Posted on March 13th, 2010 No comments
Adapted from Help Your Banker Say Yes! What franchisors and franchisees need to know to get financing today, by John P. Hayes, Ph.D. with Geoff Seiber.
If you’re investing in a franchise that includes equipment, such as a POS system, or fryers and ovens for the kitchen, or if you need a vehicle, such as a van or panel truck, you may be well advised to lease rather than to take out a loan. Leasing equipment is the equivalent of “renting” the equipment, which means that you won’t take money from your working capital to buy the equipment. With a lease, you set up a monthly payment, and at the end of the lease you can acquire the equipment, or upgrade it and roll the package into another lease.
The advantages of a lease include:
- Preserve your working capital. Nowadays it’s important to keep cash on hand rather than use it to buy items that could be leased.
- Claim a tax benefit. Section 179 of the U.S. Internal Revenue Service Code allows you to write off a percentage of a monthly lease payment. The law frequently changes, so it’s important to consult with a tax advisor before claiming this benefit.
- FICO requirements are usually lower for leasing.
- There are no prepayment penalties.
- You can choose the terms: 24 to 60 months.
- If you’re “corporate worthy” (you’ve been in business at least five years) you may not have to sign a personal guarantee.
- If you own an existing business and you’re opening a second unit of that business, you may be able to use the first business to guarantee the lease, and you won’t have to sign a personal guarantee.
- Closing costs are minimal: almost always less than $500.
There are few disadvantages to a lease, although no one will argue that if you’ve got the money, and can afford to spend it, then it’s less expensive to buy products outright and save the interest. Few people are in that economic situation, however.
Securing a lease may be faster than securing a loan – especially if you’re leasing an equipment package, software, a POS system, or a vehicle that’s recommended by a franchisor that’s well known to the lender. But you will still need to provide personal financial information and provide a variety of documents to the lender.
Join This Coleman Webinar:
The New Normal For Franchise Financing
Wednesday, March 17, 2pm ET. Join Bob Coleman, John Hayes, Geoff Seiber and Bob Rodi to learn more about how you can get the funding you need now to buy a franchise. Register at Coleman Publishing.
Posted on December 22nd, 2009 No comments
One of the nation’s premier franchise companies has decided not to wait for the economy to recover to begin selling more franchises. Money Mailer is taking matters into its own hands with a revolutionary finance program that will allow qualified candidates to join the franchise network for a mere four-figure investment!
How many more franchisors will take this same approach? Dozens! Particularly if they want to start selling franchises again in record numbers. If you’re planning to buy a franchise in the next several months, you may benefit from a similar finance program.
Record sales in 2009
Franchise financing isn’t anything new — The Dwyer Group has provided it for several decades, which is part of the reason the company will sell more than 300 franchises in 2009. But now more franchise companies will provide financing because they’re tired of slow-growth and dependence upon the U.S. Government to kick the economy back into gear.
Jaws fell open
Jenkins championed the finance program at Money Mailer and was thrilled when the company announced it at a franchisee convention earlier this month. “When our franchisees heard about it, I’d say there were about 300 jaws that fell open. We’re all very excited about it.”
Excited because he anticipates the company’s lead flow to multiply times four. In less than a week after the finance package was announced, Jenkins said he had received more referrals from existing franchisees than he normally gets in a year! Once the public learns about the program, inquiries will skyrocket.
A $7,500 down payment
While a Money Mailer license costs $37,500, qualified candidates will now be able to join the franchise company with a $7,500 down payment. Money Mailer will finance the balance and not require payments from the franchisee for two full years. The company will also provide a “launch package” that includes $20,000 in production credits paid to the new franchisee in the first year.
Until the economic downturn, franchise candidates frequently used a home equity line of credit to finance a Money Mailer franchise, but that option ended many months ago. “We had to control this situation (the lack of financing) to ensure our growth,” Jenkins explains, “and our management team decided to put this finance program in place. It will make a dramatic difference in 2010.”
Indeed it will, just as similar packages will make huge differences for other franchise companies providing they are bold enough, and financially stable enough, to provide financing to their qualified candidates.
eBook Coming Soon:
Help Your Banker Say Yes! How you can secure financing to buy a franchise. Reserve your personal copy now!
Posted on October 23rd, 2009 No comments
It may surprise you, but that’s how — and why — many people buy franchises!
Here are some other reasons that I’ve heard when I’ve asked people, “How’d you decide to buy a franchise?”
“I decided I wanted to work for myself, not someone else.”
“A franchise broker showed me a half dozen concepts and I liked this one best.”
“It’s the ‘hottest’ business to be in right now and I wanted one.”
“My father told me it was a good business and he put up the money.”
“I had money in my 401k that I could rollover into my own business and I decided now was the time to do it.”
“One weekend I went to a franchise show, where they had many different businesses displayed, and I got to talking to a franchisee of this company and she told me that I should buy one. I did some research and decided she was right!”
And here’s the point
I could go on . . . but what’s the point?
Well, the obvious point to many readers is this: Those are all wrong reasons for buying a franchise. In fact, those aren’t reasons, they are crazy excuses. And they almost always lead to grave disappointments.
When people buy franchises for the wrong reasons — excuses or not — they usually live to regret it. Often times, it wasn’t the “hottest” business, and even if it was, the franchisee wasn’t cut out to own a business, with or without daddy’s money! Often times, these businesses fail and the franchisees lose their investments. Google will lead you to countless ugly stories about franchise failures!
