Loan Or Lease? You May Need Both To Buy A Franchise; It’s Important To Know Your Options

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.

Franchise Companies Tire Of Sluggish Economy: Expect More To Provide Financing In 2010

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!

No Excuses! Get The Answers To These Three Questions Before You Buy A Franchise!

“Not long after I lost my job, a friend told me about this franchise. I looked into it and bought one.”

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?”

Crazy Excuses

“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!

Now what?

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

Young Couple Buys Franchise And Explains How They Utilized This Blog During The Process

New franchisees: Rob and Misti Reed

“What do you know about PuroClean?”

The question came from a concerned father who was looking out for his daughter and son-in-law.

First-time buyers

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.

Misti writing the check!

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:

1. We wanted an industry that is as “recession proof” as possible.
2. PuroClean excels in its industry in the area of Customer Satisfaction, which was one of our “must haves.”
3. 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!

I’ve Got Questions For The Twitter Franchise “Victim” And Anyone Who Views His Video

So this “Franchise Victim” showed up on Twitter asking the question, “Think a franchise is still a lucrative business model?”

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

Getting Info About Franchises Without Giving Info About Yourself. Appeal To You? Then Read This!

What bugs you about shopping online for a franchise opportunity?

Before giving up specific company information the Web site requires that I enter my:

• name?
• address?
• phone number?
• financial information?
• then later sells my information to other franchises? (actually that could be a good thing and I’ll tell you why in a future blog)
• All of the above?

Thousands of prospects provide information daily

Chances are none of the above bugs you all that much because thousands of people provide that data and more to franchise Web portals that are designed to generate (and share) leads for franchise sales. All and all, these sites are good deals for franchisors, consumers and the franchise community at large. They disseminate valuable information to people who qualify to receive it, and that’s not a bad thing.

And yet, some folks just don’t like to give up personal info until they’re ready to give it up, which is usually not until they’re about to sign a franchise agreement, which actually means they’ll never, ever buy a franchise cause it doesn’t work that way in the world of franchising, and that’s precisely why the franchisor knows that you’ll give up your info to get their info!

Whew.

You quickly learn to do it their way

If you won’t do it their way before you buy the franchise you probably won’t do it their way after you buy the franchise and that doesn’t work for either party! If you don’t know what I’m talking about, please read this: It’s Not A Democracy!

Introducing a different kind of opportunity seeking site 

But now there’s a site that appeals to non-data providers and data providers alike. It’s not a big site, not yet at least, but it’s growing, and it’s different enough that you must visit it and use it if you’re going to buy a franchise.

Look at that, a screen of logos

It’s called 1001franchises.com . . . which means what it says: You can (eventually) find 1,001 different franchise opportunities on the site! Right now there are only about 250, but given the fact that you’re only going to buy one, (or maybe several of the same one) this is a good site to visit now!

Go take a look (even if you’ve been there before, the site has changed) and you’ll discover a screen of logos.

I know that one, and that one

Some you’ll recognize immediately: PostNet, Blimpie, Mr. Electric, Glass Doctor, Action Coach, Sterling, Maaco, Oreck, Arby’s . . . they all stand out, along with Great Clips, American Leak Detection, Cold Stone, Molly Maid, Ace, Rita’s, Pillar to Post, etc.

Don’t know that one, or that one

Other brands will be unfamiliar and may, in fact, be new to franchising. All the more reason to visit this site! Because if you don’t know to look for what you’re looking for how will you find it unless it just happens to be there, as it may very well be at 1001franchises.com!

No data entry will put a smile on your face

And you’ll love this! You can instantly get info about all the advertised brands without entering any data about yourself! 1001franchises.com is not in the data gathering business (imagine how many lies that’s going to save from prospects who invent names and phone numbers just to “fool” these sites). Now, that’s different for a franchise sales portal!

No lead sharing, either

You might also appreciate that the Web site will not sell or share your information — because the site doesn’t collect any information from you. In fact, once you click on a brand, your browser moves immediately to that brand’s Web site! So you connect immediately and directly with the franchisor of your choice — because there’s no middleman collecting data!

Somehow this just doesn’t seem real! You gotta give to get, but not at 1001franchises.com. Go take a look!

