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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.

Top Franchise Investments According to the Street

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Every aspiring entrepreneur should consider five areas if he wants to succeed in a franchising business.  He will need to look at the initial capital, profitability, demand for service or product, knowledge of the business, and leadership skills.  Establishing and maintaining strength in all these areas will guarantee success for your franchise venture.  But how to pick the right venue or the right franchise may still be a bit of problem especially if you see the market with a lot of franchise opportunities.

The Street provides reports on financial news, stock markets, and quotes and analysis of what’s happening on the stock market scene. It has recently come up with a list of names that offer good franchise opportunities to help entrepreneurs make up their minds if they want to buy a business.

  • Jersey Mike’s Subs has more than 500 stores across the country and it’s still growing.  Its famous lunch menus have consistently drawn patrons to its restaurants and giving it a solid name in the food business sector.
  • BrightStar Care provides medical services including child care, elder care, and in-home adult care.  This is one good industry to invest in because a lot of baby boomers are expected to reach retirement age.  The aging population will cause expansion of the healthcare system which will bring stronger demand for this type of franchise.
  • The Dwyer Group is at the top of the franchising chain of businesses.  It is the head company of eight other brands like Mr. Rooter, Portland Glass, and Glass Doctor.  CEO Dina Dwyer-Owens said that she attributes their success to their ability to expand without increasing overhead in their personnel.
  • Fastsigns is a business that focuses on making signs, digital prints, decals, and other custom solutions for several business companies.  Currently it has 530 businesses locally and abroad. They have acquired the highest franchisee scores when it comes to satisfaction.  The demand for their type of business is considered “very hot” and is expected to be around for a long period of time.

There are more choices out there but more importantly when you consider to buy a business you should gauge the strength of its management.  It shouldn’t just fall on the shoulders of two people.  President of Franchise Update Media Group, Steve Olson, said in an interview that before entrepreneurs choose a franchise they must analyze their own capabilities, strengths, and management styles because whether they acknowledge it at the beginning or not these factors will have an impact to their business in the long run.  There should be a never ending willingness to learn and a strong commitment to succeed.

Credit Access Levels in Hospitality Franchises and Food Service Continue to Improve

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Franchising and franchise opportunities are still recovering after the recession as reflected in the 2011-2012 franchise financing rates. A recent index from International Franchise Association & BoeFly revealed that lending to franchises showed a 3.18% gain between March 2011 and March 2012.

People who want to start a franchise need to know what industries are showing above-average growth.

BoeFly co-president Mike Rozman stated that hospitality and food service industries have been demonstrating growth even with the financial crisis and are expected to grow further in the months to come.

Individuals interested in these industries can choose whether to own a restaurant or a hotel, whichever suits them.

Street Directory noted that entrepreneurial spirit and the willingness to stay within the restrictions of the established business model are needed to have a successful franchise in food service.

Some of the business-minded people will appreciate the franchise restrictions and utilize them to help their franchise business however others may not like the idea of following someone else’s regulations. After all, most people choose to open or run a business to be their own boss.

Some individuals are attracted to the food service industry and dream of creating unique menus and cultivating an ultimate diner ambience. Franchising is less likely to be suited for these individuals since it follows a standard model and leaves no room for personal creativity. Street Directory stated that buying a franchise means entering an established business with proven record of success. Franchisees have the responsibility to run the enterprise as effectively as possible while adhering to its guidelines and regulations.

According to the Hotel News Resource statistics, less than 40% of US hotels were brand-name enterprise 20 years ago. Currently, around 80% of the US hotels are either branded or brand-affiliated.

The franchise financing growth observed in the food service and hospitality industries suggests that the trend is expected to continue. Robert E. Braun, hotel lawyer of JMBM Global Hospitality Group indicated that there are cases when hotel franchisors help in the funding of a project by providing credit enhancements or loans. Franchisors are more likely to get their money back however this is not the case with franchise financing acquired from other venues, which puts the franchisee and the franchise more at risk.

It is important to do a thorough research on the various hotel franchising options before planning to buy a business franchise to avoid committing major mistakes.

When it comes to franchise lending, the year has been practically static. Individuals interested in starting a franchise in the hospitality and food service industries will be glad to know that the industries have been experiencing above average credit access levels. As an entrepreneur, try to research more on these sectors to avoid quitting halfway just because you felt that you weren’t suitable for such franchise after all.

Getting Through Your First Day of your Franchise Business

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Entrepreneurs who buy a business franchise experience the jitters during the first day, even if they’re already riding on a known brand.  Owning a franchise business that represents a national brand gives consumers a set of expectations that should be met even during the first day.  But you know that there are a lot of things that could go wrong so it’s very important to plan for potential errors that can happen and have a plan B for everything to keep your business running smoothly. Remember, first impressions last even in the business world.

