn’t focus just on demographics, such as income or any of the normal attributes of a person. We look at who spends money and what they spend their money on. If there is data about a consumer out there, we probably buy that data. About 50 percent of our data is available to the public. The rest is proprietary data we have compiled ourselves over the years. Once we pinpoint who a company’s target customer is, we look for locations that offer the highest density of those customers.
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“Using the data we have, we have a patented product that allows a franchisor to focus in on potential buyers, and then evaluate many conditions when selecting a site. We determine, for example, how far a potential customer is willing to drive for a specific product or service, and how much time they’re willing to invest in order to acquire what the company is offering. “Based on the information we’re able to collect, we can calculate how much revenue a company should be able to generate, based on a predicted level of volume. From there, everything else becomes very simple.” Does your company work with individual franchisees, or do you typically work with franchisors? Buxton: “We do both. For example, we work with all Subway and Pizza Hut franchisees in the site-selection process. It is often cost prohibitive for a single franchisee to hire us, unless the franchisor is already one of our clients.” What is a common mistake you see franchisees make when choosing a location for their businesses? Buxton: “Some franchisees choose an excellent site, but don’t determine until it’s too late that the site isn’t actually surrounded by enough of its target customers to allow the business to succeed. Franchisees can spend a fortune on real estate, but that money is wasted if they don’t choose their locations based on who their customers are and where those customers are located.” What makes an ideal location for a franchisee? Buxton: “Experts will tell you it’s all about visibility, adequate parking, or locating your business in a high-traffic area. In reality, I believe the single most important thing is choosing a location that offers a high density of the people who will be buying your product. It’s that simple. If the location you choose has enough of your target customers surrounding it to support the business, it will be successful. If you don’t get the location right, nothing else will go right. Once you have a geographic location selected, you want to make it as easy as possible for your customers to get
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to you. This is when signage, ample parking, good ingress and egress, and all those other elements come into play.” What else does a franchisee need to consider when it comes to site selection? Buxton: “You need to think about how much you’re willing and able to spend on real estate, and then how much you’re willing and able to spend on advertising and marketing in order to reach your target customers. “In my opinion, budgeting for real estate and advertising should be a combined effort. If you choose a prime location, your store becomes an advertising vehicle onto itself. If you invest in lesser real estate, you’ll need to invest more money in advertising in order to attract your customers and let them know where you are. “I believe one of the best ways to market to a target audience is through direct mail, because you can pinpoint your exact customer with information about the specific products or services you know they want to buy. You then need to offer entertainment, the right selection of products or services, excellent service, and the right pricing to win over customers.” Do you have any strategies for dealing with a landlord when negotiating a lease? Buxton: “It’s all about finances. If you do your homework as a franchisee, you know what you can afford to pay for real estate. The key is to know what your volume is going to be, based on the density of the customer base and what they’re willing to spend on an ongoing basis at your store. If you’re going to be doing a specific level of volume, you can then calculate how much you can afford to spend for rent. This will determine the quality of the location you can have. “Landlords are usually sophisticated. They know what their real estate is worth and what your franchise-based business is capable of bringing to their mall or shopping center, for example. A small, franchise-based business doesn’t typically bring a
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Moneysaver As a franchisee, you need to understand the value of real estate and negotiate the best lease rate you can based on what you’re able to offer.
lot of traffic to a shopping center, so it’s these businesses that often become the higher rent payers. Landlords want something unique that will generate traffic to their center. When negotiating with a landlord, all you can do is sell the concept behind your franchise-based business.” How long does it typically take to negotiate a lease with a landlord and actually open a business once the location is selected? Buxton: “This varies a lot. It all depends on the landlord, your franchisor, and what needs to be done to the location before you move in. The whole process can take a few weeks or up to a year or longer. Your attorney and your franchisor can be extremely helpful during this process.” Any final advice you can offer to a franchise pertaining to site selection? Buxton: “Do not sign a lease for a site unless you already know the customer base is there to support your business on an ongoing basis. Likewise, if the franchisor is providing you only with a small geographic area in which you can do business, so you don’t compete with its other franchisee, but you determine there’s not a large enough customer base in that area to support the business, walk away from the deal altogether and seek out another opportunity.”
William Killion Franchising attorney Partner, Faegre & Benson, LLP Phone number: 612-766-7000 Web site: www.faegre.com
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Would you rather hire a podiatrist or an experienced heart surgeon to perform quadruple bypass surgery? Chances are, you’d select the heart surgeon, because of his or her experience and expertise in that specific area of medicine. In the same way, throughout this book, you’ve read about the absolute importance of hiring a qualified, experienced, and knowledgeable franchise attorney. This is a sentiment that’s also repeated numerous times by the various experts interviewed within this book. A franchise attorney is a lawyer who specializes in franchising and who knows the intricacies relating to this type of business. A franchise attorney is qualified to help you understand the contents of a UFOC and franchise agreement, plus handle the legal tasks associated with becoming a franchisee and opening your business. As a prospective franchisee, hiring a franchise attorney, as opposed to a general business attorney or another type of lawyer, is highly recommended. William Killion attended law school at the University of Nebraska and graduated with his degree in 1973. He has been called a “legal eagle” by Franchise Times, and “one of the best lawyers in America” by the American Research Corporation. In addition to being a partner at Minneapolis-based Faegre & Benson, LLP, Killion also works as editor-in-chief of the Franchise Law Journal. The purpose of this interview is not to provide personal legal advice, but to help you understand the need for a franchise attorney and to offer an overview of what a franchise attorney can do for you and your business. Based on his experience, Killion also offers some general, but equally valuable, advice to prospective franchisees. As someone begins looking at a franchise opportunity, what is the first step he or she should take in terms of research? Killion: “The most important thing any prospective franchisee can do is contact other franchisees within the system. Visiting over the telephone is fine, but sitting down with another franchisee is best. I suggest making a list of questions, arranged in
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order of importance, in case the existing franchisee becomes impatient. Most of all, try to find out how the existing business is doing financially. “One important section of a UFOC identifies existing franchisees. This gives the prospect the names of people he or she can contact about the franchise opportunity. I recommend that you talk to everyone who will talk to you, especially if the system is small, say less than twenty or so franchisees. You’ll find that some franchisors set aside times when prospects can join in conference calls with existing franchisees to learn about the opportunity. Try to speak with as many different existing franchisees and former franchisees as possible.” What financial steps should someone take as he or she prepares to become a franchisee? Killion: “A prospective franchisee must put together a pro forma of how he or she anticipates the business will do financially. There is no substitute for this exercise. Given the importance of the investment, it might also be wise to hire an accountant or other financial advisor to help with this process. “When reviewing a UFOC, Item 19 is where franchisors identify any earnings claims that it is making. The UFOC guidelines specify certain rules that a franchisor must follow when making such claims. While a franchisor can opt to make no earnings claims, if there is information under Item 19, this becomes your starting point for putting together a pro forma. “Without a pro forma (financial projection), you have to look to existing franchisees, industry averages, and other resources to construct an estimate of revenues and expenses. Ultimately, the deal must pencil, which means break even within a reasonable period of time, plus eventually show a fair return on investment.” What does someone need to know about the UFOC he or she is supplied with by the franchisor? Killion: “The UFOC is an important tool. The potential franchisee should read it through several times. Of particular
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importance is Item 3, which identifies litigation. I would be cautious about making a deal with a franchisor that is currently embroiled in lawsuits. “Another important item is Item 19, which is the earnings claim. I would not refuse to invest in a franchise opportunity without an earnings claim, but I would see all sorts of red flags if a franchisor made an earnings claim notwithstanding the disclaimers in Item 19. Making a claim about revenues or expenses that is not set forth in Item 19 is generally unlawful. I would be suspect of anyone who did so. If a sales agent representing a franchisor is making earnings claims notwithstanding the disclaimer, be careful. Earnings claims are broadly defined as anything that will allow a prospect to estimate revenues or expenses.” The UFOC and Franchise Agreement are both legal documents. What should a franchisee know about them? Killion: “The legal documents are called legal documents for a reason. The franchisor will be bound to live up to promises made in the Franchise Agreement and the UFOC. If a promise made verbally or in promotional literature is not also listed in one of these two documents, don’t rely on it. I cannot overstate this. “If a franchisee claims in a lawsuit that the franchisor made false claims or did not live up to promises, but these claims and promises are not in the agreement or the UFOC, you will have a difficult case. In fact, there is a good chance that the judge will throw out the case.” What is the biggest mistake you see first-time franchisees often make? Killion: “Put a check on your emotions. People sometimes refer to the franchise relationship as a partnership, or a marriage, or a family. This is fine, but not true. It is a business deal defined by the terms of the parties’ contract, pure and simple. The franchisor is not a fiduciary and it owes no special duties to its franchisee, although a handful of states do have franchise relationship laws that place special responsibilities on
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the franchisor. You are entering into a business relationship that, as I said, is governed by a contract. Act accordingly, like a businessperson, and not a bride, groom, or partner.” When reviewing a UFOC with a franchise attorney, what else should a prospective franchisee be on the lookout for? Killion: “One part of the UFOC identifies the turnover in franchises. This provides critical information about a system. If there are excessive turnovers, this is an obvious red flag. As a prospective franchisee, call the former franchisees and find out why they left the system. “Also determine what your right is to source products and equipment. Are you duty bound to purchase from the franchisor? The reality is that the price from the franchisor may not be competitive. The franchise agreement and the UFOC will spell this out.” What should someone look for in the Franchise Agreement? Killion: “Two important provisions of the agreement are its term and the post-term obligations. For example, the term may be ten years with no right of renewal and a post-term noncompete. This means that the franchisor has no obligation to extend the franchise beyond ten years, and at the end of the ten years, the franchisee must stop doing business. “Many franchisors will continue the relationship beyond the ten years, but have no obligation to do so. Accordingly, the prospective franchisee should realize that after ten years, he or she may have to walk away from the business and, therefore, must recoup their investment in that ten-year period. Some states make franchise agreements evergreen, which means limitations on their term is unenforceable. Two states that do this are Wisconsin and New Jersey.” What should the franchisee expect from the franchisor as they begin their relationship? Killion: “Ongoing support is critical. Determine exactly what support the franchisor will provide on an ongoing basis. The
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franchise agreement will not make a lot of promises in this area. Most franchisors will not put in writing any particular commitment. In this situation, the franchisee must specifically ask what he or she can expect. For example, how often will the field support staff visit my location? What will he or she do? What other help will be made available, especially if I fall into hard times?” What’s a common misconception people have about becoming a franchisee? Killion: “Few franchises start out making money. There will be cash flow issues at the start. Item 7 of the UFOC provides some information about the initial investment, including capital requirements, but typically not much. Do not start a franchise without adequate capital. You should have plenty of money available to cover short falls in cash at the start of the franchise. Put together a pro forma that projects out into the future. You should be able to predict, realistically, how long it will take to break even, and then calculate how much capital you’ll need in order to survive until you reach that point.” How can someone determine if he or she is a suitable candidate to operate any type of franchise-based business? Killion: “Make sure that you are cut out to be a businessperson. It isn’t easy. The difference between a franchise that fails and one that succeeds is you. I have seen good franchisees make a lousy concept successful, and plenty of bad franchisees make a good concept fail.”
Just the facts ■
The International Franchise Association has become the preeminent voice and acknowledged leader for franchising worldwide. With thousands of members representing virtually all of the most established and successful franchisors, the organization’s goal is to protect, enhance, and promote franchising. The IFA’s Web site (www.franchise.org) is an excellent source for researching information about franchisors.
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Once you pinpoint a franchisor you’re interested in working with, invest the time necessary to track down and speak with a handful of existing franchisees. Learn about their experiences and determine if this is a viable opportunity for you.
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After deciding to pursue a franchise opportunity, hire a qualified, experienced, and knowledgeable franchise attorney and accountant to help you review the UFOC and franchise agreement, plus help you create a business plan and establish your business.
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To be successful, one of the most important things you can do is properly identify your customer, and then find a location with the densest population of those people.
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As a franchisee, you typically can not negotiate the contents of the UFOC or Franchise Agreement. However, the attorney and lawyer you hire should spend as much time as necessary reviewing these documents with you to ensure you thoroughly understand every aspect of each document.
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Any promises made by the franchisor should be specifically listed within the UFOC or Franchise Agreement; otherwise, anything promised should not be considered binding.
Successful Franchisors Reveal Their Secrets for Success
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his book offers you, the prospective franchisee, a tremendous opportunity to learn from the experience of several highly successful experts in the world of franchising. These are people you might never otherwise get to meet or interact with in person, but who have valuable information from which you can benefit, starting immediately. The people interviewed in this chapter have experienced it all firsthand, and they have helped their companies become among the most successful and well known franchisors and brands in the world. As executives with their companies, each of these people works with franchisees on a daily basis, some overseeing thousands of operating units. These people know exactly what it takes to achieve success, not just with their own franchise system, but for any type of franchise-based business.
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GET THE SCOOP ON . . . Interviews with executives from well known franchisors ■ What franchisors are looking for in franchisee candidates ■ Tips and strategies from experienced franchising experts ■ Mistakes made by first-time franchisees
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In addition to the training you’ll ultimately receive from your own franchisor, the advice offered by these experts can help you achieve long-term success in whatever type of franchise-based business you pursue. You’re about to read exclusive, in-depth interviews with franchising experts who are sharing their own personal thoughts, opinions, and philosophies, plus strategies that have worked for them and their franchisees. You’ll obtain valuable insight, based on each expert’s unique career-related experiences. Throughout each interview, some of the experts share advice you may or may not agree with or choose to follow. The purpose of including these interviews is to offer you a wide range of different perspectives and philosophies—all from people who have achieved a high level of success in franchising. Each company represented in this chapter was selected because it offers a slightly different type of business opportunity to prospective franchisees. This diversity will help you understand some of the many options available to you when choosing a particular type of franchise-based business. Inclusion within this book, however, is not an endorsement of a particular franchisor’s products or service, nor is it an endorsement relating to the viability of the franchise opportunity being offered by that company. All the experts interviewed agreed on one thing—before becoming a franchisee and working with a specific franchisor, you should do your own research to ensure that what’s being offered is a viable opportunity for you. One of the biggest misconceptions first-time franchisees have about opening a franchise-based business is that it will automatically become successful. None of the experts interviewed for this book agrees with this philosophy.
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Lynette McKee Vice President of Franchising Dunkin Donuts (Dunkin Brands, Inc.) Phone number: 800-777-9983 Web site: www.dunkinbrandsfranchising.com With over 4,800 franchised units, since 1955 Dunkin Donuts has been a well known fixture on the East Coast, providing on-thego customers with delicious coffee and bakery items. As vice president of franchising for Dunkin Brands, Inc., Lynette McKee is currently spearheading the Dunkin Donuts’ initiative to expand westward. Her professional background includes being president of a commercial real estate company. She got involved with franchising when she began working for Hardy’s restaurants (a sister company to Denny’s). Over the years, McKee has worked for a variety of other franchisors, including Burger King and Earl of Sandwich. She joined Dunkin Brands, Inc. in 2005. Please describe the Dunkin Donuts concept and the business opportunity it offers to franchisees. McKee: “We view ourselves primarily as a coffee shop that offers the very best coffee products in the country. We also have donuts and other pastry products. From a growth perspective, we have always been primarily an East Coast chain, with only about sixty units operating west of the Mississippi.
Bright Idea If you’re interested in a donut shop/baked goods franchise opportunity, in addition to Dunkin Donuts, some of your other options include Daily Grind Coffee House & Café, Krispy Kreme Donuts, Seattle’s Best Coffee, Cinnabon, Cookies By Design, Panera Bread Company, Einstein Brothers Bagels, House of Donuts International, and Pretzel Time. You can learn more about these and other opportunities by visiting the IFA’s Web site (www.franchise.org) or Entrepreneur magazine’s Franchising Zone (www.entrepreneur.com/franchises/index.html).
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“We are currently adding franchisees on the East Coast to fill in markets, plus we’re actively and rapidly expanding toward the West Coast.” Is it too late for a potential franchisee to get involved with a franchise opportunity like Dunkin Donuts, now that the company is so well established and has such as a large number of franchisees? McKee: “It’s not too late at all. We provide the best growth opportunity of any brand in the country. Across the United States, we pride ourselves on having 97 to 98 percent brand recognition, but as I mentioned, we currently have only about sixty units west of the Mississippi. People already know who we are when we enter new markets, which provides tremendous opportunities for our existing and new franchisees.” Aside from offering tremendous brand recognition, what other benefits does Dunkin Donuts offer to potential franchisees? McKee: “Our overall franchise system is well established and well proven. When you get involved with a system like ours, you have the opportunity to utilize a program that has been finetuned over a long period of time. The likelihood for success is greater. We can never say you will be successful, because there is a point at which the franchisee is accountable for how he or she operates the business, but the likelihood for success is greater because the discipline and structure is in place. This will give you a jump start into business.” Are the majority of your franchisees single-unit or multi-unit operators? McKee: “We are probably at about fifty-fifty. We have people who came into the system as a one- or two-unit operator, but over a period of many years, they have expanded to the tune of fifty, sixty, seventy, or eighty-plus units. Right now, our focus is to bring in new multi-unit operators or LADs (large area developers), who can do that same growth, but at an accelerated time frame.
