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My Perfect Franchise Franchising USAâ&#x20AC;&#x2122;s Expert Guide to Finding Your Perfect Franchise
The magazine for franchisees
www.franchisingusamagazne.com With special thanks to all our contributing writers: bob McDevitt.........................................................................4
i n t r o d u c t i o n to
My Perfect Franchise
David banfield.......................................................................6 rick coffey ..............................................................................8 george knauf .....................................................10 & 32 Julie lusthaus ....................................................................12 Mackenzine Dimitri .........................................................12 robert bilotti.........................................................................14 Jason power ..........................................................17 & 27 richard lieberman .........................................................19 Jeff grandfield ....................................................................21 Dale Willerton ......................................................................21 kyle Zagrodzky ...................................................................23 Dan Martin .............................................................................25 christopher conner ........................................................29
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One of the most rewarding professional partnerships I have had in recent years has been with the team at Franchising USA. In their magazine you can dive in to learn about specific brands or get high value expert advice that applies to almost any franchise you could consider. You may have seen the links to subscribe to their newsletter and electronic publication in this document and I would highly recommend doing so. I have personally found the expert advice in Franchising USA to be informative and very capable, even referring a number of my franchise candidates to articles written by other experts in the magazine. Some time back I approached them with the idea of compiling a selection of this great expert content into an eBook that people could download or read online and gain access to some of the most important advice available on finding, starting and operating their perfect franchise. The result is this document. Starting a franchise and pursuing your dreams can be more logical and clear cut than many people imagine. If you look at the right companies for your skill set, working preferences and goals then the process can be very exciting and result in a franchise where you establish your own independence as well as control over your income and quality of life. As you read through this content, if you have any questions feel free to reach out directly to me or any of the other contributors. I am sure I speak for all of them when I say we have a passion for helping people pursue their dreams. Just imagine!
SUPPLIER FORUM International Franchise Association 1501 K Street, N.W., Suite 350 Washington, D.C. 20005 Phone: (202) 628-8000 Fax: (202) 628-0812 www.franchise.org
George Knauf Franchise Consultant
What lies behind us, and what lies before us are but tiny matters campared to what lies within us.â&#x20AC;? - Ralph Waldo Emerson
The information and contents in this publication are believed by the publisher to be true, correct and accurate but no independent investigation has been undertaken. Accordingly the publisher does not represent or warrant that the information and contents are true, correct or accurate and recommends that each reader seek appropriate professional advice, guidance and direction before acting or relying on all information contained herein. Opinions expressed in the articles contained in this publication are not necessarily those of the publisher. The publication is sold subject to the terms and conditions that it shall not be copied in whole or part, resold, hired out, without the express permission of the publisher.
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Bob McDevitt, Senior Vice President of Franchise Development, Golden Corral
to Successful Franchising Franchising has proven to be an incredibly successful business model, giving millions of Americans the ability to operate their own business. There are currently more than 780,000 franchise establishments in the United States, providing more than 9 million jobs for people across the country. The franchising business continues to grow with a projection of $521 billion GDP in 2015, which would be an increase from $496 billion generated in 2014. Franchises come in all shapes and sizes, from restaurants, lodging, automotive and retail products, to business and personal services. So how are some of the top franchises successful? There is no one-size-fitsall philosophy. What works well for a particular franchise may not for another one in a different industry. But there are some traits many franchises share that establish a solid foundation and continue to keep brands successful and relevant over the years. Franchises often have a blueprint for their
franchisees to follow and programs to help in their development. At Golden Corral, we have many systems in place to try to ensure a new location will be successful from the moment it opens its doors. These include a detailed site selection process, training programs, recruiting tools and operation manuals. For more than 30 years, we also have used a personality profile assessment that draws a clear correlation between certain score levels and more successful hires and lower turnover rates. Many franchises have similar support systems in place to give their franchisees everything they need to be successful from the outset. Every franchise should have a great core product or service that consistently drives business to their organization. The most successful franchises, however, know the best ways to respond to consumer interests and how to reinvent themselves over time. One of the franchisor’s greatest responsibilities is to keep the product fresh and desirable for their customers. This is where the company’s creativity and flexibility is tested. They can’t fall into the trap of thinking “we have never done that before” or “it’s too complicated” to sabotage fantastic new ideas before they even get off the ground. Implementing new ideas will not only drive additional business to your franchise but energize and motivate franchisees and employees throughout the system. New concepts can be created through research and development, focus groups and partnerships with industry experts. They can also be found in constant observation of the market and the fundamental ability to recognize good ideas. Golden Corral has implemented new concepts through a number of outsidethe-box approaches over the years. The pot roast recipe we use was given to our
executives by an owner of an independent restaurant in Nebraska. Several years ago, our current CEO Lance Trenary passed by an Asian buffet in Indianapolis with a line out the door. He did a U-turn and saw people lined up with a strawberry on a stick to dip it in a chocolate fountain. He brought the concept to Golden Corral, and the “Chocolate Wonderfall” is now one of our signature offerings. Just like keeping an eye out for good ideas, good franchisors will listen to their franchisees to get their feedback, suggestions and thoughts on what will improve business. There is the saying that “if two people in business agree on everything, one of them is unnecessary.” Franchisees can challenge management, let them know what the customer is thinking and offer recommendations from their perspective. Franchisees can make companies better if leaders are willing to let them participate in key decisions. While franchises need to develop new and fresh concepts over time, they also have to consistently update company infrastructure. In the restaurant industry, a tired and outdated facility is a competitive disadvantage. Golden Corral requires facility updates every seven years, and we often see a considerable increase in business after a remodel. Similarly, franchises in other industries often upgrade display rooms, equipment and products to increase efficiency and give an entirely new appearance and perception of the operation. These changes are seen by the consumer and help position the franchise as staying up to date in the changing marketplace. Franchises work hard to incorporate all the methods listed above and more into their business to keep it successful. So
There are a number of different methods franchises take to ensure their businesses thrive and grow. While their approaches may vary, many of the top franchises use the practices listed above to create a consistently successful brand. Bob McDevitt is Senior Vice President of Franchise Development at Golden Corral, the nation’s largest grill-buffet chain. He has spent more than 40 years in marketing and operations with top restaurant brands such as Pizza Hut, Tony Roma’s, Arby’s and Golden Corral. McDevitt joined Golden Corral as Chief Marketing Officer in 1994, responsible for marketing, food and beverage, purchasing and distribution. In 2004, he was promoted to Senior Vice President of franchising, overseeing franchise operations, franchise sales and quality assurance. McDevitt is a Certified Franchise Executive (CFE) and currently serves on the International Franchise Association Board of Directors. www.goldencorral.com
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“Implementing new ideas will not only drive additional business to your franchise but energize and motivate franchisees and employees throughout the system.”
what else to they have to do? Tell people about it. There are many businesses out there, and customers have increasingly more options to spend their dollars. Franchises must effectively market their business and communicate directly to potential customers. They should tout their own success and tell people why they are the best. Advertising is a major factor in promoting the value of a franchise.
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David Banfield, President, The Interface Financial Group
Buy now or Buy later If you are thinking about buying a specific franchise, or rather seeking a franchise award - is this a good time to proceed?