Sometimes before you make money, you have to give away some too.  Marketing your business before it even opens makes your consumers aware that you’re coming in their neighborhood.  There are my ways to do this, you can give away flyers, print the opening event on your local newspaper, buy some airtime from your local radio station or television, and give a shout out at the internet via social media.  Send your message in a unique way as you possibly can to make your opening day more exciting.

Consider giving away coupons that consumers can bring on your first day of business.  Or give discounts to the first 50-75 guests who will visit your store.  Generate as much buzz to your business to excite your future customers on opening day.  Some even start with a scavenger hunt and shout their hints on their website or on twitter. Since your franchise is already a known brand getting attention is no longer a problem, the goal now is to let them know where your customers can find you.

Utilize the internet to its full extent.  Create a you tube marketing infomercial, set up a blog, create pages on Facebook, create a twitter account for your business,  and send email blasts to family and friends that they can send to their friends.  This will help you get the word out in the streets.

Before you can make money from your franchise you know that you should have available funds to keep the ball going.  Adequate funding will play a major role once you buy a business.  Return of investment will not come quick for some services so you have to plan for a long period of funding if you want to reach success.  Get everything that’s necessary to be covered by insurance, and have volatile funds on the side should you encounter some immediate and extra expenses along the way.  Having your hands on volatile funds will make sure that you can run your business smoothly for a longer period of time.

Franchising Basics Explained

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It is a wise move for those who want to buy a business franchise to avail of the services of a competent franchise attorney and a financial adviser. But even prior to seeking such services, prospective franchise buyers should already be knowledgeable on the basics that are involved in operating franchised outlets. Many of these fundamentals are covered by information covering some frequently asked questions on franchises for sale. Among these FAQs are:

Q. Where can franchise opportunities be found?

A.  Franchises are advertised in many ways. There are franchise directories which can be accessed on the Internet. Others can be found in traditional magazines and publications on franchising. Through these listings, prospective franchisees can initially gauge the business that is best suited to their talents, skills, or abilities.

Q. What is the Franchise Disclosure Document (FDD) and why is it important?

A.  The FDD enables a prospective franchisee to analyze the franchise and the franchisor. It is a legal document that the Federal Trade Commission (FTC) requires the franchisor to furnish to franchisees. This document must be furnished to the franchisee applicant at least 10 days before the franchise agreement is signed.

Q. What government agencies, besides the FTC, regulate the franchising business?

A.  Although franchises’ offerings and sales are generally regulated by the FTC, 14 state governments also regulate franchising in areas under their jurisdictions. Additional franchise regulations and oversight are sometimes imposed in these 14 states in order to extend an extra protection layer to prospective franchisees. These states areCalifornia,Illinois,Indiana,Maryland,Michigan,Minnesota,New York,North Dakota,South Dakota,Oregon,Rhode Island,Virginia,Washington,Wisconsin, andHawaii.

Q. Can prospective franchisees ask about potential earnings from franchisors?

A.  Information on how much money a franchisee can potentially earn may be found in the FDD. Franchisors’ disclosure about franchisees’ sales or earnings is not allowed unless that information is provided via the FDD. It’s been estimated that this information is provided in about 25% of the franchisors’ FDDs.

Q. Can this information on potential earnings be sourced elsewhere?

A.  Current franchisees are the best source for this information. Although detailed information may not be provided, what they can provide are ranges of sales or earnings that a franchise applicant can use as a basis to work with. These data are useful in financial projections at varying sales levels.

Q. Can financing offers be expected from franchisors?

A.  The possibility of receiving a financing offer from most franchisors is remote. The best thing that they can do is arrange for third-party financing. 

Famous Dave’s Secures 21 New Franchise Contracts

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The barbeque chain based in Minnetonka will have its 18 new branches in most of the southern part of California.  Moreover one new venue will be opened in Yakima Washington, Missouri, Independence, Michigan, and Lansing Cities.  Famous Dave’s success is a good motivation to those who are planning to buy a business or searching for franchises for sale.

Famous Dave’s Spokeswoman told the Twin Cities Business about the opening of all its new restaurants in two years with most of them becoming operational by next year.

Opening more Famous Dave’s branches in California will increase its presence in the state, adding more to its 14 restaurants that opened in January.

John Gilbert, CEO of Famous Dave’s stated that the signing will give them a perfect start in their aim of having 50 new venues in the next couple of years.  He added that having more deals will make the growth potential of Famous Dave’s look impressive.  With impressive growth record, more individuals will be attracted to buy a business franchise of Famous Dave’s.