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“It is not impossible for single-unit operators to get involved with Dunkin Donuts, but we’re really looking for franchisees willing to do a five-unit minimum. Thus, a potential franchisee must possess a specific net worth and should have a background in hospitality businesses. “The multi-unit franchisees we’re taking on now will be opening several locations in a fairly close time frame, so we need people with experience operating this type of business. We, as the franchisor, can teach you our system, but we’re definitely looking for people with previous, related business experience.” How would you describe the ideal Dunkin Donuts franchisee? McKee: “We look for people who understand the business of running a business. There are things outside the four walls that our franchisees need to understand, such as the accounting side of a multi-unit operation. Most importantly, we look for people who have a passion for the business. If there’s one thing about Dunkin Donuts, it is that our customers are fanatical and passionate about us. We’re looking for franchisees who have the same or greater passion about what we’re offering. Without that passion, franchisees will not be able to successfully service their businesses.” As a franchisor, how involved are you and your team in site selection for your franchisees? McKee: “We have a development team that is very involved from day one. In some of the regions we are in, we will go out and find sites, and then introduce them to the franchisee. In other areas, we team up our franchisees with commercial real estate brokers in the area, but then we’ll do a full review of that site. At the end of the day, it is the franchisees who decide whether or not they wish to move forward with specific sites.” Do you have any tips for first-time franchisees on how involved in the site-selection process they should be when working with their franchisors? McKee: “If you don’t have real estate experience, you need to hire an expert in that area, such as a local commercial real estate
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broker or real estate attorney. Commercial real estate is very different than buying or selling a home. If your franchisor has people in the field who can help you understand and evaluate a site, that can be extremely helpful. There are specific parameters, such as traffic patterns, that you can evaluate to help you pinpoint an ideal site for any type of franchise-based business. “As a franchisor, we can never guarantee that a site will lead to success. We can provide franchisees with the right tools, guidance, and information, but ultimately whether or not they succeed is up to them. Site selection decisions are ultimately the sole responsibility of the franchisee in most situations.” Based on your personal experience in both commercial real estate and franchising, what makes a perfect location for a franchise-based business? McKee: “Look at your customer base and determine what you’re trying to accomplish. For any site, I recommend putting together a pros and cons list. Describe the most positive things about a site, and then create a list of things you’d change about that site if you could. Doing this for all of the sites you consider will help you pinpoint the ideal location for your business. “They say everything is about location, location, location. This is true. But you can select the very best site, and if you don’t operate your business successfully, you won’t succeed. There isn’t one thing that will ultimately make you successful. Everything needs to be tied together.” Beyond demographics of his or her customer base, what else should a franchisee consider when evaluating a potential site for the business? McKee: “A franchisee needs to understand traffic flows and patterns for that location. It’s important to look at all the right components that relate to that site, including the economics of it. If you find what you think is the ideal site, but determine you’ll be able to do only a specific volume of business from that site, when in order to generate a profit, you’ll need to generate a higher volume of business, that site won’t work.”
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How can someone identify the hidden costs associated with the site-selection process? McKee: “I recommend that you contact other franchisees in the system and ask them about some of the soft costs, such as architectural fees, that you’re not anticipating or calculating into your budget. I also recommend discussing your plans with your local city planner and the property manager or landlord. “Get as much information as you can about what will be required, beyond signing the lease, to open your business. There are always hidden costs. To become a Dunkin Donuts franchisee, we have high financial requirements from a liquidity standpoint, because we want people to be able to afford any hidden costs they encounter, without running into financial problems early on.” How can someone make sure they’re getting involved with the right type of franchise opportunity and the right franchisor? McKee: “There are a couple of things you can do. I encourage all potential franchisees to do their homework. Talk to current franchisees in the system, plus track down former franchisees who have left the system. In addition, research the franchisor as a company, and learn as much as you can about the people running that business. “When talking to a franchisor, ask lots of questions about their best practices. Ask how they’ll help you handle specific types of situations and challenges. Remember, every franchisor works differently. You need to understand the individuality of the company you’re going to be doing business with.” What is the biggest misconception you think people have about becoming a franchisee? McKee: “The biggest misconception is that all franchisees will automatically become successful. Success is based on the franchisee. Also, people believe that if the franchisee doesn’t succeed, it’s always the franchisor’s fault. This, too, is incorrect. I was talking to a franchisee once who was complaining that his
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franchisor, who will remain nameless, wasn’t doing any marketing, so that franchisee’s sales were down. “That franchisee was relying on his franchisor to do everything on his behalf and to generate all of its revenues. My immediate response was, ‘What are you doing in terms of advertising and marketing yourself, on a local level, to make up for the shortfalls of the franchisor?’ The response I received from that franchisee was, ‘Get real. Nothing.’ The franchisees who take it upon themselves to drive their business locally almost always have an advantage. There’s always accountability on both sides.” Before a franchisee opens for business, is there any way to accurately project what revenues or profits will be? McKee: “No. You don’t ever know what the revenues will be. A new franchisee can look at trends from other franchisees and make projections, but the operation of each individual location also comes into play, and that varies greatly.” What would you say are the biggest mistakes you’ve seen firsttime franchisees make? McKee: “People think they can do everything themselves, without having the right experts on hand to help them. Also, some franchisees try to develop or expand too quickly. No matter what type of franchise you operate, that first unit you open must become successful before you consider expanding. You have to enter into a business with a sense of reality.” Can you offer tips for a franchisee about finding and hiring the best employees? McKee: “I am into hiring people without experience in the industry who have all of the qualities and characteristics I am looking for. You can always train someone about the system, but it’s very hard to teach people certain characteristics. “When you hire people early on, I recommend finding employees who are comfortable wearing a lot of hats and who can take on a wide range of responsibilities. Some people are
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not comfortable with this. Understand what your business is about, how many people you can afford to have, and what your needs are. “Finally, I recommend hiring people with knowledge or experience that you don’t have. People often like to hire people who already know what they know. I personally discover and learn new things everyday. I try to hire people who can help me with things I don’t already know.” Is there a specific team of experts with which new franchisees should surround themselves? McKee: “I believe a franchisee needs a good attorney and CPA (certified public accountant). If the franchise requires site selection, you also need to hire someone with expertise in commercial real estate. The right people will help to protect you against the ‘gotchas’ and grow your business at a faster pace.” What is the biggest challenge that virtually all first-time franchisees will face? McKee: “It is a bigger challenge than you think it will be to pull all of the components together that are necessary to start your business. Even with all the systems in place, there is nothing in this world that tells you every single ‘t’ that needs to be crossed to be successful. No matter how comprehensive the support and training is from your franchisor, you will run across something, at some point, that you may not prepared to deal with. “You need to have the personality type that says, ‘Okay, I didn’t expect this, but I can get past this particular challenge.’ Go into this with your eyes wide open, and don’t expect everything to be perfect. Running a business can be more encompassing than you ever imagined it could be. Don’t commit to too much or get in over your head. You can always grow or expand later. But, it’s much harder to back up. Surround yourself with people who
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understand what your business is all about and who can help you drive your business. Know what you don’t know and bring the right people on board to help you.” Do you believe it makes sense for a first-time franchisee to take over an existing unit or business, as opposed to starting a business from scratch? McKee: “Yes. If you can take over an existing business, that’s a great way to start. It offers the least barriers to entry. You can typically recognize issues with the existing business and fix them, or maybe do a little bit of remodeling, but that’s all much easier than starting from scratch. “When taking over an existing franchise unit, you may not receive a totally accurate picture of the financial situation for that business. I recommend that you look at it from an absolute worst-case scenario standpoint economically, and determine whether the business can still work for you. “Also, be prepared to make changes in personnel as needed. You may take over a fully-staffed franchise unit, which is ideal, but be prepared to make changes over time, based on how well people are doing their jobs.” Is there any other advice you can offer to first time franchisees? McKee: “I would make sure that as a first-time franchise, you know and understand the UFOC you’re provided with from cover-to-cover. At the end of the day, you are obligated to the relationship that you’ve agreed to in that contract. “Don’t be bashful about asking questions about the UFOC and its content. It’s okay to ask, for example, what specific phrases in the document mean. “Understanding the UFOC will help to eliminate over 75 percent of the issues you’d otherwise have to deal with down the road. Also know the history of the franchise system. What you’re looking for is a long-term, win-win relationship between you and your franchisor.”
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Stuart Mathis President The UPS Store/Mail Boxes Etc., Inc. Phone number: 877-623-7253 Web site: www.theupsstore.com Back in April 2001, Mail Boxes, Etc., Inc., the world’s largest franchisor of retail shipping, postal, and business service centers, became a subsidiary of United Parcel Service (UPS). Today, their network is comprised of over 5,700 units, with locations in more than forty countries. Stuart Mathis began his career working in accounting for Six Flags amusement parks. In 1985, he joined Domino’s Pizza as a regional controller. After eighteen months, he was promoted to regional vice president, and later to executive vice president of franchise operations. In this capacity, he worked directly under the company’s founder for seven years. After achieving tremendous success working for Domino’s Pizza, he eventually joined the executive team at Mail Boxes, Etc., Inc., before it was taken over by UPS. He was later promoted to president of Mail Boxes Etc., Inc. Mail Boxes, Etc., Inc. is the franchisor for The UPS Store brand, as well as the MBE brand (which is still available internationally). UPS is the parent company of Mail Boxes, Etc., Inc., which also serves as a shipping vendor to the franchise-based stores.
Bright Idea If you’re interested in a mailing and shipping or business services franchise opportunity, in addition to The UPS Store, some of your other options include PostNet, PakMail, Postal Connections, OutPost USA, Postal Annex+, and UniShippers. You can learn more about these and other opportunities by visiting the IFA’s Web site (www.franchise.org) or Entrepreneur magazine’s Franchising Zone (www.entrepreneur.com/franchises/index.html).
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As a franchise opportunity, what does The UPS Store offer? Mathis: “We are a business service franchise that caters to small businesses and consumers. We’re not just a pack-and-ship location. We offer a full range of services and shipping options. Given the low investment required, we offer a good return on investment.” Why is operating a franchise-based business such a viable option for so many people? Mathis: “The main thing that draws people to franchises is that they’re buying a proven concept with a proven brand name. A franchise comes with a complete operating system that the franchisee must utilize. A franchise makes it easier for someone to get into business for themselves. You’re in business for yourself, but not by yourself. A franchise system also offers a solid support structure comprised of the other franchisees in that system.” What are some of the biggest drawbacks to becoming a franchisee? Mathis: “You have to make sure you step into this type of business with the right mindset. You also need to understand the level of commitment you’re making and understand the full scope of that commitment. Most franchise agreements are for a ten-year term or longer. “By becoming a franchisee, you will own your own business, but there will be restrictions imposed by the franchisor relating to what you can and can not do. One of the keys to franchising is consistency in terms of product offerings and operations. That’s why there’s a franchise agreement and operations manuals. The franchisor is not trying to stifle a franchisee’s creativity, but it’s essential that there’s total consistency from one location to the next.” From your point of you, what makes the perfect franchisee? Mathis: “There is no perfect model for a franchisee. If you look at all of my best operators, they come from very different backgrounds, but they all share some common traits. They have passion for the business. They are committed to the business
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and invest the necessary time into operating their business. They also have the financial wherewithal to get into the business. They’re creative, but are conformists at the same time. A certain level of business knowledge is also required. “One of the biggest problems I see franchisees get into come about as a result of not properly managing their cash flow. On the other hand, particularly in our type of business, ideal franchisees really enjoy interacting with their customers and providing a high level of customer service. These are the traits I believe make for an ideal franchisee.” What type of time commitment is required to start, and then operate, a business such as The UPS Store? Mathis: “It’s a significant time commitment, especially while the business is getting established. We require our locations to be open a minimum of fifty-eight hours per week. This doesn’t mean the store owner needs to be there the entire time. However, in addition to operating the store and opening the doors, the franchisee has many other responsibilities, like hiring employees and marketing. Once the business is fully operational, a forty- to sixtyhour-per-week schedule is typical for franchisees.” Is there a core skill set that someone should have before becoming a franchisee? Mathis: “Basic accounting skills, computer literacy, and an understanding of core business concepts are all certainly helpful. The main thing franchisees need to be able to do is multitask, look at the big picture, and hire people with the specialty expertise needed to make their businesses run smoothly. Franchisees need to be willing to learn what they need to do or know, plus know how and when to get help.” What should someone expect once he or she initially expresses interest in working with a franchisor? Mathis: “Most franchisors engage potential franchisees in an extensive interview, plus ask them to complete some form of questionnaire. Becoming a franchisee is a multi-step process.
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“At The UPS Store, we use the reverse sales process. This means we ask potential franchisees to sell themselves to us and explain why they’d be good franchisee candidates. There is not a standard list of questions that we ask, but we do try to measure their passion for the business, evaluate their level of commitment, and determine whether they’re willing to do what it takes to follow the rules and be successful in their businesses.” In terms of financing, what are some of the options available to potential franchisees? Mathis: “There are a number of sources for funding available. We recommend SBA (Small Business Administration) lenders. We work with a company called CIT, which is one of our primary lenders. We also encourage potential franchisees to utilize the resources of family and friends. One of the big problems that many first-time franchisees encounter is that they come into the business undercapitalized. For example, they underestimate their own living expenses during that period of time when their business is not yet generating a profit. Ample capitalization is essential for success with any type of franchise-based business or small business start-up operation. “The key is to make sure you analyze what your own living expenses are going to be and make sure you have money set aside for that, plus have all of the money you need to start up and operate the actual business. These expenses and fees are listed within the UFOC. Ironically, you’d be amazed how many new franchisees don’t bother to read and understand this extremely important document. “Many franchisors do not make earnings claims. This means it’s up to the potential franchisee to learn about earnings potential by speaking directly with existing franchisees and doing their own research and financial projections. Industry sources, such as the IFA and Entrepreneur magazine, can be extremely valuable resources for doing this research.”
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What is the biggest misconception you think people have about becoming a franchisee? Mathis: “People think that they are guaranteed success. Although the probability of success is much greater if someone pursues a franchise opportunity, there is no guarantee of success. Starting a brand new business is going to take a lot of hard work. A lot of blood, sweat, and tears, along with a significant financial investment, will be required, no matter what type of franchise opportunity you pursue.” What are some of the biggest challenges that virtually all firsttime franchisees are going to encounter? Mathis: “The biggest frustration franchisees experience is the amount of time it actually takes to get the business up and running. It usually takes a period of several months of preparation before opening the doors for business. During this time, typical franchisees have already left their old jobs, so they must have alternative resources in place to cover living expenses.” Aside from cash flow management, what are some of the other common mistakes you’ve seen franchisees make? Mathis: “Not doing sufficient local marketing for their businesses. A lot of franchisees who don’t immediately generate the sales revenue they expected immediately start cutting costs— and they cut their marketing. Reducing their marketing efforts is a mistake, because it creates a self-fulfilling prophecy. You need to do local marketing to generate new business. “Another mistake is not properly recruiting and training employees. Having qualified and well trained employees is essential. After all, as the franchisee, you don’t want to have to be at your store during every minute that it’s open for business.” How important is choosing the right location for a franchisebased business, and what support should someone expect from a franchisor? Mathis: “We believe that location is critical, particularly for a retail business. We are very involved in helping our franchisees
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in their site selection process and have ultimate approval over their sites. We have our field support team evaluate every site, because choosing the ideal site is part science and part art. Many issues have to be evaluated in person by a qualified expert.” Many experts advise potential franchisees to hire a qualified franchise attorney early on. Do you agree with this? Mathis: “Yes. However, a franchisee needs to understand that franchisors are not willing to negotiate the terms of the UFOC or the Franchise Agreement. The franchisee needs an attorney to explain these documents in great detail.” What type of research should a prospective franchisee do before signing the Franchise Agreement with a franchisor? Mathis: “Utilize all the resources available to you to conduct research about the franchise system you’re about to get involved with. The IFA is an excellent resource. You should also contact existing franchisees to learn as much as you can and get their perspectives on the business. The franchisor’s Web site is also a great source of information. The most important information you need to know, however, will be found in the UFOC and the Franchise Agreement.” For someone first getting involved in becoming a franchisee, what is the most important piece of advice you can share? Mathis: “I recommend that you do a self analysis about what your interests are and what type of business you’re interested in getting into. Once you narrow it down to the type of business you want to get involved with, do your research and investigate a variety of different franchisors and the opportunities each offers. Narrow down your decision to opportunities you can truly be passionate about. The best way to determine exactly what you’re getting involved with is to speak with existing franchisees. This is essential. Owning your own business can be a very rewarding experience.”