There are probably many different aspects that we could examine to make a determination but the fact that we are talking about a franchise, the results will probably err on the side of â&#x20AC;&#x2DC;buy nowâ&#x20AC;&#x2122;. What makes a franchise different from buying a new car? We could easily put such a purchase off perhaps until the
new models arrive, and we get a slightly different choice. In buying a car, whether we buy this year or wait a year, the reality is that it is still a car and the very basic features will not change to any great degree. The same argument might easily be applied to most franchise models. They
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“There are probably many different aspects that we could examine to make a determination but the fact that we are talking about a franchise, the results will probably err on the side of ‘buy now’.” are unlikely to change much from year to year. In fact the lack of significant change is often one of the ‘selling’ features of a franchise. What we have to remember about a franchise, however, is the fact that the majority of franchise models are geared to a specific territory and once that is awarded, then it is gone! If you are looking at a franchise in a specific location, then there are no guarantees it will be available at a future time. The car you are buying will certainly be available in one shape or color in the future. Buying a car now or later may also be influenced by your finances and the economic circumstances prevailing at the time. If you can’t afford the car, then putting off the purchase is probably the only avenue open to you. Taking a major step, such as entering the world of selfemployment and entrepreneurship, is much more likely to have considerable time and planning already invested in it. Because a franchise is usually a ‘tried and tested’ method of business ownership, it is less likely to be prone to ups and downs in the economy. Franchises are often organized so that they can weather the economic storms that come along from time to time. This situation is usually predicated on the fact that franchises are not spur-of-the-moment ventures, but longterm enterprises that represent a career path for many people. Therefore, it is reasonable to assume that people looking at a franchise award will have already invested time and effort into investigation. Pursuing a franchise award is not like buying a product ‘off of the shelf’ or from
the showroom. There needs to be much more research into the specific venture. That research and the walk through the discovery process can often be a process that takes weeks or even months. It is also a serious process that needs to be pursued in a business-like manner. This all translates into ‘once you get started keep going to the finish line’. The finish may not always be what you are expecting but at least you have to travel to that point. From a timing point of view, location or territory can be a major factor in the decision making process. It should, however, be mentioned that not every franchise has a territorial structure. There exists in the franchise marketplace a number of ventures that are classified as non-territorial. The time pressure, therefore, may not be so great with a non-territorial brand. However one should also investigate them equally as closely as, while they may not be geared to a geographical territory, there may well be other aspects that are exclusive to a franchisee and as such a time element may be involved in the decision-making process. In looking at a time line for seeking a franchise award it is always advisable to look at the entire process, from basic investigation right through to the time when the business is actually open for business and the cash flow starts. It is important to look at this aspect, as in many franchise models the entire investigation to opening the process may well run into many months. This will be especially true with ‘bricks and
mortar’ franchises where there may be a construction process to follow or, at best, a re-fitting of some existing premises. There may also be the need to hire employees and to build a suitable training program for them. There may be a need to purchase speck equipment that needs to be custom manufactured. There are many different aspects that need to be factored into the time line. Naturally once a franchise has been awarded the franchisor will also be greatly involved in all of these ‘getting started’ areas, however they usually have to follow a pre-set time line. Therefore, if you are a person that likes to investigate, make a decision and get started in the franchise world, sooner is surely better than later. David Banfield is President of The Interface Financial Group, a position that he has held for over 20 years. He has been instrumental in starting Interface as a franchise opportunity and building it to its current international status. Prior to his involvement with Interface, he worked extensively in the banking, credit and factoring financial service areas. For more information visit: www.interfacefinancial.com
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Rick Coffey, Founder & Owner, Barkefellers
The Biggest Benefit Of Being a Franchisee?
Avoiding Mistakes When you think of high-risk ventures, images of skydiving or Wall Street trading floors may come to mind, but starting a new business probably does not. However, one-third of new business ventures close within two years, and half within five years. There are a number of factors that contribute to this steep rate of failure. Entrepreneurs may have passion and expertise, but lack the economic or marketing know-how to gauge
whether there is demand for their business. Or they may hew so closely to their initial vision that they do not listen as closely as they should to their customers. Sometimes it just boils down to poor budgeting and accounting. One of the biggest benefits of being a franchisee is avoiding all of the mistakes that the original entrepreneur, and independent entrepreneurs everywhere, commonly make.
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Rick Coffey, Founder & Owner, Barkefellers
“One of the biggest benefits of being a franchisee is avoiding all of the mistakes that the original entrepreneur, and independent entrepreneurs everywhere, commonly make.” To start, running a franchise enables you to inherit a business that has already proved market demand. Many independent entrepreneurs just can’t get over the “product-market fit” hurdle. They may open up a boutique clothing store only to find that their potential customers prefer to shop online, or open a pan-Asian restaurant whose concept falls flat with the community. With a franchise, consumers have already demonstrated their interest and approval in whatever the product or service is. The original entrepreneur already took the time to create and refine a formula that works. In addition to the idea itself, franchisees also inherit infrastructure. The company’s founders spent the time and money to establish well-functioning systems in the early days. For example, when I started Barkefellers, I spent a lot of money hiring consultants to put systems in place and learn a number of operational tasks. As a result, all my franchisees don’t have to go through that arduous and expensive process, they simply go through training. This principle extends beyond operations. Across the board, franchisees are able to learn from someone who has already faced challenges and walked away with the lessons learned, instead of having to face all the challenges themselves. They won’t stumble by buying the wrong equipment or failing to comply with regulations or implementing a flawed onboarding process. The biggest challenge that I faced building Barkefellers has always been exposure and getting customers in the door. However, now that the company has built a strong brand and reputation, and now that we have three prime locations, the barriers are
not so high. This makes life easier for both the franchisee, and the franchisor. On the franchisor end, there are many benefits as well. The opportunity to see a business you built grow and extend beyond your immediate reach is unique and thrilling. The business becomes bigger than you and the potential seems endless. Of course along with this growth comes financial success and the satisfaction of seeing your imprint made on the world. A franchise network also enables you to offer a better experience for your customers. Or in the case of Barkefellers, for pets and their owners, not only can they access more locations, but the locations themselves are well-resourced, wellstaffed, and have a weight of experience behind them to ensure all pets are well taken care of. These benefits all put the franchisor, as a successful local business owner, with many chances to give back to the community. Each year, Barkefellers hosts an annual holiday donation drive for local Indianapolis rescue groups and shelters. Additionally, we sponsor the Indy Mutt Strut, which is the Humane Society of Indianapolis’ biggest annual fundraising event. Ultimately, my only regret about building Barkefellers is that I did not do it sooner. I was 60 years old when I entered the business, following 35 years of experience with an industrial cleaning company I built with my father. Every business, and even every franchise, is unique; and every entrepreneur, whether they are the first or the hundredth franchise owner, has an opportunity to leave their mark. The main difference is franchisees get to skip over the difficult, stressful, uncertain early
days, avoid critical mistakes, and cut right to the good stuff -- running a successful business. Rick Coffey, Founder and Owner of Barkefellers, is a successful entrepreneur with over 35 years of demonstrated achievement in Sales, Sales Management and Business Development. Prior to founding Barkefellers, Rick was a teacher/coach at New Harmony High School. Rick later served as Vice President/Owner of Action Equipment Sales, Inc. - a commercial cleaning equipment sales organization which he co-founded with his father in 1975 and operated along with his brothers until starting Barkefellers in 2009. Rick is a graduate of University of Evansville and a proud member of their 1971 National Championship Men’s Basketball Team and was elected to University of Evansville Hall of Fame. He is the father of 4 children, Amanda, Kyle, Jordan, and Krista. Jordan and Krista serve as Vice Presidents at all Barkefellers locations. Rick is married to Christi Coffey, who serves as the interior decorator for Barkefellers Corporate stores and is a Multi-Million Dollar Producer for the Tucker Real Estate company. www.barkefellers.com
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George Knauf, Senior Franchise Business Advisor, FranChoice
5 Steps to Choosing a Understand the Potential Owner (you) Sort the Market and Avoid Potential Fads Compare Your Model to the Top Concepts Build Your Financial Plan Complete a Full Investigation of the Top Two Choices The difference between success and failure typically begins with the quality of the questions you ask and the decisions you make.
what the franchise concept appears to be on the surface.
Picking the best franchise for you to buy
One out of every twelve businesses is a franchised business, and the total sales by those franchises are projected to reach over two trillion dollars this year. It is a very large playing field.
often comes down to following a process that has been proven to surface differences between what you are trying to achieve and the skills you bring to the table from
Why is a good process important to success? There are over 3,000 franchises available in roughly 75 categories. A new franchised business is opened every eight minutes of every business day.
So here is a simplified version of a process I have used for years:
Step One: It may sound obvious but, as I advise candidates looking for franchises, we begin with the most clearly definable part of the equation for the candidates search, the candidate themselves. We construct their model; a definition of skills, strengths, likes/dislikes, goals, and how they want to approach the operation of the business. This model gives us a starting point to compare all possible matching companies to. Whether a first time owner operator candidate or the most seasoned investment fund or restaurant group CEO, everyone goes through this step. Whether you build your model yourself or with an advisor, you will want to be very open in what you allow to be put into it for consideration. You are looking for the clearest possible definition of what you bring to the table and how you want to work. In the most basic version of a model factor in your sales acumen/ interest, management style, accounting and financial experience, marketing skills, networking style, community connections, days and hours you want to work the business, full time or absentee ownership, etc. Write this all down where you can reference it. You can even format it like a checklist. If a franchise does not fit your model then it does not fit you.
