How Long Does It Really Take to Open a Franchise?

"Are we there yet?" Anyone who has ever taken a long car trip with small kids is more than a little familiar with that question. It is usually posed in a small, high-pitched voice that is dripping with frustration and sarcasm – mostly because the kids don't care a hoot about the journey, they just want to get to the destination.

In many ways, this is the same dynamic we face in the franchise industry.

Once people decide that they want to get their own piece of the American Dream by owning and operating a franchise business, they want it to happen now! The frustration some people experience is that there are a few time-consuming things that have to get done before the business is ready to open – and rushing these things might be a very bad or expensive idea.
 

Let's take a look at some of the major milestones you must pass before your new franchise is actually ready to open for business.
 

1. Drawing a Line in the Sand. This is the beginning of the process. You have made up your mind that you want to get your own business, be your own boss, control your destiny and live a life of freedom! Of course you don't yet have any solid idea of what the franchise of your dreams might be, so you need to embark on a journey of discovery. We know exactly how long it takes to reach this milestone - your whole lifetime up to now.

2. Searching for the New World. Just like Columbus, you set out on a journey into the unknown – finding the right franchise for you. Perhaps you're starting with a focus on some product or service you like and that you think would create the foundation for a good business. You start researching franchises, probably online. You find that there is a ton of information – so much, in fact, that it is almost impossible to figure out how to organize or sort through it. You finally decide to start contacting individual companies that seem like they might work for you, based on the service or product they offer. Columbus never found Asia (his destination), but he did finally find land because he kept heading in one direction. This portion of your process can be as short as a month but it can also go on to infinity if you make the mistake of sailing your boat in circles during this stage.

3. Selecting Your Dance Partner. If you're lucky, you'll be smart enough to give some thought to what your life will be like as a franchisee in each business you are checking out. That will help you avoid making a huge mistake by entering a business that you'd be miserable in. Once you complete your investigations and have determined the right franchise for you, you'll need to complete all the initial paperwork to become an official franchisee. This part of the process usually involves contract reviews, territory analysis and selection, and preliminary finance commitments. Though there is definitely some work to be done here, this can usually be completed within a couple of weeks.

4. Putting Your Stake in the Ground. The biggest variable in determining how long it will take from picking the franchise to actually having it open for business is selecting your real estate location. Some franchises are home-based; for them, this step takes no time at all. Others are businesses that can go into a variety of locations so that real estate selection and lease completion is relatively easy and fast – say a month or two. The final type of franchise has very specific location needs and/or space requirements – often needing sites that are in high demand with relatively low availability. In this type of franchise, it can easily take six to 12 months or even longer to find the right quality of site with the right financial terms to give the business the best possible chance for success. As frustrating as delays may be in a location-dependent franchise, trying to cut corners on either the site quality or the lease terms can put you in a position that limits your earnings potential the entire time you operate the business. This is an area where you have to take the time necessary to get it right and don't sweat the delay. If that's not going to work for you, then pick a different franchise opportunity.

5. Building Your Castle. Most franchises require some degree of construction and build out for your location, even if it is simply setting up an office in your house for a home-based business. In other franchises, build out can be an elaborate process of selecting a general contractor; obtaining permits and variances; ordering equipment, furniture, and other leasehold improvement supplies for your facility; and a myriad of other things. Typically, the more complicated the build out the more assistance is available from the franchise company - but count on at least one to three months for this process for any site-dependent franchise.

6. Learning the Game. At some point you are going to have to go through the franchise company's new franchisee training process. This can usually be completed while you are doing other things like working on your real estate needs or preparing your grand opening marketing plans. Most training programs last from one to three weeks, though that can be extended dramatically if you're also required to get operating experience in an existing unit (which is often a fantastic learning experience).