The Famous Dave’s has 132 franchises in 53 locations.  At present, its geographic footprint spans one province in Canada and 33 states.  In July, Famous Dave’s first international venue was opened in Winnipeg.  According to Brett Larrabee, the director of franchise sales and development, the Winnipeg location has exceeded all of their expectations, providing the enterprise its highest sales ever.

The revenue of the company in the latest fiscal year, which ended in January, had a 4% growth or about $154.8 million.  However its current net income was down by 22.9% compared to the previous year.

Its quarter sales, which ended in September 30, amounted to $39.9 million, 2.6% higher from the same period a year ago.  However the net income amounted to $845,000, which was 46% lower from the similar quarter a year ago.  According to Famous Dave’s, its 3rd quarter earnings have been badly affected by its timing on direct-mail marketing and media spending, which occurred on the 4th quarter of the prior year.  The margin pressure brought by the benefit, commodity, and labor costs were also cited as contributing factors.

Last month, Gilbert became the company’s CEO, replacing the former CEO Christopher O’Donnell who became the President and COO.

When the C-suite transition was announced, Aric Nissen, the company’s Marketing VP told the Twin Cities Business that Gilbert and O’Donnell are unique people possessing excellent skills while working with the company’s board together.  He stated that O’Donnell’s strength will be in operation while Gilbert will give attention on the company growth and franchises for sale, emphasizing on brand management and marketing.

Athletes Build Financial Future through Restaurant Franchises

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Last month, the Orlando Magic has let go of Quentin Richardson.  However, even if he doesn’t get an offer from another team, he can still keep busy with his other career being the owner of a restaurant.

Before his team waived him, Richardson was able to sign a deal with East Coast Wings & Grill of North Carolina to operate restaurants within the area of Orlando.  He plans to open his first restaurant next year and nine more within the next 7-year period.

Richardson is among the athletes who chose to buy a business franchise to multiply incomes and plan their future after sports.

This year, Milwaukee Bucks player Drew Gooden who used to play for Magic opened his own Wingstop in the Uptown Altamonte area.  Last month, Peyton Manning, quarterback from Denver Broncos signed to buy a business franchise of 21 Papa John’s.  Shaquille O’Neal, former Magic star owns several pretzel shops of Auntie Anne’s through its investor group.  Tennis ace Venus Williams has also opened outlets of Jamba Juice.

A number of individuals like Dan Marino of Miami Dolphins have been involved in restaurant business for years however the trend in franchising has only picked up pace recently.

According to International Franchise Association, there have been 50 agreements sealed during the past couple of years between franchise companies and sports stars.  Senior director of IFA on diversity and education, Miriam Brewer stated that venturing into franchise business can be one brilliant move for athletes on the lookout on how to increase income.

A member of an organization that helps educate athletes about franchises, Brewer stated that athletes may face some financial hardship or bankruptcy after retirement.

Richardson stated that he started researching about franchising and franchises for sale several months ago after his financial adviser suggested it.  He stated that at that time he needed to figure out ways on how to manage his finances when he retires.

With a guaranteed contract of $5.4 million with Magic in the next couple of years, Richardson stated that he would be involved with a number of business decisions like location choices but the day-to-day restaurant operation will be handled by his business partners.

Former Magic member Drew Gooden has restaurant veteran George Taylor as partner.  Taylor has held managerial positions in Applebee’s, the former Mojo Bar & Grill, and Chili’s.  Currently he holds the director of operations position at the Altamonte Spring Wingstop Store and the future restaurants that Gooden will own in the Central Florida area.

Searching For Franchise Opportunities At Expositions

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People who choose to buy a business, instead of going through the financially unhealthy way of learning how to start one that’ll last, are doing themselves huge favors. Building a successful commercial establishment from the ground up can be extremely difficult, especially since statistics show that most ventures fail within their first year of operation.

Franchise opportunities make things even easier, and statistically safer, for hopeful entrepreneurs to run establishments that can compete and make money. Coming across these types of businesses isn’t difficult, as they’re advertised practically everywhere.

That being said, franchise expositions are great places to find potential businesses to run. Different commercial brands are advertised at such events, and there are salesmen who’ll explain the advantages that come with each brand.

However, it’s important to keep in mind that the main purpose of salesmen is to sell their product, so many of these professionals will tend to be aggressive. There are times where folks fall victim to sweet sales pitches, and end up investing significant amounts of cash to buy a business they don’t like, or doesn’t make money.

To avoid this from happening, interested franchisees should always do ample research on different franchise opportunities before going to any exposition. This’ll give them a rough idea on what kinds of businesses they’d be interested in running, the amount of capital they’ll need to get started, and how competitive the industry is.