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Jeff Schenck Senior Vice President of Franchising and Development 7-Eleven Phone number: 800-255-0711 Web site: www.7-eleven.com As one of the country’s best-known convenience stores, 7-Eleven has more than 31,000 units operating in seventeen countries. One reason for the company’s ongoing growth and success is the proprietary relationship that exists between the franchisor and its franchisees. Unlike many franchise-based opportunities, 7-Eleven assists its franchisees by obtaining the land on which each unit is located, and then covering the ongoing cost of the land, the building, and all store equipment. 7-Eleven also leases or subleases all necessary equipment to the franchisee, allowing the company to provide a complete, ready-to-operate location, including inventory, to each franchisee. As a result of this arrangement, however, the franchisee does not retain any ownership or equity in the store or equipment. As Jeff Schenck explains in this interview, the 7-Eleven business model offers an extremely unique opportunity for franchisees. While the cost of opening a 7-Eleven location can easily exceed $1 million, the average up-front cost for a 7-Eleven franchisee is approximately $164,000, which includes the franchise fee, the store’s opening inventory, supplies, business licenses, permits, bonds, and cash register fund. Schenck has been working with 7-Eleven since 1976. He got into the business through his uncle, who was a multi-unit owner in the Chicago area. He initially took an entry-level job in operations at 7-Eleven and worked his way up the corporate ladder. In 2002, he headed up a task force that was given the responsibility of creating a new franchise agreement that 7-Eleven could adopt for its entire franchise system. After that assignment, he
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took over the national franchise department. In 2005, Schenck became senior vice president of franchising and development for the company. As a franchise opportunity, what does 7-Eleven offer? Schenck: “Our franchise system is unique. We have been in the franchise business for over forty years. Our franchisees lease a fully-equipped 7-Eleven store, which provides them with a complete turnkey business. Unlike many franchisors, we don’t take our royalty from sales. We share gross profit with our franchisees. “We also maintain an open account for our franchisees, which is like a revolving line of credit for maintaining their inventory. This allows franchisees to operate pretty robustly without needing to have a large amount of cash available each day to cover their operating expenses and purchases. That’s the crown jewel of our franchise system. “We also provide ongoing, onsite support to each franchisee. For every eight stores, we have a field consultant who calls on stores on a weekly basis to help solve operational problems and ensure that each franchisee’s business is running smoothly. The support we offer is something we’re very proud of. While, from a legal standpoint, the franchisees and franchisor are not partners, because we share gross profit, it does create a balanced relationship.” Would you say that now is a good time for someone to become a franchisee, either with 7-Eleven or any type of franchisebased business opportunity? Schenck: “Now is a great time to become a franchisee. Like many franchisors, we are a growing company, so there are tremendous opportunities.” Are there any drawbacks to becoming a franchisee? Schenck: “The only drawback is if people don’t do their homework about the franchises that they’re buying and wind up having to run businesses that they have no interest in whatsoever.
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Bright Idea If you’re interested in a convenience store franchise opportunity, in addition to 7-Eleven, some of your other options include AMPM Mini Market, BP Connect, Circle K, White Hen, and Tedeschi Food Shops. You can learn more about these and other opportunities by visiting the IFA’s Web site (www.franchise.org) or Entrepreneur magazine’s Franchising Zone (www.entrepreneur.com/franchises/ index.html).
“If the franchisee doesn’t understand the type of business they’re getting into and it doesn’t fit their lifestyle, he or she will become a disappointed franchisee. Franchisors have UFOCs that describe the opportunity that’s being offered. I recommend that people read these documents carefully and review them with an attorney. I also encourage potential franchisees to talk with existing franchisees about their experiences.” What can someone do to ensure that they’re getting involved with the most appropriate franchise opportunity for them? Schenck: “I recommend that once you pinpoint one or two franchise opportunities you’re interested in, you arrange to spend a week or two working for an existing franchisee, so you can get a firsthand feel for the business. Understanding what you’re getting into is a key to success. Also, determine what your needs are from the business, not just financially, but from a lifestyle standpoint. “I recommend putting together a detailed business plan, before you actually become a franchisee. At 7-Eleven, we provide a template to our prospective franchisees for creating their own business plans. However, you can also purchase inexpensive software that will easily guide you through this process.” How would you describe your ideal franchisee? Schenck: “Like many franchisors, we have a detailed process that we go through with each of our prospective franchisees once they express interest in 7-Eleven. This is a qualification process that looks at their work history, financial history, education, and personality.
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“Information is gathered through a series of interviews. In our business, for example, being an ideal franchisee is all about being able to work well with people. This includes both employees and customers. We’re looking for people with the ability to identify good characteristics in potential employees, who are also able to successfully manage a workforce. That is essential. “Based on our own research, we know that our most successful franchisees are the ones who spend a lot of time on the sales floor interacting with their customers. We’re looking for individuals who really enjoy that. The essence of our business is serving our customers and being part of their community. “An ideal franchisee should be able to look beyond the four walls of the store and understand that he or she is part of the community. A key role franchisees play is supporting what’s important to the community. It’s important for franchisees to actively reach out to that community. We also look for people who can multi-task and who are well organized. “An average 7-Eleven store carries more than 2,500 products and serves over 1,000 customers per day. Operating this type of store takes a lot of hard work. We’re looking for hands-on franchisees who will take an active role in operating their stores, which never closes. A good general understanding of business principles is also important. In addition to managing the financial side of the business, the franchisee must take responsibility for the look and cleanliness of his or her store, for example. “One of the most important traits we also look for in our franchisees is their ability to work within our established system. That’s the essence of franchising.” What tips can you offer to franchisees about managing their employees? Schenck: “The most important tip is to know your people. Look for integrity and people who enjoy interacting with your customers. Our most successful franchisees take care of their employees’ needs. They understand what is important to their
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employees, and they take care of that. Build a family atmosphere with your employees. The 7-Eleven franchisees who do this are among our most successful.” What is the biggest and most valuable piece of advice you can offer to first-time franchisees? Schenck: “Thoroughly research the franchisor. Then make sure you have the skills (or can develop the skills) necessary to operate the business you’re getting into. Next, make sure the business you choose fits your lifestyle and that you understand how the demands of the business will impact your lifestyle. Finally, pay attention to nothing but the basics until you get your feet on the ground.”
Joy Flora President
Don Slifer Vice President of Market Development Merry Maids Phone number: 800-798-8000 Web site: www.merrymaids.com One of the best-known brands in franchising, Merry Maids, is also the world leader in the residential cleaning industry. The company was established in 1979 and currently operates more than 1,400 units worldwide, including over 800 franchised units in the United States and Canada. Contrary to popular belief, a franchisee is not responsible for actually cleaning houses. Instead, the Merry Maids franchisee is responsible for managing a staff of housecleaners, handling customer relations, and overseeing the operation of the business. Thus, according to Joy Flora, the company’s president, this is a business opportunity that requires superior peoplemanagement and interpersonal skills.
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In 1988, Merry Maids joined the ServiceMaster family of brands, which includes Terminix, TruGreen ChemLawn, ServiceMaster Clean, and American Home Shield. Overall, the Merry Maids network employs more than 8,000 home-cleaning professionals in the United States and cleans more than 300,000 homes, apartments, and condos in North America every month. As the company’s president, Joy Flora has a long history with Merry Maids and ServiceMaster. In 1984, she and her husband purchased two ServiceMaster contract services businesses specializing in commercial cleaning. Flora enjoyed ownership of her businesses while continuing to work as an accountant at Coopers and Lybrand. She eventually left that position to join ServiceMaster in 1986, beginning as an operations manager. In 1988, while continuing her work in ServiceMaster’s corporate office, Flora and her husband purchased a Merry Maids franchise. Flora has a BA in accounting from Valparaiso University and an MBA from Northern Illinois University. She is currently responsible for the leadership, vision, performance, and stewardship of Merry Maids. As vice president of market development, Don Slifer’s responsibilities involve overseeing the marketing and sales of new franchises, along with working closely with franchise owners and corporate legal council on renewals of franchise agreements. Slifer joined Merry Maids in 1992 as a marketing manager. Prior to joining Merry Maids, he worked in the banking industry for fifteen years in various marketing executive positions. He possesses both a BA and MA from the University of Missouri at Columbia. Merry Maids is a service-based business. Each franchisee typically operates from a central office. Two-person teams travel to customers’ homes to perform the cleaning services offered by the company. One benefit to becoming a Merry Maids franchisee is the low start-up costs and minimal investment. The company reports that financial assistance is available for up to 80 percent of the franchise fee.
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Can you explain the unique business opportunity offered to Merry Maids franchisees? Flora: “When a franchisee purchases a Merry Maids unit, they become privy to our more than twenty-five-year proven franchise system and the exclusive right to use one of the most recognizable names in the residential cleaning business. In addition, each franchisee acquires an exclusive territory in which they can do business. “We offer comprehensive training, including an eight-day initial training program which consists of instruction in employee hiring, retention and disciplinary procedures, quality assurance, customer retention, regulatory requirements, marketing support and materials, payroll, administration, taxes, pricing procedures, and business management. We also provide proprietary software which allows for an almost turnkey business solution. “In addition to our comprehensive training, each franchisee is assigned a regional support manager that serves as a corporate liaison and business mentor.” How would you describe the ideal franchisee for a servicebased business, like Merry Maids? Flora: “An ideal franchisee is someone with an entrepreneurial drive who is a self-starter. He or she needs to be a hard worker and enjoy being recognized for exceptional efforts. This is a people business, so an ideal franchisee must be good at working with people, including employees and customers. A positive and extraverted personality is also useful. We also look for people
Bright Idea If you’re interested in a housecleaning franchise opportunity, in addition to Merry Maids, some of your other options include Molly Maid, Maids To Order, The Maids International, MaidPro, Maid Brigade, and The Cleaning Authority. You can learn more about these and other opportunities by visiting the IFA’s Web site (www.franchise.org) or Entrepreneur magazine’s Franchising Zone (www.entrepreneur.com/franchises/index.html).
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with some knowledge of finance and who have the vision to see the opportunity offered to our franchisees. “Being a Merry Maids franchisee involves managing a team of housecleaners, not being a housecleaner. Even if you enjoy being hands-on, in terms of the housecleaning, you cannot build a successful Merry Maids business if you’re cleaning all day. This is all about managing a team of people who serve customers. “Last year, at our national franchisee meeting, the franchisee who won our highest annual honor for success described how she first got involved with Merry Maids. She got up on stage and explained how, initially, she didn’t fully understand what she was getting into. This woman loved to clean and enjoyed knitting. She initially planned to stay at the office and knit while her employees went out each day to clean houses. Eighteen years later, she explained that she still hasn’t finished the blanket she was knitting. “A typical franchisee will employ at least seven to ten teams, comprised of two people each, plus a several-person office staff. Becoming a successful franchisee is all about leadership. You will have the support of the franchisor, but it’s all about you in terms of driving that business. “One thing our franchisees don’t initially realize is the impact it has on people’s lives. In addition to making the lives of clients easier, this type of business employs people who often come from very difficult backgrounds. It provides them with the opportunity to succeed and make their lives better.” Slifer: “Being a successful franchisee is more about an attitude than having a skill set. Prior to becoming a Merry Maids franchisee, we have people who have worked in sales, finance, or marketing, and all those skill sets or professional backgrounds work. The key is that the franchisee must be willing to be involved with the business, and not just sit back and expect the business to run itself. This is not the type of franchise you can buy simply for investment purposes. We are not looking for absentee owners.”
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What type of time commitment should a franchisee be willing to make in order to successfully operate a business? Flora: “At minimum, you’re looking at a nine- to ten-hour work day, six days a week. In addition to managing the employees and servicing customers, there’s also marketing, accounting, and a wide range of other responsibilities the franchisee must handle. Once the business is fully operational, the work schedule often lightens up a bit.” In general, why is operating a franchise-based business such an attractive opportunity for so many people? Flora: “A franchise-based business offers a proven model and system that can typically work almost anywhere. A franchisee is buying into a system in which many other people are already happy and successful running an identical type of business.” Slifer: “A great many people who come to us do so because they want to operate their own businesses and want more control over their lives. They look at franchising as providing something of a safety net, which involves being surrounded by a team of people who can offer ongoing training and support.” In general, what are some of the drawbacks to becoming a franchisee? Flora: “A franchise business owner must be willing to give up some creative control to the franchisor, plus be willing to adhere to the franchise system created by the franchisor. This includes properly using the company name, tools, and marketing materials. In exchange for the services provided by the franchisor, each franchisee pays a franchise fee, plus an ongoing fee.” For someone who wants to become a first-time franchisee, what advice can you offer in terms of gathering the necessary finances? Flora: “You must not launch any type of business without adequate capital. In addition to the money you’ll need to buy into the franchise, you’ll need start-up capital to get the business
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running, plus you’ll need money to support yourself and your family until the business begins to generate a profit. “Some franchisors, including Merry Maids, offer financing opportunities in-house. Others work with lending institutions. A responsible franchisor will not take on a new franchisee who does not have the appropriate financial resources to get the business off the ground and make it profitable.” What are some of the misconceptions people have about franchising? Flora: “Some people believe that investing in a franchise business is a quick, easy, and foolproof way to earn money. Once you start investigating specific franchise opportunities and have detailed discussions with existing franchisees, you’ll quickly discover that this is not the case. “People who own and operate any type of franchise will need to work hard. Just because a franchisor is offering a proven system, this does not mean the system operates by itself.” Slifer: “Most people who get involved with Merry Maids, for example, never worked in the housecleaning industry, so don’t initially understand what this type of business is all about.” A lot of franchisors do not make earning claims to potential franchisees. What can someone do to get accurate earnings projections before actually getting involved with a specific franchise opportunity? Flora: “Merry Maids is one of those companies that does not provide earnings claims. The way to obtain this information is through research and by contacting as many existing franchisees as possible. “We have found that within the Merry Maids system, our existing franchisees are willing to share their knowledge and experience with potential franchisees. It’s up to the potential franchisee, however, do to their due diligence by making contact with existing franchisees. “Within a franchisor’s UFOC will be the names and contact information for all existing franchisees. While the size of each
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operation will vary, profits, as a percentage of revenue, should be consistent amongst all franchisees you contact.” What are some of the worst mistakes you’ve seen franchisee make? Flora: “That’s easy. They invest the time and money to become a franchisee, but then they refuse to follow the proven franchise system. Another mistake is not keeping current with financial obligations, such as royalty fees and tax liabilities. You simply have to pay monies that are due, particularly to the government.” Do you have any tips for hiring the right employees? Flora: “We start with non-negotiable screenings, such as background checking and drug testing. Then we start by evaluating each applicant’s attitude. We can teach people the right skill set. It’s the attitude of wanting to do a good job, wanting to please the customer, and wanting to please the employer and wear the uniform proudly that we look for. At Merry Maids, we try to offer better pay and opportunities than our competition.” Slifer: “In many types of franchised-based businesses, the challenge isn’t just hiring good employees; its discovering ways to retain them. As the franchisee, you need to make your company a better place to work than any other place each employee has worked before. On an ongoing basis, you need to treat employees well. Your employees will be working hard all day long. They need to be proud of where they work and the work they do. What are some of the challenges most franchisees in any type of business will encounter? Flora: “When you’re dealing with employees at a low pay level, the turnover rate is going to be high. For the franchisor, retaining employees is an ongoing challenge. Many employees initially lack core disciplines or the work ethic needed to show up on time and on a consistent basis or to take the time to do the job right. There’s a challenge for the franchisee in not getting discouraged when training and dealing with employees. This is a challenge that applies to all labor-intensive service businesses.
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“Another challenge is that franchisees don’t realize all the various work-related responsibilities they’ll need to take on, right from the start, in order to launch their businesses and make them successful. “Creating the best work environment possible is essential in the service industry. We refer to this as ‘creating a place of joy.’ We teach our franchisees to create an office environment, for example, that will encourage employees to show up early for work in order to socialize and enjoy breakfast that our franchisees provide. It’s all about treating people fairly and with respect. You need to get to know your employees. Slifer: “Increasingly, service workers don’t speak English or speak English as a second language. Thus, it is essential to have a bilingual person on your administrative staff or leadership staff. One benefit some Merry Maids franchisees offer to their employees is on-site English classes taught before or after work. “One challenge many first-time franchisees face is their own self-doubt, especially when they start to encounter problems with their businesses. Many people who become franchisees have left the comfort and security of having a regular paycheck. Building up your own confidence is important. Having enough capital to work with as your business gets started will help alleviate a lot of stress.” In your opinion, is it better for a first-time franchisee to take over an existing unit or build a new franchise-based business from scratch? Flora: “I am asked this often. There are advantages and disadvantages to taking either route. Depending on the type of business, the cost of taking over an existing business may be higher or lower than opening a new business. It’s important to understand the financial implications of both options. “If you take over an existing business, you may be responsible for fixing existing problem with the business, but you will already have established cash flow. If you start a business from
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scratch, you can do everything right, but it will take time and effort to initially build up that cash flow.” What is the biggest and most valuable piece of advice you can offer to first-time franchisees? Flora: “Follow the system provided by your franchisor and become a leader. Serve those people you lead. That’s one of my favorite management principles.” Slifer: “Make sure you’re committed to the business and prepared to invest the time and effort necessary to make it successful.”
Ken Sully President / CEO iSold It, LLC Phone number: 626-584-0440 Web site: www.i-soldit.com iSold It is a franchise concept that exists within a retail environment but does not sell products. This is a business concept that capitalizes on the tremendous success of eBay.com and onlinebased auctions. iSold It provides retail locations where anyone can drop off items they’d like to sell on eBay.com (or another online service). In exchange for paying a sales commission, sellers simply drop off their items and allow iSold It to handle all aspects of the sale process, which includes writing a detailed description of the items, professionally photographing them, posting the auctions on eBay.com, interacting with buyers/bidders as needed, and then shipping the items to the buyers. iSold It then mails a check for the proceeds of the sale, minus fees and commissions, to the seller. In business since 2003, iSold It currently has over 600 franchised units in operation. According to the franchisor, the total investment required to become a franchisee (including start-up capital and franchisee fees) is between $50,000 and $150,000. Financing is available through the Small Business Administration.
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Bright Idea If you’re interested in an eBay drop-off center franchise opportunity, in addition to iSold It, some of your other options include QuickDrop, Snappy Auctions, and Auction It Today. You can learn more about these and other opportunities by visiting the IFA’s Web site (www.franchise.org) or Entrepreneur magazine’s Franchising Zone (www.entrepreneur.com/franchises/ index.html).