3 questions you must answer
If you want to avoid becoming a sad statistic in franchise history, there are three questions you must positively answer even before you investigate a specific franchise concept. In fact, answering these three questions can keep you from spending time and resources looking at the wrong franchises, and they will ultimately help you invest in the right franchise, providing that buying a franchise is the best thing for you. (It’s not for everyone).
Frankly, it amazes me that so many people buy franchises without knowing these three points of information! But apparently, no one told them this information is important. (Or, maybe they’re okay with using crazy excuses!)
So here we go:
Know the success profile
1. Do you know the profile of a successful franchisee?
Do you know the values, skills and behaviors of successful franchisees? They’re not necessarily the same as the traits of a good employee, for example, or a good vice president or CEO. Just because you excelled in your Fortune 500 job, or you were Teacher of the Year, or a real estate tycoon, it doesn’t mean you’ve got what it takes to become a successful franchisee.
Oddly enough, many (and maybe most) franchisees can’t confidently explain the profile of a successful franchisee in their own franchise network! Some think they know it, but they’re not sure. Others say they know it, but they can’t prove it. Only those who are successful can be sure they’ve got it, but that doesn’t necessarily mean they can explain it!
Valuable advice: Even before you think about writing a check to pay a franchise fee, you need to be absolutely certain you can describe the profile of a successful franchisee in that specific franchise network.
Be sure you got it!
2. Do you possess the profile of a successful franchisee?
Do you have what it takes personality wise?
Do you have the values, skills and behaviors of successful franchisees?
Caution: Most people do not!
If you say you do, what makes you so sure? . . . And just to push the point — because, after all, we are talking about you risking tens of thousands of dollars when you buy a franchise — why should anyone believe you?
Better yet: Why should a lender believe you? (It wasn’t true a couple of years ago, but today your lender will want to be convinced of your chances of success before approving your loan).
And now the obvious question: Why should a franchisor believe you?
Obvious but, sadly, not necessarily part of the franchise buying process. Many franchisors won’t care about your profile. They won’t ask about it because they don’t know it’s important. Or, they just need to sell franchises — it doesn’t matter to whom. Even some franchisors are okay with crazy excuses.
Match it to the business
3. Does your profile match the profile of the successful franchisees in the business you intend to buy?
This question is the most important of all. Let’s say you’ve identified the profile of a successful franchisee and you know you’ve got the same profile.
But for which franchise?
There are at least 2,000 — maybe 3,000 — franchise companies in North America. They’re all different. They don’t all require different profiles, but many do. For example, a successful franchisee in the hair salon industry, just to pick an industry, may fail in the hospitality industry, or the lawn care industry, just to pick two more. He may fail because he doesn’t have what it takes to succeed in that different industry. (Personality is by no means the only requisite to success — there are other considerations, including access to capital, location, and common sense, to mention a few).
Another ugly statistic
There are more than 75 different industries that use franchising as their method of distribution. So matching a success profile to an industry, and ultimately to one franchise company, is critical. Miss this and you’ll likely become one of those ugly franchise statistics.
Critical question: If you can’t define your own success profile and know that it matches the success profile for franchisees in a specific franchise company, why would you invest in that franchise?
I hope you said you wouldn’t!
Getting the answers you need
By now you may be asking: How do I find out which success profile matches which franchise company?
Answer: Ask the franchisor!
When you talk to a franchisor, and you’re about to make a buying decision, ask the franchisor to show you, or explain to you, the success profile for his or her top producing franchisees. Then, ask for the names and profiles of the top ten franchisees. You want to talk to them!
Ask the franchisor: What is the dominant personality profile of your top ten revenue-generating franchisees?
You’re not asking for an earning’s claim, so don’t let the franchisor duck your question. You’re not asking for revenue amounts, you’re just asking for a list of the top ten producers. You’re asking for non-financial information, which is absolutely essential for you to determine if you should invest your money in this franchise!
Reality: The franchisor may not be able (or may not want) to help you. As unlikely as this seems, many (maybe most) franchisors simply can’t provide the information you need! Some will tell you that profiles are not important, they don’t matter, and the company does not profile its franchisees. Others will say they’ve never profiled their franchisees and — they won’t tell you this — they don’t want (or they can’t afford) to invest the money to do so! Some won’t share the information with you because it’s not favorable to your buying decision!
Ask those who know
Ask a company that profiles franchisees! Dynamic Performance Systems and Franchise Navigator are two that I suggest you check out. The latter features a new tool called Connect Me, which does the profile matching for you! Last I checked, more than 14,300 prospective franchisees had used this service!
More and more franchisors — especially those that care about the welfare of their franchisees (and the long-term viability of their brands) — are profiling their franchisees, and they will provide the answers to these critical questions because prospective franchisees, like you, are getting smarter. You’re demanding the answers. And you’re not going to settle for crazy excuses!
Demand to get what you need to make a good buying decision — the franchisors that want to sell franchises will comply with your requests.
Photo image by: Shmoomeema
Posted on July 22nd, 2009 No comments
“What do you know about PuroClean?”
The question came from a concerned father who was looking out for his daughter and son-in-law.
The young couple was planning to buy a franchise — and they had not owned one before. They had downloaded my report: 92+ Questions To Ask Before You Invest In A Franchise and had used it to build their own list of 92 questions! (Through the years, thousands of franchise prospects have obtained a copy of that report — always free! It’s still free to subscribers of this blog).
The young couple was now beginning the franchise discovery process and dad wanted to make sure they were getting good advice.