Step Two: As you look at the overall franchise landscape you will see companies ranging from outstanding business systems to those that are challenged. Well before you try to pick the product or service you want to sell, identify the top operators. There is a reason they are successful. Now, by top operators I donâ&#x20AC;&#x2122;t necessarily
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a Great Franchise mean the brands that have sold the most units. Their franchise sales acumen does not directly relate to your success. You are looking for those companies that have a strong ability to build a brand locally, a proven executive team, top tier training and support, as well as the other resources you will need to get up and running to operate the business. You can only sort for these things by taking the time to investigate companies, or relying on the advice of someone that has already done extensive company investigations and sorting. The quality of a franchise system can often be measured by the satisfaction, stability and success of the existing franchisees.
We all get excited with new concepts, especially food related brands. Remember, though, you will be signing a long term agreement so you need a concept that can operate for many years, not just the next few. There are very identifiable trends in many sectors of the restaurant business, if you are not familiar with them spend time with someone who is to see if your favorite food concept is one that falls into the fad category or not. Look for long-term performers.
Step Three: Once you have identified those top concepts it is time to compare your model to their top franchisees. Do you have a similar skill set, background, and work practices as their top operators? Would you feel the need to reinvent the system after buying it? As you compare your model to the concept you should feel comfortable that you are a fit and that, generally, the system is one that makes sense to you before you buy and may make even more sense after training and some time operating the concept.
“The quality of a franchise system can often be measured by the satisfaction, stability and success of the existing franchisees.” Step Four: I’m not just talking about “Can franchisees make money with this concept?” but also make sure that the projected costs make sense in general (are not under or over projected), and that your funding plan is solid given those projected costs. Depending on the concept you are looking at and where you are located you may find that you can begin working on this financial planning before you have selected a brand to buy. My preference is often to double the franchisor’s minimums (cash and net worth requirements) when planning an acquisition to make sure the franchise buyer will have comfort making the proper investment. You will want to have comfortable plan in place that will not require going back for more money if you run a little over your projections.
Step Five: Don’t skip steps in your, or the franchisor’s, process here. It is a mutual investigation, an exchange of information where the end result may be that you are offered a franchise and then you make the call whether or not to move forward. They have a file of information they will want to convey to you, take advantage of that and any other insights they can provide. Bring your notes and questions to calls and meetings so that you can engage them as well. Once the investigations are completed then your opportunity comes to make a sound decision.
Conclusion: A well done franchise investigation can be a rewarding, informative and confidence building process to go through. Follow the steps and go build your empire! Mr. Knauf is a highly sought after trusted advisor to many companies; Public, Independent and Franchised of all sizes and in many markets. His 20 plus years of experience in both startup and mature business operations makes him uniquely qualified to advise individuals that have dreamed of going into business for themselves in order to gain more control, independence, time flexibility and to be able to earn in proportion to their real contribution. For more information: Website: www.franguide.com/
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Julie Lusthaus & Mackenzie Dimitri, Einbinder & Dunn, LLP
HOW MUCH MONEY WILL I MAKE FROM MY FRANCHISE? As any new franchisee can tell you, the decision to invest in a franchise involves a great deal of research. This research includes finding the right industry, identifying the right franchise system, considering the proposed market, and determining the financial viability of the business. It’s a big decision. For many prospective franchisees, the ultimate choice to invest understandably turns on the expected financial return. It is therefore no surprise that prospective franchisees want franchisors to tell them how much money they can expect to make from the operation of their franchise. But franchisors cannot tell them how much revenue their franchises can generate. There is simply no way for franchisors to predict how a particular franchisee will fair in the market. Moreover, if not done correctly, disclosing information about the actual or potential financial performance of franchised and/or franchisor-owned outlets can cause a host of problems for franchisors.
Franchisors are generally required by the Federal Trade Commission’s Franchise Rule (“FTC Rule”) and various state regulations to provide prospective franchisees with a franchise disclosure document (“FDD”). The FDD is intended to provide the franchisee with certain specific information about the offering, the franchisor and the franchise system. The FDD must also contain certain exhibits including the agreements that the franchisee may be required to sign. The information contained in the FDD is organized into 23 Items of information. Item 19 is entitled “Financial Performance Representations.” Essentially, if the franchisor wants to provide information about the financial performance of the system (“FPRs”), it must have a reasonable
basis for the information and the FPRs must be contained in the FDD. Notwithstanding the opportunity for franchisors to provide certain FPRs, many choose not to. Franchisors make this decision for a variety of reasons. For example, some franchisors may fear that data collected from independent franchisees is inaccurate or inconsistent. Franchisors may also want to avoid disclosing financial information to their competitors. Some franchisors may avoid disclosing information that shows a poor or mixed financial outlook, particularly when the financial health of the franchise
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“It is important to remember that many factors may come into play in a franchisee’s success or failure.” system appears drastically affected by a few poorly-performing franchisees. Unfortunately, the omission of this information can impact the ability of prospective franchisees to gain an understanding of the revenues that can be generated from ownership of the franchise and to assess the financial health of the system. So, where can franchisees turn to learn about the potential viability of the franchise and the health of the system?
1. Look to Other Franchisees A very important Item in the FDD is Item 20 in which franchisors must provide contact information for current and former franchisees. This information is required so that prospective franchisees can learn about the franchisor, the system and franchised units. Existing franchisees are permitted (although not required) to discuss with prospective franchisees, their business, their experience as a franchisee, and their perspective on the franchise system as a whole. This type of information may include information relating to actual costs to develop and operate the unit as well as information about revenue earned such as information about which products and services generate greater profit and why. All of this information can be used by the prospect to anticipate costs and project possible revenue. Prospective franchisees will want to take full advantage of this opportunity and communicate with as many current (and former) franchisees as possible. However, it is important to remember that many factors may come into play in a franchisee’s success or failure. For instance, a newly opened unit may not initially achieve the same success as
one that has successfully operated for several years. Also, franchisees that operate in big cities may not provide a realistic outlook for franchisees looking to invest in smaller markets. While information provided by existing and former franchisees can be hugely helpful in ascertaining projected costs and revenue, prospective franchisees should remember to keep a realistic perspective when interpreting the information existing franchisees may give them.
2. The Franchisor’s Financial Statements Attached to the FDD as an exhibit will be the franchisor’s financial statements. The FTC Rule requires franchisors to provide independently audited financial statements for the preceding three years. This information can give prospective franchisees an idea of how financially healthy the franchise system is as a whole. Financial statements which show lack of capital, lack of liquid assets, a negative current ratio (meaning current liabilities which surpass the franchisor’s current assets), and poor growth should raise a red flag. It is also crucially important to evaluate where the franchisor’s revenue is actually coming from – franchisors who rake in revenue from the sale of required products or services to their franchisees may be simply profiting at their franchisees’ expense. However, evidence that the franchisor’s revenue is largely derived from receipt of franchisee royalties, may indicate a healthier franchise system.
3. Develop a Business Plan Franchisees should conduct sufficient due diligence and obtain adequate professional guidance from
accountants, financial planners, attorneys, etc. so that they can develop their own business plan. An experienced accountant, business consultant or attorney familiar with franchise law should be able to help. Attorney Julie Lusthaus is a partner in the firm of Einbinder & Dunn, LLP. She focuses her practice in the area of franchise law, serving as counsel to both franchisors as well as franchisees. She can be reached by phone at 212-391-9500 or 914-705-5417 and via email at jcl@ ed-lawfirm.com. Mackenzie Dimitri is an associate attorney practicing franchise law and related litigation on behalf of franchisors and franchisees at Einbinder & Dunn, LLP in New York City. For more information: Website: www.ed-lawfirm.com/
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Robert Bilotti, Managing Director of Novita Training
uestion a Potential Franchisee Should Ask About Training
There are many critical conversations a potential franchisee should have with the franchisor prior to finalizing any agreement. The topic of training should be one of them. But what should a franchisee ask?
As many will tell you, to truly discover the efficacy of the training provided you must speak with the franchisor but also current franchisees. I’ve divided the questions about training into the following categories: • Questions about the format of the training. • Questions about ongoing training. • Questions about the content of the training. • Questions to ask current and/or past franchisees.
