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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GETTING READY FOR OPENING DAY
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?
CHAPTER 9
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HIRING AND MANAGING YOUR EMPLOYEES
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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