Tell them to do their homework!
I responded that I didn’t know the folks at PuroClean — I’ve not consulted with them or spoken at their franchise convention, for example (though I’d surely welcome the opportunity, especially now) — and I suggested that the young couple do their homework, compare PuroClean to other companies in the same industry, talk to franchisees (including former franchisees), dig into the financial opportunity, read and re-read the disclosure document, meet with responsible franchise advisors, attend Discovery Day, etc. — in other words, thoroughly research the opportunity before making a decision.
Several weeks went by and occasionally I’d get an update from dad, and then on July 20 I got word that the deal was done: Misti and Rob Reed had signed a franchise agreement with PuroClean.
The thrill of a deal
For a blogger, it doesn’t get any better than knowing that someone visited your site, subscribed to your free blog, followed your suggestions, and found a deal they liked! I’m proud to have been a catalyst for this young couple, and I plan to follow their franchise journey, especially since I feel like I helped birth it.
Q&A: Misti Reed answers my questions
Rather than tell you the couple’s story in my words, I’ve decided to do a Q&A so that you can hear directly from Misti.
JPH: How did my blog help you? (May as well ask the selfish questions right away! And this may be a good place to remind my readers that I do not broker franchise deals; I do not sell franchises; I do not receive commissions or fees for selling franchises. My reward in this particular transaction is the opportunity to get this story and report it, boastfully!)
Misti: It was a great tool to reference during all phases of our research. This is our first time to purchase a business and it was helpful to be able to read the blog and review your webinars and articles. I look forward to the email updates and found the information was always easy to understand and very applicable to our needs.
JPH: After you downloaded my list of 92+ Questions, you then created your own list. How did that work?
Misti: Your list of questions was a perfect starting point to look through and decide which questions had already been covered and which I had forgotten. The (PuroClean) franchise representative was very impressed with how extensive our list was. Since this was our first time going through this process, it was comforting to know what was normal and acceptable to ask.
JPH: How did the franchisor respond when you presented 92 questions? It’s a lot of questions! I think some franchisors might get annoyed with the volume.
Misti: We did eventually get all 92 of our questions answered! Something I didn’t expect was that it was hard to cover a large amount of questions at once. We had weekly, one hour calls with our (franchise representative) and she had a set agenda for each week. She recognized that we would cover most of my questions throughout the process, therefore, rather than throw all of my questions at her at once, she asked that I revise my list each week after our call. . . . Some of the questions were covered very early in the process; a large number were covered when we received the disclosure document; and the remaining questions were covered during our validation calls and at Discovery Day.
JPH: How long did it take to do your homework and research the opportunity and then decide that you wanted to buy the franchise?
Misti: Our process took about six weeks. By the end of the first three to four weeks we had a very good grasp on the franchise opportunity and felt that most of our pressing questions had been answered. We started researching the franchise at the beginning of June, attended Meet The Team Day (Discovery Day) on July 20, and wrote the check that same day!
JPH: After looking at other franchises, why did you choose PuroClean?
Misti: Three reasons:
- We wanted an industry that is as “recession proof” as possible.
- PuroClean excels in its industry in the area of Customer Satisfaction, which was one of our “must haves.”
- The margins! If properly run, this can be a very profitable industry.
They’re off to training
Misti and Rob will attend PuroClean’s 3-week basic training in August and then begin operating their business in Grayson County, Texas. Of course, along with their dad, I wish them all the best, and we’ll look forward to periodic updates.
Here’s what I appreciate most about the Reeds’ story: This is how it works! My job is to give you good information — information that you can trust and implement — and your job is to put it to work to your own advantage.
Congratulations to PuroClean’s new Texas franchisees!
Just Because The Franchise Marketing System Drives Customers To Your Door Doesn’t Mean You Should Buy That FranchisePosted on July 13th, 2009 1 comment
If you own a business, you know there are “right” customers and “wrong” customers and while you may not (yet) know how to tell them apart before they become your customer, you know that the “wrong” customers deliver the least value and create the majority of problems in your business.
Who is a customer?
Customers (or clients), by the way, are not just the people who buy your products and services. They also include your employees, and if you’re a franchisor, they include your franchisees.
Be careful of expert advice!
So I read a passage on a blog that provided “some helpful hints on how you can spot a great franchise marketing system” and the first hint was this:
Customers are brought in the doors. This is what every business boils down to in the end, whether or not the marketing system brings in the customers. After all, that is where you make your profits.
Taking the express train to bankruptcy
And I thought to myself: Or that is where you lose your profits, your money and ultimately your business!
It’s not enough to drive customers through the doors of a franchise, or any business. You’ve got to drive the “right” customers through the doors! Most businesses, and most marketing systems, do not fulfill that objective. And that’s one reason why businesses struggle and fail.
So don’t buy the franchise because “the marketing system” drives customers to the door!
Happy franchisees make the most money
To wit: Some years ago the new CEO of a major retail franchisor asked me to help his franchisees attract more customers and ultimately generate higher revenues so that (a) the franchisees would earn (and keep) more money, and (b) the franchisees would pay higher royalties. Since the beginning of franchising, franchisors have known that franchisees who make and keep the most money are the happiest franchisees!
So I spent several weeks working with a few franchisees to find out more about their customers. Here’s what we discovered (and I mean discovered — neither the franchisor nor the franchisees knew this information beforehand):
- It cost the “average” franchisee $100 to get a new customer to come through the door (that included marketing costs and the required fee for the franchise advertising fund).