Questions About the Format of the Training If you’ve ever sat through several days of training and walked out feeling overwhelmed and retaining very little, you can understand why the format of training is so important. Training conducted all-at-once at the
• What is the cost of the initial training?
corporate headquarters is often the easiest method for the franchisor but not always the most effective for the franchisee. As for the format of the materials, there is no correlation between effectiveness and the weight of the binder! So bigger isn’t always better. As someone said, it’s easy to make things complex, and difficult to simplify them. You may and should find details about the format of the training in the F.D.D. However, particularly with smaller franchisors, what’s in the F.D.D. is sometimes what the franchisor would like the training to be ideally, not exactly what exists in reality. • First and foremost, the delivery method. This is especially important if you are far removed from headquarters. What methods does the franchisor employ? Such as: o In-person o Video o Webinar (‘live’ online – also called ‘synchronous’) o eLearning (‘self-paced’ online – also called ‘asynchronous’) o Coaching / On-the-Job training • How is the in-person training conducted? Such as: o Length of time o Location (at company headquarters? regionally? At your location?)
• Who should and could participate (owners, unit managers, staff, etc)? Is there an additional cost for additional people? • What materials will be provided as reference (videos, manuals, quick reference guides, etc)? P.S. Beware if the materials are simply PowerPoint slides from the class. • Who provides the training and what is their background/experience? Has he/ she ever run this type of business? • Is there any assessment or a pass/fail threshold? What happens if I fail? P.S. You should want the organization to have high standards. • Is there anything that should be done in preparation for the initial training? • How has the training program evolved / improved since the concept was founded?
Questions About Ongoing Training Many believe the true worth of a franchisor’s training happens after you leave the classroom of the initial training. Some franchisors are great at getting you trained to get the doors open only to have the emphasis on learning dip dramatically. The fact is, running any business profitably is hard and complex. No amount of initial training will fully prepare you. What’s more, it’s only when you’re actually in operation that the learning will take hold, but it’s also then that the gaps in the training will show themselves. • What ongoing training is provided throughout the lifecycle of the business? • What will the franchisor do to assist in the actual opening of the business? • What training is provided as new employees and managers are hired?
visit my location to provide additional individualized training? If so, how often? • Is there a support staff to answer my questions? • Are there regional meetings? Annual meetings? Monthly conference calls? How are these conducted and what is covered (i.e., are they refresher courses or new content?) • Is it an obligation to attend future training or is it optional? • What is the expense? • Is there a Franchise Advisory Council (a group of franchisees representing and communicating their needs to the franchisor)?
Questions About the Content of the Training Format means nothing if the content is not relevant, applicable and up-to-date. Too many times, training is theoretical instead of practical. Yes, you need the 10,000-foot view but you also need to know where the rubber meets the road! Ask to see the agenda as well as training materials to review what topics are covered and to what degree. Topics should include both those specific to operating the concept as well as general business practices (i.e. sales and marketing). Without sales and profit, there’s no concept to operate. • Training developed correctly should be about changing behavior, so your first question should be: What will I be able to do at the end of the training that I cannot do now? • Does the training prepare me to run, build and sustain my business? • In what ways does the training mimic the true “day in the life of” a franchisee? • Some of the more critical topics the training should cover (if applicable): o Sales, sales, sales
o Is it mostly lecture or hands-on?
• Is ongoing training conducted in-person or through technology (eLearning or webinars)?
o How often are training sessions held?
• Will a representative of the franchisor
o Concept and brand
o Marketing and the myriad of topics this entails
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• If no online training is offered, why not?
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Robert Bilotti, Managing Director of Novita Training
o Operations o Human resources, such as recruiting, interviewing and hiring o Managing and developing employees o Safety & security o Information & technology o Financial management: accounting/ P&L/cash flow o Facilities: Site selection/permits/ construction/vehicles o Office set-up • Does the learning include training from any vendors, such as software, marketing, employee benefits, etc.?
Questions to Ask Current (or Past) Franchisees The franchisor may create and deliver the training but the franchisees live it. They can provide insight on what works (and what doesn’t). Try talking to franchisees that are at least a year removed from the initial training, and – if you can - reach out to them yourself rather than the list of ones the franchisor provides. You’ll want to talk to successful locations but also ones that are failing or – if you can – ones that are no longer in business. Many times, people who have failed are able to articulate more clearly why they did versus people who are successful are able to tell you what makes them that way. If there are ‘discrepancies’ between what the franchisor claims and what the franchisees’ perceives, this should be a red flag to be discussed with the franchisor. Any of the above questions you may and should ask the franchisee, in addition to the following: • Was the training promised in the FDD actually delivered? • After the initial training, did learning drop off? Did you feel left on your own?
“Your first question should be: What will I be able to do at the end of the training that I cannot do now?” • What type of ongoing training are you receiving in the field? • Was the training realistic to what you face every day or more theoretical? • Did the training teach you what you need to be successful in the business? • Was the amount of time devoted to training enough to prepare you? • Was there ample opportunity to ask questions? • What aspects of the training were the most beneficial? • In what areas did you receive no training but felt you needed it? • Did the instructor seem to know the business and your day-to-day challenges? • If you were to start over, what could the franchisor have done differently in training to better equip you to succeed?
developed complex learning solutions in a range of industries. He is a requested speaker on a variety of learning topics, has served as an adjunct professor of writing at the Institute of Design and Technology in Chicago and is a former Advertising Agency Creative Director. Novita Training is an awardwinning leader in franchise training development. Since 1997, Novita has helped franchise organizations craft and execute learning strategies. As a fullservice training development company, Novita specializes in creating learning that accelerates the development of an organization’s employees, new hires, franchises and customers. For more information: Website: www.novitatraining.com
This list is not exhaustive nor addresses your specific situation, but should give you a starting point. The important thing is to not bypass the discussion about training. A comprehensive, well-developed, effective training program is one of the advantages to buying a franchise over running an independent business, and should be one of the reasons why you choose the former over the latter. Robert Bilotti is Managing Director of Novita Training. A former Training Director for a CPG company, Robert has
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Jason Power, Senior Attorney, Shelton & Power
The Discovery Day Experience
â&#x20AC;&#x153;Overall, a disco franchisors to sho Those that are familiar with franchising know that a properly handled discovery day can lead to, in most instances, a higher close ratio. As a prospective franchisee, what can you do to be better prepared for a discovery day with your potential franchisor? Franchising USA
For most franchisees who are invited, a discovery day is a great way to get to know the franchisor and, in many cases, a first chance to meet the franchisor face to face. Discovery Days are also known as â&#x20AC;&#x153;Join the Teamâ&#x20AC;? days in some franchise systems as an attempt to make franchisee prospects who attend these events feel more at ease and ready to sign their franchise agreements. Overall, a discovery day is an opportunity for franchisors to show who they are and what their business is about to those elite prospects who are on the verge of signing up. It is also a way for franchisees to finalize their opinions as to whether they are willing to work with that
particular franchisor and staff for the next ten to twenty years of their professional life. When preparing for a discovery day, each franchisee prospect should have a list of topics and questions prepared for the franchisor. These topics and questions can include such things as asking the franchisor what is it about you that makes them think you would be a good fit for the franchise system as well as finalizing any negotiations that you have
prove very beneficial. If you are alone, you will be given undivided attention and will be treated considerably different than if you have to share your time with multiple other buyers. On the other hand, if you are with multiple potential franchisees, you have the benefit of hearing questions that other people have which you may not have considered previously. Being invited to a discovery day though traditionally shows that the franchisor feels ready for you to become a part of their system. When you attend a discovery day, you should be prepared to sit through a brief introduction about the business, visit a local store to see the operations first hand, and possibly sit through an interview-type situation where the franchisor will ask you final questions to help them make their decisions as well. Take advantage of these opportunities to turn the table on the franchisor and interview them. Remember that you are making just as big of a decision as the franchisor is in signing the franchise agreement.
overy day is an opportunity for ow who they are and what their business is about.â&#x20AC;? been performing to make sure that you understand what you need to do to be a franchisee. Franchisors invest a lot of time and money into selecting the franchisees who will represent their business. After all, without franchisees, there is no franchise. It is important to know that franchisors are apt to only invite their top prospects to attend a discovery day. This may mean that you will attend alone or with multiple prospective buyers. Both methods can
What about those franchisors who do not offer a discovery day? Does this make them a bad franchisor? The absence of a discovery day does not mean that the franchisor is bad or that they do not care about their franchisees. Some franchisors feel they do not need a discovery day to evaluate their potential franchisees or they do not have the facilities to properly host one. If the franchisor does not offer a discovery day it is in the best interest of the franchisee to request permission to visit with one or more franchisees to experience a day-in-the-life of a franchisee type situation. If this occurs, be prepared to sign a lengthy confidentiality agreement to protect the franchisor and all of the franchisees from you telling all of the information you learned to others or using it on your own. By doing this type of nonconventional discovery day, you will learn the ins and outs of the business which can
help make your decision easier. There are many things that you will take away from a discovery day, such as an understanding of the business; additional information which may warrant the need for more time to make a thoughtful decision and speak with your spouse or other advisors; or, in some instances, the realization that this is not the business for you. No matter what your decision is after a discovery day, make it with confidence knowing that it was the best decision. Discovery days are beneficial to both the franchisor and the potential franchisee because it allows both to walk away confidently knowing that they made the best decisions for themselves, their families and their business. Jason Power is a senior attorney with Shelton & Power franchise law firm. Jason has been helping entrepreneurs review and negotiate franchise purchases since 2009 and is a regular speaker at the International Franchise Expo, West Coast Franchise Expo, Franchise Expo South and various other franchise expos where he gives tips on how to analyze and negotiate a franchise purchase. For more information: Website: www.sheltonpower.com
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â&#x20AC;&#x153;Being invited to a discovery day traditionally shows that the franchisor feels ready for you to become a part of their system.â&#x20AC;?