Now you come to the glorious day when your new franchise opens for business. Depending on the type of franchise, it has taken somewhere from two to 12 months on average for you to get your business open. The delays may seem interminable while you're going through them, but the pleasure of opening will make you quickly forget those times as you focus on your customers. As you're going through this period, remember the lesson of Columbus – his crew almost mutinied before they discovered the new world, but he held true to course and succeeded as a result. Have patience, and so can you!


Source: All Business.com

The Power of Franchising

In business terms, there’s no denying the power of franchising. Franchises foster trust by creating highly recognizable brands so that customers know that they can count on a certain type of product and experience – no matter where in the world they are. Franchises make entrepreneurs’ dreams come true by making business ownership easier. And franchises offer economic stability to communities and the nation by creating thousands of jobs.

But franchising’s power extends beyond the world of business. Franchises have the power to make a difference – whether it’s by joining forces behind a global issue, reaching out to support to franchisees in a time of need, or taking up a cause because it’s deeply personal to one franchisee and therefore matters to the whole brand.

Yum! Brands is the parent company to some of the largest names in franchising, including KFC, Pizza Hut and Taco Bell. But Yum! does more than just sell chicken, pizzas, and tacos. In 2007, it launched a large-scale initiative to combat world hunger. With the organized help of more than 1.4 million company employees, franchisees, and their families at 36,000 franchise locations spanning 110 countries, Yum! is making a powerful impact. In three years, the company has raised nearly $60 million for hunger relief organizations.

In 2005, many small-business owners were paralyzed by the devastating effects of Hurricanes Katrina and Rita. However, thanks to the structure of a franchise system, Burger King franchisees had a very strong support to lean on. Corporate delivered more than 50,000 bottles of water, more than 40,000 pounds of non-perishable goods, and more than 16,000 pounds of ice to areas in need and even set up a program to hire displaced employees into positions at Burger King locations in more than 13 U.S. cities. “Immediately following Hurricane Katrina, the Burger King system rallied together to get restaurants up and running again,” says Michelle Miguelez, a Burger King Corp. spokesperson. “By providing resources, logistical support, and manpower, our franchisees could rest assured that their restaurants were taken care of and they could focus on their family and friends.”

And, most recently, when a devastating earthquake struck Haiti, many franchisors immediately went into action to help with the relief effort, including Robeks, a fruit smoothie and healthy eats franchise. As part of a special promotion, Robeks’ 100 franchisees donated $1 from the sale of every 24-ounce Chocolate Covered Strawberry Smoothie to Wyclef Jean's Yele Haiti Foundation. “One of our franchisees has family in Haiti, so it was very close to home for us,” says Steve Davidson, CEO. “With some investigation, we discovered that many of our franchisees and customers either have family and friends there or know someone who does. We spoke with the franchisees about it and they were uniformly in favour of doing something to help.”

The power of franchising extends beyond simple brand recognition and sales figures and touches on something far more powerful. By acting as a whole, franchises are changing lives and making the world a better place.

Source: AllBusiness

Employer or Employee, Which Will It Be?

Have you ever wondered why some people own a business and others just work for one? Maybe you’ve thought about owning a business of your own for some time but you’re not sure if it’s the right step to take.

What kind of person is cut out to be an EMPLOYER?  Usually it is someone who sees an opportunity and has the commitment and courage to go for what he wants. That opportunity may come with obstacles, but the employer will see around the obstacles to his goal. He knows there will be challenges and even welcomes them. Why?  Because he or she loves a challenge and knows that the difficulties in life separate the doers from the dreamers, the EMPLOYERS from the EMPLOYEES.

An employer is not someone who shies away from hard work. He is willing to put in whatever time is necessary to create his ideal opportunity. But the hard work always has a carrot dangling at the end in the form of success. With this success comes financial security and personal flexibility. An employer understands that over time, as he becomes more comfortable with employees assuming more of the daily operations, he will be able to step away from the business to some degree while having a valuable asset working for him.

Someone cut out to be an employer has envisioned the end results from the beginning and worked tirelessly toward establishing that result. Challenges are met, problems are smoothed over and eventually the employees provide the employer with a nice and comfortable living.

