When researching business opportunities and franchises some people struggle with whether they are better off working for someone else until retirement or going into business for themselves.

In the beginning, it seems like working for someone else is the safer option.  In reality, the longer you are employed, the greater your insecurity.  Ask yourself these questions:

1. Can you be sure your job will be there next year?  Or even tomorrow?
2. Will your excellent performance determine stability?
3. Can you ease off once you're established?
4. Can you meet your long term financial goals of security and retirement?

Business ownership does have its risks; however, the longer you own a business, the safer it becomes.
If you own your own business:

1. No one can take it away.
2. You can't be downsized, transferred or fired.
3. You can build a large or small business.
4. You can grow a business, ease off, or continue as YOU see fit!
5. You can sell the business.

Why would one want to own a business?  Here's what most people say:

1. Security against a volatile job market
2. Time for family and interests
3. Independence and control
4. Challenge, recognition, prestige
5. Building equity for retirement

Why don't more people own their own business?

1. Success is not guaranteed - there is risk
2. Businesses cost money to start
3. Running a business takes talent and skill

Deciding whether or not business ownership is right for you is a huge life decision and should not be taken lightly.  Be sure to carefully research all of your options to ensure you make the best decision for you!

 

 

When buying an existing business, starting a new business, or purchasing a new franchise, you are making several important decisions including: What type of business do you want?  What do you want the business to do for you?  How much money are you going to invest?  Where will your new business be located?

Oftentimes, how you plan on exiting the business is overlooked.  How and when you are going to exit the business may influence some of the other decisions you must make.  Are you going to work full time in the business?  When will you bring in a manager to help with day to day operations?  Deciding how you will exit the business early will save you time, stress and money down the road.

If you plan on selling, you must keep good books and records, claim all of your income, and keep your expenses under control.  You may also want to put a manager in place to help with the business.  This will help you sell faster, at a good price, and maximize your return on investment.

If your plan is to eventually turn the business over to your children or other family members, there are also factors to consider.  Are you sure your children/family members want the business?  How much training will they need before you turn the business over to them?  Would they be better off if you had a qualified manager running the business?

So, when making the decision to go into business for yourself, remember to include the exit plan!

In a recent survey by FRANdata (an independent research company supplying information and analysis for the franchising sector since 1989) the following reinforced what prospects are seeking.

Out of 100 franchise prospects surveyed:

1. 37% said profitability potential was critical.  They consider historical financial estimates or projections the most essential information they need to know about a brand.  The unit's ability to generate cash is the primary factor in evaluating the brand.
2. 33% said unique characteristics were important - the way the brand conveys its message.
3. Reputation was important to 32% of those surveyed.
4. 12% considered other factors.
5. 9% considered personal experience of the franchisor.
6. Sector (industry type) was considered by 7%
7. Investment level was critical to only 5% of those surveyed.

It was agreed that even when franchisors make Financial Performance Representations, the potential franchisee should research and validate with a minimum of 10-15 existing franchisees.

Financial Performance Representations (FPR's) formerly known as "earnings claims" are important for a couple of reasons. 

First and foremost, FPR's provide prospective franchisees with an answer to the most common question "How much can I make."  This is critical information particularly for attracting experienced multi-unit franchisees.  Multi-unit prospects want to have performance data and then they are willing to speak with other franchisees.

Secondly, especially in today's business climate, FPR's are more important than ever to lenders.  Better information is required by most lenders before making a decision.  Many lenders are smaller community banks, as well as non-traditional sources and may not be familiar with the different franchise brands and their unit performance.  Lenders are asking for information in order to properly identify and assess the risks.

Many franchisors are changing their position about FPR's.  Most franchisors feel it is a positive to have FPR's however, others still feel it does not provide adequate data, it will cost too much to gather the data, their attorneys advise them against it, or they are just negative to the idea.

I previously posted about different questions to make sure and ask Franchisors when researching franchise opportunities.  Here are some questions you should ask Franchisees before you buy a franchise.

1.  How long have you been a franchisee?  So far, are you happy and would you do it again?

2.  How would you rate your on-going support?  If you need assistance, do you get it easily?

3.  How do you rate the marketing, advertising, and promotional programs?

4.  How difficult is it to find, train and retain employees?

5.  What is the main function of the owner of the business?  Could you describe a typical day?

Obviously there are many more questions to ask both Franchisors and Franchisees.  This is just enough to get you started thinking about different things you will want to know.

