Pushing Past Fear – Taking the Leap Toward Franchise Ownership

As President Franklin D. Roosevelt proclaimed in his first inaugural address: “…let me assert my firm belief that the only thing we have to fear is fear itself—nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance.”

Think about that quote for a minute. Not only can it apply to your challenging decision to take the leap toward franchise ownership; it also reinforces that you are not the only one who has ever harbored any negative thoughts.

It is normal to have some self-doubt, otherwise you would not be human. Think of the Super Bowl football heroes who say that they have had butterflys in their stomachs before the game of their lives—and then went on to victory and stardom.

Make no mistake about it: franchising is a major life decision. What should override all other aspects of this assessment is that you have a dream—a goal of being a business owner, the head of your own company, a better lifestyle for you and your family. If you can envision it, however, more than likely, you can achieve it.

On the other hand, people can be true visionaries…while others act as Pollyanas. Which are you? Consider these important factors in your thought process:

• What is your motivation? Escaping a bad employer, had a job loss, or truly self-motivated?
• Do you have a plan? Where will you find the financial resources?
• Are you willing to roll up your sleeves and pitch in?
• How well are your people skills and ability to deal with the public?
• What is your business background? Your overall strengths and weaknesses?

These points are not mentioned to discourage you from becoming a franchisee, but rather to help you start an authentic self-assessment. Still, for many, these represent questions that you may not have had to consider in the past, and an objective gut-check is not always easy to do.

That is why you need a mentor to help you through the franchising maze that encompasses self- awareness, financing, multiple franchise choices, personnel selection, plus legal and compliance issues, to name just a few hurdles. All of these elements you need to seriously consider, even before you sign on the dotted line, which itself can be somewhat nerve-wracking.

What To Look for When Considering An Existing Franchise for Sale

One of the best reasons that many entrepreneurs enter the world of franchising would be that, in a broad sense of the word, it is perceived as a “turn-key” operation, given all of the marketing, branding, training and overall support you can receive from the franchisor.

Taking that “turn-key” approach to the next level might be someone’s rationale for buying an existing franchise for sale where presumably the owner has an established base of customers, vendor relationships and possibly, owner financing. Before you decide to go in that direction, however, it might be a good idea to carefully review some of the advantages and disadvantages of that strategy:

•Start by reviewing your overall business goals and aspirations. For example, just because the franchise location might be convenient for you may not mean it is convenient for customers because of pending road construction.

•Conversely, a site not so close to home may be prime for new development which could add store traffic.

•If your desire is to own several units, getting involved with an existing location may not match your financial targets or demographics.If these issues do not represent hurdles for you to achieve your goals, then you should proceed to do your due diligence. Here are a few methods to consider for learning about the existing franchise:

•Check with your franchise broker who can help you find existing franchises that may be for sale that match your interests.

•The corporate franchisor may also be a source of information about the performance of the existing unit(s) for sale.

•Consult with your financial advisor and arrange to review the “books” for the past couple of years in order to determine cash flow, expenses, taxes, margins, and other financial data.

•It is also advisable to retain an attorney so that you can ascertain if the seller currently has, or has experienced in the past, any litigation, or perhaps has other building code, tax, or human resource issues.

You need to be inquisitive and intuitive at the same time. Even as you rely upon your accountant or attorney, you - the actual potential franchisee - need to ask pointed questions, and probe deeper as to why the current owner wants to sell.

Do not conclude or assume anything until you are totally satisfied with every answer. That way you will enter into any agreement with your eyes wide open and with full confidence in your business venture.

The Pros and Cons of Start-up Franchises

You’re quite certain that buying a franchise business represents your ideal pursuit of happiness in business. One of the final questions remaining before you now is “What type of franchise arrangement will work best for me?”

As you mull your decision like Hamlet—“To be (a start-up), or not to be (a start-up),—that is the question…”—note that you can still choose the industry vertical, e.g. fast food. The crux of the matter is whether you want to be a big fish in a little pond or vice-versa?

It all boils down to a soul-searching, face-the-music gut-check that seriously weighs the pros and cons of going with a tried and true emporium with brand recognition, or taking more of a risk with the newest, hot entry into the market. Here are a few key tipping points that might help you to focus better and to help match your options with your overall goals, financial status and personality:

•If you can get in on the ground floor of a new operation, you will have the opportunity to be on the cutting edge, the first on your block. On the other hand…the franchisor has no experience to support this new system. So, do you have extraordinary marketing and business skills to overcome this issue?

•The “XYZ” corporation may have found an ideal niche that serves an unmet need in the market which could foretell growth. On the other hand…their product or service may turn out to be little more than a “me-too” concept with no uniqueness. Are you absolutely certain that this company does have a unique selling proposition?