Finally, someone with an EMPLOYER personality has passion. He will put his heart into a project and truly believes not only in what he’s doing but also in his ability to obtain the desired results.

What kind of person is the EMPLOYEE? An employee is not as comfortable with risk-taking and often sees challenges not as opportunities but as insurmountable obstacles. He has thought about business ownership but lacks a desire strong enough to step outside of his comfort zone.

The employee maintains his status quo and often wonders why he’s not getting ahead. He punches his proverbial timecard every day while the employer makes money from his efforts. He imagines he’d take the step to business ownership if only the right opportunity came along and wonders why the stars have never been perfectly aligned for him to realize his dream. He doesn’t understand that the stars don’t align themselves and have never been perfectly aligned for anyone, including his employer.

There are lots of examples of people who’ve overcome obstacles through perseverance. It took Thomas Edison ten years to develop a practical alkaline battery, conducting over 28,000 tests. Further, he didn’t let lack of education stop him. He had three months of formal education and after that was home-schooled by his mother. But he had a passion for invention and believed in himself.

Prior to creating Mickey Mouse, Walt Disney created Oswald the Lucky Rabbit. He managed to sell the cartoons through a distributor only to find that the distributor had gone behind his back and signed up most of his animators, hoping to make the Oswald cartoons in his own studio for less money. Disney also lost the rights to the character he created – talk about major career obstacles! Of course you know this part of the story: Disney went on to create a new character, a loveable mouse whose name has been a household word for half a century. As for Oswald the Lucky Rabbit – Oswald who?

Ray Kroc was just a milk shake maker salesman when he discovered a hamburger stand in California that was using eight of his mixers at a time. When he visited the restaurant he was amazed to see so many customers served so quickly. He convinced the restaurant owners, Dick and Mac McDonald, to open more of their restaurants and then proposed he be the one to manage them. Today McDonald’s has tens of thousands of McDonald's restaurants in over 119 countries and grows at a rate that tops the industry. Ray may not have envisioned everything that McDonald’s has become but he was able to see the value of a quick service restaurant to the public and is often credited with making the franchise model an America staple.

What about you? Where do you fit? Are you content to let life happen around you or do you want to be the person making things happen? Business owners see beyond the barriers of entry into business and focus on the carrot dangling at the end of the stick. Employees dwell on the barriers.

If you are ready to make a transition from employee to employer, buying or investing in a franchise opportunity is a great vehicle. The franchisor provides the business model and the training, the brand and the operating system. You provide some capital, a lot of hard work and your passion. Without visionaries there would be no alkaline battery or Disney World or Big Mac. If being a business owner is your dream, believe in yourself and go for it!

Source: AllBusiness

10 Signs of a Great Franchise Opportunity

How do you know when you've found the right franchise for you? A good franchise opportunity has these 10 vital signs:

1. Industry growth. What is the growth potential of the industry you're considering? Some franchisors provide market research on their industry, but don't rely on this information alone. Do your own research. Equally important is growth potential in your local area. Frozen yogurt may be the hottest franchise trend, but if your neighbourhood is already saturated with yogurt shops, it's not a good opportunity for you.

2. Unit growth. Ongoing growth in the number of franchise units shows that a franchise is thriving. One key benefit of buying a franchise compared to starting your own business from scratch is the franchisor's name and brand recognition -- and the more units that are open, the more brand awareness consumers have.

3. Strong support from the franchisor. What kind of training and assistance do you receive to get your franchise up and running -- and keep it growing? Even a small franchise system can be a good opportunity, provided its franchisee support is strong.

4. Good management. Find out about the people behind the company and their experience in franchising. It's one thing to run a successful pizza restaurant, but another thing entirely to grow a pizza franchise. How long has the company been franchising? Meet the management team and the franchisee support staff to get a feel for what it will be like working with them day-to-day.