Ken Sully is the president and CEO of iSold It. He has been involved in the franchising industry, working for a handful of different well known companies, for over twenty-five years. One of his first professional experiences involved working for 7Eleven in the training and operations department. He’s also worked with Mail Boxes, Etc. During a stint with Postal Connections, he became interested in adding an eBay drop-off service to those franchise locations. While researching this concept, he learned about iSold It. Out of the blue, the founder of iSold It contacted him and ultimately hired him as president and CEO within sixty days of that initial contact. What is it about iSold It that sets it apart from other franchise opportunities? Sully: “We’re offering a new and unique idea. We have a retail store, but you can’t buy anything there. It’s a mini-processing center with no cash register. The franchisee has no inventory. Our business model involves taking things from people, polishing them up so to speak, selling them on eBay, and sending the seller a check. To get started, we look for franchisees with some technological savvy, but we offer plenty of training. Having good people skills will go a long way in helping a franchisee to become successful, but that’s not necessarily something that can be taught.”
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In general, why is operating a franchise-based business such an attractive opportunity for so many people? Sully: “If you’re opening an independent mom-and-pop shop, there is a high risk of failure, because there’s so much that those independent owners have to figure out for themselves very quickly. There’s a high risk of making a lot of costly mistakes along the way. “A franchise opportunity offers a cookie-cutter system for the franchisee to follow. Everything is laid out in advance, including the look and feel of the store, the marketing materials, and the profile of the business’s target customers. The franchisee also experiences intensive training on the operation of that business using the proven system. Opening a franchise business is all about successfully executing a system, not figuring everything out for yourself and taking a trial-and-error approach to the business operation. “This type of opportunity is not for anyone who will resent having to be part of a system.” How would you describe an ideal franchisee for a business like iSold It? Sully: “Our ideal franchisee is a hands-on owner and operator who is willing to get involved with the local community. I believe an ideal franchisee is a husband and wife team that has excellent people skills and likes to serve the public.” Once someone approaches your company with an interest in becoming a franchisee, how long does the process take to actually get a unit open and operational? Sully: “The shortest I have seen is thirty to sixty days. Typically, it takes sixty to ninety days, because a lot has to happen in that period, including finding the ideal location and getting the essential training. In terms of site selection, our franchisees have a huge involvement in the process; the selected site has to meet our qualifications, however.
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“We work with retail brokers who know who we are and know what we’re looking for, so we have established tools and resources for finding good sites. We always recommend waiting, if necessary, for the best sites to become available, as opposed to making compromise. Thus, it could take six months for a site to open, simply because it took a while to find the perfect site and negotiate with the landlord.” In your opinion, what makes a perfect location for a franchisebased business? Sully: “This varies greatly based on the type of business. For a business like iSold It, a perfect location is typically a highprofile strip center with an existing draw, such as a supermarket or large pharmacy, that our target customer would typically visit two to three times per week. Plenty of convenient short-term parking and good signage is also essential, because our business involves people pulling up and carrying items into our stores. High-traffic, high-draw locations are important. “We look for our locations to be provided as a vanilla shell once the lease is signed. This means white walls, a floor, heating and air conditioning. Once we have this, our team does an architectural drawing of the site. We then have the entire store in a box delivered to the franchisee. “The store in a box crew arrives at 7:00 a.m. By the end of the second day, the store is open and fully operational. This is one of the unique aspects of our business. We don’t require building permits. We have a quick way of doing things using partitions, shelving, computers, and signage, for example.” Does a franchisee need specific skills before undergoing training provided by the franchisor? Sully: “The more skills and previous experience someone has the better. A good franchisor, however, will provide training so that the franchisee learns how to handle all the key responsibilities involved with his or her business’s operation, such as accounting, employee management, customer service, and marketing.
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“There is no such thing as a perfect franchise with a perfectly balanced skill set. I prefer a franchisee who is willing to learn and who has really strong people skills. That’s the very best franchisee candidate. I believe a franchisee should know how to effectively manage a business, not necessarily be a financial guru, like an accountant. They can always hire an accountant, which is something I strongly recommend.” In terms of obtaining financing, what advice can you offer to prospective franchisees? Sully: “Find a franchise opportunity that is already pre-approved by the SBA, for example. An SBA loan can provide financing for up to 70 percent of the total investment required. If the franchisor is pre-approved, this makes obtaining the financing easier. The best tip I can offer is to work with the SBA or your local bank. “In the past, the cheapest money was a home equity loan, but this requires the franchisee to use his or her home as collateral. An SBA loan often requires some form of collateral as well. Another more costly option for the borrower is to utilize a leasing company, which requires much less collateral. “When dealing with a landlord, make sure you understand the terms of the lease and what responsibilities, financial or otherwise, you’re taking on for the term of that lease. Also, make sure you’re not overleveraging yourself from a financial standpoint.” What is the best advice you can offer to a prospective franchisee in regard to finding and choosing the best opportunity? Sully: “That’s tricky. What I have discovered is that a lot of prospective franchisees don’t really know what they’re looking for in terms of the perfect type of business for them. Thus, it’s very difficult for them to evaluate specific opportunities offered by franchisors. “There’s no way to try out hundreds of different businesses until you find one you really like. Instead, people need to look at themselves, pinpoint what they’re good at, and figure out
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what they really like to do. Franchisees need to be able to have fun and enrich their lives by operating the business they decide upon. If you wind up in a business you don’t like, you’ll eventually find it very difficult to go to work every morning. “Anyone who does not like people should not get involved with any type of retail-based business, for example. Some people don’t enjoy dealing with the public or serving customers. Make sure that your personality fits the type of business you ultimately choose.” What are the biggest misconceptions people have about franchising, at least initially? Sully: “That all you need to do is buy a business, open its doors, and start collecting the profits. This job involves a lot more that sitting on a stool all day ringing up sales. It is not the franchisor’s responsibility to do everything or to operate your business on your behalf. The franchisor will provide you with the knowledge and tools you need to jump in and apply yourself as you operate your own business.” Is there any way to predict what level of time commitment will be involved with the start-up and operation of a new business? Sully: “No, other than to call existing franchisees and learn about their experiences. These are people who have already been through it firsthand. The franchisor can give you a ballpark estimate of the time commitment involved, but for a true gauge of what will be required, you need to talk with people who have already experienced what you’re about to experience. “Regardless of what type of business you operate, you can expect the time commitment to be pretty overwhelming, at least during that first year. Your entire life and all your energy will need to go to the business. Expect to make a lot of personal sacrifices. “From a financial standpoint, I recommend that if you’re married, one person should run the franchise, while the other
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person continues working full-time to ensure an ongoing income until the business is fully operational. Not having that regular paycheck coming in will add a lot of personal and family stress.” What are some of the worst mistakes you’ve seen first-time franchisees make? Sully: “People assume they won’t have to work hard or apply themselves to make their businesses successful. They believe a franchise-based business will operate by itself and that because it’s a franchise, it’s guaranteed to succeed. “Franchisees often don’t properly read the UFOC provided by the franchisor, nor do they do enough research by contacting existing franchisees in that system. Franchisees should read the Franchise Agreement so they really understand what they’re getting into. “Another mistake is that franchisees don’t adequately take advantage of the marketing and public relations services offered by their franchisors. If the franchisor already has a PR firm, for example, that knows the business and has promotional materials already created that can be used on a local level, why would you go out and hire a different public relations firm that knows little or nothing about the company? If the franchisor doesn’t have a relationship with a PR firm, then it’s appropriate to hire your own. Otherwise, at least try using the proven and established resources provided by the franchisor.” Do you have any other advice for prospective franchisees? Sully: “Dig deeply into the concept behind the franchise opportunity and make sure it’s something you can apply yourself to. Then, focus on the timeline and how long it will take for your business to achieve the level of success you want or need it to. Finally, make sure you have the wherewithal to survive financially until the business becomes profitable.”
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Amy Nichols Founder Happy Tails Dog Spa Phone number: 888-462-6022/703-821-1777 Web site: www.happytailsdogspa.com There are more than 68 million dogs in America. The caring for, feeding, and pampering of these dogs has become a $38 billion per year business, keeping pet stores, dog groomers, pet food companies, dog trainers, and a wide range of other petrelated businesses generating profits. Happy Tails Dog Spa combines several popular pet-related businesses into one potentially lucrative franchise opportunity. Offering dog grooming, spa treatments, doggy day care, training, and a retail boutique under one roof, Happy Tails Dog Spas is a one-stop shop for dog owners and their canine companions. With an initial investment of between $144,000 and $250,000, Happy Tail Dog Spa franchisees are capitalizing on the fast-growing trend of providing upscale dog care and ways for dog owners to truly pamper their pets. Amy Nichols is the founder and CEO of Happy To Be Here, Inc., the parent company and franchisor of Happy Tails Dog Spas, which was founded in 2001. The company currently has five franchised units and is growing quickly.
Bright Idea If you’re interested in a doggy daycare or pet-related franchise opportunity, in addition to Happy Tails Dog Spas, some of your other options include Aussie Pet Mobile, Bark Busters, Doody Calls, Camp Bow Wow, Gulliver’s Doggy Daycare, Pet Butler, and Hollywood Paws. You can learn more about these and other opportunities by visiting the IFA’s Web site (www.franchise.org) or Entrepreneur magazine’s Franchising Zone (www.entrepreneur.com/ franchises/index.html).
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In this interview, she discusses the growing opportunities operating a pet-related business offers, plus shares advice that’s of interest to all first-time franchisees. What made you launch Happy Tails Dog Spas? Nichols: “For years, I worked for a large company in the telecommunications industry. I did very well at my job and kept succeeding, but I found the work to be unfulfilling. I always wanted to own my own business and have that business somehow relate to animals. I thought about opening a pet boutique, but figured I would not have the opportunity to interact with the dogs themselves. “I also knew I didn’t want to sell dogs. At the time, doggy daycare facilities were first starting to become popular. So, I put together a business plan, took the proceeds for a house I sold, and opened a dog daycare business. I spent a lot of time learning how to keep the dogs safe and figuring out how to successfully operate this type of business. I spent over a year, for example, doing research and determining what would be the ideal type of space to house this business. “After operating the first Happy Tails Dog Spa myself for over two years, I began looking for ways to expand the business. One of the things I kept coming back to was the importance of the relationship between myself, the business operator, and the dog owners. There are so few places you can go these days where they know who you are and they care about you. This is the relationship I have established with each of our customers and their dogs. “In order to maintain this level of service and commitment to the customers and their dogs, franchising the business made more sense than trying to operate multiple locations myself. I determined you can’t pay employees enough to offer the level of service and pride in the business that an owner of a business is willing to commit.
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“We have created a 500-page operations manual, for example, plus extensive marketing and training materials for our franchisees. It’s all based on several years of research and firsthand experience, successfully running a doggy daycare facility. For me, there was a tremendous learning curve involved with creating a business model that could succeed. Happy Tails Dog Spa franchisees benefit greatly from this model and experience, without having to invest their own time and money trying to figure everything out on their own. After all, that’s the nature of what being a franchisee is all about.” Are there any drawbacks to becoming a franchisee? Nichols: “Franchisees give up some decision-making power and control over the operation of their businesses. This is the tradeoff they make for obtaining the right to use the established and proven system the franchisor has created. If you are someone with unique ideas who insists on implementing those ideas, becoming a franchisee is probably the wrong path to take. If you want to be able to open a business and benefit from someone else’s knowledge, research, and experience, plus obtain valuable training, a franchise-based business opportunity makes a lot of sense.” How would you describe an ideal franchisee for your type of business? Nichols: “An ideal franchisee for Happy Tails Dog Spas is someone who loves interacting with dogs. I would never recommend a doggy daycare business to someone who didn’t want to spend a lot of time working hands-on with animals. Our ideal franchisee is someone who has been working a corporate job his or her entire professional life, but who wants to do something that’s fun, rewarding, and animal-related. To be successful, you need to have common sense and be business-minded. We can teach you the skills you need to actually operate this type of business.
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“You can’t teach someone how to be people-oriented and have good customer service skills. Although our services are for dogs, a huge part of this job involves interacting with their human owners and keeping them happy. After all, the owners are the ones paying us for our services. “No matter what type of franchise-based business you get involved with, previous experience running or managing a small business is extremely helpful. Understanding basic accounting principles is also helpful, even though I recommend hiring an accountant or bookkeeper to manage your business finances. The number-one reason businesses wind up failing is a result of not properly managing payroll taxes and other types of taxes. You can get really hung up if you don’t pay attention to those things. “Motivation is also an essential trait for a franchisee to possess. This isn’t the type of job where a superior is going to give you a list of things to do each day. You have to have an entrepreneurial spirit.” What advice can you offer relating to financing a business? Nichols: “Financing a new business can be tricky. You have a bunch of options, but many of those options require you to own real estate, which can be used for collateral for various types of loans. A lot of people think they can simply apply for an SBA loan. Most lenders, including SBA lenders, still require the business owner to have collateral, such as equity in his or her home. “One other thing I have found is that if you’re single and plan to quit your job and give up your paycheck in order to operate a franchise, that can initially be challenging and not looked well upon by lenders. I think it’s easier for a married couple, where one person can keep his or her full-time job, while the other person pursues the franchise-based business. This seems to be what lenders like to see. There are also some creative financing plans out there, which allow you to leverage your 401k plan, for example.”
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What advice can you offer to a potential franchisee pertaining to site selection? Nichols: “Getting involved with commercial real estate can be extremely overwhelming. Find someone with experience in this area to work with. Your franchisor can be extremely helpful. A real estate attorney and commercial Realtor can also be helpful. Beyond that, it’s essential to know your customer and their habits. For example, we have determined that our customers are willing to drive a little bit out of the way to utilize our services. This is beneficial, because our locations are located in industrial space, as opposed to retail space.” Aside from the training provided by the franchisor, should a franchisee seek outside training? Nichols: “A good franchisor will provide all the training someone needs to successfully operate their business. We offer four weeks of training at our headquarters. This involves starting out as an employee at one of our locations, so the franchisee can obtain onthe-job training and firsthand experience. We also provide comprehensive training about the business side of the operation, focusing on bookkeeping, marketing, hiring employees, and taking care of other responsibilities. “In addition to the in-person training at our location, a franchisee will receive take-home training materials. Someone from our corporate office will then spend time at our franchisee’s location to help get him or her up and running and ready for the grand opening.” How can franchisees be sure they’re getting involved with the right franchise opportunities? Nichols: “You hear this a lot, but it’s true. Getting involved with a franchisor is a lot like a marriage. You are getting involved with these people for ten, twenty, or more years. You need to feel good about that relationship, as well as the concept behind the business. You can evaluate a franchise system, business plan, and financial model, but what is equally important is the
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relationship you can establish early on with the franchisor. Go with a company you feel good about. Pursuing the biggest name or best-known brand isn’t as important as that relationship. “Make sure the business you get involved with is capable of meeting your financial expectations. Keep in mind that a franchisor can not legally talk about profits. Any earnings claims a franchisor makes deal with gross income. The success of a franchise-based business, however, comes down to a few basic calculations. If you do some basic math, you can typically develop accurate financial projections based on information provided by your franchisor and its existing franchisees. “From an investment standpoint, the list of expenses and start-up capital needed that’s outlined by a franchisor is typically pretty accurate. What is not usually calculated in this budget are your personal living expenses, which need to be covered until the business becomes profitable. This amount of money will vary based on your personal lifestyle and standard of living, but it should be calculated into your overall budget. “Work with an accountant to develop a business plan before getting involved with any type of business.” What are the biggest misconceptions people have about franchising? Nichols: “In my experience, franchisees are surprised by the lack of flexibility they have when it comes to operating their businesses. They have to stick to the system created by the franchisor. People feel that this can be very limiting. But, when they adopt this line of thinking, they’re not looking at the big picture. “The last thing anyone wants is for one franchisee to do something that could somehow hurt the business as a whole and negatively impact all the franchisees.” What are some of the worst mistakes you’ve seen franchisees make? Nichols: “Some people buy a franchise based exclusively on the brand name. They don’t consider what will be involved in actually
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operating the business. They assume that pursuing a well known brand guarantees success. In reality, it’s much more important to pursue a business that you’re going to really love.” What type of time commitment should someone be willing to make upon becoming a franchisee? Nichols: “This is different for every type of business, but what I tell potential franchisees is that they should be prepared to invest one full year of their lives to getting a business established and running. Don’t plan on taking a vacation or working short days during that initial period. This is a tremendous commitment. Working ten, fourteen, or more hours per day, at least early on, is required. This often includes working nights, weekends, and holidays. This applies to the single-unit, first-time franchisee who can’t afford to hire a team of managers to run the business for them.” What is the biggest and most valuable piece of advice you can offer to first-time franchisees? Nichols: “First, before you start looking at franchise opportunities, think about what it is you want to do. There is a franchise opportunity for just about every type of business out there. I recommend visiting the International Franchise Expo (www. franchiseexpo.com) to learn about some opportunities. “If you attend Franchise Expo, focus on the type of businesses you’re interested in. Otherwise, with the flashy presentations offered by franchisors, you could get roped into something you ultimately won’t be happy with. “When prospective franchisees comes to us and say they’re also looking at a housecleaning company as a business opportunity, for example, I recommend that they take the time to get to know themselves and what they’re looking for, before they look at specific types of opportunities. There’s a huge difference between running a doggy daycare facility and a housecleaning business.”
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Just the facts ■
Before choosing to pursue any type of franchise business, focus on your own goals, lifestyle, and personality.
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Always read the UFOC and franchise agreement carefully but also speak in-depth with a handful of the existing franchisees to learn what an opportunity is all about.