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Richard Lieberman, Attorney, Jennings, Strouss & Salmon, P.L.C.
KEEPING IT FRIENDLY AVOIDING PITFALLS WHEN GOING INTO A FRANCHISE WITH FRIENDS OR FAMILY Entering into a franchise with friends or family can have great benefits and be a mutually rewarding experience. Partners with existing relationships often start with a higher degree of trust, believing they know the skills, experience, and capabilities of their potential partner. Franchising USA
Too often, new business partners plunge into the endeavor without a full understanding of their individual roles, experience, and expectations. When things donâ&#x20AC;&#x2122;t turn out like the owners anticipated, frustration and resentment often build. For example, an owner finds she is working 60-hour weeks, while her partner leaves early, yet draws the same compensation. Or, one partner resents the micro-management from the other. Partners who thought they were growing a successful business together sometimes end up with not only an ailing franchise, but a damaged relationship as well. Dysfunction is not inevitable and there are proactive measures to avoid common
pitfalls. Implementing these steps can help lead business owners to a long-term, rewarding partnership.
Communication and Documentation Communication and documentation are keys to success. Formal communication, like holding regular company board meetings, helps assure important items are addressed in a thoughtful manner. Informal communication provides the opportunity in the interim to resolve issues as they arise. Establishing methods to cooperatively resolve issues leads to more productivity and satisfaction.
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Richard Lieberman, Attorney, Jennings, Strouss & Salmon, P.L.C.
“Establishing robust communication and documenting the agreements between partners is a major factor in helping friends and family remain close and run a successful business.” Documenting the results provides a record of the actual decisions as a reference against the time that circumstances change or memories of those agreements begin to differ. And it is much easier to reach an agreement on how to resolve potential conflict when both parties are working cooperatively together versus when they are enmeshed in conflict. The method of documenting the agreements of the owners will differ depending on the type of business entity they have, such as a corporation or limited liability company. Examples of documents used to memorialize the agreements include the organizational documents, shareholder’s agreements, resolutions, company policies, and employment agreements. The following are some issues partners should address, together with methods of documenting them. Although this is not an all-inclusive list of important issues, these examples will assist in starting the process of communication and documentation.
Organization and Governance How is the company to be structured? Will one partner have authority over the other, or will they have an equal voice? Will each have authority over their own areas of responsibility? How is ownership to be divided? The answers are unique to each company and may evolve as the franchise grows, and experience levels and skills become more apparent. The company’s organizational documents should establish fundamental roles and authorities, and provide a governance structure for how important decisions are to be made. They should also provide a method for changing those terms as circumstances evolve. Companies can implement policies establishing authority
levels by function and/or amount.
Compensation How will compensation be established and modified as circumstances change? Initial compensation arrangements are often established before the partners understand the others’ level of effort and experience; therefore, compensation may be based on inaccurate assumptions or expectations. Owners should be willing to reassess these arrangements as the relative contributions of each become more apparent. Keep in mind that circumstances change over time, so compensation arrangements should also evolve. Mutually acceptable arrangements should also be implemented for deciding which expenses should be reimbursed by the business.
Resolving Deadlocks If the partners have an equal voice, how will they break a deadlock on an issue? Methods of resolution can range from leaving the status quo in place to more formal methods of resolving a tie, such as giving one partner an extra vote or bringing in a third party to decide the issue. If the partners find they cannot agree on a sustained basis, they may wish to permit one owner to buy out the other.
company or the remaining owner may have a first right of refusal to purchase the interests of the departing owner. Your legal counsel can help identify issues to be addressed, and document the agreements of the parties. Ultimately, addressing those issues at the front end, when the parties want to work cooperatively, is the most cost-effective method of resolving any potential disputes that might arise. Those who are “penny-wise but pound foolish” often regret not doing so. Establishing robust communication and documenting the agreements between partners is a major factor in helping friends and family remain close and run a successful business. Richard Lieberman is Chairman of Phoenix-based Jennings, Strouss & Salmon’s Corporate, Securities and Finance Department. He has extensive experience in a broad range of business law issues, including mergers and acquisitions, securities, corporate governance, finance and banking, employment, executive compensation, bankruptcy and corporate restructuring, litigation and legislation. Among his honors by Best Lawyers in America®, Mr. Lieberman is listed in the “Corporate Governance and Compliance,” “Mergers and Acquisitions” and “Securities” categories, and was named “Lawyer of the Year” in 2014 for Corporate Governance Law in Arizona and in 2016 for Business Organizations.
Separation Arrangements Partners should address how to separate ownership in the event they decide, or need, to part ways. This includes dealing with death, disability, relocation, or simply a desire to separate. There are many methods that enable this to happen. For example, if the owners decide not to sell the business, the company’s documents can establish a procedure for how to value the interests of the departing owner, and how the remaining partner or a third party may purchase those interests. The
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Jeff Grandfield & Dale Willerton, The Lease Coach
What Franchise Tenants N
Evaluating Various As we explain in our new book, Negotiating Commercial Leases & Renewals For Dummies, not all buildings or properties are created equally. The more you can think like your customer, the more likely you are to choose the right location for your business. Although the fundamentals of negotiating leases remain the same, each property has unique aspects you must factor in. Retail strip plazas. A retail strip plaza may exist with or without anchor tenants. Anchor tenants are large, well-known, heavily-trafficked businesses (such as many franchises). Unanchored strip plazas are those consisting of small, mom-andpop types stores. Sometimes, strip plazas are clustered together. Neighborhood plazas typically have a well-rounded mix of tenants, but itâ&#x20AC;&#x2122;s not uncommon to see just four or five tenants in a small strip plaza. Larger landlords typically own the larger plazas, with or without local management.
â&#x20AC;&#x153;Your physical location within the airport mall or food court is just as important there as in any other property.â&#x20AC;?