5. Marketing and advertising support. What type of marketing and advertising programs does the franchisor have in place? Is the company taking advantage of the latest trends that competitors in the industry are using, such as online marketing or social media? You will likely be paying a monthly advertising royalty, so make sure you're getting your money's worth.

6. Satisfied franchisees. Meet and talk with both current and former franchisees to get their honest opinions of the franchise system. If all the franchisees are suing the company, that's obviously not a good sign. But if the franchisees you talk to love what they're doing and would do it all over again, that's a plus.

7. Adequate earnings. Can you make a living from the franchise? To find out, you'll need to estimate potential earnings. Some franchisors provide average earnings information in the Franchise Disclosure Document (FDD). For others, you'll need to come up with your own estimate by talking to franchisees.

8. Sound financial statements. Three years' worth of financial statements are contained in the FDD; have your accountant go over them in detail. Does the franchisor practice sound financial management? Does it have the financial resources necessary to thrive in today's economy?

9. Honesty. When you have questions about the franchise opportunity, do you get a fast response and straight answers from the franchisor, or do you get the run around? The way the franchisor treats you now is a good indicator of how they'll treat you when you are a franchisee.

10. A good fit. Even if a franchise meets all the above criteria, there's still one more to consider: The franchise must be a fit with your personality, passion, and skills. Making a franchise succeed requires long hours and hard work. You need to enjoy what you're doing in order for your franchise to thrive.

Source: AllBusiness

Financial Questions to Ask Yourself Before Buying a Franchise

Buying a franchise is an important decision that will impact you financially. Each franchise business comes with financial obligations that include start-up costs and ongoing expenses. Because of these potentially large price tags, you need to ask yourself specific financial questions before buying a franchise.

How much initial investment will you need to buy the franchise?

Your start-up costs can include a franchise fee, an initial cash investment, professional fees, insurance, employee training, operating licenses, inventory, equipment, and the expenses involved in running a retail or office space, such as moving expenses, furnishings, equipment, decor, signs, and landscaping.

With the franchise fee, you are basically purchasing the rights to the franchisor's trademarks, business methods, and distribution. The amount, which typically ranges from $10,000 to $30,000, chiefly reflects how established and well known the franchisor is and the size and location of the franchisee's territory or trading area. Sometimes the franchisee can arrange to pay the fee in installments.

Other costs you may encounter besides the initial franchise fee are training expenses, start-up promotional fees, inventory, specific architectural elements, equipment, fixtures, and any other expenses necessary to open your business. Be wary: franchisors often underestimate the initial expenses in an effort to make the franchise appear more favourable as a possible investment. This could leave you with insufficient funding later on when you have to meet your ongoing expenses. To keep this from happening, you should do your own cost analysis of these initial expenses, particularly with respects to real estate and construction renovations.

What are your ongoing expenses until the business starts showing a profit?

Ongoing expenses generally include paying royalties to the franchisor, advertising fees, equipment maintenance, employee costs, insurance, rent, and inventory. The royalty fee can range from 1 to 15 percent of your gross sales with the average being 5 percent. Because it is based on gross sales rather than profits, it can be a burdensome expense. Rather than a royalty fee, some franchisors charge a regular fee due weekly, monthly, or quarterly.

Every business has a period of time before it starts to make a profit and pay for itself. Depending on the type of business, this can be anywhere from two months to two years and you need to plan accordingly. It’s better to make your estimate high rather than low. Having too much money for ongoing expenses is preferable to coming up short of cash and having to deal with the problems it causes.

How much available cash do you have to put towards the franchise?

You need to evaluate the assets you have available to meet your initial and ongoing expenses. In addition, franchisors require their prospective franchisees to have a certain net worth going into the venture. The easiest way to determine your available cash is to develop a business plan.

As you determine the cash you have available to invest in a franchise business, remember that you still have to pay your living expenses until the business begins to show a profit. Lenders do not like you to use more than 75 percent of your cash reserves because more than that limits your ability to deal with unexpected problems, both within the business and your personal life.