- The “average” customer spent about $10.
- No one knew if the customer would return — ever.
- If the customer did return — no one could predict when or how often.
- The “average” franchisee did little to nothing to bring the customer back again repeatedly (and you may be surprised to find out why).
Busy, busy, busy going out of business!
So while it appeared “the marketing system” was doing its job, e.g. the franchisees were busy serving customers throughout the day, in reality “the marketing system” was slowly running the franchisees out of business (and perhaps into an early grave)!
That and the fact that the franchisees were so busy, busy, busy taking care of all the customers “the marketing system” provided that they had no time to do the things that would have insured getting the maximum benefit out of their customers, i.e. increasing sales, increasing frequency, building rapport with key customers, gathering referrals, etc.
Who caused that fire?
As one franchisee told me, “From the time I open the door in the morning until I close it at the end of a long day, I don’t have time to do anything but put out fires.”
Going through my mind: Does that sound like an ideal franchisee? How long is that franchisee going to last? How much validating will that franchisee do for the company?
Upon examination, most of the “fires” were caused by customers and employees. Occasionally, even though they didn’t know it, the franchisee caused some of the fires!
Blame it on the franchisor, of course
You can be sure the franchisor was being blamed for the majority of the challenges the franchisees faced. Frankly, I would take the side of the franchisees on that issue (though it does no good to blame anyone, but rather to accept responsibility). The franchisor could have done a better job sooner! In other words, the CEO that hired me had only recently arrived at the company. To his credit, he quickly assessed “the marketing system” and knew that it was broken. However, this company had been operating for many years prior to hiring this CEO. Where were the marketing folks all those years? Where was the company’s leadership?
Why doesn’t this system work?
So what was wrong with “the marketing system” at this client company?
Simply, it was producing the “wrong” customers for the franchisees!
Even among customers there are stars
Through our continued research we further discovered that not all customers were created equal! Some spent more money than others and never, ever complained or started a “fire”! Of course, those were “the right” customers.
Problem was, “the marketing system” — which attracted franchisees, along with the company’s brand name — produced too few “right” customers.
Revealing more about “right” customers
Without giving away too much information (and revealing the company), here’s more of what we discovered about the “right” retail customers for this franchise business. They:
- spent about twice as much as the average customer
- returned 3 to 4 times a week
- owned a business, which existed within 3.5 miles of the franchise location
- were males (64%) and females (36%)
- had partners in their business (46%); most often, a spouse
- were between the ages of 32 and 62
Remember garbage in, garbage out?
Wow! With just that information alone we could create a new marketing system that would target the “right” customers! All others were probably “wrong” for the business. The all-important “marketing system” was targeting “all others”!
Ultimately, with the help of the company’s advertising agency, we created a new marketing system that achieved the goals established by the CEO and supported by the Franchise Advisory Council.
Careful of the advice you get
So I shiver when I see “advice” that tells you to buy a franchise where there’s a “marketing system” that “brings in the customers.”
That’s good advice only if the customers are “right” customers. If they’re “wrong” customers, you can plan on owning and operating a business filled with headaches, challenges, issues, “fires” and, ultimately, not enough money for you or the franchisor.
And why would you want to do that when there are so many good “marketing systems” out there?
Save Money, Register Now For How To
Capture & Keep The Right Customers
In today’s economy there is no more important task for a business than capturing and keeping customers — and not just any or all customers: only the right customers!
- Do you know who your “right” customers are?
- Do you know how to find more of them?
- Do you keep them coming back for more once you capture them?
Here’s an opportunity for franchisors, franchisees and suppliers to conveniently increase your marketing prowess and generate more revenue, when you participate in this tele-webinar: How To Capture & Keep The Right Customers. Click here for details and save money when you register by July 22.
Franchisors: Buy a Corporate Pass and place up to 25 of your Franchisees on this tele-webinar, giving them 4 hours of insightful marketing training with practical outcomes they can implement immediately!
Watch this video; less than 4-minutes and learn more about how to transform your business into a the thriving, satisfying enterprise you really want!
Photo image by: Sister72
“You Mean I’ve Got To Pay A Percentage Of My Sales To The Franchisor . . . Forever? . . . Why? And How Does That Make Sense?”Posted on July 11th, 2009 2 comments
And she’s got questions about the franchisor’s royalty fee.
Shouting about the royalty fee
Without doubt, it’s one of the financial (and sometimes psychological) stumbling blocks in a prospective franchisee’s due diligence.
“You mean to tell me the franchisor’s going to take seven cents of every dollar I collect from my customers? . . . They take the royalty out of my gross sales?” asked (actually, shouted) Isabel.
“That’s what I mean to tell you!” I shouted back. (Sometimes you fight fire with fire, even when you’re talking to a customer).
Royalty fees vary from company to company
Not all franchisors charge a 7% royalty, as you probably know. Some charge less; some charge more. And some charge a flat fee, i.e. $500 a month, or $800 per transaction. Most, however, charge a percentage royalty and it’s almost always against the franchisee’s gross sales, not the net sales. Whatever the case, the royalty fee will be clearly disclosed in the franchisor’s disclosure document.
“Well I think they ought to take their royalty out of my net sales because, after all, I might not make any money!” Isabel continued shouting.
Let’s speak rationally about royalties
“I understand,” I told her, now speaking calmly, trying to settle her down. “But it doesn’t work that way, Izz. By the time you back out all your expenses, including possibly even paying for your car, and your husband’s car . . . ”
“I don’t have a husband,” she snapped. . . .