Another very important area is the "financial performance representations" (formerly called "earnings claims").  The Federal Trade Commission "allows" franchisors to make these representations, but are not mandated to do so.  The FTC also states in preambles to Item 19 of the Franchise Disclosure Document that "prospects should not rely on unauthorized representations."

When considering any franchise opportunity, it behooves the prospective franchisee to ask lots of questions to educate themselves on all the pros and cons of the opportunity.

During the research and due diligence phase of investigation, there are numerous questions to ask both the Franchisor and the existing Franchisees...after all, what better source of information than from those individuals currently operating that particular franchise model.

Here are some questions to ask the Franchisor:

1. What is the competitive advantage of your product or service?
2. Who are your competitors and how does your business compare?
3. What kind of support do you provide to franchisees?
4. How will franchisees describe their relationship with the franchisor?
5. How many of your franchisees have gone out of business or left the system in the last 2 years and why?

On Friday, February 25th from 7:30am - 10:00am we will be hosting a franchise breakfast at Maggiano's Willow Bend in Plano (Dallas North Tollway & Park Blvd.)

Breakfast attendees will learn about 2011 trends in franchising, how to find the right fit in business ownership, franchise research and selection strategies, financing options and setting up corporate structures and tax entities.

Attendees will discover new and unique franchise opportunities, have the opportunity to talk individually with each franchise representative and meet with a franchise attorney.

No cost to attend.  Registration is required.

For details and to register - visit www.FranchiseSeminarInfo.com

 

I came across an interesting post by Tim Berry on the Small Business Trends Website about email etiquette.  We are so used to texting and emailing - sometimes we forget the basics of communication etiquette!  Click here to read this very interesting post!

10 Old New Rules for Business Emails

 

The franchise industry has been hit hard by the credit crunch and serious lack of traditional funding for small businesses and in particular franchise startups.

The downsized corporate executives are finding fewer job opportunities and practically none in their area of expertise and / or their former level of pay.  Many are now turning to business / franchise ownership to close the gap between where they are now and retirement.  Often retirees are turning to franchise ownership because their net worth has been dramatically affected by the economy.

Of the thousands of franchises in today's market, several are poised for great growth in 2011 and beyond.  Business coaching franchises, such as Action International, are greatly needed to assist business owners with better management, growth solutions and customer service innovations.  Stress relievers (now more than ever) such as Massage Envy and others are experiencing record growth.  Children education franchises are producing steady growth and "niche" franchises that offer a different or unusual service such as Senior Magazine and Cybertary provide a great opportunity at a reasonable total investment for the right candidate.

Franchise opportunities are numerous and the turnkey investments are all over the board.  Just remember the cost of the franchise has no correlation to the money it can earn!

Here are the final four changes in the franchise industry in 2010:

7.  Non-Traditional Locations - the newest expansion strategy
Multi-unit franchisees are exploring the viability of sites such as airports, hotels, colleges, senior centers, highway rest stops, hospitals, military bases, and more.  Costs are higher, staffing difficult, sometimes there are security issues, and other challenges, but you have a captive audience and can operate in a smaller space.

8.  Previously Owned Equipment
Previously owned equipment saves costs and boosts profits, especially in the restaurant sector.  Multi-unit owners are saving money.

9.  Transfers or Franchise Re-sales
Transfers or Franchise Re-sales will become more the norm than new franchise sales in the next couple years.  Many franchised business owners are looking to retirement and will be selling their businesses.

10.  The Good, The Bad, and The Ugly
The Good:  Tax incentives can pay big returns.  Several retroactive tax credit programs cover the open tax year and the three prior years.  Both franchisors and franchisees stand to gain.  Anyone employing people can benefit from these credits, whether for the corporate headquarters, company owned locations, or franchisees nationwide.

The Bad:  Closings, bankruptcies, non-lending market.  The tight credit market wreaks havoc with business closings, company bankruptcies and the unavailability of capital...money is tight and the requirements to get any kind of financing are unbelievably difficult and stringent.

The Ugly:  New health care law affects almost all taxpayers and employers.  Beginning after 2013, employers wtih at least 50 full-time employees must offer certain minimum health coverage to its employees or pay a penalty if certain employees are required to purchase health insurance through an insurance exchange.  We won't even list the tax law changes.

Here are two more important changes during 2010 in the franchise industry:

Real Estate - Conversions
Franchisees are saving money by tackling conversion projects from restaurants to beauty salons.  Many of these now empty spaces are already partially ready for new tenants.  Typically, the electrical and plumbing is in place and often with much less cash outlay required for remodeling, the space becomes a new business at much less than the original build-out costs for a new space.