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If you’re going to become a franchisee, make sure you’ll be willing to faithfully follow the franchise system provided by the franchisor.
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Make sure you have the core skills and personality necessary to operate the type of business you pursue. The training you’ll receive from the franchisor typically can’t teach you how to become a people person, for example.
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Choose a franchise opportunity that offers growth potential and is backed by a franchisor with proven experience and success.
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No franchise opportunity offers a guarantee of success. A franchisor will provide the system, tools, and training that can lead to success, but it ultimately becomes your responsibility as the franchisee to operate your business successfully.
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n this chapter, you read in-depth interviews with two franchisees—everyday people, like yourself, who have decided to become business owners and operators by pursuing a franchise opportunity. The people interviewed in this chapter have achieved success as a result of their own hard work. They have dedicated their professional lives toward building, managing, and growing their franchisebased businesses. Although some people get involved with a franchise-based business opportunity purely as a financial investment and become an absentee owner (a viable option for some entrepreneurs who plan to operate certain types of businesses), the people featured in this chapter are hands-on owners who work long hours and have made significant financial and personal investments in achieving their success. As you read these interviews, you’ll gain insight into what becoming a franchisee is all about and learn from the firsthand experiences of these now
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successful business operators. Ideally, you’ll discover that much of the advice you’re about to be offered can be adapted to the type of business you’ll be operating.
Joy Hofmeister Franchisee Kumon Math & Reading Centers Tulsa, Oklahoma Joy Hofmeister is a mother of four children and an experienced teacher. She possesses BS degrees in Education and English. When her children were old enough to attend elementary school, she became interested in starting some type of business. Unlike most first-time franchisees, Hofmeister didn’t spend months researching business opportunities or trying to figure out what type of business opportunity to pursue. Instead, through a friend, she learned that an existing, local Kumon Math & Reading Center was being sold by its current franchisee. Hofmeister met with the previous owner of the business, visited the location, and within two weeks, became its new owner. It was an opportunity she fell into, almost by accident. By obtaining special permission from the franchisor, Hofmeister began running her franchise at the same time she was obtaining the company’s training. Until the training was completed and she signed the Franchise Agreement several months later, however, she was operating her business on a trial basis, for absolutely no pay. Her philosophy was that she didn’t want to allow the established business to close its doors, and then have to re-establish itself later. For Hofmeister, the gamble paid off. Within the first year of operation under her leadership, her business exceeded all revenue projections. After six years operating her single Kumon Math & Reading Center location, it has become the most successful unit in the franchise network. Kumon Math & Reading Centers offers much more than traditional child-tutoring services. What’s offered at Kumon is
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Bright Idea To learn more about franchise opportunities with Kumon Math & Reading Centers, contact Kumon North America, Inc. at 866-633-0740 or visit the franchisor’s Web site at www.kumon.com. The company was established in 1958, has been franchising since 1980, and currently has over 26,000 franchised units operating worldwide. (However, less than 1,500 units are currently operated in the United States).
designed to be experienced by elementary-school through college-level students on an ongoing basis, in order to enhance their overall skills. Hofmeister equates the commitment students (and their parents) make to the Kumon program and learning philosophies as being similar to the time investment needed for piano or gymnastics lessons, for example. It takes time and practice to learn the necessary skills and develop proficiency. After six months to one year experiencing the program, most students manage to get up to one year ahead of their grade levels. In fact, a handful of Hofmeister’s students have become National Merit Finalists. “We’re selling a philosophy for education, not a tutoring service,” explained Hofmeister. In this interview, you’ll discover some of the strategies, business practices, and philosophies Hofmeister has adopted to achieve her success as a first-time, single-unit franchisee. Can you describe your early days working with Kumon as a franchisee? Hofmeister: “When I first got involved with Kumon, I knew nothing about the business or how to operate one. Two weeks after learning about the opportunity, I was operating the business as its sole owner/operator. I bypassed almost a year of preparation and training. In the first six weeks of owning the business, I grew it to over 100 students, which is more than most franchisees obtain after a year in operation. After six months, I had 180 students enrolled, and after eighteen months, I have more than 240 students enrolled. Now, I have more than 470
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students enrolled at my location. There are a lot of reasons why I believe this success has happened. “When I got started, I was really impressed with the concept behind Kumon. As the mother of four children, I knew lots and lots of parents and had a vast network that I was able to tap in order to quickly generate local business. I am a natural born salesperson, which is a skill which has helped me immensely. “One of the first things I did when I took over the franchise is figure out what we already did really well. I then focused on presenting that as my sales pitch, in a very open and honest way, to potential clients. Because I knew a long-term commitment by the students and their parents was essential, I insisted that students enroll for a minimum of twelve months. If all someone was looking for was a tutor as a quick fix to an academic problem, I sent them elsewhere. I created a sense of community among the students by capitalizing on what we did really well and not trying to expand or offer other things. “These days, I do no advertising. All my business is generated through word-of-mouth referrals, and I have a waiting list of potential new students. All this success happened by focusing all our efforts on what we did really well, and then selling that to our students and their parents.” What are some of the mistakes you see franchisees make when starting to build their own businesses? Hofmeister: “I see many Kumon franchisees, for example, who have not come close to achieving the same level of success as I have. People try to run their franchise like a mom-and-pop organization. It’s not. It is part of a worldwide franchise, and it’s a business. One of the first steps I took was to outsource payroll and accounting. This frees up my time a lot, plus allows me to keep excellent financial records. My business was recently audited, yet it required none of my time, because our accountant had all the records and was able to handle everything quickly and easily.
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“Another thing that I am willing to do as a business owner, which I see other franchisees are not doing, is that I pay my employees well. I am willing to invest in hiring the very best and most qualified employees possible. I’ve also built out my location into an attractive, well designed storefront location that offers comfortable furniture, top-of-the-line computers, and other equipment and tools for our students. “Because I have been able to develop a large customer base of people willing to commit to at least one year of enrollment, my company’s financials are attractive to local banks, which have been very supportive when I’ve needed money for business improvements or expansion.” What traits do you believe are the most important for a franchisee to possess in order to be successful? Hofmeister: “As a franchisee, you need to know your own limits. At the same time, you need to be willing to invest your time and money into the business. It’s also essential that you hire people capable of doing what you do as the business owner. This allows you to focus a lot more on growth and expansion, as opposed to getting bogged down with the everyday operation of the business. Between outsourcing tasks like accounting and payroll and hiring the best people possible, I have been able to continuously grow my business. “Running a successful business has a lot to do with your personality. The type of business you choose to pursue should also mesh with your previous experience, education, and background. My experience as a teacher and mother initially gave me a lot of credibility with my clients and students. “Being able to set goals and being a flexible and understanding boss is also essential. I have very smart and successful people working for me because they love the work environment I’ve created. One of my employees has a law degree, for example. He’s making an hourly wage working with students, but he loves what he’s doing. A good boss is a magnet for employees. I
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believe in hiring people who are better or smarter than I am. I know I can manage these people. By hiring people who are competent, I can focus on aspects of the business that only I can handle as its owner.” When you took over your franchise location, what were some of the problems you encountered? Hofmeister: “My franchisor offered excellent training on how to offer the services Kumon is famous for, but the training I received on how to become a businessperson wasn’t adequate, in my opinion, to meet my own needs. This meant I had to learn on my own to become a savvy businessperson.” What do you do on an ongoing basis to maintain your level of success? Hofmeister: “Starting my very first day on the job, I met with each and every client and their parents, one-on-one. I got to know them, understand their needs, and develop a relationship with them. Early on, I used this communication to determine what they weren’t pleased with thus far with their Kumon experience. I also took the opportunity to explain the Kumon process. While I want to offer each client what he or she needs or wants, I refuse to compromise on what we’re all about. If necessary, I am willing to turn away people I don’t think we can help. In the end, I want all our clients to have the best experience possible and to be successful.” Once you determined you wanted to take over the existing Kumon location from your acquaintance who was selling it, were you overwhelmed dealing with the tasks associated with becoming a franchisee, like reading and understanding the UFOC and Franchise Agreement? Hofmeister: “The whole process for me happened very quickly. My husband is an attorney with knowledge of franchising, so he was extremely helpful in handling all the legal matters and paperwork. During the first three months, when I was running the business and simultaneously obtaining the Kumon training,
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it felt like I was raising a newborn set of triplets in addition to my existing kids. It had that much of an impact on my life. I adopted the philosophy that I had to make it work, so I did what was necessary. “A Franchise Agreement is a massive and complex document that covers so many different areas. Upon signing it, a franchisee is making a huge commitment. When you read a Franchise Agreement for the first time, you’ll discover it’s very lopsided and in favor of the franchisor, not the franchisee. That’s something you’ll need to deal with and accept.” What problems did you encounter after making your franchise unit so successful? Hofmeister: “Initially, Kumon had little hope for the Tulsa area. When they saw my location doing so well, they quickly took steps to open additional units in relatively close proximity to each other. Each unit is operated by a hands-on franchisee, which is a requirement of the franchisor. Part of the Franchise Agreement states that each franchisee has little or no market exclusivity, so the franchisor can open additional locations almost anywhere it pleases. This is a trade off that Kumon franchisees make for being required to pay a very low initial franchise fee. “When my unit became successful, they actually opened four additional units in a seven-mile radius. This made it very hard for all the franchisors, but I learned a valuable lesson from it. Instead of allowing it to impede my business, I took full advantage of the added brand awareness the additional locations created in the area. Ultimately, several of the franchisees in the area didn’t succeed, but my business grew. When you become a franchisee with whatever franchisor you work with, pay attention to the territory or market exclusivity you’re being offered and consider the ramifications of it. As a franchisee, you have minimal rights. Instead of fearing this, you need to embrace it and work within the confines you’re given.
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“Operating any type of franchise is a struggle for the franchisee. Different types of businesses bring on different sets of challenges, but those challenges always exist. A successful franchisor understands the challenges, embraces them, and then figures out the best way to overcome them without them negatively impacting their business.” What was the biggest surprise you experienced as a first-time franchisee? Hofmeister: “I read a statistic recently that the average takehome pay for a small business operator is only around $30,000. A lot of these people are probably franchisees. While a franchise unit can be very successful, there are a lot of fees and expenses involved with running the business. Be sure to consider all the ongoing fees and calculate them into your budget. “If you have to pay the franchisor a percentage of revenue, plus an additional percentage for advertising, plus pay a markup on whatever products or supplies you must purchase from the franchisor, this quickly eats away at your profits. “Many of my clients think the entire fee they pay to me goes directly into my pocket. By the time I’m done paying franchise fees, salaries, and my other operating expenses, there’s not as much left over as one might think. To make a good income as a single-unit operator of almost any franchise, you have to be very smart and savvy when it comes to operating and managing your business and its finances. “I figured out that I needed to pay my employees extra in order to get the best people. These people ensure my ongoing success, so those higher salaries are an investment in my business and its future.” Do you interact with the other Kumon franchisees on an ongoing basis? Hofmeister: “Most definitely. I know people all over the world and stay in contact with hundreds of other franchisees. We meet
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together, share ideas, and communicate in an informal way. This interaction is extremely educational and productive. “A successful franchisee is someone who knows how to network. Being able to call on other franchisees when you have questions can keep you from making mistakes or investing time and money to reinvent the wheel as you operate your business. “Another benefit of being part of a franchise network is that I constantly receive new referrals from franchisees who have clients moving into my area. I spend a lot of time staying involved with the franchisee network. In exchange, I have learned a lot from my fellow franchisees.” In addition to being what you referred to as a “natural born salesperson,” what else has helped you achieve success as a franchisee? Hofmeister: “I have gotten extremely involved in my local community. I regularly donate my time to community events, and when asked, donate our services to the local school system or to various fundraisers. It’s all about building awareness and creating a positive reputation in the community.” What do you think is the biggest misconception new franchisees have about operating a franchise-based business? Hofmeister: “They think that because they’re paying an advertising and marketing fee to their franchisor, they don’t have to handle any local advertising themselves. In reality, no matter how much national or regional advertising your franchisor does, you’ll want and need to supplement it with your own local advertising to generate local business. “Another misconception, as I’ve already mentioned, is that new franchisees don’t realize how much of their revenues they wind up having to pay out to cover operational expenses and ongoing franchise fees. There is tremendous value in what you typically receive from your franchisor, but those costs come out of your profits.”
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What is the best advice you can offer to prospective franchisees looking to get into any type of franchise-based business? Hofmeister: “Know your market and know whether what you’ll be offering is something that will work in your market. Understand the strengths and weaknesses of what you’re offering and learn how to capitalize on those strengths. Also, set goals for yourself. If you stop having goals, you’ll lose the focus needed to make your business work. You also need to become very comfortable working closely with your franchisor. “Always be honest with yourself and honest with the people you’re working with, including your customers and employees.” Do you have any other advice for first-time franchisees? Hofmeister: “While you always want to work toward building and growing your business, at the same time, I believe in having an exit strategy. I am in this for the long haul, but my business is operated in a way that if I had to sell, I have something of value to offer to potential buyers. “If you’re a homeowner and you maintain your house over the years you live there, it’s much easier to sell it for top-dollar when you’re ready to move. If you don’t maintain your house, you’ll often need to do costly repairs to get the home into saleable condition. The same is true for a business. If you want to be able to sell the business and earn the highest profit possible, it needs to be maintained properly. This is part of what I mean by having an exit strategy. “If I were to sell my business tomorrow, I could show the potential buyer all my financial records, allow them to speak with many happy clients, demonstrate the competence and loyalty of my staff, and be able to command the highest price possible for my business. “Finally, I believe it’s extremely important to invest profits back into your company to ensure its ongoing strength and growth. A business can’t just be something that you constantly
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draw from. Also, you need to work within a budget and create a balance. I have discovered that many small business operators don’t follow an organized budget. I don’t understand how they can operate their business without a budget and maintain financial stability.”
Tom Kilkelly Franchisee Ricky’s Candy, Cones & Chaos South Easton, MA Tom Kilkelly is the father of two children and spent more than twelve years working in the plumbing industry. His wife holds a full-time corporate job. Kilkelly has always considered himself to be a creative person, which is something he could never utilize working as a plumber. After deciding that it was time for a major career change, he began exploring business opportunities that somehow involved children. During the process of deciding what type of business to pursue, Kilkelly did his homework and researched a wide range of opportunities, including daycare and child play centers. Upon learning about Ricky’s Candy, Cones & Chaos, his interest was immediately piqued. When he visited the franchisor’s companyowned location in Princeton, New Jersey and saw the eyes of his kids light up with excitement when they entered the large retail candy and ice cream store, he knew he had found the right franchise for him.
Bright Idea To learn more about the franchise opportunities offered by Ricky’s Candy, Cones & Chaos, call the franchisor at 609-430-9096 or point your Web browser to www.candyconesandchaos.com. Established in 2003, Ricky’s Candy, Cones & Chaos is a relatively new franchise opportunity, with about a dozen units currently operating nationwide.