“Sorry,” I continued. “I should not have assumed . . . .”
“He’s my boyfriend,” she added.
Getting down to the net money
“Okay, then by the time you back out the expense of paying for your boyfriend’s car, which I realize you wouldn’t do, but let me make a point here,” I hurriedly said. “There are lots of ‘lifestyle’ expenses that a franchisee might pay for out of their business revenue, and that’s not fair to the franchisor. Because by the time you get finished paying for expenses, your net revenue could be negative! Then the franchisor collects zero.”
“I wouldn’t expect them to get zero,” she said, calmly. “But isn’t seven percent of the gross a lot of money? . . . And” — getting excited again — “they’re going to collect it every month? For as long as I’m a franchisee?” Yep, back to shouting at me again.
What’s a lot of money?
“Maybe . . . yes . . . yes,” I said. “In other words, it may be ‘a lot of money’ but I can’t tell you that without knowing more of the details. How much gross revenue will you generate? . . . And yes, they’re going to collect the money monthly (unless the agreement specifies otherwise, i.e. weekly), and yes, they’ll expect to collect a royalty for as long as you’re a franchisee.”
How do they spend those royalty dollars?
Seven percent — any percentage as far as that goes — may be “a lot of money,” but franchisors have a right to collect it. They need to collect it, in fact! Because how else do they meet their financial requirements?
Franchisors have substantial expenses to cover every month. Landlords want to get their rent, employees want to get their paychecks, vendors expect to collect their money, the attorneys need to be paid, the franchise sales team wants its commissions, there’s airfare to pay, support costs to be covered, etc. etc. etc. You get the point.
Royalties pay for all that and more!
Cut to the chase with franchisors
I decided to cut to the chase with Isabel. “Don’t get too uptight about royalties until you gather more information,” I continued. “Have you asked the franchisor to tell you what they do with your royalty money?”
“No,” she said, sounding surprised that she could ask that question.
“Will they tell me?” she asked.
Move on if they won’t answer your questions
“If they won’t, I’d suggest you look for another franchise to buy. Good franchisors will tell you. Take a look at their audited financial statement — it’s part of the disclosure document. Right there you can figure out how they’re spending those royalty dollars. You have a right to know this, and the franchisor doesn’t keep it a secret. Ask them to break it down for you. What do they do with your royalty money?”
“I hadn’t thought of that,” she said. “I’ll do it. I think it’s a lot of money, seven percent of every dollar I bring into the business.”
“No doubt it will be a lot of money,” I said, “but what do you think it costs to operate a franchise company? I already knew her answer so I quickly added, “It’s time you find out.”
“Okay, I will,” she said.
Royalties get reinvested in franchisees
I was on a roll: “Keep in mind that some of that royalty money should be spent on you! It’s reinvested in you.”
“Do you expect the franchisor to provide you with support?”
“Of course!” She was snapping at me again. (Granted, I deserved it for sounding dimwitted).
A franchisor’s support doesn’t come without expense
“Do you think they should provide that support free of charge? I know you don’t, Izz. But again, I’m making my point. If the franchisor employs someone who is responsible for taking care of Isabel, that’s important to know. And if that person is good, I bet Isabel wants that person to be well paid so he or she stays on board and continues to provide that valuable support. Right?”
“I get the picture,” she said.
Can the franchisor afford to sustain the business?
“I knew you would,” I continued. “You’re on the right track. Ask more questions about how the franchisor spends your royalty dollars. Make sure the franchisor is re-investing some of that money in you by providing support, training programs, creating new marketing materials, developing new product lines, creating new opportunities for you to sell more, etc. etc. etc.”
“I got it!”
“Go get ‘em, Isabel! . . . And don’t get overly excited. Royalties are part of the franchise model. If you can’t afford to pay them, then don’t buy that franchise. Better to find out now rather than after you buy the franchise! Franchisors aren’t stupid. They realize their model has to work for you as well as for them. It’s your job to ask all the questions now, to get at the nitty gritty of how the model works. Stay focused and you’ll get the answers you need. I’m sure of it!”
Royalties pay profits to franchisors
Oh, by the way, I didn’t have the chance to say this to Isabel — actually, I just didn’t want to brave it in this particular conversation. Royalties also include the franchisor’s profits!
Yes, franchisors are in business to make a profit. A good profit! (Again, look at the audited financial statement and find out how much profit). They make their profit off the franchisees’ royalty dollars. And we’ll talk about that topic another time!
More Isabel Blogs
Photo image by: net_efekt
“You Can’t Fix A Loser” . . . Look Out: They’re In Every Franchise Network And They Seek More Miserable Company!Posted on July 7th, 2009 No comments
When I read the words this morning during a coffee break, I laughed. “You can’t fix a loser!” said Dan Kennedy, one of my long-time marketing mentors. He doesn’t mince words, which is one of those love/hate things about him. Kennedy makes it clear that he’s not interested in making friends, so you don’t read him with any expectations of having a drink or dinner with him. You read him purely because you want to get better at what you do! Losers aren’t interested in getting better.
Franchisees who get it avoid the losers
I laughed when I read the words because it’s something I would say, though I haven’t said it quite like that. And it reminded me of several passages in a book that I wrote not long ago: Get It! It’s about franchisees that have cultivated a millionaire mindset. They are successful because they practice a dozen distinct habits, including avoiding the “losers” in franchising.
