Category Archives: Franchise Consulting

Advantages of Franchising – Better Than Going It Alone?

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There are many advantages of franchising over starting a new business by yourself. However, you could lose a great deal of independence, which is why you decided to start your own business in the first place. Have a look at the pros and cons of franchising below to decide if its for you:

The Pros:

Since you will be taking on a venture that is already a proven success elsewhere, you can bet that there are many advantages to it. Let us take a look at what they are:

  • You will represent an established brand, and be part of a defined operating system and management structure.
  • You will not have to do any guesswork on whether this idea is going to work for you. Guess what, it is working and has been doing so for a while!
  • One of the main advantages of franchising is that the failure rate of is very low. In the U. S., only about 5% of all franchise systems fail each year, while 30 to 35% of independent businesses fail within the first year. Smiling already?
  • You are part of an established network of franchisee associates, who can help generate new ideas and provide additional support. What’s more, they act as a yardstick for you to measure your progress.
  • Learn from others’ mistakes! The mistakes have already been made and the pitfalls overcome. All you have to do is tap into the franchisor’s expertise, training resources and support instead of relying on your own judgment.
  • No advertising, no marketing pains! The products are already well known and you are riding on the coattails of someone else’s hard work. This is one of the greatest joys of starting a franchise.
  • Success begets more success! With franchise success comes potential for growth within the organization, such as opportunities to purchase additional outlets with special, pre-financed conditions.
  • If ever you decide you want out, you will surely be able to find a lot of people willing to buy an on-going business.

The Cons:

Okay, we are now done with the positives. Let us spend a few minutes on the inherent problems of starting a franchise. As with everything else in life, franchising comes with its share of pain.

  • You will not be your own boss. If you have always wanted to be completely independent then starting a franchise is not your cup of tea. You will never be fully independent to take your own decisions.
  • You will not be able to make changes to the operations in the franchise. You have to follow the tried and tested method. There is no scope for innovation.
  • You have to pay a royalty fee based on a percentage of your monthly sales.
  • If any of the other sister franchises generate negative publicity or media attention, your franchise will also suffer the backlash from such allegations.
  • It is more expensive to buy a franchise than starting your own independent venture about 40% more!
  • You will be bound by a contract with many terms and conditions. Learn to read the fine print.

That being said, it is now up to you to take that final step. Make that decision after careful thought and considering all the advantages of franchising along with the disadvantages. Once you have made the decision, go for it!

Franchisor Lending Assistance, Yes Or No?

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As years go by, more franchise systems are making use of lending programs to encourage financing and entice people to buy franchise despite the difficult times the lending environment is going through and the increasing demands to stimulate growth. However, such move is not a prudent tactic for everyone, according to Infinity Franchise Capital’s vice president of franchisor Sharon Soltero.

During the Franchise Finance & Growth Conference at the Four Seasons in Las Vegas, Soltero began her talk by telling those franchisors, or anyone who advertise franchise opportunity, that they ought not to do lending programs. Having worked on said programs herself, she related on how the process can be very stressful, difficult, and time consuming. She mentioned, in fact, that these programs require up to three months to get things started for both franchisee and those who buy franchise.

Soltero also gave further tips for those who still insist on using lending programs. For instance, franchisors must confirm if they are legally allowed to make use of such programs or determined enough to be able to implement it. She related how many franchise opportunity sellers, whom she worked with in the past, became quite interested in the program but eventually changed minds after going through the difficulties. These include problems in the loan contract, legal concerns, and convincing the company’s board.

In order for such programs to be successful, franchisors are advised to ensure loan guarantees. Such strategy appeases lenders and increases the program rates, both of which consequently improve participation and ensures the program’s success. Furthermore, franchisors committed to loan guarantees tend to exert more effort in making the program to function as intended.

Despite the aforementioned troubles that accompany lending programs, some benefits can also be had. For example, Burger King’s program helped boost the fast food chain’s remodeling program. Denny’s, on the other hand, went through a significant kick start development when its lending program—amounting to $40 million—aided its franchisees to convert 140 restaurants located in Flying J Travel Centers. To cap it all, the lending program is a great tool in solidifying the relationship between franchisor and those who buy franchise.

If franchise opportunity sellers want to reap the benefits of lending programs, they must certify that the programs are going to be used, monitored on a daily basis, and have a solid contractual agreement. Soltero related how the lending programs she had been involved with never lost a dime because they were done correctly with full commitment from their franchisors.