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Need to Know About
s Building Types Typical unit sizes in strip plazas are around 1,200 square feet, depending on the property depth, Franchise retail tenants in a strip plaza want at least 18 to 20 feet of frontage (width). If the property is 60 feet deep, then a unit with 20 feet of frontage would measure 1,200 square feet. Enclosed shopping malls. There are several different kinds of shopping malls. Neighborhood shopping malls may have 100 or more tenants and a couple of major anchors, including a grocery store. A regional shopping center may have 200 or more stores with four or more anchor department stores, plus a movie theatre. There are a few super regional malls across North America that stand out from the rest of the pack – Mall of America (in Minnesota) and West Edmonton Mall (in Alberta) are a couple of good examples. Most of the tenants in a shopping mall are national and regional chains and franchisees. Independent tenants are much less common because the landlord wants to lease space to high-volume tenants who will not only pay the base rent, but also a percentage rent on top of that. Due to the additional amenities and maintenance that come with an enclosed shopping mall, the Operating Costs of such malls are typically higher that retail strip plazas. Shopping center franchise tenants are required to report their monthly sales to the landlord. The landlord can then calculate the average annual sales for any specific category. Franchise tenants should
“Due to the additional amenities and maintenance that come with an enclosed shopping mall, the Operating Costs of such malls are typically higher that retail strip plazas.” note that with more popular malls and higher than average sales can both drive up commercial rental rates charged. Stand-alone buildings and pad sites. A stand-alone building can be situated on a single parcel of real estate or located on a multi-tenant piece of land. Leasing opportunities exist for stand-alone buildings on these pad sites where the landlord has designate certain pad areas for stand-alone tenants. Many quick service franchise restaurants (or QSRs) and even fine dining restaurants are built on pad sites. They may be leasing the land or pad site and/or the building itself. Airport space. With our busy speaking schedules, we are on the road a lot and we are very accustomed to spending money at airport malls and restaurants. Franchise and specialty tenants, especially those in the food service or restaurant industry, are often interested in space for lease at airports. Mind you, airports can be an extremely difficult opportunity to crack for a franchise tenant – especially in larger airports. As a word of warning, however, just because an airport appears to have a captive audience of shoppers or diners
doesn’t mean these locations are licensed to print money. Your physical location within the airport mall or food court is just as important there as in any other property. We remember one franchise tenant telling us that his first quick service restaurant (QSR) failed in his airport location. So be cautious in locations where it’s difficult to control your destiny; no amount of advertising will make anyone drive to the airport to shop or dine unless they are flying somewhere. For a copy of our free CD, Leasing Do’s & Don’ts for Franchise Tenants, please e-mail your request to DaleWillerton@ TheLeaseCoach.com. Dale Willerton and Jeff Grandfield The Lease Coach are Commercial Lease Consultants who work exclusively for tenants. Dale and Jeff are professional speakers and co-authors of Negotiating Commercial Leases & Renewals For Dummies (Wiley, 2013). Got a leasing question? Need help with your new lease or renewal? Call 1-800-738-9202, e-mail DaleWillerton@TheLeaseCoach.com or visit www.TheLeaseCoach.com.
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Andrew Kyle Zagrodzky, Cagnetta, President, CEO, Transworld OsteoStrong Business Advisors
the true of No career is perfect, but among all the choices, there are always a handful that will be more ideal for every individual. Lots of people are drawn to the idea of franchising, which offers the independence and freedom of owning your own business as well as the partnership and support that come with being part of a large, stable corporate family. However, franchising isn’t for everyone, which is why the best franchises take their time to thoroughly vet every potential franchisee. The most successful franchisees tend to have certain personality traits and management styles; they also know how and when to delegate and take charge. All potential entrepreneurs have to have lots of drive, but it’s hard for many to decide whether franchising is the proper path to channel their energy and investment. If you’ve been considering a move into the franchise world, these pros and cons may provide some extra clarity. Below are some traits of franchise life, but each can be considered either a pro or con depending on who you are and what you want out of your business.
Training Pro Regardless of past experience, good franchises give every new franchisee plenty of training that details everything a business owner needs to know about operating a franchise unit. This includes opening procedures, daily operation techniques, software use, and sales and marketing strategies that have already been proved at other locations. New franchisees don’t have to stumble through the process; they are not only trained, they also have a strong backup network who will help from day one to years down the road. Con If you like going through new experiences on your own and learning as you go, you may find the structure of franchise training and onboarding limiting. If you constantly like to push the envelope and try new ideas, franchising may not be a good fit, since franchise training teaches proven methods for that particular brand.
Firm Infrastructure Pro Everything a franchisee gets to learn in training, from daily operations to sales strategies, is part of the franchise package. When you build a business on your own,
those kinds of choices have to be made one by one, and each one can feel like a doozy. Mistakes are not only painful, but they’re often costly as well, raising the stakes of every choice you must make. From what to look for in a new hire to which point of sale system is best, being part of a franchise cuts a lot of the decision headaches out of owning a business for the first time. Con Some entrepreneurs like having total control over their venture. They relish in the autonomy of trying new things, relying on intuition, testing the waters, and pushing the envelope. If you want to make every decision from the ground up, a franchise’s firm infrastructure may feel too restrictive.
Franchises Have Built Brand Reputations Pro Joining a franchise means your business automatically becomes identified with the franchise as a whole. If people love this brand, they’ll be looking forward to your business opening as soon as the sign goes up, but if they’ve had a bad experience, it’s your job to entice them in the door and win them over. If your franchise has already been successful, and chances are
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Being A Franchise Owner it has or else you wouldn’t have given it a second look, maintaining a positive reputation falls on your shoulders, too. It’s all about being part of the team.
“The product or service a franchise sells is consistent across the board, which means you don’t have to spend sleepless nights concocting ideas for the next special or promotion.”
Con If your business flails, it could affect your fellow franchisees, just as your unit might experience a dip if one of your fellow units should flop. Everyone wins when a brand is strong, but if even one unit starts to struggle, it’s everyone’s job to offer support and help turn things around.
Branding and collateral is decided for you Pro Fonts, logos, and colors tell every brand’s story in a big way. New business owners often struggle with the best way to build a brand, especially when they’re also consumed with running a business. Franchisees don’t have to spend time wondering how to best tell their brand story or working with marketing and public relations firms to handcraft their brand—this has all been done already at a corporate level, leaving franchisees free to run and manage their unit. Franchisees don’t have to agonize over what color to paint the walls or which business cards to choose because it’s been taken care of, and what’s in place has been proven at other locations. Con If total control over art, decorations, and logo is a paramount part of what you will
love about owning a business, franchising may not be your thing.
Franchise product offerings are stable Pro Joining a franchise takes a lot of the guesswork out of owning a business. The product or service a franchise sells is consistent across the board, which means you don’t have to spend sleepless nights concocting ideas for the next special or promotion. Franchising is about building a large system of cohesive stores that offer customers the same reliable environment, product, and experience regardless of which location they visit.
Kyle Zagrodzky is president of OsteoStrong, the health and wellness system that boosts bone and muscle strength in less than 10 minutes a week using scientifically proven osteogenic loading concepts. OsteoStrong introduced a new era in modern fitness and aging prevention two years ago and has since helped thousands of clients between ages eight and 92 improve strength, balance, endurance, and bone density. In 2014, the brand signed commitments with nine regional developers to launch 500 new locations across America. www.osteostrong.com
Con However, if you love inventing schemes to sell or upgrade products, a stable product offering may feel like a downside. Extremely creative people may find the rules and boundaries of franchising too limiting. Deviating from the menu, service, or product offering will unbalance a franchise brand, especially if a new idea fails and affects the whole brand’s reputation.
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Dan Martin, President & CEO of IFX Online
Multi-Unit Franchising: Franchisees Are In The Driver’s Seat It’s always been the case, but never more so than during today’s economy: Franchisees are clearly a franchisor’s best asset. The prime directive for both franchisor and franchisee has evolved to truly focusing on generating a positive and growing bottom line.
The Prime Directive In year’s past, the prime directive may have been a bit blurred. With equity “o’ plenty” and pre-recession financing readily available, franchisors often focused on granting more franchises rather than possibly primarily focusing on their franchisees’ bottom line. Let’s face it; just about every franchise concept made money back in-the-day when discretionary income was readily available and consumer confidence was high.
Alas, the franchise development booms of recessions past have gone the way of the VHS Recorder and the 10-pound portable cellular phone. As such, the franchisor’s prime directive has evolved to focus on franchisee revenues, efficiencies and bottom line growth capitalizing largely on economies of scale.
Concentric Growth Franchisors have moved concentric unit growth stressing the development of geo-specific target markets in order to build brand density, increase local purchasing power, and amortize support costs. Concentric growth focuses the franchisor on a specific region, and more importantly, the relationships with franchisees within the region. When it comes to bottom line growth and when it comes to implementing growth measures in today’s economy, it’s all about morale. When it comes to boosting morale in order to achieve unit economic growth, it’s all about relationships.
Business models, and in particular, franchise business models, have redirected focus to maintaining relationships between franchisees, franchisors, approved suppliers and customers. Now that concentric growth has led to hubsatellite structures within a geo-specific area, franchisors can more easily establish relationships with franchisees necessary to grow their bottom line. It’s become affordable to support franchisees on a daily basis and/or provide them with proactive tools designed to help them better understand how they are doing in terms of their gross revenues, daily KPIs, efficiencies, morale and their bottom line. The franchisor’s prime directive has shifted from selling franchises at any cost, to building relationships with franchisees and improving their bottom line… at any cost. This next-generation formula has one extremely attractive benefit: It can be replicated.
You Are Your Franchisor’s Best Asset
relationship between franchisee and franchisor when adding multiple units?