“Losers” exist in every franchise network
Many of the franchisees I interviewed for Get it! told me of the importance of protecting themselves from — though they didn’t necessarily use the word — the “losers” in their franchise network. It doesn’t matter which franchise network, by the way. I’ve been interviewing franchisees and franchisors for 30 years and “losers” — define the word however you want — are in every network.
When I asked Steve Masry, a West Palm Beach, FL franchisee since 2002, what separated successful franchisees from non-successful franchisees, he didn’t hesitate: “Three things and only three things,” he said. “First is the least important: how much money they can get access to. Second: how they deal with problems — problems will occur daily. And third — this is most important — how they think.” Losing in business is a byproduct of negative thinking.
No naysayers allowed: only visionaries
Steve pointed out that his perspective had been developed through a period of pain. “(Other franchisees) think I’m crazy,” he said, because he distances himself from the losers, “but I know who I am and I have eradicated the naysayers from my life. You can’t be around me if you don’t share the vision, the passion and the joy.”
Steve continued, “What’s different about the unsuccessful franchisees is that when they face a problem, they think about everything that can go wrong. I think about solutions. I don’t think about problems until they exist. I don’t bury my head, I face the problem, and my first thought is usually negative, so I remove it and search for solutions. I know the solution exists and I’ll find it.”
Look out for contrary thoughts
He explained that “each of us” is the sum of our thoughts. “If you think bad thoughts — Oh no, there’s a problem, I’m going to run out of money and lose my business — then you won’t succeed. I remind myself every morning that I went from almost going out of business and filing a bankruptcy to (achieving success in my business). When a contrary thought presents itself, I remove it and replace it with the truth. That’s what you do when you’re unwilling to accept anything but success.”
In a similarly pro-active manner, Patti Robertson in Norfolk, VA — she and her husband are multi-concept franchisees — told me, “The (franchisees) who are successful are the ones who take action, not the ones who are always complaining or worrying about things. We always take action . . . .” Losers, on the other hand, rarely do. They whine, they complain, they moan, but they do not take action for fear of changing their circumstances for the better.
He could tell the losers just by their voice
Mitch Cohen, a veteran business owner in Queens, NY, used to spend hours talking to franchisees in his network. “From the moment I picked up the phone and heard their voice I knew whether or not I wanted to talk to them,” he explained.
“When they started with, ‘How’s the market treating you?’ I knew it wasn’t going to be a discussion I wanted to have. I realize that misery loves company, but I don’t want that kind of company and I don’t want the misery. Why would you even ask, ‘How’s the market treating you?’ There’s just no sense having that conversation and it’s unfortunate there are franchisees who think like that.”
Losers lack clarity of thought and purpose
Franchisees may think like that because they suffer from a lack of clarity, explained Bob DeClue, a franchise entrepreneur in St. Louis, MO. “That’s the difference between successful and unsuccessful franchisees. Without clarify, the unsuccessful people can’t succeed. They don’t know not to quit. They don’t know it because, how could they? They quit! They have no clarity. They don’t understand that the way to success is to never quit. If you don’t quit, you can’t fail. It’s just a different way of thinking.” Losers, on the other hand, like their way of thinking!
In Springfield, MO, J. Barry Watts is a positive-focused franchisee who said the Bible gives him no choice. “As a man thinks in his heart, so he becomes. I believe that,” Barry said.
“While I’m not as successful or wealthy as I’d like . . . the big question really is whether or not I’ve done the most with me? If I have, then ‘well done, good and faithful servant’.”
Losers can’t help you
Whether you’re searching for a franchise to buy, or you’re trying to figure out how to improve the franchise you own, this I know: Losers can’t help you!
In fact, losers don’t want to help you. They want to bring you down. They’ll tell you that franchising in general doesn’t work, or that the franchise they bought doesn’t work. They’ll tell you the franchisor is out to get them, that the concept worked in a different market but not their market — their market is always different — and this is wrong and that is wrong . . . .
Unfortunately, as I learned while I was first a franchisee then the CEO of HomeVestors, some franchisees do not want to Get It! They like complaining too much to win!
Avoid the losers in franchising . . . they will seek your company and it will be miserable. And whatever you do, don’t even think that you can fix them!
Photo image by: choking sun
Posted on July 4th, 2009 No comments
When the Twitter “franchise victim” said, “Franchising is a phenomenal business model for the franchisor” — did you believe him?
A few readers who wrote to me actually did. Of course, they also claimed to be “franchise victims.”
Disgruntled and pimping his own opportunity
But most readers who wrote to me after I invited them to in my previous blog disregarded the statement as not only a disgruntled former franchisee, but in this case, someone who was degrading franchising in an attempt to make his “bus opp” look more desirable. Smart readers!
I acknowledge there really are victims, sadly
Before I say more on the topic, I want to acknowledge that there are indeed real franchise victims in the world (and the fellow on Twitter may be one) and I sympathize with them. I wish their stories had turned out differently. I’ll also say that in many instances I know they were victimized by despicable franchisors. Franchising is not immune from people who want to bastardize it and take advantage of other people. However — and I say this with disappointment — that’s life. Some non-franchised businesses take advantage of people. Ponzi schemes take advantage of people. Some homeless shelters take advantage of people. Even some churches take advantage of people! Sadly, it’s life.
Buyer beware, it’s true in franchising, too
If you’re going to invest money in a business — buyer beware! I know that doesn’t help the victims, but I hope it at least says to them that I believe (some of) them and I acknowledge that they were faultless in their misfortunes. Again, I wish it had turned out differently.