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Ricky’s Candy, Cones & Chaos locations are large, extremely bright and cheerful retail stores offering a vast selection of candy and ice cream. In addition to selling sweets to retail customers, a large part of the business involves hosting children’s birthday parties and selling custom-created gift baskets. Tom Kilkelly opened his unit in January 2006. What was it about operating a Ricky’s Candy, Cones & Chaos franchise that appealed to you? Kilkelly: “From a business standpoint, I loved the concept. It is more than just a candy store, ice cream shop, gift basket company, or birthday-party location. It’s all of this wrapped into one business. This diversity helps to ensure a strong, year-round business. It offers many opportunities for generating revenue.” What was the process like for finding the ideal location for your business? Kilkelly: “I hired a commercial Realtor to help, but I ultimately found the strip mall location we wound up in. It was a new construction. At the time, the anchor stores were a supermarket and a video store. Because it was a new construction, I wound up getting a very good deal on the rent from the landlord. “One of the reasons I selected this spot was that they’re currently building a Target store, which will eventually be a huge traffic draw. Right now, the two storefronts on either side of mine are still vacant. There’s now a Quizno’s sub shop, Hallmark store, Hollywood Video store, and Radio Shack a few doors down. “Once I found the location, Rick, the founder of Ricky’s Candy, Cones & Chaos, flew in to see it and liked it a lot. Because I was one of the first tenants, I received a really good deal from the landlord. I was initially looking for a 3,500-squarefoot store. I wound up with a 4,400-square-foot store for the price of a 3,500-square-foot location. I also signed a seven-year lease with a three-year extension, so I am guaranteed this rent for a while. There’s also a sublease clause in the lease, so if the
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business fails, I can find a new tenant and not be on the hook for the monthly rent for the remaining term of the lease. “After signing the lease, we started the build-out process. Although it was recommended that I use the franchisor’s contractor who was based in New Jersey, I wound up hiring someone locally who did an excellent job. One delay we ran into was because the building was not fully constructed and ready for occupancy when we anticipated it would be. Did you find the UFOC and Franchise Agreement to be overwhelming? Kilkelly: “Actually, no. The documents I was presented with where relatively straightforward. I hired a franchise attorney to review them, however. As you’d expect, the documents, particularly the Franchise Agreement, are one-sided, in favor of the franchisor. This is something franchisees need to understand and expect. “While Ricky’s franchisees must adhere to a wide range of guidelines, we are given some leeway in terms of maintaining inventory that our local customers demand. Franchisees are able to decide what flavors of ice cream we offer, plus what types of novelty candy we stock on our shelves. I have found my franchisor to be really good to work with. “From the time I received the UFOC to our opening day was about nine months; however, this included construction delays. The whole process happened quickly. One of the delays, aside from the construction, was that the health inspector for the area was on vacation the week we planned to open. While I had budgeted for delays, we did experience unexpected cost overruns, which ate into our start-up budget. For example, we wound up having to install grease traps on all of the sinks within the location. We have six sinks, so that turned into a significant unexpected expense. “One piece of advice I’d offer to new franchisees is to set aside extra money for overruns and unexpected costs. Also, make sure you have at least six months worth of living expenses
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in the bank. It took seven months of being open for business before I took home a paycheck.” From a training standpoint, did the franchisor provide you with the knowledge you needed to properly operate your business? Kilkelly: “For the most part, yes. The one thing I didn’t learn during the training was how to handle local advertising, marketing, and promotions. That was something I had no previous experience with, and I wound up having to learn through trial and error. At first, I spent a lot on advertising that didn’t work. Over time, I discovered that direct mail works the best for my business. Also, whenever I run advertising, I now feature a coupon with a dollar amount or a buy-one-get-one-free offer. “Initially, I ran a coupon offering 15 percent off a birthday party. People didn’t know how much we charge for birthday parties, so the response was minimal. Now, we offer coupons worth $25.00 or $50.00 off of a birthday party or we offer a chance to a buy a quarter-pound of candy and get a quarter-pound of candy free. People respond to free offers as well as coupons with a defined amount of savings. There was a definite learning curve when it came to advertising.” What would you say is the most important skill to have as a franchisee? Kilkelly: “The core business skill every franchisee needs is common sense. The franchisor will tell you how to operate your business. What you need to bring to the table is common sense and the ability to implement the information the franchisor provides you. A basic understanding of bookkeeping and accounting is also useful. For a retail or service-type business, people skills are also essential. This means being able to interact well with employees and customers.” Do you have any advice for finding and retaining good employees? Kilkelly: “Most of my employees are high school or college kids. Finding good employees is tough. Most people can sit through a job interview and come across as ideal applicants. It’s not until
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they start working for you that you really get to know who they are and what they’re about. “As I evaluate an applicant, I pay attention to what extracurricular activities they’re involved with. For my type of business, I have found that people involved in the drama club, for example, work out really well, because these people tend to be very outgoing, animated, and friendly to customers. They’re also not afraid to host kids’ birthday parties or wear the Ricky costume. “I look for people with a fun, outgoing, and energetic personality. Although I have had to let a few people go, the majority of my employees have been with me for the entire time we’ve been in business. I found a lot of my new employees through word-of-mouth and referrals. “In terms of retaining employees, the trick is to keep them happy and motivated. For example, the employee who books the most birthday parties this month will win an iPod. Every two months, I also have an employee meeting where I sit everyone down and express my gratitude to them.” Overall, what would you say is the biggest benefit to being a franchisee, as opposed to operating an independent business? Kilkelly: “I’d have to say it’s the support from the franchisor. No matter what happens, you always have someone to turn to for answers or help. The discounted pricing I receive as a result of being part of a franchise system is also beneficial. The bigger the franchise system becomes as a whole, the lower my inventory prices go. Also, if I have an issue with one of my vendors, the franchisor gets on the phone and deals with it. “My franchisor provides a list of approved vendors, but I am free to seek out other vendors, if necessary, which is an arrangement not all franchisors offer. One other thing I liked about this franchisor is that I do not have to buy inventory through them.” In your opinion, are there any drawbacks to being a franchisee? Kilkelly: “The common answer amongst franchisees is the percentage of revenues the franchisor takes on an ongoing basis.
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This doesn’t bother me too much because I have received the level of ongoing support I’ve wanted and needed. Overall, I am very happy with my experience as a franchisee.” What are your long-term goals as a franchisee? Kilkelly: “Now that my location in South Easton, Massachusetts, is fully operational and profitable, I have slowly begun exploring other potential locations. Ultimately, I’d like to open at least one or two additional units over the next few years.” What is the best piece of advice you can offer to a potential franchisee? Kilkelly: “Becoming a tenant in a new mall is great. It’s a lot easier to do your build out as the actual building is being constructed. The drawback, however, is that as a new mall, people don’t know you’re there and there’s little or no initial traffic to draw upon. As a result, I needed to advertise locally a lot more than expected to generate and maintain business. In a few more months, when Target opens a few doors down, there will be a steady flow of traffic. This hasn’t really existed up until now. “A first-time franchisee might consider choosing a location that’s a bit more established, as opposed to a newly constructed strip mall or shopping center, for example. My advice is that you need to keep advertising and plugging away at it. Most people need to be exposed to an ad at least three times before they’ll respond to it. “Another piece of advice for franchisees is to make a point to work in your store during the busiest times. I typically work mornings during the week. However, I periodically drop in on weekends, when the store is the busiest. This helps keep me motivated. “If you’ll be doing a lot of build out in your location, it makes sense to sign a longer term lease with your landlord. Signing a three-year lease, for example, could cost you a lot extra in the future, if your business winds up doing well and your landlord opts to dramatically increase your rent after the initial term of the lease.”
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Do you have any advice to potential franchisees about finding a business opportunity that’s right for them? Kilkelly: “Take whatever time is necessary to find an opportunity you’re really excited about. I am a creative person. Operating Ricky’s is fun and exciting for me. As a result of operating this business, I have opened up as a person, because I am utilizing my creativity. Of course, you need to find a business in which the finances make sense as well. It’s a blast running this type of business. I have a good time interacting with the customers and the employees.”
Just the facts ■
Word-of-mouth and referrals from your existing customers and clients can eventually replace the need to invest money in local advertising.
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One way to generate local awareness for your business is to become active in the community by supporting local schools, sports teams, organizations, and charities.
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Running a successful business has a lot to do with your personality. The type of business you choose to pursue should also mesh with your previous experience, education, and background.
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Whenever possible, outsource tasks such as payroll, bookkeeping, and accounting. This will ensure that these important tasks are done correctly, plus it’ll free up your time to focus on other important responsibilities.
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Know what your business offers and what its strengths are. Exploit those strengths, but also understand its weaknesses.
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When signing a lease, think about the future. What will happen if your business does well? Also make sure you can sublease if things don’t go as planned.
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Common sense is one of the most important businessrelated skills any franchisee can posses.
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One way to retain employees is to motivate them with praise, gratitude, incentives, and rewards.
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It’s important to be passionate about the type of business you pursue, but also make sure the business is financially viable.
PART V
Appendixes
A
s your quest to become a franchisee gets underway, you’re going to encounter some new terminology. This appendix offers definitions for popular terms you’ll encounter while reading this book, doing research, and talking to franchisors. advertising fee This is an ongoing fee you pay to the franchisor to cover regional and national advertising, marketing, and public relations costs that are handled on behalf of the franchisees. As the franchisee, you’ll also most likely be responsible to handle your own local marketing, advertising, and public relations. advertising You pay to have your promotional message appear in any genre of media. You control exactly what’s said, how it’s said, and decide specifically when and where the advertising runs. area franchise The franchisee is granted the exclusive rights to open multiple locations (units) within a specific geographic area. business opportunity This is a catch-all phrase that refers to any type of business venture you can buy into that may or may not be a legitimate franchise-based business. Many pyramid schemes, multi-level marketing opportunities, and scams are referred to as
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“business opportunities.” A legitimate franchisor will always provide a UFOC to prospective franchisees. business plan A detailed document created in the early stages of a business’s initial conception. It describes the company’s goals, finances, strategies, assets, target market, liabilities, and competitive edge in the marketplace. churning This occurs when a failing franchise location that is open and fully operational keeps getting resold to new franchisees so that the franchisor can collect additional fees and avoid closing that location. company-owned location This is a unit that’s owned and operated by the franchisor, as opposed to an independent franchisee. This is sometimes referred to as a company-owned outlet or company-owned unit. competition Refers to other companies in your region that offer similar products or services to the same target audience or demographic that your business is attempting to reach. corporation A legal business entity that protects its owners and shareholders from liabilities associated with the operation of that business. There are several different types of corporations, each of which operates differently. From a legal standpoint, a corporation is a “person” that can sue or be sued, own property, hire employees, pay taxes, and/or borrow money. customer service How well a customer or client is treated by you and your employees relates directly to the quality of customer service he or she receives. Offering the highest level of customer service possible will result in loyal customers, repeat business, and referrals. Providing superior customer service is one of the keys to building a business with long-term success and growth potential. demographic Any defined group of people can be described as a demographic. A demographic can be defined by age, sex, income, ethnicity, religion, geographic area, marital status,
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employment status, occupation, education level, or any other characteristic that’s relevant to a specific group of people. destination business This is a business that customers are willing to drive out of their way to visit. Mass-market retailers, such as Wal-Mart, as well as smaller specialty stores, are often considered destination businesses. disclosure document (UFOC).
See Uniform Franchise Offering Circular
distributor A distributor is a wholesale supplier of inventory or supplies you’ll need in order to provide specific products or services to your customers. employee These are the people who work for your business on a full-time or part-time basis. employer As a franchisee (the owner/operator of your business), if you hire employees, you become their employer their boss. Federal Trade Commission (FTC) A federal government agency that, in part, oversees, regulates and enforces franchiserelated laws within the United States, including the franchise sales and disclosure process. The FTC’s Web site (www.ftc.gov) is an excellent resource for prospective franchisees. field support A franchisor employs a team of people to visit and assist franchisees in the operation of their businesses on an ongoing basis. Franchise Agreement This is the legal contract between the franchisor and the franchisee that outlines the obligations each has to the other. A franchise agreement will have a pre-determined term, which can later be extended (renewed). A franchise agreement should always be reviewed by an attorney before it gets signed. franchise attorney A lawyer who specializes in providing legal services to both franchisees and franchisors. This includes the negotiation and review of franchise agreements and Uniform
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Franchise Offering Circulars, handling litigation work, handling contract or business disputes, as well as trademark and intellectual property registration and protection. franchise broker An independent, third-party company that pre-screens prospective franchisees and matches them up with potential franchisors. A franchise broker can also assist a prospective franchisee in finding and buying an existing franchise unit. Many franchise brokers are paid by the franchisors they represent. Franchise Expo The International Franchise Expo (www. franchiseexpo.com) is an industry-oriented trade show that brings together hundreds of franchisors, along with existing and potential franchisees. franchise fee The initial, one-time fee paid by the franchisee to the franchisor for the right to become a franchisee. This is a non-refundable purchase or licensing fee. It’s typically paid at the same time the Franchise Agreement is signed. Franchise Offering Circular (FOC) Offering Circular (UFOC).
See Uniform Franchise
franchise opportunity A legitimate business opportunity offered by a franchisor. It involves a prospective franchisee paying a one-time franchisee fee, plus an ongoing fee. Franchisors are required to provide potential franchisees with a UFOC and follow strict legal guidelines. franchise resale This is when a new franchisee purchases an existing (and fully operational) franchise unit from another franchisee, with the permission of the franchisor. franchise system The unique, proven business model or system created by the franchisor that’s provided to franchisees to help them establish, manage, and grow their businesses. franchise Involves the rights being granted to a franchisee by the franchisor to use a company’s name, unique business model, logo(s), trademark(s) and other resources, in order to provide specific products or services.
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franchisee The person or company who buys or licenses the rights from a franchisor to conduct business under the franchisor’s name. This typically includes the rights to use trademarks and logos, plus take advantage of the brand and name recognition established by the franchisor, as well as utilize the franchisor’s unique franchise system, business model, and/or business plan. franchisor This is the person or company who provides its franchisees with the right to do business under their name and follow their unique franchise system, business model, or proven business plan. goal A carefully defined objective you work toward achieving that will result in some type of benefit over the short or long term. A goal can be personal, professional, or financial. home-based business A business that can be operated from your home. It does not require a separate office or retail location. initial investment The amount of money you initially need to invest in order to become a franchisee and open your business. This typically includes franchising fees, start-up fees, and working capital. International Franchise Association (IFA) An independent professional association comprised of both franchisees and franchisors around the world. The IFA offers information, education, and resources to its members. The IFA’s Web site (www.franchise.org) is an excellent resource for prospective franchisees. inventory The products your business keeps on hand until they’re sold to customers or clients. licensing fee
See franchise fee.
location Refers to the geographic area from which a franchise unit is operated. marketing plan A detailed and comprehensive strategy describing a company’s overall marketing, advertising, public
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relations, and promotional efforts, as well as its related goals and budget. marketing Refers to the efforts made to promote a franchise on a local, regional, or national level that goes beyond specific advertising or public relations efforts. master franchisee Within a predefined territory that is granted by the franchisor, a master franchisee has the rights to open multiple locations or units, plus sub-franchise the rights to other franchisees to open additional units or locations within the master franchisee’s exclusive territory (geographic area). merchant account The ability to accept major credit cards (Visa, Mastercard, Discover, American Express) as payment for products and service. A merchant account is granted to a business by a bank or other financial institution. name (or brand) recognition A measure of how well known a company’s name, brand, or logo is among either the general public or the company’s target audience. operations manual Book-length document provided by the franchisor that typically contains much of the information a franchisee needs to know in order to establish and operate a franchise-based business. It outlines the business model and system created by the franchisor. partnership A legal relationship between two or more people who work together to conduct a specific type of business. All partners share ownership and the legal obligations associated with the business venture. The percentage of ownership between partners can be determined by those partners and does not have to be equal. personal liability Refers to the legal and financial risk you take on personally as a result of becoming a franchisee or business owner. press release A formal, newsworthy announcement, created by a business operator or its public relations firm, that is distributed to the media (TV stations, radio stations, newspapers,
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magazines, and so on). A press release follows a specific format and acts as a tool for generating free publicity. public relations The use of the media to obtain free publicity in order to promote your business, products, and/or services. This media coverage could be in the form of articles, interviews, editorial mentions, product reviews, human-interest stories, profiles, or news features that appear in any form of media, such as in newspapers, in magazines, on the radio, on television, or online. renewal rights The ability to renew or extend a franchise agreement on or before its expiration date. retail-based business A business that operates in a traditional retail store setting, such as in a strip mall, indoor mall, or shopping center. Retail businesses typically sell products to customers or provide services from their retail locations. royalty payments This is an ongoing fee paid by the franchisee to the franchisor. This can be a flat fee or a percentage of gross or net sales, depending on the guidelines set forth by the franchisor in the Uniform Franchise Offering Circular. service-based business This type of business involves providing customers or clients with a service, as opposed to selling them a product. House cleaning, tax preparation, tutoring, doggy day care, and lawn care are all examples of service-based businesses. In many cases, these types of businesses involve you or your employees going out into the field and visiting customers or clients at their location. single-unit franchise The right for a franchisee to open and operate one franchise unit within a predetermined geographic area. Small Business Administration (SBA) This federal agency provides a wide range of services and resources, including free advice to small business operators, including franchisees. The SBA’s Web site (www.sba.gov) is an excellent resource for
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prospective franchisees. The goal of SBA is to aid, counsel, assist, and protect the interests of small business concerns, as well as to preserve free, competitive enterprise. sole proprietorship When a single individual has sole ownership of his or her business and assumes all financial and legal liability for it. start-up capital The amount of money needed to get a franchise-based business up and running. Some franchisors include the initial franchise fee in this figure, while others do not. supplier A wholesale provider of inventory or supplies you’ll need in order to provide specific products or services to your customers. In addition to inventory, a supplier can provide instore fixtures, uniforms, signage, and specialized equipment needed for manufacturing or doing business. target audience The group of customers that has the greatest need or want for the product or service being offered. Uniform Franchise Offering Circular (UFOC) A legal document prepared by the franchisor that details specific information about a franchise-based business opportunity. It outlines the obligations the franchisor has to the franchisee, what’s expected of the franchisee, fees, start-up costs, and details about the overall franchise system being offered. wholesaler A supplier of inventory or supplies you’ll need in order to provide specific products or services to your customers. working capital The amount of money your business will need to open for business and remain operational until it generates a profit.
T
his appendix gives you a listing of the top fifty franchise opportunities in America, according to Entrepreneur magazine’s Franchise 500 2006 rankings. Inclusion on this list is not an endorsement.
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Franchise Directory
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Ranking Company
Phone Number Web Site
1
Subway
800-888-4848
www.subway.com
2
Quiznos
800-335-4782
www.quiznos.com
3
Curves
800-848-1096
www.buycurves.com
4
UPS Store
877-623-7253
www.theupsstore.