Franchisees have always been somewhat of an asset to both themselves and their franchisor, but nowadays they are the primary asset to both themselves and their franchisor. Franchisors who have recognized the shift in focus from selling new franchises to growing existing franchisees’ bottom lines, clearly accept the notion that their franchisees, a known factor, are their best asset.
As noted above, it’s all about relationships. It’s all about known quantities. A franchisor can certainly grant a territory to a new franchise candidate and, once again, roll-the-dice. Or, a franchisor can approach an existing, proven franchisee with a multi-unit expansion plan that clearly mitigates the risk of failure by working with known elements and capitalizing on a known relationship.
Concentric growth + proactive relationships + proactive support = proactive and successful franchisees.
You Are In The Driver’s Seat
Economies of scale are beneficial to both franchisors and franchisees. They are clearly beneficial when injected into a concentric growth plan. The assets that franchisees bring to the table are significant and, in many cases, just now being truly leveraged by franchisors. It just makes sense to expand into multiunit ownership with your best team, your existing relationships, your existing success-mind and proven franchisees. If they are a franchisor’s best asset when they have one or two locations, imagine how much of an asset they’d be if they were given the rights to additional locations concentric to their own business development plans. Moving to a concentric multi-unit model makes sense for everyone involved. Franchisees who have recognized a certain pattern of success in their first unit are clearly best suited to replicate that success in their second unit. Moreover, they too can amortize their support costs among multiple units, much like the franchisor can with the entire brand using a concentric approach. What’s more, who stands a better chance of obtaining financing than existing, successful franchisees with actual earnings and a track record for applying the franchisor’s system? Lastly, why break-up the
Franchisees are in the driver’s seat these days. As long as franchisors don’t cut off their nose despite their face and grant contiguous territories to different franchisees, they can open up opportunities for multi-unit franchisees to extend their success and put the franchisor at ease as it relates to forecasting the future of the brand. Single-unit franchisee candidates should be considering the eventuality of becoming multi-unit franchisees, taking advantage of the same economies of scale that franchisors tend to capitalize on. The franchisor’s development team is best served implementing a multi-unit concentric growth program. Granted, there are negatives and it is still somewhat of a gamble for all involved. For example, the franchisor may need to place contiguous territories on-hold for a period of time and/or commit to a First Right of Refusal in order to secure future growth options for eventual mult-unit ownership. Further, it may be difficult for a franchisor to turn down a new franchise candidate interested in an adjacent territory that would be best served as a secondary territory for an existing franchisee. But, the long-term benefits of economies of scale, building the brand, maintaining relationships and securing growth clearly outweigh the short-term gain.
In affect, we have a business model inside a business model. The franchisor capitalizes on methodical and concentric expansion of their brand with a focus on the success of their franchisees. The franchisees capitalize on their own methodical and concentric expansion with a multi-unit approach. Everyone knows their role. Everyone capitalizes on economies of scale, which form the foundation of franchise success. Moreover, the franchisee remains in the driver’s seat. Dan Martin, CFE is President & CEO of IFX Online, a Strategic Franchise Management Firm servicing 200+ franchise brands and 30,000+ franchisees since 1996. IFX’s Strategic Division and IFX’s Technology Division work hand-in-hand to assist franchise organizations in implementing key growth management strategies and applications designed to maximize operations and boost ROI. Mr. Martin has 30 years of experience in franchising, serving in the roles of franchisee, Area Developer and Advisor. He has served on the International Franchise Assocation’s Board of Directors, Executive Committee, Membership Committee and Technology Committee. Mr. Martin was Chairman of the IFA’s Supplier Forum Advisory Board and is a Certified Franchise Executive. For more information: Website: www.ifxonline.com
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“Concentric growth + proactive relationships + proactive support = proactive and successful franchisees.”
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Jason Power, Senior Attorney, Shelton & Power
FOR BUYING A FRANCHISE RESALE “You should always ask why the franchisee is selling. Many times the owner wants out of the business due to retirement or personal reasons, but find out why.”
Purchasing an existing franchised business can be a great way to buy an existing
income stream without having the initial headache and costs of build-out and
training staff. When buying an existing
franchised business, you should consider several factors. Below are just a few to consider:
Read the Franchise Agreement/ Franchise Disclosure Document Jason Power
Many entrepreneurs new to franchising look to buy a new outlet; however, what they do not realize is there is another way to become a franchise owner. Franchising USA
You will be as obligated to your
franchise agreement as the previous
owner was to theirs. Whether you are buying a new franchise or an existing
franchise, you will be required to sign a franchise agreement. You should
take the time to read and understand
your rights, duties, and obligations as
a franchise owner because your life as a franchise owner will be controlled
by these terms for the next 10 or more years.
Make sure the franchisor approves of the transfer
Every franchise agreement states that the franchisor has the sole authority to approve of the transfer and of you as the buyer. If the franchisor does not approve of the transfer or you as the new owner then the entire transaction could be cancelled. If the sale is cancelled by the franchisor, you could be left in a much worse position than when you started.
Have a valuation of the business performed
You wouldn’t purchase a house without knowing its value, so why would you purchase a business without knowing its value? When you purchase any business, you should make sure to know and understand the actual value of the business. This many times is different than the asking price and can give you some room for negotiations. Value can include a variety of things such as the business goodwill, the current
Determine why the existing owner is selling
You do not want to buy a business on its way down the drain or one where its location is about to be terrible due to changes in traffic patterns. Additionally, you need to know the status of the industry to make sure that it is a sustainable industry. You should always ask why the franchisee is selling. Many times the owner wants out of the business due to retirement or personal reasons, but find out why.
Obtain and review financial statements
Purchasing a business that is not profitable is not a smart move. Request at least the last 3 years financial statements from the seller and review them with your accountant to determine profitability and to look for trends. You should also ask the franchisor to provide you with financial information about the seller’s business to make sure both sides’ information matches up.
Talk to other franchisees and the franchisor about the seller Learn about the seller and the reputation he/she has and the reputation that the actual business has in the system. If you are buying into a business with a bad reputation then you could have an uphill battle fixing it with your fellow franchisees and the franchisor.
Pay the transfer fee
Most franchisors require that a transfer fee be paid to them to cover their costs in evaluating the transfer
“If the business you are purchasing has staff or a management team, determine early on if they will stay with the business or if they plan to leave with the seller.” and you, as the buyer. Either you or the seller must make sure this fee is paid. This transfer fee can be a flat rate or a percentage of the franchise fee. Before you finalize your purchase agreement, make sure this transfer fee is accounted for.
Analyze the franchisor
Once you purchase the franchise, you will become a franchisee and subject to the rules and responsibilities imposed by the franchisor. Just like you would do if you were buying a new franchise, you should conduct your own investigation of the franchisor to determine whether they have the systems and procedures in place to support the system as a whole. There are franchisors that do not have the infrastructure, systems, procedures or vendors in place to support the system which hurts the franchisees.
Will the staff stay
A business without staff is useless. If the business you are purchasing has staff or a management team, determine early on if they will stay with the business or if they plan to leave with the seller. Also, if the franchise was run by the seller with little or no staff, such as a small home based business, you should request that the seller agree to be a consultant with you for a set period of time to introduce you to customers, referral sources, vendors, etc.
Have a franchise attorney review the agreements
Purchasing a franchise, even an existing one, involves various areas of law that many attorneys not familiar with franchise law may miss or may deem absurd. Have a franchise attorney review all the franchise agreements and purchase agreements before you sign.
These are just a few of the tips that go along with buying an existing franchise. Purchasing an existing franchise has many different aspects that need to be addressed. Before you sign the new franchise agreement and the purchase agreement, you should talk with an advisor, like a franchise attorney, to determine if there are any other aspects of the sale that need to be addressed. Jason Power has been helping entrepreneurs review and negotiate franchise purchases since 2009. Jason is a regular speaker at the International Franchise Expo, West Coast Franchise Expo, Franchise Expo South and various other franchise expos where he gives tips on how to analyze and negotiate a franchise purchase. Jason is a senior attorney with Shelton & Power franchise law firm. For more information: Website: www.SheltonPower.com. Email: Jason@SheltonPower.com Phone: 866-993-7262
“If you are buying into a business with a bad reputation then you could have an uphill battle fixing it with your fellow franchisees and the franchisor.” Franchising USA
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inventory, equipment, etc. The best way to determine the value of a business is for either you or the seller to hire a company that focuses on business valuation services. Alternatively, the seller may utilize their accountant to help determine the value. It is up to you whether you trust the value enough to move forward.