•Purchasing a start-up franchise probably means that your upfront costs as a franchisee will be relatively lower than buying from a company with hundreds or thousands of locations. On the other hand… the franchisor will likely have lower financial reserves to support marketing/training.

Again, maybe you have prior business experience that can offset this disadvantage—do you have what it takes?

To assist with helping you measure the arguments for and against a start-up, is the advice of a FranFinders expert franchise consultant.

Keys to Know About Franchising when in Job Transition

Double-digit unemployment, the highest in the U.S. since 1983, has led many people to consider buying a franchise. Being your own boss, getting off the corporate merry-go-round, and envisioning a better lifestyle sure sounds enticing. If you are one of those, however, the first thing you need to do is to heed this important piece of advice—should you ever become a franchisee, please don’t ever think or say, “Will franchise for food.”

Not saying don’t buy a food franchise, but rather, don’t rely on getting into franchising as a means of creating a quick cash flow to feed your family and yourself. Consider these due diligence factors before you get ready to sign on the bottom line:

• Check with a few other operators to get their cash flow feedback and experience
• If you are purchasing an existing business, confirm your inventory obligations
• If someone else will run the enterprise day-to-day, how well will they manage
• Fully understand what your franchisor fees and other obligations will be
• Consider engaging a business advisor if you have no experience in business
• Develop and understand a break-even analysis with your financial expert

Secondly, you need to keep a long-term perspective about owning a franchise. Realize that often, it is only after several years of persistence and tight management controls, that the real monetary rewards are achieved. In fact, remember that, in most cases, minimum franchise agreements last five years. Do you have sufficient back-up funds and patience to make it through the long haul?

The third key element to consider is somewhat more of a psychological hurdle: understand that being a franchise owner can be as tedious as your most recent job if you let it be. Getting up at four o’clock in the morning to make the donuts may offer lucrative rewards, but not everyone has the personality and temperament to do so. Rather, you need to sharpen your business and human resources skills so that your operation becomes a well-oiled machine over time instead of a chore.

So, how do you determine this factor? Your best choice is to enlist the aid of a franchise consultant who can advise you about the best fitting opportunity to match your attributes.

What Makes for a Good Franchise Location?

Some locations may look as though they were a perfect spot for a franchise to operate in, but further investigation may prove otherwise. Others may look as though they were the last place one would want to be located, but again looks can be deceiving.

So how do you know which location or site will make a good franchise location. Consider the following when making your decision:

•Area of town

An area of town that is already well-populated by other businesses, or is considered part of the business district can be a good choice. You do want to make sure that over-saturation is not a concern.

Speaking of the area, consider whether it has a reputation of being a “good” part of town. Even if it doesn’t fit the “normal” definition of “good” part of time, if safety of the public and protection of franchise property is provided to best extent possible, it still might be a site to consider.

Don’t be hasty about giving up on a site if it isn’t in “best” location. Often, some city, county, or even state officials offer incentives or provide benefits for franchisees willing to locate in less-known or less-desirable areas.

You will have to check with the franchisor if you are considering such an area. Some franchisors are reluctant to locate in “less-desirable” areas, even if assurances of safety and protection are offered.

•Access to Major Thoroughfares

This includes interstate and state highways and well-traveled county roads. Drive down a city’s “Main Street”, too. It may prove to be an excellent location.

It may be more expensive to lease or rent real estate in these areas, but most likely in the long run it will be well worth it.

•Location of and Distance Between Competitors

Check out your competitors’ locations. Too many in one area can mean constantly having to “scrap” and fight for business. However, being the only one for miles around may not be all that favorable, either, especially if all or part of the county in which your franchise will be located is in a rural area.

If it takes too long or requires too much gas to reach your location, you can’t count on very frequent return business. You may have a few regulars who make it a weekly or monthly outing, but you will have to consider if this is enough to sustain the franchise.

•Overall Appearance

Just because the area looks suitable does not mean it will be a good location. If it doesn’t look appealing, you still may find it harder to attract customers, even if the area is considered “safe.”

How to Understand a Franchise Agreement

Can you understand your Franchise Agreement?

Unless you are or were associated with the legal profession in the past, the answer to the first question is probably a resounding, “No!” That’s why you had an attorney to look it over and explain it to you.

Now, however, for some reason, you are perusing the document again, and you’re not sure you remember everything you and the attorney discussed. You know that it was clear enough the first time he explained it that you felt comfortable signing the agreement, but now you’re needing to look at some portions of it again.

So, now you’re faced with the second question. But, surprisingly, the answer to that one can be a confident, “Yes!” because we’re going to take each part of a standard franchise agreement and break it down.

There will be differences in every franchise agreement, so some things covered in this article may not be in your agreement, and we may not cover some things that do appear in your agreement. For those situations, you will need to contact your franchise attorney again.