Franchising: The Common Errors to Avoid

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In any business venture, there are always advantages and disadvantages. Same goes if you want to buy franchise, it has a lot of benefits yet it also comes with a lot of downfalls. A franchise opportunity is great and it’s easy to operate, you can instantly run it without wasting too much of your time. Applying for a loan is also easy if you’re going to franchise rather than start an entirely new business.

However, a franchise opportunity is not an assurance you’ll earn big time. In fact, it is also possible you’ll lose your money. To avoid losing your money, here are some common points you need to consider if you plan to buy franchise.

1. Don’t Tumble Over Too Much Publicity – Franchising is most of the time over publicized sending wrong notions to the public. Franchising is not an assurance that your business will not fall. Some popular personalities are aware of this over publicity that they too have agreed that franchising is not as easy as it seems. A franchise adviser named Joel Livaba once said that a franchise opportunity is great as long as one should be realistic about it. A long time marketer Sean Kelly also said that there’s no such thing as low risk in terms of business because not all franchising venture flourishes just like McDonalds.

2. There’s No Harm in Calling – Before you buy franchise, it is better to check on the FDD or the Franchise Disclosure Document which contains contact information of multiple franchisees. There’s really no harm in calling some franchisees and ask them about their experience. By doing so, you will have a better grasp of what you’re about to venture in. Of course, make sure to ask franchisees the most important question and that is if they still want to do it again if given an opportunity.

3. Ensure a Back-up Fund – One of the most common mistakes in franchising is giving everything without a back-up fund during lean times or emergencies. Starting up a franchise involves great amount of money and some franchisee tends to give all without saving some for the future.

4. Have a Way Out – In case you reached the darkest moments of franchising, you must have a ready plan to get out of such situation. First, you must have read the agreement or contract right before you agreed to any of it. You may lose everything when franchising; there’s a possibility of foreclosure even before the contract ends, you may have a pending loan you need to settle and you don’t have money left because you’ve given everything to start up the business. Overall, you must be clever enough to have an exit plan in cases like this.

5. Always Do Reality Check – Franchisees are sometimes blinded with excitement that they tend to ignore reality. You must question yourself if the franchise is easy to market and will you profit from it. You must not lose your focus and always get in touch with reality.

6. Is it Profitable? – Just like any other business, you must check the financial history of the franchise. Financial reports must be checked so you can weigh things before investing.

7. Business is Business – Franchising is a business so expect to maintain a business relationship. Although there are some franchise owners who wants to help, it is still better to take caution. In business, money is the main priority.

8. Make use of a Third Party Consultant – Consultants are there to offer you a hand in decision making. Never fail to have your own franchise consultant, this way you’re assured your consultant will tell what you need to know about the franchise.

9. Spend a Little for a Good Lawyer – Venturing into the world of franchising is tricky so you need to have a good and reliable lawyer to help you with your franchise contract. So invest a little in your lawyer to expect a good service.

10. Don’t Take the Bait – One of the most common misconceptions in franchising is assuming that all the hottest and newest franchise can help you earn a sizeable income. This is not true! Franchising is based on proven methods and success therefore a new franchise with no track record is a not guarantee that it will flourish.

To venture in the world of business may take years of experience, if you’re an aspiring entrepreneur then take these points seriously to avoid the common mistakes in franchising business.

Franchise Investment – How Much Will It Actually Cost You?

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So, you want to own a franchise but are wondering what franchise investment you need to make. Like all things in life, you have to pay a price for owning a franchise – remember, there is no free lunch.

The price tags for franchises vary depending on the type of business you choose, with mobile and home-based business franchises being the most affordable category. Here are some indicative costs:

  • hotel franchises: $4 million to $6 million
    full-service restaurants: $700,000 to $3.5 million
    fast food restaurants: $250,000 to $1 million
    auto repair: $200,000 to $300,000

There are different types of costs involved in owning a franchise. While some of these costs are typical expenses that you would expect to pay in any small business, there are other franchise investments you will need to make. This is the price to be paid for the added value a franchise presumably brings to your business venture.

You will incur both initial and ongoing costs. The initial or upfront costs include:

1) Front-end franchise fees: You will have to pay an upfront fee for any franchise that you choose. This fee can range from $5,000 to $50,000 or more. In exchange for this fee, you receive the right to use the franchiser name and business concept. In most cases, you also receive a certain amount of training from the franchiser.

2) Initial investment: Apart from the franchise fee, you will need to have some amount of money readily available to you to meet your initial setup and working capital expenses. Depending on your business, you may need as little as two to three months worth or as much as two to three years’ requirement of working capital. You can get an estimate from the franchiser as to how much this amount should be.