5
Jackson Hewitt 800-475-2904
www.jacksonhewitt.com
6
Dunkin Donuts 781-737-3000
www.dunkin franchising.com
7
Jani-King
800-552-5264
www.janiking.com
8
RE/MAX
800-525-7452
www.remax.com
9
7-Eleven
800-255-0711
www.7-eleven.com
10
Liberty Tax
800-790-3863
www.libertytax franchise.com
11
Domino’s Pizza 734-930-3030
www.dominos.com
12
Pizza Hut
www.yumfranchises.com
13
Sonic Drive-In 800-569-6656
www.sonicdrivein.com
14
Century 21
877-221-2765
www.century21.com
15
Jan-Pro
678-336-1780
www.jan-pro.com
16
McDonald’s
630-623-6196
www.mcdonalds.com
17
ServiceMaster Clean
800-255-9687
www.ownafranchise.com
18
Kumon Learning Center
866-633-0740
www.kumon.com
19
Coldwell Banker 973-428-9700 Real Estate
www.coldwellbanker.com
20
Jiffy Lube
800-327-9532
www.jiffylube.com
21
Arby’s
678-514-4100
www.arbys.com
22
Baskin–Robbins 781-737-3000
www.dunkin-baskin.com
23
KFC
866-298-6986
www.yumfranchises.com
24
Cold Stone Creamery
480-362-4800
www.coldstone creamery.com
866-298-6986
APPENDIX B
■
FRANCHISE DIRECTORY
Ranking Company
Phone Number Web Site
25
Jazzercise
760-476-1750
www.jazzercise.com
26
GNC
800-766-7099
www.gncfranchising.com
27
Chem-Dry Carpet Cleaning
877-307-8233
www.chemdry.com
28
CleanNet USA
800-735-8838
www.cleannetusa.com
29
Papa John’s
502-261-7272
www.papajohns.com
30
Dairy Queen
800-679-6556
www.dairyqueen.com
31
InterContinental 770-604-2000 Hotels Group
www.ichotelsgroup.com
32
Merle Norman Cosmetics
800-421-6648
www.merlenorman.com
33
ERA
800-869-1260
www.era.com
34
Super 8 Motels 800-758-8999
www.super8.com
35
Taco Bell
502-874-8300
www.yumfranchises.com
36
Midas
800-365-0007
www.midasfran.com
37
Popeyes Chicken & Biscuits
800-639-3780
www.popeyes franchising.com
38
Burger King
866-546-4252
www.burgerking.com
39
Sylvan Learning Centers
800-284-8214
www.sylvan franchise.com
40
Supercuts
888-888-7008
www.regisfranchise.com
41
Snap-On Tools 877-476-2766
www.snapon.com
42
Days Inn
800-758-8999
www.daysinn.com
43
Servpro Industries
800-826-9586
www.servpro.com
44
Hot Stuff Foods 605-336-6961
www.hotstufffoods.com
45
Fantastic Sams 978-232-5600
www.fantasticsams.com
46
WSI Internet
888-678-7588
www.wsicorporate.com
47
Matco Tools
800-368-6651
www.matcotools.com
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APPENDIXES
Ranking Company
Phone Number Web Site
48
Hampton Inn
800-286-0645
www.hampton franchise.com
49
Help-U-Sell Real Estate
800-366-1177
www.helpusell.com
50
Budget Blinds
800-420-5374
www.budgetblinds.com
Top ten low-cost franchises According to Entrepreneur magazine, the following are the top ten low-cost franchise opportunities for 2006. Inclusion on this list is not an endorsement. Ranking Company
Phone Number Web Site
1
Curves
800-848-1096
www.buycurves.com
2
Jackson Hewitt
800-475-2904
www.jacksonhewitt.com
3
Jani-King
800-552-5264
www.janiking.com
4
RE/MAX
800-525-7452
www.remax.com
5
Liberty Tax Service
800-790-3863
www.libertytax franchise.com
6
Jan-Pro
678-336-1780
www.jan-pro.com
7
ServiceMaster Clean
800-255-9687
www.ownafranchise.com
8
Kumon Learning Centers
866-633-0740
www.kumon.com
9
Jazzercise
760-476-1750
www.jazzercise.com
10
Chem-Dry 877-307-8233 Carpet Cleaning
www.chemdry.com
APPENDIX B
■
FRANCHISE DIRECTORY
Top ten new franchises The following is the list of top ten new franchises for 2006, according to Entrepreneur magazine. This list represents companies that started franchising since 2001 and that meet the criteria set forth by Entrepreneur magazine. Inclusion on this list is not an endorsement. Ranking Company
Phone Number Web Site
1
Geeks On Call
757-466-3448
2
Moe’s 404-844-3225 Southwest Grill
www.moes.com
3
EmbroidMe
800-727-6720
www.embroidme.com
4
Chester’s International
800-288-1555
www.chesters international.com
5
ISold It
626-739-9200
www.i-soldit.com
6
United Shipping Solutions
866-744-7486
www.usshipit.com
7
Super Wash
815-772-2111
www.superwash.com
8
Handy Matters 866-448-3451
www.handyman matters.com
9
Robeks Fruit Smoothies
866-476-2357
www.robeks.com
10
1-(800)-Water 206-381-3047 Damage
www.1800water damage.com
www.geeksoncall franchise.com
353
T
his appendix gives you a listing of Web sites, industry trade journals, magazines, and other resources from which you can obtain information, guidance, and referrals pertaining to becoming a franchisee.
Web sites The following are a list of Web sites that prospective franchisees will find useful. Most provide free information and other valuable resources. BeTheBoss.com (www.betheboss.com): This is an advertiser-supported Web site featuring a free, online database that’s ideal for researching franchise opportunities and learning more about specific franchisors. Business Re-Sale Network (www.br-network.com): This online service is dedicated to the resale of franchise units. It provides a database of businesses available for sale by existing franchisees or directly from franchisors. It’s a free service sponsored by Franchise Update magazine. Entrepreneur Magazine’s Franchise Zone (www. entrepreneur.com/franzone): This free online resource offers a comprehensive database of franchisors, plus features hundreds of articles of interest to potential franchisees. This service offers an unbiased source of news and information.
355
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Recommended Reading and Other Resources
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APPENDIXES
Franchise-Chat (www.franchise-chat.com): This is a free, information-exchange forum of interest to anyone involved with franchising. It provides an online chat room and message boards where franchisees can communicate with each other in order to exchange news, ideas, and comments. On this Web site, you’ll also find a large selection of informative articles. Franchise Market (863-294-2812/www.franmarket.com): This quarterly magazine focuses on entrepreneurship and small business, with a focus on franchising. Available on the Web, it’s considered an online marketplace for franchise and business opportunities. IFA University (www.ifa-university.com): Sponsored by the International Franchise Association, this service offers online courses and seminars of interest to potential and current franchisees. The “Introduction to Franchising” online course is offered free of charge and provides an overview of what it takes to become a successful franchisee. US Franchise News (www.usfranchisenews.com): Here you’ll find an online-only magazine focusing on all aspects of franchising. Hundreds of informative articles, profiles, and news features are available to readers. A franchise directory is also offered. World Franchising (www.worldfranchising.com): This is an online-based directory of franchise opportunities that’s ideal for conducting research about specific franchisors. It’s an advertiser-supported site that also provides referrals for franchising consultants and lawyers.
Magazines The following are print magazines of interest to prospective and existing franchisees. Entrepreneur Magazine: Published monthly and available either from newsstands nationwide or via subscription, this is an authoritative magazine of interest to small business owners and
APPENDIX C
■
RECOMMENDED READING AND OTHER RESOURCES
entrepreneurs, including franchisees. Subscription: $14.95 per year (twelve issues). Visit the Web site at www.Entrepreneur.com. Inc.: This is a monthly, general interest business magazine available from newsstands or via subscription. Subscription: $9.97 (twelve issues). Call 800-234-0999 or go online (www.inc.com). National Business Exchange: This quarterly printed and online magazine focuses on the buying and selling of existing franchise units. Its primary focus is on the Canadian market. Look online at www.BusinessExchange.ca. The Wall Street Journal: This daily newspaper covers all aspects of business and is a must-read for all small business operators, entrepreneurs, and franchisees. It’ll keep you up to date on the latest news, trends, and issues facing business operators. Subscription: $99 (fifty-two weeks). To subscribe, go to www.wsj.com or call 800-568-7625.
Trade journals and directories This section lists several trade journals and directories that cover the franchising industry. Franchise Opportunities Guide: Published semi-annually by the International Franchise Association (800-543-1038/www. franchise.org), this printed and online directory provides detailed information about thousands of franchise opportunities. The cover price of this printed guide is $12. Much of the information is offered online for free. Franchise Times: This is an industry trade publication covering all aspects of franchising. Subscriptions are $35 per year (ten issues). Call 800-528-3296 or go online (www.franchisetimes.com). Franchise Times also publishes an annual directory of the top 200 franchise opportunities. Franchise Times Professional Services Directory: Published by Franchise Times, this annual directory, free to Franchise Times subscribers, lists referrals for a wide range of services of interest to
357
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APPENDIXES
prospective franchisees. To obtain a copy of this directory, call 800-528-3296 or visit www.franchisetimes.com. Franchise Update: Targeted to executives within the franchise industry, this quarterly magazine offers articles, profiles, and information focusing on all aspects of franchising. The publication’s Web site (www.franchise-update.com) is also an excellent resource for information, articles, and referrals. To subscribe, call 800-289-4232. The cost of a subscription for the printed publication is $39.95 (four issues). Franchising World: Published by the International Franchise Association, this monthly magazine offers informative articles, advice, and a vast amount of information pertaining to all aspects of franchising. The magazine also publishes a calendar of events and tradeshows of interest to franchisees. The subscription rate is $50 per year (twelve issues). To subscribe, visit www.franchise.org and click the “Books and Publications” icon. The Franchising Handbook: Published quarterly, this is a comprehensive printed directory describing thousands of franchise opportunities. The directory also features informative articles. A subscription is $22.95 per year (4 issues). It’s available from newsstands, by calling 414-272-9977, or online at www.FranchiseHandbook.com.
Other Here are two additional resources that can be helpful in providing valuable information to prospective franchisees. Federal Trade Commission (877-382-4357/www.ftc.gov): This government agency has published a free, downloadable guide, entitled A Consumer Guide to Buying a Franchise, which offers valuable advice and guidance for potential franchisees. U.S. Small Business Administration (800-U-ASK-SBA/www. sba.gov): This government agency offers an informative Web site featuring how-to advice, articles, and a wide range of resources for small business owners and operators, including franchisees.
Absentee owners, 202, 321 Accountant, 194–197, 264 Accounting, outsourcing, 324 Accounting system, 117 Ace Hardware, 77, 97 Adult education programs, 8, 35 Advertising defined, 222 described, 240–244 expenses, 107, 109 relation to location selected, 269 risking investing money in, 26 Advertising specialist, 197–198 Advisors, 263–264 All-In-One Directory, 235 Anchor stores, 138 Applicants qualities of, 178–179 recruiting, 172–176 Architects, contracts with, 129 Attorney. See Lawyers Audio self-improvement courses, 35 Automotive products and services, 89–90
B Background checks, 182 Bacon’s Media Directories, 235 Balance sheet in a business plan, 105 Banks, financing from, 112–113, 260 Base rent, 144, 147–148 Benefits establishing, 186–187 financial value of, 186
of goals, 43 loss of, 26 Better Business Bureau, 75 Beverages, franchise example, 93 Billboards, advertising on, 242 Birthday parties, children’s, 332 Bonuses, 186–187 Bookkeeping, 117, 194–197 Borrowing money, 112 Brand name, buying a franchise based on, 317–318 Brand name recognition capitalizing on, 224 franchisor’s, 36 Broadcast Interview Source, 234 Budget following an organized, 331 for marketing, 227–228 Build-out process, 149–150, 333 Burrelle’s Media Directories, 235 Business(es) ability to transfer, 126 failure rate of, 40 financial statements, 113–114 launching a start-up, 3 promoting and advertising, 224–226 understanding the type of, 295 Business education, 163–164 Business name, displaying, 245 Business opportunity, 4, 72 Business partner, 111 Business plan, 11, 105–106, 110, 295 The Business Resale Network, 66 Business responsibilities, 28–29, 30 Business services, 81, 287 Buxton, Tom, 265–270
359
Index
A
360
INDEX
Buyer, hiring, 198–199 Buying cooperatives, 215
C Cable TV, advertising on, 242 Calculated risks, 25 Call answering, 135 Calling services, unlimited, 135 Capacity to repay a loan, 104 Capital, 17–19, 104, 106–110, 275 Capitalization, 290 Career centers, 172–173 Career-related Web sites, 173 Cash flow analysis, 105 Cash flow, managing, 289 CertaPro Painters, 80 Certified Franchise Executive (CFE), 254–255 Certified public accountant. See CPA Chamber of Commerce, 143, 207 Character, 104 Children’s services Gymboree Play Programs, 81–82 Kumon Math & Reading Centers, 86–87 Snip-Its, 91–92 CIT Small Business Lending, 116, 290 C.O.D. (cash on delivery), 216, 217 The Coffee Beanery, 93 Cohen, Lawrence J. (“Doc”), 254–265 Coldwell Banker Real Estate Corp., 96, 97 Collateral, 104, 113 College-level courses, 8 Colleges, recruiting from, 172–173 Commercial real estate, 282 Commercial Realtor, 143 Committing, 63–64 Common area maintenance, 148 Communicators, 35 Community becoming active in, 244–245 franchisees reaching out to, 296 involvement in the local, 329 Compensation package, 186 Competition, nearby, 145 Competitive salary, 186 Conditions, relating to a loan, 104 Consistency, 13 Construction of a location, 149–150 Consultants, hiring, 205 Consumer spending, 267–268
Contractors, 129, 150 Contracts, 129 Controls, 37, 212 Convenience stores, 75–77, 295 Cookie-cutter system, 307 Co-op advertising programs, 241 Cooperative, 215 Copy machine, 136 Core business knowledge, 8 Core business-related skills, 7–8 Core information, 157 Core skill set, 289 Corporate offices, visiting the franchisor’s, 159 Corporation, setting up, 128 Cost overruns, unexpected, 333 Costs associated with a lease, 147–149 of a location, 144–145 of training, 160 Council of Public Relations Firms, 198 Coupons, 232, 334 CPA (certified public accountant), 195 CPA Exchange, 196 Credit, establishing, 216–217 Credit application, 216 Credit cards, cash advances from, 112 Credit checks, 182 Credit limit, 216 Credit report(s), 102, 103–104 Credit reporting agencies, 216 Credit unions, financing from, 112 Creditworthiness, 101–104 Curves, 95, 97 Customer(s) defining and reaching, 266 ease of access and convenience, 145 greeting, 247 identifying scientifically, 267 knowledge of, 266 relationships with, 313, 326 support of, 34 Customer base, 141–142 Customer service, 224, 245–247
D Data back-up device, 134–135 Day planner, tracking goals, 42 Deadlines, 42, 43, 237 Debt, taking on too much, 112, 114
INDEX
Deliveries, accepting incoming, 217 Desks, 136 Desktop copy machine, 136 Destination businesses, 141 Diamond Financial, 116 Diet/weight loss, 85–86 Direct mail advertising, 242–243 Directories, 16–17 Disclosure document, 13 Distributors, 211 Doc & Associates, Ltd., 256 Doggy daycare, 312 Domino’s Pizza, LLC, 96, 287 Donut shop/baked goods, 279 Downtown retail area, 138 Drawbacks, listing your, 29 Dream, compared to a goal, 44 Drug tests, 182 Dunkin’ Donuts, 95, 97, 279–286
E Earning potential, 261 Earnings claims of franchisors, 33, 125, 290, 317 not provided by Merry Maids, 302 in the UFOC, 126, 273 eBay consignment shops, 72 eBay drop-off center, 306 Education, obtaining, 206–207 eFax, 135 Egress from a location, 145 eLance, 198, 234 Electronic press kit, 239 Employee manual, 184 Employee payroll, 108 Employees finding and retaining, 334–335 finding the best, 172–176, 284–285 firing poorly performing, 187–188 hiring, 182, 303 managing, 183–184, 296–297 passing knowledge on to, 164 paying extra to get the best, 328 recruiting and training, 291 retaining, 303 rewarding, 184–186 taking a risk in new, 26 Employment agencies, 173–174 English classes, 304 Entrepreneur magazine, 17, 66, 95–97
Entrepreneur magazine’s Franchise Zone, 62, 74 Equifax, 102, 103 Equity investment, SBA required, 114 Event planner, 248 Evergreen franchise agreements, 274 Exclusivity deal, negotiating, 139 Existing franchisees, 12, 295, 302. See also Franchisees Existing franchises. See also Franchise(s) promoting the sale of, 66 taking over, 65–67, 262–263, 286, 304–305 working at, 61 Exit strategy, 330 Expectations, 171 Expense categories, 107–110 Expenses of running a business, 328 Experian, 102, 103 Experts described, 192–194 finding and hiring, 204–205 franchising, 253–275, 277–318 needed, 263–264 shadowing, 206 types of, 194–204