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Christopher Conner, President, Franchise Marketing Systems
The Future of
Franchising The franchise business today has been positively affected by the weak job market combined with a slowly loosening funding market. With fewer opportunities for high-income jobs, more people are turning to franchising as a means to generate the income they are accustomed to. MBAâ&#x20AC;&#x2122;s deeply experienced in their trade and talented professionals are buying franchises at a rapid pace in todayâ&#x20AC;&#x2122;s market. Financing and funding options were limited from 2009-2012, but have been increasingly less difficult to obtain over the past six quarters. All in all, the franchise market has experienced growth of over 4.8 percent per year since 2011 which is exceptional. This of course is fueled by a rebounding economy and a
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“Overall, we are extremely optimistic for growth in the franchise market segment with continued potential for growth over the next three to five years as the economy continues to improve.” market place that was decimated in 2009. So where does this take us in the franchise market tomorrow? Franchising will continue to expand as we see it. Even in a not-so-small business friendly political environment, the need for small business growth has become apparent. Franchising is one of the vehicles that effectively support small business growth in any economy by leading the way to new-found entrepreneurs and business owners. This in turn creates jobs, opportunity and ultimately positive stimulation for our overall economy. According to the Franchise Business Outlook reports, findings have consistently shown that the franchise industry has emerged from the recession stronger than others, creating jobs at a faster rate than the economy as a whole. In fact, the 2014 June Update of the Franchise Business Outlook shows an industry that is expanding faster than the rest of the economy. Some quick numbers from the report which are extremely relevant to these statements include: • Over 200,000 new jobs were created by franchising in the U.S. in 2014 alone • The number of franchised businesses grew in 2014 by 1.7 percent in the U.S. outpacing overall economic growth The food service segment of franchising has seen the single largest resurgence since 2009. The segment was almost dormant after the economic collapse and in 2012 emerged as one of the fastest industry segments to recover. This trend will continue to follow the overall economy health and growth or downturns as
restaurants and food service businesses tend to be sensitive to overall economic trends. We see an enormous opportunity in the technology space for franchise growth. Recent industry segments which have exhibited strong growth trends include: Mobile Technology Repair and Service concepts, Computer Repair models, SEO and Internet Marketing Service models and other technology related businesses. This growth has been in both retail models and in work from home type franchise businesses. Because of the overwhelming increase in demand for technology and reliance on IT in both our personal and business lives, we see this trend continuing to expand for the foreseeable future. Our work in the franchise market has us working closely with a wide array of service businesses which offer services ranging from construction, flooring, restoration, cleaning and other trades. The lower initial investment and higher margins in these businesses have been attractive to, surprisingly, people with little to no experience in the field. Many times it is a “white collar” professional who just wants to get out of an office and do something with their hands who ends up in these fields. Loosening of the financial markets has supported growth in the franchise markets allowing for more entrepreneurs to get started in a business. More programs have been put in place and implemented to encourage small business growth including programs for Veterans, Women Owned Businesses and Minority Owned Businesses. Banks and lenders have been given strong incentives to loan to small businesses and help capitalize the
economy’s “come back”. Franchises are typically looked at as a safer bet for lending institutions which mean that franchisees have a better opportunity to get the money they need to start a new business. Overall, we are extremely optimistic for growth in the franchise market segment with continued potential for growth over the next three to five years as the economy continues to improve along with the push for small business growth in the U.S. and around the world. Christopher Conner has spent the last decade in the franchise industry working with several hundred different franchise systems in management, franchise sales and franchise development work. His experience ranges across all fields of franchise expertise with a focus in franchise marketing and franchise sales but includes work in franchise strategic planning, franchise research and franchise operations consulting. Christopher has worked with multiple International franchise and licensed organizations throughout the United States, Middle East, India and Europe. He has an MBA in Finance and Marketing from DePaul University in Chicago and a Bachelor’s Degree from Miami of Ohio. For more information visit: www.franchisemarketingsystems.com
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George Knauf, Senior Franchise Business Advisor, FranChoice
“Would I Hire Me?”
Your Question Before Becoming a Business Owner own funds to back yourself in business raises different fears and concerns than it does when someone else’s money is betting on your ability to deliver in a job. Is it fair to compare hiring yourself to a company hiring you? Yes! Either way someone is betting on your ability to produce at the job in question.
“Would I hire me?” While it may seem like a very rudimentary question it can be the biggest introspective question that any prospective business owner asks before they either make the final decision to start a business or retreat back to the perceived security of a job. If a job candidate was to ask themselves if a hiring manager at a large corporation should hire them the answer would invariably be “YES!”, but committing your
In the case of taking a corporate job you will likely know many of the parameters of that role from your past experiences and what you learn from the potential employer during the interview process. But we know that corporate America is sometimes unpredictable. You may find that the job you accept there has unexpected duties, hours or stress. So, you will have to adapt and adjust along the way to better perform in the job and to meet your personal goals outside of the job. Alternatively, if you were to look at going into a franchise business your approach will be different, but only slightly. Your past experiences will inform you on what key roles in business entail; sales, management, marketing, finance, etc. You will evaluate the team you have to help you in the areas where you are not the specialist needed for the specific role. You will evaluate your support team from the franchisor. You will analyze the success comparable peers have had in the same role you are considering. You will do an exhaustive evaluation of the company and the opportunity. As you are doing your investigation the franchisor should be going through the same kind of process with you to make sure you are a good fit for their
system. Their goal should be to only offer franchises to those they sincerely feel can succeed in the business. Their success from their relationship with you ought to be closely tied to your success with their system. With both parties looking for every possible reason to say no, if you come to a point at the end of a franchise investigation where there is an opportunity to move forward then you have hit the point where you get to try to cross the ultimate personal hurdle. One of my closest mentors, Jeff, told me years ago that it is a bit like when we climbed the ladder for the high dive at the pool as a kid. First you sit in the shallow section of the pool watching the big kids go off the high dive, and loving it. This is your proof that it works and how to do it safely. Then you start jumping in from the side of the pool, but realize you are not really having the same experience that big kids are. Then your day comes You climb out of the shallow end of the pool and dripping wet you go over to the high dive and grab the hand rails. You feel like everybody at the pool is watching you. Slowly you climb the ladder, feeling like you are climbing Mt Everest! Now it’s time, step by cautious step you walk to the end of the board and look down. At this point you have two options while you stand on the high dive as a kid: 1. Jump to the center of the pool as you have seen it done successfully before and take your seat in the big kids club.
ex per t advice “Now it’s time, step by cautious step you walk to the end of the board and look down.”
2. Slow turn and climb back down the ladder without jumping. Either way you will likely get to the ground safely. But the first will feed your sense of confidence and your love of adventure and trying new things as it changes your perspective a bit. The later will likely feed your self-doubt which could keep you from ever climbing the ladder again. We know, as do the franchisors, that not everyone will take this leap from employee to employer (could they? YES! But, they won’t all have the confidence). Many will see how others did it and slowly climb the ladder as they do their investigation of one, or more, franchises. They will walk out to the end of the high dive board as they do validation calls and visit the franchisor at Discovery Day. All along the way hearing their own self-doubts and the advice from
well-meaning friends and family telling them never to take a risk, but rather to stay in a job where the rug could get pulled out from under them any day. Some will get to the end of the board and turn around, just walk away because of their own self-doubts. Now, I would have to ask anyone that goes through a franchise investigation, if you have confirmed that you have the requisite skills to be successful and that the franchisors system has worked for countless others then why would you not hire yourself to perform that job? If your in-depth investigation found either that the franchisors system did not work or that your model (skills, strengths, etc) did not fit them then have your advisor, if you are using one like us, find companies that are a better fit. But let’s assume that there did exist a
proven franchise system and you have built the skill set you would need in your years as an employee. If that was the case then we are back to self-doubt and fear. Here is the best solution I have found at this juncture: Make sure you did your homework and trust you will hit the center of the pool when you jump! Because if you would not hire you, who should? Mr. Knauff is a highly sought after, trusted advisor to many companies; Public, Independent and Franchised, of all sizes and in many markets. His 20 plus years of experience in both startup and mature business operations makes him uniquely qualified to advise individuals that have dreamed of going into business for themselves in order to gain more control, independence, time flexibility and to be able to earn in proportion to their real contribution. For more information: Website: www.franguide.com
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