3) Other expenses: You will have to pay professional fees for legal services and operating licenses. Things like insurance, employee training, inventory, rental and equipment will also cost money. Depending on the franchise, you may also have to pay up advertising costs upfront and buy signage packages from the franchisor.

The ongoing expenses include:

Royalty Fees: In addition to the upfront franchise fee, many franchisers also require an ongoing royalty fee. This fee is assessed on a percentage basis and usually ranges from 5% to 10%. In return for the royalty fee, you are entitled to participation in national marketing campaigns, ongoing training and territory rights.

Other expenses: Apart from the royalty fee, you will also incur regular ongoing expenses on advertising, equipment maintenance, employee salaries, insurance and inventory.

It is better to be prepared with complete knowledge before you take the plunge. Before you make the decision to buy into a franchise, make sure you have a thorough understanding of the total the franchise investment you need to make.

Investing In A Franchise – Will Someone Show Me The Money?

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You are investing in a franchise? Congratulations! Any thoughts on how you’re going to find the finances to grow this new business? Stupid question – the worry lines on your forehead say it all. Investing in a franchise may bring several advantages, and give you a head start on many counts; but sadly, when it comes to arranging the funding, you’re faced with the same uphill task as with any other form of business.

Finding money for a franchise involves arranging resources at different levels and times. At the outset, you may have to pay a fee to the franchiser, which secures you the right to use their brand, sell their products in a certain territory and so on. The size of the franchise fee can vary significantly, and is usually directly proportional to the strength of the franchiser brand.

Try to negotiate a staggered payment with the franchiser, mapping revenue inflows. Once you’ve handed over this check, it’s time to worry about another one. If you own the business premises from where you intend to operate the franchise, good for you! For those less fortunate, it’s time to find a suitable location and the money for making advance rental or security deposit payments. Not to mention, a broker fee. And we haven’t even talked about doing the interiors yet!

Costs of equipment and working capital make up a large part of funding a franchise. While there’s no getting around the expenditure, securing favorable terms of credit from suppliers can go a long way in easing the cash flow. Make sure you evaluate at least a few vendors to ensure that you’re not being ripped off. Also, look for opportunities to buy in bulk at discounted prices. Leasing, rather than buying equipment can work in some cases, but not all. “Negotiating Business Equipment Leases” by Richard M. Contino, available at www.amazon.com under the Professional and Technical books category can give you a better perspective.

The strategies we discussed above will help some, but funding a franchise takes a lot more. Unless you already have the resources to support the venture for a year or two, there’s no alternative but to borrow. If you’re going to take a bank loan, be prepared to hand over a copy of a detailed business plan, along with plenty of other documents. Also, visit our Finance section to find out more on the procedures associated with a loan application. Your chances of securing the loan will depend enormously on the collateral you can provide, your previous credit history and your personal and business reputation. In any event, you will have to fork out about 25% of the requirement from your own resources.

If you’ve decided to take the equity route for funding a franchise, be prepared to answer some stiff questions from prospective investors. There’s more on this in another article on Equity Financing on this site.

A piece of advice – in general, you will find that investing in a franchise becomes easier when you seek the help of the franchiser. A well established franchiser brand will usually have a system in place to help you along – this may include tie-ups with financing institutions. They will also help you build a business plan and financial forecasting model, based on the actual experiences of other franchisees, so you don’t have to plod your way through all by yourself. And last, but by no means least, projecting the strength of an established brand to prospective financiers will only help any quest for investing in a franchise.

Common Franchisee Mistakes to Avoid – Part II

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With innumerable franchises for sale across industries, the opportunities are plentiful but it has become increasingly difficult to pick the right venture to get into. To buy a franchise is definitely less risky than a startup from scratch but it’s not immune to failures either. When you get into operating a franchise, there are essential factors to take into account such as franchisor’s agreement and support, equipment costs, business model and brand history and performance to mention a few.

Understanding these key components will help you steer away from common franchisee mistakes that can make or break your business venture. Some mistakes to avoid include:

1. Not creating a frugal budget plan and not having enough capital to jumpstart the business. New ventures are expected to rack up steep startup costs but there are ways to lessen the blow. Equipment costs, for one, can be lessened by scouting for low cost options with equal quality. Do not simply rely on recommendations from your franchisor. After you buy franchise, the business is essentially ready for operation but make sure you have sufficient capital and a sound financial plan to keep it afloat until it get past the startup phase.