What Potential Franchisees Really Want To Know When Exploring A Franchise Opportunity

• Easy to navigate Franchise website
• Most important factor is satisfaction by current franchisees
• Actual Pro Formas of existing Franchisees
• How long does it take to become profitable?
• Sales numbers by Region, not national numbers
• Most appealing incentive would be reduced royalties for first year

 

 

Taking a look at 2010 - here are two more of the significant changes in how we do business in the franchise industry.

Lunch Catering
Sandwich chains are finding catering office lunches is an efficient way to bring up their bottom lines.

NASCAR Sponsorships as a marketing tool
Many franchisors and businesses are spending a good amount of their marketing dollars in NASCAR sponsorships.  Of course, sponsoring a car on the NASCAR circuit can be very expensive.  Today, auto racing is a second only to football as the most watched sport on TV.  Races are televised in 150 countries around the world each week - in approximately 20 languages.  Nearly half of NASCAR fans earn more than $50,000/year and 40% are female.  It's all about reaching the consumer with your message and getting the customer involved.  According to a recent IPSOS research firm study, NASCAR is the #1 sport in fan brand loyalty.  "Three out of four NASCAR fans will consciously choose products of NASCAR sponsors...even if the price is higher"*
*Jeff Cheatham - Director of Communications, Wave Energy Drink

Happy New Year!  Here's hoping for a happy, healthy and prosperous 2011 for everyone!

As we begin the new year, I think its appropriate to look at some of the changes in the franchise world in 2010.  Over the next few days I will post 10 of the top changes.  Here's our first two:

1.  Social Media

In using this tool to reach your customers, there are several things to remember:

a.  Decide WHY you want a Facebook page
b.  There's value in connecting with customers and prospective customers online
c.  Give reason to "like" your page on a Welcome Tab
d.  Be sure to tell what you can do for them

2.  Attorneys and Flat Fee Rates for Franchisors

Some large attorney firms are now offering a flat fee rate or alternative billing arrangements for Franchisors.  Clients want to know "What do I get for my money?"  Current economic conditions have caused clients to be even more sensitive to costs.  Many clients have learned not to pay attorneys to research business, cultural or marketing information when expanding internationally for example.  This can be done less expensively through other sources.  For foreign expansion one definitely needs an attorney or attorneys to understand the tax law, competition law and labor laws in the country you are targeting for expansion.

Here are the top five items I tell people to look for in my seminars and in person when consulting with people trying to “find the right” fit in a franchise. 

1. Understand your personality and choose a concept that matches your skills and interests as closely as possible. Know your strengths and weaknesses and make sure your family and co-workers would agree with your own assessment of same. When doing your research and talking to existing franchisees, be sure to find out “who is most like you” from background experience and personality and work ethic.
   
   
2. Study the Franchise Disclosure Document and then study it again.  Get your questions answered  by the Franchisor and also consult a Franchise attorney to assist you in reviewing the document and identifying any points you may wish to negotiate with the franchisor.  Obviously, the franchisor will likely not reduce the initial franchise fee and/or the royalty fees; however, there may be some verbiage that you want to change in certain parts of the Franchise Agreement that could benefit you when you are ready to sell or transfer the franchise to another party. Certain things can be negotiated with most Franchisors.

3. Research the industry. Stay away from fads and make sure the product or service offered by the franchise is not part of an industry that’s changing……what about healthcare changes, for example.  What about retail video rental businesses?

4. Visit with as many franchisees as you can.  On the phone and personally visit any that are near you (within driving distance).  Ask questions about how long it took them to ramp up to cash flow positive position.  How soon did they need to add additional employees?  Are they happy? Would they do this again?  Do they feel they are making the money they thought they would at this point?  How did they research and what made them decide on this particular brand?

5. Find out how many new franchisees came on in the last 12 months with this brand.  Also find out how many left the system and why. If they left within the last 12 months of the date the FDD was printed, their contact info will be in the FDD.  You want to contact anyone who left the system and find out why they left. Often it will be because they didn’t ramp up as fast as they anticipated and they ran out of money to keep going; other times it could be a problem between franchisor and franchisee……you need to know.

I read an interesting article on the AOL Small Business Website about which one is better - social media marketing or good old fashioned word of mouth?  There is a lot of buzz right now about social media marketing - but the article shows that while business owners are utilizing social media marketing - they have not abandoned their previous marketing strategies.  The article also has statistics from recent business owner surveys about social couponing and office meetings.  Click here to check out the article!