Once you determine how much you can personally contribute toward paying your expenses, then you need to look at ways of financing the remainder. 

Source:AllBusiness

Entrepreneurship and Franchising: Perfect Together

We have been reading articles about franchisors' desire to select franchisees that are not too entrepreneurial. Recruiting business people, who are interdependent rather than independent. Of course, there is some truth to this notion, but overall, franchising requires that franchisor and franchisee work together as a team. In this context, the concepts of entrepreneurship and franchising complement each other nicely.

The franchisor is expected to provide the proven business model, trademark, marketing image, branding, and systems. The franchisees are expected to provide intimate knowledge of their specific region, strong marketing efforts, and a “follow the rules” mentality. But for most prospective franchisees to take the leap into business ownership, they also need to develop an entrepreneurial spirit.

Consider a prospect in franchise sales. This prospect was well qualified in many ways to take on franchise ownership. There was only one problem: He had a really hard time making the decision about whether to buy into the opportunity.

Let me give you the full detail. He had done a thorough job of due diligence. He had reviewed the company's Franchise Disclosure Document, or FDD, with his attorney and his spouse. He had created a list of questions for franchisees of the system, asked his questions, and received responses.

He had even visited two or three of these franchisees, getting a real-life feel for the workings of the business and the pluses and minuses of the franchise system. Yet he felt unable to come to a decision. What can be said about this situation:

“His due diligence has been superb. He has done everything you can possibly do to get clear on this opportunity. He felt that  there is still one more question that will make this perfectly clear, but there’s no such magic question. Now  it’s time to come to a decision.”

You know, each of us has to have a good bit of entrepreneurial skill in order to move into our own business.

Imagine that you do decide to move forward. As a franchisee, you will be required to make immediate and even long-lasting business decisions with as much confidence as possible. Maybe you’ll be faced with a decision on the type of loan to pursue and its terms — or a decision on whether to lease or buy your space. Or maybe you’ll be asked to make build-out decisions quickly so that you can open your unit in time for peak opportunity. You get the picture.

Owners of both independent and franchised businesses are called upon to make entrepreneurial decisions each and every day. Decision-making is part of the package called business ownership. So put on your entrepreneur’s hat, please, when pursuing the franchise purchase decision. It may be what convinces your franchisor that you are the right one for the system.
Source: www.allbusiness.com

The Do’s and Don’ts of Buying a Franchise

Published in ENTREPRENEUR Magazine, Feb edition, Page 68-69

Entrepreneur + February 2010

Due diligence is important when buying any business. A franchise is certainly no different.

By Rajiv Singh

 

One of the first things to consider before buying a franchise is what you are passionate about. That accomplishes two things: it drives the business, and the love for what one is doing drives the owner. When the business and the owner are operating as one, it is a powerful combination.

The next step is to meet with more than one of the franchi-sees currently operating in the franchise. Look at the location and determine if you like its look and feel. Ask the franchisee if their startup and ongoing training has been sufficient, whether the franchisor aides in advertising and marketing efforts, and how much freedom the franchisee has in selecting advertising, the product line, etc. Also ask how many hours the franchisee spends on their business. Confirm with them what their startup costs were, and how long it took to see returns on their investment.

Another important requirement is to carry out a good amount of research before you start up your business.

Make sure you research the following:

• The market

• The system

• The company

• The competition

• The franchisees

 

What to look for?

 

If you are thinking about investing in a franchise and want to know if the brand you are looking at has a trademark worth paying for, then look at their marketing and growth. Has its recent marketing been effective or ineffective? Is the brand growing or has it reached a plateau? Is it consistently coming out with new products and / or services? Researching your potential brand's history can give you an idea of where it is most likely heading.

 

Key questions to ask before buying a franchise

 

1. Do you know the franchisor?

Carry out all kinds of background research on the franchisor. Going for established brands is always good. Opting for an emerging franchise business for sale is also good, provided you have done sufficient research on the business and the sector it is in.