Webinar: How To Capture & Keep The Right Customers

Interested in learning How To Capture & Keep The Right Customers? That’s been my most popular live seminar through the years and while I’m still teaching it at franchise conventions, the economy has discouraged me from scheduling a public seminar. That’s why I’m turning the seminar into a Webinar. In the near future I’ll post a date and time when you can get this valuable information live, online, when you join my Webinar. Interested? Franchisors: Line up your entire network of franchisees for this important information! Franchisees and Suppliers: Invite your most valuable customers to join the Webinar — in fact, pay for their registration as part of your customer retention plan! If you want the details sent directly to you, click here. Be sure to let me know that you want info about the HTC&K Customers Webinar.

Why You Can’t Have It ‘Your Way’ When You Buy A Franchise. Get This: It’s Not A Democracy!

“Why are franchisors so specific and stringent?” she asked. “It seems they want to control everything!”

At last, Isabel (previous Isabel blogs are listed at the end of this article) is getting down to the nitty gritty about franchising, and the question she asked today was so important that I’m rushing to my blog to tell you about it.

Critical components of franchising

“I’m so glad you asked that question,” I told Isabel, “because it shows me that you are paying attention to what franchising is really all about, or at least you are noticing some critical components.”

So let’s get right to it: Franchisors are “specific” and “stringent” because they need to be, they should be, and they must be if they want to succeed as franchisors, which also means they want their franchisees to succeed.

Critics of franchising won’t like this

Now some critics would jump on that statement and eloquently and heatedly tell you that I’m wrong, that I’m just defending franchisors and franchising in general, and that franchisors are “specific” and “stringent” because they want to take your money and keep it after you fail without having to do battle in a courtroom.

God bless the critics: they keep us on our toes! Mostly they keep us thinking. Happily, on this point, they are wrong.

Willy nilly franchises do not succeed

In my 30-year career, working with more than 100 franchise companies, I’ve never seen a willy nilly franchise concept succeed. Furthermore, the franchisors with the greatest problems, and the weakest balance sheets, are most lenient with their franchisees.

Somehow, some way, some critics got the idea that franchising is a democracy, and that just because this is the United States of America, where freedom rings, you should be able to buy a franchise and do what you want with it.

Franchising, even in America, is not a democracy

Wrong!

Franchising is not a democracy and perhaps that’s the most important principle to understand about it. You cannot do things your way!

Period.

End of story.

It has nothing to do with freedom. Or rights. It’s business. It’s do-it-my-way or don’t-do-it-at-all business. And it’s protected by the United States of America, where freedom rings!

The franchisor sets the parameters

Fact is, if I create a franchise, so long as I don’t violate any laws of the land, I have the right to do it my way, and do it when I want, where I want, and with whom I want.

You don’t like that?

Not a problem for me. And not a problem for you, so long as you don’t buy my franchise! So long as I don’t allow you to buy my franchise.

Franchisors test the business and create a success system

However, if you’re going to join me as a franchisee, then I know how the business works best. I’ve tested it. I’ve improved it through the years. I’ve created a marketing plan, an operations plan, a sales plan, etc. I know what needs to be done, how much of it needs to be done, by whom and when, to make it all work.

I also know that if you deviate from any of my plans, it won’t work, or it won’t work as well. It won’t work for you and it won’t work for me.

Reasons why franchisors want franchising to succeed

As the franchisor, I want it to work. Why? Lots of reasons:

• I love money! And franchising is a great way for a franchisor to get fabulously wealthy.
• I love helping people. And in business, there’s no better means of doing so than to teach people how to succeed with a franchise.
• I’ve got a huge ego and I want the world to know me and my business. Fastest way to do that is via franchising.
• I want to change the world. There really are franchisors who are do-gooders.
• It’s a combination of all of the above!

At a minimum, I want it to work because if it stops working I’ve got to go do something else!

The goal is a satisfying and profitable business

And since all of this is important to me as a franchisor, I’m going to make sure that my franchisees do things my way, the way I know that’s necessary to build a satisfying and profitable business.

“Is that unreasonable?” I asked Isabel.

“No, but that doesn’t make me feel better about the franchise agreements that I’m reviewing,” she said.

“I understand,” I told her. “Let’s continue.” I really couldn’t do much about her feelings.

“You’ll wear this funny hat and this is what you’ll say to customers . . . “

As a franchisor, I’m going to be “specific” with franchisees:

• here’s when you must open the business
• here’s when you must close the business
• here’s where the business can be located
• here’s the list of items you can sell in the franchise
• here are the marketing materials you can use
• this is what you will say when you greet a customer
• here’s how you will dress every day in the business 
• . . . and so on

I’m specific not because I suffer from OCD (though I might, and what if I do?) but because I know this is how the business works! It’s how it works for me and how it will work for each of my franchisees.