Personality and Business Ownership - What's The Connection?

Attend our free seminar on Friday, December 3rd from 2:00 - 3:30pm.

Did you know that personality  has a profound effect on the success rate in choosing the right fit in a business or franchise?

Come learn about different personality types and how they match up to industry categories.

This seminar is a must attend for anyone interested in starting or purchasing a business / franchise for the first time!

As an added bonus to this seminar - a franchisee will be here to answer your questions about the process and give you their experiences as a new entrepreneur!

There is no cost to attend!  Registration is required!

Click here to register!

What are the biggest issues potential franchisees need to consider before becoming part of a brand?

1.  Willingness to follow a system for the length of a franchise agreement.

2.  Willingness to pay royalties for the length of the franchise agreement.

Franchisees are very excited initially.  They go through training, ramp up the business, and begin to successfully operate as a franchisee.  Some franchisees, however, have a change of heart a few years into their agreements (especially if the agreement is a 10 year term).  Ten years seems like a short time to some and a very long time to others.  I've visited with many existing franchisees who have decided to sell their businesses because they are just tired of paying those royalties!  They feel the franchisor is making all the money.  The royalties could be considered your "rent" paid to use the marks or brand name.  As long as you use the marks or brand, you should expect to pay rent for the privilege.  The agreement is for 10 years.  I think what sometimes changes with first time franchisees or first time business owners is realization of the hard work and effort involved that they didn't expect.  It's not exactly sitting behind a desk and taking that wheelbarrow of money to the bank once/week.

Today's Credit Market - a very hot topic in the franchising world as well as business transactions. Fewer banks are using the SBA program to make loans. The Preferred Lender banks have specific guidelines and will hardly consider restaurants or food businesses unless the purchaser has considerable food experience. In addition, probably because there have been numerous loan defaults, besides considerable experience, they now require between 30-50% cash injection from the borrower. In franchising, if the brand is not well known, it is very hard to get money for start-ups. Some Franchisors have turned within to sell additional units to existing franchisees. Others have developed creative ways to assist in financing for their new franchisees. Some offer to finance a portion of the franchise fee - others will discount or waive royalties for a certain period after the franchisee begins to operate.

One question that often comes up in my seminars is:

"How long does the "ramp-up" phase usually take for most franchises?"

Each franchise will have an estimated ramp-up time (ramp up times vary greatly and largely depend on the type of franchise - but is typically between 6-15 months).  However, first we should define "ramp-up" and what that means.  It means starting a business from zero revenue, following the proven model for that system, implementing what you learned in the training from the franchisor and generally building the business from start-up to a cash flow positive position.  What does that mean?  That means the business not only pays all its necessary busines expenses, but also makes a profit to be able to pay the owner a "living wage" or salary.  It means the business is operating in the black and finally able to compensate the owner.

I read a great article in the October Franchise Times magazine about the future of restaurants.  The article quoted a study by the NPD Group that says the growth in the number of visits to restaurants would not keep up with the population over the next decade.  Restaurant visits will grow 1% and the population 1.6% - all thanks to the Baby Boomers.  People start to eat out less when they retire - and the baby boom population is entering its retirement years.  So to stay competitive, restaurants will need to adjust to the new demographics - offer incentives to go eat during the day, snack size portions, breakfast, etc.

I came across a great blog post on the Small Business Trends website by Diane Helbig that I just had to share.  She points out some really great tips for networking and 3 things to definitely avoid!  These are great tips everyone should know!

Click here to read the entire post!

If you decide to use a franchise consultant (and you should because you have nothing to lose) now you have to decide which one to use. 

There are national chains of consultants – this can be a good option – they usually have solid inventory and there are many consultants available. The problem could be you don’t know if you will get to work with someone knowledgeable about your market area or if you will have a consultant in another state. You could also get someone that does not have much experience – the company might have been around for a while – but the consultant could be very green.

There are also independent franchise consultants – this option has many advantages because they also have a solid inventory – and may even have more options because they work with some of the newer franchise opportunities. You may find an opportunity to be on the ground floor of a new franchise! Also, if you are choosing an independent – you know you will be working with someone in your area. This is very important – they can give you some good advice because not all franchise opportunities are successful in every market. A franchise that is successful in California may not be a good option in Texas. Also, one very important advantage is local consultants have local connections – once you purchase a franchise – they will most likely be able to refer you to some people to help get you started in your new business venture.

Either way you go it is very important to effectively research before purchasing any franchise opportunity!