F Failure rate of businesses, 40 Fair Isaac Corporation, 103 Family atmosphere, building, 297 Family members as support, 30 Family-oriented goals, 44 Fax, 134–135 Federal Trade Commission (FTC), 13, 124, 130 Fees, 139, 144–145, 147–149, 328 Field support, 159 Finances, 17–18, 101–117, 301–302 Financial advisor, 264 Financial capital. See Capital Financial goals, 44, 51–52, 57–58 Financial institutions, 112–113 Financial obligations, 303 Financial statements in the UFOC, 126 Financial steps of a franchisee, 272 Financing franchisees obtaining, 309 a new business, 315 options, 111, 290 sources of, 260
361
362
INDEX
Firing poorly performing employees, 187–188 Five Cs of credit, 104 Flora, Joy, 297–305 Folder Express, 239 Food franchise examples, 78, 92 401k plan, leveraging, 315 Franchise(s). See also Existing franchises choosing the best for you, 15 defined, 4 described, 5 differences from businesses, 12–14 failure rate of, 40 industries available in, 73–74 legal issues relating to, 119–130 misconceptions about, 9–12 number of, 15 opportunities, 16–17 promoting the sale of existing, 66 proven road map for, 4 Franchise 500 companies, 71–72, 95–97 Franchise Agreement controlling, 128 defined, 119 described, 4 in franchisor’s favor, 327, 333 as a legal document, 273 making sense of, 127–128 reading, 311 term obligations, 274 understanding, 120 Franchise attorney. See also Lawyers defined, 271 described, 120 enlisting the services of, 263 hiring a qualified, 292 interview with, 270–275 need for, 120–122 questions for, 122–124 utilizing the expertise of, 128–130 Franchise brokers, 61 Franchise Expo, 62, 71, 201, 207, 318 Franchise fee, 107 The Franchise Handbook, 16–17, 62, 74 Franchise Law Journal, 271 Franchise lending, 260 Franchise network, 329 Franchise opportunities allowing goals to be achieved, 59 defined, 5 evaluation considerations, 18–19 learning more about, 74–75
researching, 61–67, 74, 264–265 sampling of, 75–94 Franchise Opportunities Guide, 16–17, 74 Franchise system concept behind, 120–121 described, 154–155 following exactly, 163 knowing the history of, 286 negotiating with vendors, 212 not following, 303 operating within, 157 support structure of, 288 unique at 7-Eleven, 294 Franchise Times, 62, 97 Franchise Times Professional Services Directory, 143, 196–197, 201 Franchise Update magazine, 66 Franchise.com, 66 Franchisees. See also Existing franchisees advice directly from, 321–337 becoming an employee for, 8 business decision of becoming, 22 challenge for, 264, 285–286 choosing the best for you, 39–66 contacting existing, 12, 31–32, 127, 161, 163, 260–261, 271–272, 283, 292, 310–311 described, 5 drawbacks to becoming, 258–259, 288, 294–295, 301, 314, 335–336 expectations from franchisors, 274–275 financing options for, 111–116 getting involved with the IFA, 256–257 ideal characteristics, 259, 281, 288–289, 295–296, 299–300, 307, 314–315 identifying existing, 127, 272, 302 IFA achieving success, 257 interacting with other, 328–329 learning from other, 212 meetings of, 159 misconceptions about becoming, 259–260, 275, 283–284, 291, 329 mistakes by, 261–262, 268, 273–274, 284, 303, 311, 317–318, 324–325 personality profile of, 22–24 preparing for life as, 67–68 similarities of successful, 6–7 specific skills needed, 308–309
INDEX
success rate, 41 time commitment of, 318 traits to be successful, 22–30, 325–326 Franchising brief history of, 5 experts, 253–275, 277–318 misconceptions, 302, 310, 317 as a safety net, 301 trends in, 70–73 Franchisors ads for employees from, 176 advertising from, 243 approving vendors, 210 business plan from, 105 contacting for supplies, 136 defined, 4 earnings claims, 33, 125 evaluating products, 214 evaluating you, 24 expectations from, 36 expertise and experience of, 132 fees, 13 financing from, 111, 115–116 franchise system created by, 301 hurt by inconsistency, 211 limitations and controls, 37 ongoing training from, 158 positive reputation of, 225 pre-approved by the SBA, 309 as primary vendors, 213 recruiting employees, 174 relationship with franchisees, 5–6, 273–274, 316–317 restrictions imposed by, 288 revoking rights to operate, 123 rules and guidelines of, 211–213, 222, 258–259 secrets for success, 277–318 site requirements, 143 as sole suppliers of inventory, 125 specifying vendors, 212 staffing needs from, 170 support from, 335 training from, 153–158, 316 travel expenses to, 156 visiting, 159 warning franchisees, 263 Web site and newsletters, 160 FranChoice, Inc., 14 Freelance Work Exchange, 198
Freelancers, hiring, 205 Frequency of advertising, 240 FTC. See Federal Trade Commission FURminator, 79
G Gebbie Press’ Web site, 234 Get-rich-quick scenario, 9–10 Getz Color Graphics, 239 Goals categories of, 41 defining, 40–59 putting on paper, 45–59 setting for yourself, 330 setting realistic, 43 types of, 44 Grand opening expenses, 108 Grooming services, 79 Guaranteed success, 291 Guidelines, 13, 37 Gymboree Play Programs, 81–82
H Hair care industry, 91–92 Hands-on operator, starting off as, 262 Happy Tails Dog Spa, 82–83, 312–318 Hardware and tool store, 77 Help line, toll-free, 160 “Help wanted” ads, 175–176 “Help wanted” signage, 174 Hidden costs of site selection, 283 High schools, recruiting from, 172–173 Hofmeister, Joy, 322–331 Home equity line of credit (HELOC), 111 Home equity loan, 111, 309 Home improvement sales, 77 Home Instead Senior Care, 83–84 Home-based business, 133, 134–137 Home-cleaning industry, 88–89 Homework, doing, 162 Hours of operation, within malls, 139 Housecleaners, managing, 297 Housecleaning franchise opportunities, 299 Household-level data, 266 Human interest story, 238–239 Human resources (HR) professional, hiring, 199–200
363
364
INDEX
I IFA (International Franchise Association) attorney referrals from, 201 CFE program, 255 Chairman, 254–265 contacting, 130 database of vendors, 216 described, 4, 255 directory listing, 73 educational programs, 207 as an excellent resource, 292 finding experts, 14, 196, 198 Franchise Opportunities Guide, 16–17 online career center, 173 online training programs, 164 services of, 256 Vet*Fran program, 6 Web site, 216 Incentives. See Rewarding Inconsistency, hurting franchises, 211 Independent consulting companies, 14 Indoor malls. See Retail mall Industrial space, 316 Ingress to a location, 145 Insurance, 109 Interests, considering your, 59–60 International Franchise Expo. See Franchise Expo Internet, researching franchises on, 63 Internet connection, high-speed, 134 Interviews with franchising experts, 277–318 with job applicants, 177–182 In-theater ads, 243 Inventory costs associated with, 109 defined, 211 storing, 218 tracking, 217 of your skills and experiences, 28–29 Inventory management, 209–210, 212, 214, 217–218 Inventory management system, 210 Invoices, checking, 218 iSold It, 84–85, 305–311
J Jenny Craig, 85–86 Jiffy Lube International, Inc., 96, 97 Job applicants, interviewing, 177–182
Job applications, 176–177 Job descriptions, 171–172 Job fairs, recruiting from, 175 Job security, loss of, 26 Job titles, 171–172
K Kentucky Fried Chicken (KFC Corp.), 96, 97 Kid-oriented services, 73 Kids’ specialty services, 71 Kilkelly, Tom, 331–337 Killion, William, 122, 270–275 Knowledge, passing on, 164 Kumon Math & Reading Centers, 86–87, 96, 322–331
L LADs (large area developers), 280 Landlord, dealing with, 269–270, 309 Lawn Doctor, 87–88 Lawn, garden, and agricultural, 87–88 Lawyers, 14, 200–201. See also Franchise attorney Leader, being, 305 Leadership, providing, 34 The Learning Annex, 35 Learning opportunities, 161–164 Leasable versus leased, 148 Lease described, 107 negotiating, 147–149 signing, 129, 336 sublease clause in, 332–333 Lease rate, negotiating, 270 Leasehold improvements, 109 Leasing company, borrowing from, 309 Legal and accounting costs, 109 Legal documents, 273 Legal entity, 128 Legal implications, 119 Legal matters, 128–130 Licenses, 109 Licensing fees, 107 Limitations by franchisors, 37 Line of credit, 216 Litigation, described in the UFOC, 273 Living expenses, 108 Loan Package Checklist, SBA’s, 115
INDEX
Loan proposal, 114 Lobbying by the IFA, 256 Local advertising, 329, 334, 336 Local demand for products/services, 225 Local marketing, 109, 291 Local TV stations, advertising on, 242 Location(s) choosing, 131–150, 265, 267, 291–292 of franchise-based businesses, 308 ideal, 268–269 importance of, 10–11 training at your, 159 types of, 132–141 Logos, 224, 245 Long-term financial goals, 57–58 Long-term goal, 42 Long-term personal goals, 53–54 Long-term professional goals, 55–56
M Maids and personal services, 88–89 Mail Boxes, Etc. See The UPS Store Mailing and shipping, 287 Maintenance fees, 144 Mall, tenant in a new, 336 Management, experts in, 201–203 Managerial responsibilities, 29 Managerial skills, developing, 183 Managers, hiring, 202–203 Managing employees, 183–184 Market exclusivity, 327 Marketing budget, 225 campaign, 227–228 defined, 222 described, 231–233 examples of, 231–233 expenses, 107 locally, 221–248 message, 230 offered by franchisors, 311 overall plan for, 226–227 your business, 11 Marketing specialist, hiring, 197–198 MarketWire, 235 Master Franchise, 14 Mathis, Stuart, 287–292 MBE: Minority Business Entrepreneur magazine, 116 McDonald’s, 5, 96, 97
McKee, Lynette, 279–286 Media, 223, 230, 234 Media list, compiling, 234–236 Meetings for employees, 183 Merchandising assistance, 215 Merchants association dues, 144, 149 Merry Maids, 88–89, 297–305 Midas, 89–90 Mini-goals, 42 Misconceptions about becoming a franchisee, 259–260, 291 about franchises, 9–12 about franchising, 302, 310, 317 of new franchisees, 329 Money, risking your, 26 Monster Board, 173 Movie theaters, advertising in, 243 Multi-level marketing operation, 4 Multi-unit franchisees, 13–14, 281 Multi-unit operators, 280 MyBiz For Women Web site, 115
N National Association of Realtors, 143 National Business Exchange, 66 National Society of Accountants, 196 Negative reputation, 247 Network of franchisees, 161 Networking, 159, 175, 329 News style, writing in, 237 Newsletter of the franchisor, 160 Newspapers, 175–176, 241 Nichols, Amy, 312–318 Nightingale Conant, 35 Non-traditional sites, 137–138
O Obligations, understanding, 122 Office expenses, 109 Office supplies, 136 Office, traditional, 140 Ongoing franchise fees, 107 Ongoing training, 158 Online auction consignment, 84–85 Online Web site advertising, 243 Online Women’s Business Center, 115 On-location training, 159 Open-ended questions, 179 Opening-day events, 248
365
366
INDEX
Operating procedures, 13 Operations manual, 25, 155, 314 Orders, tracking, 218 Outdoor advertising, 242
P Package preparation/shipment/mail, 94 Paid advertising, options for, 222 Painting services, 80 Parking, 145–146 Partner, goals of your, 46 Partnership, setting up, 128 Payroll, outsourcing, 324 Payroll taxes, 315 PDAs (personal digital assistants), 42 Penciling a deal, 272 Percentage rent, 148–149 Perfect fit, ensuring, 40 Permits, 109 Personal financial statements, 114 Personal goals, 44, 47–48, 53–54 Personal living expenses, 317 Personality, capitalizing on, 59–60 Personality profile, 22–24 Personality traits, 29 Pet services, 79, 82–83 Pet-based businesses, 72–73 Pet-related opportunities, 312 Phone book listings, 242 Pizza Hut, Inc., 96, 97 Plan-o-gram, 215 Population density of target customers, 142 PR (public relations) campaign, 197 compared to advertising, 240 consultants, 198, 234 defined, 223 described, 233–239 expenses, 109 firm, 234 services by franchisors, 311 specialist, hiring, 197–198 PR Newswire, 235 PR Place, 235, 236 Press Flash, 234 Press kit, 239 Press release distribution services, 235 Press releases, 234–239 Printer for a home-based business, 134–135
Pro forma (financial projection), 272, 275 Problem areas, your, 29 Product(s) defined, 210 display guidelines, 215 displaying and pricing, 218 making identical, 211 promoting in press releases, 236 Productivity, increasing, 185 Professional(s) business help from, 191–207 guidance of, 27 Professional goals, 44, 49–50, 55–56 Professional Services Directory, 62 Professional trade associations, 176 Profitability, achieving, 10 Profits, 106, 330 Psychographics, 266 Public relations. See PR Publications, researching in, 63 Purpose of a goal, 43 Pyramid schemes, 4
Q Questions asking lots of, 162 asking open-ended, 179 before committing, 63–64 for existing franchisees, 261 for a franchise attorney, 122–124 sample interview, 180–181 QuickBooks Premiere Edition, 117
R Radio, advertising on, 241 Real estate needs, 142–144 Real estate services, 90–91 Real estate taxes, 144, 148 Realtor, working with, 143 Recording training sessions, 154 Regional magazines, advertising in, 241 Rejection, dealing with, 203 Re/Max International, 90–91, 96 Repeat business, 142, 245–246 Repetition in advertising, 240 Reputation, capitalizing on, 224 Required purchases, 107 Research, 31–32, 61–67 Residential cleaning industry, 297
INDEX
Responsibilities. See Business responsibilities Résumé for your business, 105 Retail location, stand-alone, 140 Retail mall, 138–139 Retail shopping center, 139–140 Revenues, projecting, 284 Reverse sales process, 290 Rewarding employees, 184–186 Ricky’s Candy, Cones & Chaos, 331–337 Risks, 21, 25–27 Royalties, 107
S Sacrifices, willingness to make, 23 Salaries, setting, 186–187 Salary, loss of a guaranteed, 26 Salary.com Web site, 186 Sales professional, hiring, 203–204 Sales team, 203 Salespeople, 203 Satellite TV, advertising on, 242 SBA. See Small Business Administration Scheduling program, 42 Schenck, Jeff, 293–297 Security at a location, 146 Senior care, franchise example, 83–84 Service-based business, 298 ServiceMaster, 89, 96, 298 Services, making identical, 211 Serving the people you lead, 305 7-Eleven, Inc., 75–77, 96, 97, 293–297 Shadowing experts, 206 Short-term financial goals, 51–52 Short-term goal, 42 Short-term personal goals, 47–48 Short-term professional goals, 49–50 Signage, 109, 146 Single-unit business opportunities, 13 Single-unit operators, 281 Site approval by franchisors, 37 Site requirements of franchisors, 143 Site selection, 269, 281–283, 307–308, 316 Site selection company, 143 Size of a location, 146 Skills capitalizing on your, 59–60 core set, 7–8, 289 managerial, 183 to run a franchise, 29–30, 308–309
of working-age children, 30 of your spouse, 30 Slifer, Don, 297–305 Small Business Administration (SBA) collateral required for loans, 315 financing from, 113–115 guidance from, 41 lenders, 290 loan application process, 113–114 loan programs, 260 loans, 309 Web site, 115 Small business loan, 111 Snip-Its, 91–92 Soft costs in site selection, 283 Software, 134, 136, 299 Sole-proprietorship, setting up, 128 Spouse, 30, 46 Staffing, 170–171, 187 Stand-alone retail location, 140 Startup costs, 107–108 State attorney general’s office, 75 State’s bar association, 201 Store in a box crew for iSold It, 308 Strengths, capitalizing on your, 59–60 Strip center or mall. See Retail shopping center Sub-franchise right to, 14 Sublease clause in a lease, 332–333 Subway Sandwich Shops, 92, 95, 97 Success, not guaranteed, 11–12, 259–260 Sully, Ken, 305–311 Suppliers, 129, 209–218 Supplies, 210 Support system, 4, 22–23 Support team, family members as, 30
T Target audience, 228–229, 229–231, 269 Target customers, analyzing, 141–142 Tax returns, 196 Taxes, 110 Teams, sponsoring local, 233 Teamwork, experiences with, 29 Telephone for a home-based business, 135–136 Tenant mix, 146 Term in the Franchise Agreement, 274 Time commitment, 289, 301, 310–311, 318 Toll-free help line, 160
367
368
INDEX
Tracking inventory, 217 orders, 218 Trade (vocational) schools, 172–173 Traditional office, 140 Traffic, 145, 146, 282 Trainer, hiring a professional, 204 Training basics of, 153–155 comprehensiveness of, 157–158 costs, 107, 160 forms of, 161–162 from the franchisor, 155–161, 316 from the IFA, 164 obtaining additional, 206–207 offered by Merry Maids, 299 travel expenses for, 110 at your location, 159 Training center, 156, 159 Transfer fee, 65 TransUnion, 102, 103 Travel expenses, 156 Trends, following, 70–71 TrueCredit online service, 103 Trustworthy employees, hiring, 182 Turnkey business, 294 Turnkey solution, 15 Turnover in franchises, 274 Tutoring centers, 86–87 TV, advertising on, 242
U UFOC (Uniform Franchising Offering Circular), 62–63 described, 261 earnings claims in, 126, 272 financial statements in, 126 identifying existing franchisees, 272, 302 as an important tool, 272–273 as a legal document, 121, 273 possession of, 123 reading, 290, 311 restrictions soliciting products and services, 213 reviewing, 274 understanding, 124–127, 286, 290
United States Postal Service, 242–243 The UPS Store, 94, 95, 97, 287–292 U.S. Department of Veterans Affairs, 6 USA Today newspaper, 66 Utilities, 110, 149
V Vanilla shell for locations, 308. See also White box Velocity Cinema Advertising, 243 Vendor database from IFA, 216 Vendors approved by franchisors, 210 contracts with, 129 defined, 211 establishing credit with, 216–217 selecting, 213–216 working with, 209–218 Venture capital, 111, 260 Vet*Fran (Veterans Transition Franchise Initiative), 6, 94, 116 Veterans, 6, 116 Veterans Business Development Web site, 116 Viable opportunity, 257–258 Visibility of a location, 145
W Warehouse facilities, 141 Web sites, 160, 173, 243, 255 White box, 149. See also Vanilla shell Wholesale purchasing, 198 Wholesalers, 129, 211 Woman-owned businesses, 115 Work environment, 304, 325–326 Working capital, 110 Working-age children, skills of, 30
Y Yahoo! Hot Jobs, 173 Yellow Pages directories, 242
Z Zoning of a location, 146