In addition, future entrepreneurs should also assess their current skillsets, and decide whether or not it’s suitable for competing within a particular industry. Moreover, they should have passion for the type of business they intend to run – these folks have to ensure they’ll still be happy operating within the same industry ten to twenty years from now.

Soon-to-be franchisees should also verify earning reports shown by franchisors – it’s easy for anyone to say they net $20,000 a month, and make verbal explanations to back up their claims. FTC requires franchisors to substantiate such statements through official written reports, so asking for these documents is highly recommended.

Once an individual has finally made up his mind to buy a business which operates under a certain industry, comparison shopping with five or more franchisors is recommended. The franchise opportunities offered by franchisors will be under different terms and conditions, and some have greater potential to make more than others. That being said, carefully researching about the backgrounds of each franchisor to root out the best one is strongly advised.

Looking To Buy A Business This Holiday Season?

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With the holiday seasons approaching, millions of joyful people are searching high and low for gifts to give their loved ones. At the same time, most are thinking about ways to improve their lifestyles by making habitual changes or taking on new jobs.

While the above methods may indeed render positive change, its impacts are minimal in comparison to those gunning to start or buy a business by the end of the year. Franchises for sale can give its owners an excellent opportunity to become their own bosses, as well as generate hefty and stable incomes that’ll provide them with the means to make drastic lifestyle changes.

The thought of transitioning from employee to bona fide entrepreneur may be overwhelming, but franchisors have surefire methods for making such transformations significantly easier, and even a more enjoyable process. Though risks are involved with any sort of commercial venture, the systematic approaches taken by franchisors greatly minimizes these dangers.

However, an individual who immediately goes online in search of franchises for sale without having a solid idea on what he really wants or needs, will usually end up being overwhelmed by a plethora of options presented by different websites.

With that in mind, anyone looking to buy a business is advised to create an imaginary list (although it’d better if it were written on paper) of criteria he or she may be looking for in their dream business.

The number one criterion for identifying a suitable match would be passion – if the entrepreneur engages a trade that he loves, the years he spends in business will a whole lot more gratifying experience. Moreover, industry competitiveness should also be thought over thoroughly as well.

Some industries are saturated with other businesses competing amongst each other. While fighting back is possible, challenging those who’ve been there longer, as well as those who constantly evolve plus expand operations, will unquestionably be tough.

Other important factors an individual looking to buy a business should consider include the following: level of investment required to acquire a certain franchise, estimated operational expenses, operating hours/days, number of employees needed, business location type (home-based or traditional brick-and-mortar) and the expected income streams from operations.

By creating a list comprised of all items listed above, hopeful businessmen can now look at the different franchises for sale, and select one that best matches their personal preferences.

Franchise Opportunities With Highest Chances Of Failure

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Deciding to buy a business should be done carefully – although many franchise opportunities bear great potential, there’s always a chance for failure when mismanagement, plus other factors, becomes an issue.

On the other hand, there are businesses that are flat-out risky, and are statistically marked to fail. There are various franchises which fall under this category, but the two types which can be considered the riskiest of all are fast food restaurants and ice cream shops.

With data acquired from the US Small Business Administration (SBA), researchers were able to determine the two commercial establishments listed above have the highest rates of failure of their federally guaranteed loans utilized to acquire franchises.

Analysts were able to come up with this conclusion by using this simple formula to determine a business’s failure rate:  number of loans charged-off plus number of liquidations divided by number of loans disbursed throughout the franchise system.

Based on this formula, the top five franchise systems with more than half of their SBA loans failed are: Golf Etc. at 71. %; Mr. Goodcents Sub and Pasta at 65%; Dream Dinners at 60%; Planet Beach at 58%; and Carvel Ice Cream 56%.

Keeping this list in mind, anyone looking to buy a business from similar franchise opportunities should definitely consider the risks involved first. Although there still a good chance to succeed with the purchase of any of the establishments above, financial failure remains the more probable outcome for investors.

Also, keep in mind that the formula includes loans guaranteed under SBA financing programs only. Regardless, strong conclusions can still be derived with the use of SBA-approved loans, mainly because the government tends to be unbiased when gathering data pertaining to its borrowers, and when presenting it to the public.

In addition, a large percentage of franchisees acquired their finances from SBA financing programs, thereby fortifying the reliability of all assumptions made based on the gathered data.

This presentation of franchises which are most likely to fail may not gain favorable responses from other franchisors, especially the ones belonging to the list. Moreover, they likely have their own slightly modified formulas for determining the worst franchise opportunities.

Nevertheless, ample research and planning should be done before ultimately choosing to buy a business. Statistics should always be included in the basis for selection to ensure a successful commercial operation is acquired.