Franchise agreements may be divided into Chapters and Articles, or they may use other terms to express changes in subject matter. For purposes of this article, we are going to refer to subject topics as Chapters and Articles.

The title page will most likely be the first chapter. The top portion will consist of identifying information on the franchisor and franchisee, and possibly the territory in which the franchise operates. From there, the body of the title page will define the type of business and will re-state the business name.

The rest of the paragraphs will most likely spell out different items that concern both the franchisor and franchisee. These can include such things as recognition of the advantages of the franchise, the importance of maintaining the franchise’s reputation, and other things.

Article numbers will delineate different topics that fall under the subject matter addressed by Chapter 1. If necessary, subsections will be used (example: Article 1.01, Article 1.02, etc.).

Article topics may include License and System, with subheadings such as License Grant, Location and Territory, or similar titles. Each section will deal with matters pertinent to the section’s title.

For instance, the License Grant section will explain whether or not the license to operate the franchise is exclusive or non-exclusive, and will state for how long the License Grant is applicable. From there, this and other sections may pertain to matters involving location and territory, as well as other information.

One section, in Article 1 or another article, will define the meaning of the term “licensed business” and will explain again the type of service provided by the business. Subsequent sections, which may immediately follow the one which introduces the subject matter pertaining to “licensed business” will outline the franchisor’s rights and privileges in regards to that particular topic, as well as the responsibilities of the franchisee.

An article in the franchise agreement, along with its relevant subsections, will address the franchise fee(s) and advertising. The amount of the initial fee, royalty fees, national marketing fee, and any other applicable fees, and when each fee is to be paid, is included, as well as information on how or whether those fees will be used for advertising expenditures.

A section in the franchise fee article, or another article itself may be included explaining when, where, and how a grand opening will be held for the new franchise.At least one article and its subsections will deal with business records and reports, which ones are necessary, penalties for failure to make such reports, and audit and inspection rights of the franchisor.

Articles covering training, trade secrets and/or confidentiality issues, the franchisee’s pre-opening obligations (these may also deal with real estate issues) and other issues pertaining to the operation of the franchise may have also been included.

Use the article titles and subsection headings to find the one that you think fits your particular situation, and isolate that section by either copying the page(s) and highlighting the material or printing off that section only, if the document is in pdf or a similar format. Then, take time to read it carefully, making notes as you do so.

If you are still unsure of your position or responsibility as a franchisee, or still have questions, or if your situation was not covered in this article, then by all means consult with a franchise attorney. You may have to pay a consultation fee, but it is better to spend a little now than run the risk of having to spend a lot later.

Tips on Evaluating a Franchise Earnings Claim?

The first thing you should know about franchise earnings claims is that they must meet certain specific requirements. These include, but are not limited to:

•They must be in writing
•A description of what the claim is based on, as well as any assumptions that were made must be present
•Information on the number of units whose figures actually equal or exceed the earnings claim amount, and the percentage in which they do, must be provided
•Supporting documentation and information must be available for inspection, and an offer to produce and show the same must be extended
•Earnings claims should contain language that is considered cautionary.

Now that you know what an earnings claim should look like, you can go about finding one. Start with the franchisor’s Franchise Disclosure Document (FDD). One of the articles, items, sections, chapters, or whatever the subject divisions are called will allow the franchisor to give information on potential earnings.

A franchisor is not required to disclose this information. If he chooses to do so, he is required by the Federal Trade Commission (FTC) to do so in writing, and to make sure the information is as accurate as possible.

Just because a franchisor does not include this information does not necessarily mean there is a problem. Rather, the company may be too new or there may be such a small number of franchises that the earnings claim would not be a true indicator of such figures. Once the franchises have been operating for a while, or business has grown, such figures would most likely be more accurate.

It also takes time and not a little bit of money to compile and make such a report. And, sometimes, after a franchisor has expended the time and money, the report may present information in such a manner that the franchisee may form a less-positive, and possibly erroneous, opinion of the company.

You can still get an idea of what a franchisee’s earnings claim would say if there was one, by looking at the section of the FDD that tells you who is currently a franchisee and who has been a franchisee. This information includes a way to contact these people.

If you do contact current and former franchisees, keep the conversation limited to averages and ranges as they pertain to figures. Take a little time to get to know the franchisee first, by discussing general topics, then move on to financial matters.

Talk to several franchisees, not just one or two. In this way, you will have a more complete picture of the operation.

Now, look at the information you’ve obtained. Find the franchisees who operate in similar situations such as yours will be, add up how long they’ve been in business, subtract expenses, take two painkillers for the headache you probably have by now, and look at the total. This should be a reasonable expectation of your possible earnings as a franchisee.

Remember that this figure is not going to be completely accurate. Other factors will need to be considered, and will figure into the overall total. You should have enough information, however, that you can make an informed decision as to whether or not this is a good investment for you.