2. Not sticking with the business model provided by your franchisor. Exploring other cost-effective ways to do business is good but you can try to strike a balance. Most franchises for sale come with its own franchising system because it has been proven to translate into profits. This is also one of the reasons why you got into franchising in the first place because it eliminates the need to create your own business mode from scratch. Instead of ditching your franchisor’s business model, follow it through but stay flexible.

3. Not taking the time to read and understand the Franchise Disclosure Document (FDD). As a franchisee, it is your right to see the FDD as mandated by law. Before you invest and buy franchise, it is highly recommended to go through the document that will tell you of your franchisor’s turnover, sales history and cases of litigation if there’s any.

4. Not seeking franchisor support and failure to talk with current franchisees about the pros and cons of the venture. Don’t hesitate to seek out fellow franchisees. If you cannot get enough information from your franchisor, one of the best ways to acquire the details you need is through business owners who have already done it. Once the deal is done, make sure to take advantage of franchisor support and assistance. Most franchises for sale nowadays have support programs designed for franchisees to encourage them to invest. It’s only right to get as much help as possible until your business gets off the ground.

Common Franchisee Mistakes to Avoid – Part I

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Buying a franchise is not as simple as spotting a trend that you can capitalize on. It’s not just about recognizing a potentially profitable franchise opportunity either. Setting entrepreneurial instincts aside, success in the franchise industry comes to those who come fully prepared from the beginning up to the long haul. There are plenty of factors to consider and failure to analyze one might cost you greatly even drive you to bankruptcy. As a responsible franchisee, you can work with a franchising brokering consultant, examine common franchise gaffes and learn how to avoid making them yourselves.

Below are two common franchisee mistakes with suggestion and recommendations on how to work around them:

Mistake #1: Diving into unfamiliar territories without backup

Franchise success stories are plentiful where entrepreneurs seemed to have found a franchise opportunity that turned out to be a gold mine with profits steadily increasing and the operation is on the verge of expanding. It doesn’t happen often but it is possible. Sadly, there are also major failures that could have been avoided.

Recommendation:

Back-up your business venture with thorough research. In other words, diligently do your homework. Preparation and planning couldn’t be reiterated more. To some extent, you’ll need to get a franchising brokering firm on board to get keep every detail in check. You’ll need to understand the market, examine the venture in all angles and get to know your franchisor. The single most important aspect of planning is to investigate every important detail about your franchisor which may include history, performance, projected growth, fiscal returns, relationship with franchises and more.

Mistake #2: Failing to prepare a growth strategy plan

No matter what franchise opportunity you grabbed, expansion should always be part of the plan. You can’t grow too quickly or too slowly. Without perfect timing and careful financial planning, either you mess up the business’ finances or miss a golden opportunity for financial growth. It also makes perfect business sense to continually device for ways to increase revenue.

Recommendation:

Before closing any franchise deal, it would help to consult with a franchise brokering firm setting realistic expectations and come up with a sound growth strategy plan that will cover future expansions. As the business experience profitability, you’ll need to actively monitor and analyze sales including customer profiles then use the data to carefully plan a strategy that will give you maximum returns.

Operating a franchise is serious stuff. This is why some ventures fail and fizzle in a year or two. Some entrepreneurs are too excited to take leap without planning. Avoid the same franchising mistakes by doing your research then whip up a strategic plan and you’re on your way to sustainable business success.

Hiring the Right Staff for Your Franchise

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No matter how promising or attractive the business venture is, you cannot run a one man business. After choosing the suitable type of business among a plethora of franchises for sale in the market, the next step is marketing and hiring the right staff. While most entrepreneurs are focused on profitability, it is as important to dedicate time and resources on planning the aspect of staffing your business to ensure that the franchise opportunity you took on will be sustainable in the long run.

Start by establishing the budget you can allot for staff payroll, it will follow to determine the number of employees your franchise requires to operate smoothly. It’s important to strike a balance here, meaning you cannot afford to hire too many people while being understaffed is not desirable either. Too many help will only eat up your profits but too few employees and you’ll end up with overworked and stressed staff. This may lead to poor customer service which can hurt your business.

Depending on the franchise opportunity, determine the different roles you’ll need for the business. Clearly define each role, if you must, write down a detailed job description covering daily tasks and responsibilities. When you’re upfront with your expectations, it will help find a team of employees that are qualified, skill and perfectly fitted for each job description.