But because it didn’t, and because it doesn’t some of the time, that’s not a reason to turn my back on franchising, any more than I’m turning my back on network marketing, or business opportunities, or — for that matter — churches and homeless shelters!
Back to the statement in question
Now to the statement by the Twitter “franchise victim” who wants us to believe that franchising only works out for franchisors and not for franchisees.
Come on now. Go tell that to the thousands of successful franchisees in America alone.
How to protect your investment
However, since it doesn’t make sense to argue with a faceless Twitterite, and since franchising can be manipulated to benefit only the franchisor, here are four steps you must take to protect yourself before you invest in a franchise.
#1 get the franchisor’s disclosure document and read it
First, get the franchisor’s disclosure document, read it (several times) and ask your advisors to read it and discuss it with you.
Now the odd thing about this is that franchise critics often pooh-pooh the disclosure document as just another tool in the hands of evil franchisors. They claim the document isn’t of much value — it merely tells you, the prospective franchisee, what’s expected of you and what you must do throughout the lifetime of the franchise relationship, and it doesn’t provide “really useful information” because those “evil franchisors” don’t want you to know the really useful information.
Find out what’s expected of you as a franchisee
However, if the document at least tells you what’s expected of you (and I promise it tells you much, much more) that’s a great start. It’s much better than buying a non-franchised business, or starting your own business and not knowing what actually will be expected of you!
The disclosure document spells out the amount of money you will need to invest in the franchise, it explains your rights as a franchisee, it details your location, it tells you what you can sell as a franchisee, it includes the franchisor’s audited financial statement, and much more. Some disclosure documents also include earnings claims, but most do not.
Be smart, and avoid stupidity
To overlook the disclosure document (as some “victims” have admitted to me that they did) is inexcusable and, frankly, stupid.
#2 get the list of franchisees present and past
Second, get the list of former and existing franchisees.
It’s in the back of the disclosure document — required by law to be there! Use the list to your advantage. Call franchisees on the list and plan to visit at least one of them. Once again, many “victims” overlooked this opportunity. They became so excited about buying a business that they neglected to do the due diligence, which includes contacting former and existing franchisees.
Do more than just ask questions
It’s not enough to call a few franchisees and ask them questions by phone. That’s a good exercise, but you should visit a franchisee at the franchisee’s location. Even better, volunteer to work for the franchisee for a couple of weeks — there’s a reason why McDonald’s, the most successful franchise in the world, requires prospective franchisees to work in a McDonald’s for one year prior to qualifying to become a franchisee.
#3 talk to the right people first
Third, consult with your advisors.
You need a franchise attorney. Not just a business attorney. Not the attorney who handled your father’s will. Definitely not your divorce attorney! You need an attorney who understands franchise laws. Ask the attorney to review the documents the franchisor provides to you — the disclosure and the franchise agreement.
Many accountants dislike franchising
You need to speak to an accountant. Preferably an accountant who is a franchisee because he or she will understand franchising. Many accountants do not understand or appreciate franchising — they’re more likely to tell you that you don’t need a franchise and that you should not pay a royalty. Unfortunately they don’t always tell you that your chances of succeeding on your own, without a legitimate, successful, working franchise, are very slim.
Find an accountant who is a franchisee (consult the list of accounting franchisors) and ask him or her to review your business plan and also look at your franchise documentation.
It’s optional, but franchise consultants may help you
You might also want to speak to a franchise consultant, though it’s not absolutely necessary, especially if you’ve wisely selected your attorney and accountant. Guess what: Even some franchise consultants take advantage of people! I recommend that you contact the International Franchise Association and take advantage of the association’s resources, including books, articles, local meetings, national conventions, and so on. The IFA can introduce you to legitimate advisors, including attorneys, accountants and consultants.
#4 ask lots of good questions
Fourth, ask good questions!
When you subscribed to HowToBuyAFranchise.com you received a copy of my free report: 92+ Questions To Ask Before You Invest In A Franchise. I’ve really done a great deal of your work for you by giving you those questions. Lost that report? Never received it? Let me know and I’ll send it to you.
Adding two new questions to my list
I realize I now need to add two new questions, thanks to the Twitter “franchise victim.” I suggest you ask franchisees these questions:
- Is this franchise a phenomenal business model?
- If so, is it only phenomenal for the franchisor?
Now that I think of it, maybe that’s all you need to do. If you ask enough franchisees those questions you’ll get a good read on any franchise company. And if the majority of the franchisees — in fact, if even more than a couple of the franchisees — tell you that it’s a good deal only for the franchisor . . . run!
Go find another franchise to buy, or don’t buy one at all.
Photo image by: klynslis
Posted on June 30th, 2009 1 comment
Think again and then join my online business!
He answers his own question by suggesting you “Think again.” And he provides a link to a video where he tells you his “story” and invites you to request information about his fantastic online business where he’s making at least $10,000 a week.
I watched the video — a couple of times — because I’m fascinated by what goes through the minds of folks like this. Here’s this young man claiming that he lost more than $250,000 in a franchise (and it’s likely that he did) and blaming it all on the franchisor and franchising (which may, in fact, be accurate, but I’m doubtful).
Do you gain by damning franchising?
What will he gain by damning franchising when it has an outstanding record of success? If he wants to promote his fabulous online money-making business, why not do that without taking a stab at franchising? Why damn what’s obviously a good thing for many other people? But I’m getting ahead of myself — I’ve got lots of questions!