Rigorously binding, exacting and constraining, that’s franchising

I’m going to be “stringent” as a franchisor for the same reasons that I’m going to be specific. Stringent as in “rigorously binding or exacting, compelling and constraining.”

“Can I interrupt?” asked Isabel.

“Of course you can. You’re the client!”

It’s so offensive, said Isabel

“What you just said, that binding, exacting, compelling crap, is what’s so offensive about franchising.”

“I understand,” I said. “And I agree. I don’t know that the word is ‘offensive’ but I understand. It’s controlling for sure, and most people, especially those who are entrepreneurial, don’t want to be controlled. But all I can tell you is that ‘stringent’ is absolutely necessary in franchising. In fact, if you find a franchisor that’s not stringent, run! That business is not going to work. Eventually it’s going to become a mish mash and not a franchise.”

Franchising thrives on uniformity

Remember, too, that a franchise stands for uniformity. If you go to McDonald’s, you know the drill, right down to how your food product of choice is going to taste! I haven’t eaten French Fries at McDonald’s for a year or more — I’m a McDonald’s patron only when my grandkids insist — but I remember how I love those French Fries. Haven’t had a chocolate milkshake at Burger King for several years (too fattening for me, I’m afraid) but I still crave one! I had a vanilla cone at Dairy Queen as recently as 72 hours ago, and if I get a chance, I’ll buy one again today, because I love that product (see My Secret Love Affair).

“What would happen, Isabel, if these products changed, or worse, what would happen if you visited your favorite franchise, but in this unit they did things their way?”

Different isn’t always satisfying

“You’d be disappointed if you didn’t get what you expected,” she said. ”I get the point, John.”  

“I’m glad, Izz. Because that’s why franchisors are specific and stringent. You can’t do things your way in a franchise. You’ve got to work the business the way the franchisor means it to be worked. That’s how you succeed in franchising.”

“But don’t some franchises fail?” Isabel asked.

Not all do it the franchisor’s way

“Absolutely,” I said. “And in the failures that I’ve seen, almost always they occurred because the franchisee didn’t follow the system and/or because the franchisor wasn’t specific and stringent. In other words, the franchisor let people do things their way. And that does not work.”

Isabel asked, “Should I expect every franchisor to be specific and stringent?”

“Yes,” I said. “But the keyword is ‘expect’. If you had asked, ‘Is every franchisor specific and stringent?’ I would have answered: Only the good franchisors!”

Only the good franchisors do it their way

You’ll find franchisors who are lenient, who do not invoke controls, who do not watch their franchisees, who do not train and follow up and support their franchisees — in fact, there are a lot of them! And some of them manage to succeed. Until there’s a crisis. Or until a group of franchisees decides to do battle with the franchisor — that franchisor is likely to lose because the franchisor permitted the franchisees to do things their way. They set the precedent for failure.

Is there a formula for success?

“Isabel, the best franchisors will tell you upfront that they have a formula for success and once they share it with you they will expect you to follow it to the T. If you have a problem with that — and many people do — do not buy a franchise.”

Isabel was uncharacteristically silent for a moment. Then she said, “You’ve given me a lot to think about, John. Thank you.”

“No, thank you, Isabel. You asked the perfect question, one that every franchise prospect needs to consider.”

Previous Isabel Blogs:

1. Is Franchising Indentured Servitude?
2. Figuring Out What You’ll Earn As A Franchisee Even When The Franchisor Doesn’t Tell You
3. Figuring OUt What You’ll Earn As A Franchisee Even When The Franchisor Doesn’t Tell You — Part II
4. The Franchisor Spelled It All Out And Isabel Was Furious! She Screamed: “Do They Think Franchisees Are Robots?”

Photo image by: fotographix.ca

Beware Of “Experts” Who Trash Franchising While Selling You Their Business Opportunity

Where do these “experts” come up with this stuff?

What are they really selling?

Ah, wait a minute, they’ve got something else to sell. Like this one who wrote an article about the “high risk” of buying a franchise in “this recession.”