Set-up a screening process that will segregate the good from the great then set-up interviews with your prospective candidates. If you don’t know where to begin, seek help from your franchisors. Most brands that offer franchises for sale often include assistance for franchisees to get them started smoothly. Franchise agreements also include regulations and guidelines with regard to staffing, sometimes even specifying employee uniforms. It’s best to double with your franchisor to get the details right and to stay within the boundaries of the deal.

Just like choosing the best business from numerous franchises for sale, you need to carefully choose your help. This means the hiring process should be done early on, not until the last minute. Whether you’re looking for temporary help or full-time employees, considerations of the season and the busyness of the business operations are important factors to take into account. You’ll need adequate time to screen, interview and train the candidates. And by starting an early search, you also guarantee an early opening day for your franchise opportunity venture. Ideally, you should only open your business to the public if you have a full staff ready to cater to your customer’s needs and demands.

The Difference between Franchising and Licensing

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The terms franchising and licensing are two common terms and you might find the two as similar as they may sound. However, there is a big difference between the two and you must know how they differ from each other. Identifying the difference would surely be helpful to you especially if you are planning to buy a franchise or in the process of looking for a franchise opportunity.

Franchising can be defined as a business arrangement allowing the other party, called the franchisee, to conduct the business of providing and selling products or services. The other party needs to abide to the certain rules and regulations.

The two parties involved in franchising are the franchisee and the franchisor and they need to work closely to each other, creating a good working relationship. The franchisee is considered as the extension of the parent company. Thus, the franchisee can use the company’s brand and image. Since the franchisee can retain the company’s logo and trademark, it is best for franchisor to provide necessary training to the franchisee. It is worth to give the franchisee the support they need and some amount of territorial exclusivity. When you buy franchise, you and the franchisor should maintain a visible relationship.

Different from a franchise opportunity, a licensee is not really required to build a strong and close relationship with the parent company. Thus, a licensee doesn’t receive the same amount of training and support compared to the amount of a franchisee received. Licensing companies can get the opportunity to sell similar products or services of the parent company but they don’t have the right to retain the trademark as well as the company’s brand and logo. Lastly, in licensing, a licensee does not get the territorial rights as oppose to franchising.

Knowing the difference of licensing and franchising, you might think that looking for a franchise opportunity is better than a licensing opportunity. However, licensing also has its own advantages. One notable advantage is lesser cost. Licensing requires minimal financial investment compared to franchising. In franchising, you need to pay royalty fees but in licensing, you are not required to pay the same expense. Another advantage of licensing is once the licensee can stand on its own, the relationship between the licensee and the parent company is restricted to the frequent product purchase.

Now that you finally know the difference between the two, which would you prefer? Will you buy franchise or will you settle for licensing?

Tips on Buying Your First Franchise

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Getting into a business is never easy. Whether it’s to buy a franchise or start from scratch, you’ll need to work hard to achieve success. If you have money for the capital then to start a franchise is a practical way to get introduced to the world of entrepreneurship.

A good franchise will provide a suitable venue for aspiring entrepreneurs to master the complexities of operating a business. Franchises are generally less risky with lower startup costs and higher rates for success. But just like any business, there are no guarantees. In order to make your venture a success, there are some crucial things that you need to consider such as budget, type of franchise and business operation responsibilities

Set Your Budget Properly

When you buy a franchise, setting the budget is everything. It’s not just about having the money to pay off your franchisee. You’ll need a solid financial plan and a sufficient operations fund to keep the business afloat until you get past the start-up phase and the business starts earning for itself.

Choose the Right Industry

Once you have the capital, it’s time to scout for the right business. While majority of franchises tend to be successful, some ventures are also failures and you don’t want to end up one. There are plenty of industries to choose from and it may get confusing but the key to start a franchise successfully is to work in an industry you are comfortable with. The key is to look for hot businesses then evaluate the possibilities. Ideally, a related experience will tremendously help but not always necessary. Just look for a franchise that will provide you a steady and stable source of customers year round.

Master the Business

Understanding the business is one of the most important things to do if you plan to buy a franchise. It is your responsibility as a franchisee to analyze the contract including the pros and cons. Before signing any documents, make sure that you’ll be getting the best end of the deal. Get to know the product or services, financing policies, training provided and history of success for other franchisees. Familiarize yourself with fees, clauses on control and other regulations. Since you’re putting your nest egg in this venture, make sure that you’ll get full support and assistance until you can stand on your own. If you really want to start a franchise and achieve enduring success then a full understanding of the business is crucial. Do your research, plan and arm yourself with sufficient knowledge to get your franchise right the first time.