Here’s the “story”
The “victim” explains in his video that a couple of years ago he saved money to invest in a franchise because he was “interested in taking on a business that was a proven successful model.” He claims that he invested $50,000 of his own savings and borrowed another 250k from a bank. Less than nine months later, according to the victim, his store closed and “I was left holding the bag on a $250,000 bank loan.”
He then makes this claim: “Having been through (the franchise experience) I can now tell you that franchising is a phenomenal business model for the franchisor. They transfer all the risk to the franchisees — I’m the one that got a $250,000 bank loan — and they take money off the top, so they make money even if you don’t make money.”
Here are my questions for the victim
All of which leads me to a series of questions that I’d like to ask the victim and anyone who watched his video.
First, to the victim: Why didn’t you invest your money in a proven business, especially since that was your goal? If you had done so, you wouldn’t be a victim now. You may, in fact, happily be on your way to the status of multi-unit franchisee, generating a tidy sum of profit for yourself.
You didn’t invest in a proven business — why not? There are plenty of them! Did you overlook them? Did someone twist your arm to buy an unsuccessful, unproven franchise? Or did you simply make a mistake?
Do you realize there are, in fact, thousands of successful franchisees in the United States and thousands more worldwide? And are we to believe there’s something wrong with all of them, too? Their lucrative businesses really don’t work?
How did they manage to succeed while you didn’t? What’s different about them and you? They took the same approach you did — except they actually did invest in a proven system. How did you miss out?
Questions for viewers of this “story”
Second, to viewers of the video: How much credibility do you give this young man and his story? Do you believe his story?
Do you believe him when he says that “franchising is a phenomenal business model for the franchisor”? Is that an accurate summation of franchising?
Do you believe him when he claims franchisors “make money even if you don’t make money”?
Do you believe him when he says franchisors “transfer all the risk to the franchisees”?
Post your comments publicly, or if you’d prefer, send them to me privately. I’ve got answers to my questions, but I’ll consider what you have to say, too. I’d like your perspective. If you’re okay with me quoting you, please give me your name and your permission. There’s a chance we can actually help the victim by giving him some insight to his Twitter promotion.
Victim gives good advice
One thing about the victim that I liked: He advises you to “think long and hard” before you invest in a franchise. Well, duh! We wish he hadn’t missed that advice himself. Franchising is not for everyone; it’s not for most folks. Clearly it wasn’t for him.
Interesting how he jumps to the conclusion that franchising isn’t for you, but his online business is!
Meanwhile, how interested are you in getting information about this young man’s online business where he claims you can make at least $10,000 a week working from anywhere in the world without dealing with employees, insurance, rent or 90-hour work weeks?
He says it’s “almost pure profit.”
You ready to get into business with him?
Photo image by: jdnx
Posted on June 28th, 2009 2 comments
That’s the single most important question to ask franchisees before you invest your money in a franchise.
It’s not the only important question
Granted, there are other “important” questions,and I tell you what they are in my free report: 92+ Questions To Ask Before You Invest In A Franchise, which you get automatically when you subscribe to this blog.
But asking franchisees if they’d do it all over again, knowing what they know, provides some of the best insight to help you make a decision before you invest your money.
Not all franchisors want you to ask it
To be sure, some franchisors don’t like it when you ask that question! If most of the franchisees answer, “No,” I can’t imagine too many of you saying “Yes” to that franchisor. On the other hand, people invest in franchises for all kinds of reasons — common sense doesn’t always prevail!
Also to be sure, some franchisors hope and pray you’ll ask that question because they know their franchisees will answer enthusiastically, “Yes!” And when that happens, your franchise sale is imminent. Of course, that doesn’t mean the sale should occur — but franchisee validation is one of the most convincing variables in franchise sales. If the existing franchisees say they’d buy it all over again, what could be wrong with the franchise?
Do franchisees like to prospects?
Prospects often ask me if I think franchisees lie. “Will they say Yes even when they really mean No?”
My response: “Of course!” That’s why it’s so important for you to talk to at least several franchisees before you invest your money. I think it’s a good idea to speak to at least a dozen franchisees.
How many franchisees should you talk to?
What if the franchisor only has a dozen franchisees?
Easy! Talk to all of them!
Six steps to help you question franchisees
Here are six steps to follow when you question franchisees:
- Ask them all the same questions. Don’t ask different questions because then you won’t be able to compare answers.
- You probably won’t have time to ask more than a couple dozen questions. Franchisees are busy people and may only speak to you by phone. Select your questions wisely. Make the questions pertinent to you and your situation.
- Talk to franchisees who come from a background similar to yours. If you’re a teacher, talk to franchisees who used to be teachers. If you’re investing in an urban location, talk to franchisees in urban locations.
- Don’t be afraid to talk about money. I know it’s not polite to ask people how much money they make, but the franchisees know that’s one of the reasons you’re questioning them. Tell the franchisees what you expect to earn and in what time frame. Ask them if that’s realistic. (My free report, mentioned above, provides more guidance on this topic).
- Visit at least one franchisee. Go to work for a franchisee for a couple of weeks or in the evenings or weekends. Experience for yourself what it’s really like to operate the franchise. You might discover there are aspects of the business that don’t appeal to you!
- In addition to franchisees, talk to vendors who provide products and services to the franchisees. How do they see the business? Growing? Declining? Of course, you’ll also question the franchisor and then discuss all the details with your accountant and franchise attorney.
Shopping for a franchise is hard work. But it’s much easier when you know which questions to ask. Begin with the most important question!
Photo image by: Marco Bellucci