This “expert” gives you five reasons why you should not buy a franchise and then, finally, at the end of her article we discover what she’s really selling. She’s not selling you protection from franchises. She wants you to buy a home-based business “in an Industry which is booming during this recession” — that’s your ticket, she claims, to financial freedom! Interestingly, she sells this particular home-based business!

Give me a break.

Your ticket to financial paradise?

Surely any interested reader can see through that message: Don’t buy a franchise, cause it’s risky, but buy my home-based business cause that will lead to your financial paradise!

I don’t underestimate the intelligence of my readers

Fortunately for readers of this blog, I’m not selling franchises or business opportunities, which, by the way, fail more often than do franchises, according to the U.S. Small Business Administration.

Fortunately for readers of this blog, I tell you over and over again that franchising is not for everyone, and it may not be for you! In fact, starting and operating a business of any kind may not be for you, and it’s not for most people!

Fortunately for readers of this blog, I talk about the facts — not scare-tactic nonsense contrived by “experts.” 

This is nonsense

Let me give you some examples from the above “expert’s” article:

1. She wrote: “If you are buying a franchise that requires a shop front, especially a franchise in the food/cafe/restaurant industry, the set up costs can be enormous. Up to a million dollars is the usual.” . . . She was okay until that last sentence. It’s patently false. The “usual” is not up to a million dollars. The average franchisee doesn’t invest a million dollars. Now, she wrote “up to” and perhaps that means $250,000 to $400,000, which is more than likely the “usual.” Fact is, she doesn’t know! Because the number varies from concept to concept and from market to market. But it’s not $1-million, which is what she implies. Good scare tactic, but false information.
2. She wrote: Under the sub-heading “You could loose (sic) it all” she claimed: “You will most probably lose your house.” Really? Where’s the proof of that? In my 30 years in franchising I’ve talked to dozens of failed franchisees — and never one that lost their house. Have some lost their house as a result of failing in a franchise. No doubt. But I haven’t met them, and if it’s an almost “sure thing,” as this “expert” implies, I would have talked to at least one in 30 years. More nonsense. And yes, it always makes me a little suspicious when an “expert” confuses “loose” with “lose” — but hey, it’s an honest and easy mistake to make.
3. She wrote: Under the sub-heading “Paying more than once” she thinks it’s intolerable to pay a royalty to a franchisor. Quite amazingly, she wrote: “There is no hiding anything!” . . . Wow! In other words, if you can hide something, if you can cheat, if you can lie, if you can deceive, you should. But you won’t be able to as a franchisee! My sick sense of humor suggests that you should buy her home-based business where surely you will be able to hide things and not pay her what she’s due! On the other hand, by cheating her maybe she’s getting what she’s due?

Selfishly written to promote her own business

I could go on and shoot holes in more of her article, but I know I don’t need to. This is a selfish article that tears down franchising in an attempt to make the author’s business appear less risky and of greater value. That’s a disservice to readers and it makes a mockery of journalism.

There may be good reasons for not buying a franchise in a recession, but you’re not going to find them in this “expert’s” article.

. . . I did not provide a link to the article because I don’t want to embarrass the “expert” — but if you want to read the “expert’s” article, send me a note and I’ll forward the link to you. 

Photo image by: urban_data

The Franchisor Spelled It All Out And Isabel Was Furious! She Screamed: “Do They Think Franchisees Are Robots?”

I guess she hadn’t ever read a Franchise Disclosure Document until this week. And she wasn’t happy!

I’m talking about Isabel. Crazy Isabel! She’s back. (Previous Isabel articles are posted at the end of this blog).

The franchisor spelled it all out

“Everything is in the franchisor’s favor!” she screamed, like she had just come through a nightmare.

“They tell you everything you have to do! It’s all spelled out: When you have to work. How much you have to work. How much you have to produce. What you have to wear. Where you can operate the business. What you can sell. How you can advertise. Who you can sell the business to . . . does it ever end?”

And the problem is?

I said nothing for a moment, giving the air time to clear.

Finally, I dared to speak.

“Do you really want it to end, Isabel?

“What?” she snapped.

No time to be sympathetic

I knew she expected me to be sympathetic — or at least hoped so. But come on. Really? We’re talking about franchising.

Business.

Money.

Risk.

This is serious stuff.

No one is forced to become a franchisee

“I said, ‘do you really want it to end?’” and I gave her no time to answer because, frankly, I didn’t care and I needed to make a point.