2. What is the brand recall / equity of the franchise?

Franchises work well when there is brand recall / equity of the franchise. Everyone knows about Subway, McDonald's, etc. If a franchise has little or no name recognition, launching it will almost be identical to launching a brand new business.

3. What is the success rate of the franchisees?

Many franchisors have ways to make the success rates of franchisees look better than they actually are.

4. What will it do to help you market your business? Ask what the brand is going to do to promote the name of the franchise in your area or target market. If you are paying marketing fees as part of ongoing payments, how will this fees benefit you?

5. What exactly are you buying?

What do you actually get from spending money to buy the franchise—name recognition, intellectual property, marketing support, lead generation? Is the concept of the franchise mature enough, so you don't have to constantly innovate the product or service on your own?

6. Are you a good fit?

Know your strengths and weaknesses. A franchisee is often restricted by what's there in the franchise agreement. If you take up a concept in which you have no interest just because it is profitable, it may soon turn into a burden for you—you just might lose all your interest!

7. Do you know the market?

Knowing the present market trends is very important for finding success as a franchisee. Most franchise agreements are for 10 years, so you must choose franchise opportunities that belong to categories that have a promising future. It's always better to go for products / services that will be needed in every kind of market.

 

Do's and Don'ts

 

DO:

1. Investigate franchise opportunities. Be careful: there are thousands of franchise offerings, and not all of them are good opportunities. If possible, work for someone else in the business first.

2. Talk to the present owners of the franchise. Ask them how pleased they are with their decision, how good their business is doing, and whether they met their projections. Inquire if the franchisor is responsive to their needs and whether the training was adequate.

3. Consult any and all the advisors you feel can help you. This includes having your accountant and lawyer review the audited financial statements and legal documents.

4. No question is too trivial. Confirm and challenge the information that is provided to you.

5. Compare other franchise systems in the same field. Look for franchises that are solidly managed, well financed, and are positioned in a growth industry. Investigate any regional franchises that are doing well but have not yet gone national in their distribution.

6. Evaluate yourself. See if franchising is really for you. Appraise your experience, skills and likes to determine if the business you are considering is a good fit. Evaluate yourself in comparison to other franchisees that you meet and talk to.

7. Check the history and experience of the franchisor's officers and managers.

8. Research, research, research. The more you know, the better your decision is likely to be. Only you can determine if owning a particular franchise is right for you. Most likely, your decision will be based on two factors: your investment and risk capabilities.

9. Decide whether you want to be in business full time. Or would you prefer to be in it part time, or perhaps with your family?

10. Look to the seller as the best source of financing when purchasing a business.

11. Consider the economics of the business more than how well or poorly it has been run.

12. Verify receivables (through written verification) from people who owe the business money.

13. Deal only with established franchisors who are well-financed and widely successful.

15. Plan for more expenses and slower profitability than you think you need.

 

DON'TS

1. Don't permit any expert to decide for you whether or not you should buy a business.

2. Don't buy a business or franchise without your lawyer approving all documents.

3. Don't buy a business or franchise without your accountant reviewing the franchisor's records.

4. Don't rely on information or advice from the franchisor or other selling agents.

5. Don't rely on pro-forma financial statements (future predictions).

6. Don't be in a rush. Wait patiently for the big opportunity by looking at lots of them.

7. Don't rely on the seller's evaluation of inventory and other assets.

8. Don't deal with startups or poorly financed / inexperienced franchisors.

9. Don't hesitate to walk away from a deal that isn't a potential home run.

10. Don't overlook comparing what you can do as an individual verses as a franchisee.

11. Don't hurry. Cutting corners on your research can increase your likelihood of failure.

12. Don't overextend yourself or be overly optimistic about your personal finances. Be realistic, and if anything, be conservative.

 

"A franchisee is often restricted by what's there in the franchise agreement."

 

Rajiv Singh is the President & CEO of Team India Managers Limited. He is also the Honorary Vice President of the Franchising Association of India (Member–National Executive Council).