“Look, it’s called a franchise. It means: license. It means someone is going to license you to operate their business in a specific manner for a specific period of time, and possibly in a specific location. They’re going to license you the opportunity to use their brand, their trade dress, their marketing plan — you’re going to represent them, Isabel. And they have the right to tell you what you will and won’t do. Because they grant the license!”

You can always do it on your own

“But I want to be able to make decisions. . . .”

I cut her off.

“They know what’s needed to operate their business successfully. And if they don’t, then why are you talking to them? . . . We can assume, Isabel, that you don’t know how to operate their business successfully or — you’d go do it! . . . You can’t! Or you won’t! Or you don’t want to!

This isn’t about your right to make decisions

“Meanwhile, they don’t want to license people who are going to make decisions and take the chance those decisions will turn into costly mistakes . . . and then into failures. They don’t want failures . . . they want successes, and it’s a huge challenge for them to find people who will be successful — even when they have spelled it all out for them!”

I paused even though I didn’t want to. But I remembered that Isabel is the client and while I can get as excited as she can get about these issues, I didn’t want her to think that I was a raving nutcase, simply spewing franchisor gunk.

Why do you want to make decisions?

“Do I get to make any decisions as a franchisee?” she asked.

“Izz,” I started again, calmly this time, “do you really want to make decisions? Is that your goal? To make decisions?”

“No, of course not. My goal is to be a successful franchisee, operating a business that I find — in your words — both satisfying and profitable.”

Better that the franchisor make all the decisions for you

“Very good,” I said. “You’re a terrific student. So why are you hung up on making decisions? In fact, why aren’t you looking for the franchisor to make all the important decisions for you, assuring you of your success?”

“Because I don’t want to be a robot. I want to participate in the business. I want to make it mine,” she said, starting to get excited again.

Review basic franchise facts again

“I don’t want you to be a robot, either. Neither does the franchisor. But Isabel, let’s just get down to the basics. You don’t know how to build a satisfying and profitable business — at least not the type of business that you’re looking for. Is that fair to say?”

“Yes, that’s fair. If I knew how, I’d go do it on my own,” she said.

The franchisor invents the wheel

“Very good. . . . Meanwhile, there’s a franchisor who has figured it out, or at least claims to have figured it out. They’ve already built the business. They’ve made mistakes. They’ve lost money. They’ve invented the wheel. They’ve recruited and trained franchisees, some of whom are doing very well. So far so good?”

“Yes,” she said, “that’s all true. I think they’re a good franchisor, too. I like them.”

The franchisee spins the wheel

“And I bet they love their business. In fact, they love it so much that they want to protect it. They don’t want to trash it. They don’t want start-ups that quickly fizzle into failures. They want franchisees who will succeed. And they’ve learned that they need to spell it out, they need to teach and train and support the franchisees and show them what to do, when to do it, who to do it with, etc., in order for the franchisees to succeed.”

“I get it,” she said. “But it seems so oppressive.”

Success or oppression?

“Well, it may be. But if it’s also successful, you may be able to live with the oppression, if it’s really oppressive, and I don’t know that it is. The most successful franchisees I know never tell me that they feel oppressed! But they do feel grateful that the franchisor figured it all out for them, made and paid for the mistakes in advance of them, and gave them a Cheat Sheet, so to speak, that helped them make good decisions — the decisions that eventually led to their success and satisfaction.”

Suddenly it was quiet again. Isabel was letting it sink in.

Are they all like this?

“Are all franchise agreements like this?” she asked. “Do they all spell out what the franchisee must do?”

“Only the good ones,” I told her. “I would not encourage you to buy a franchise if they only gave you part of the formula for success. . . . And again, Izz, I’ve got to go back to this point: Maybe it’s not for you. Maybe you don’t really want to be a franchisee as much as you want to be a business owner who makes her own decisions, win or lose. That’s what you need to think about. . . .

Reasons why you should buy a franchise

“I thought we had covered that ground — the fact that a franchisor has the absolute right to decide what franchisees will do, when and with whom, and all the rest of it . . . and the franchisee’s job is to listen and respond and follow — never to re-invent the wheel. . . . If you think you can’t do that, or don’t want to do that, if you think that turns you into a robot, if it’s oppression, for cryin’ out loud, then do not buy a franchise.”

“I understand,” she said. “I do want to be a franchisee. I realize I don’t have the answers and I don’t have enough money to make costly mistakes.”

Only the franchisor’s reality counts

“But you may not be willing to trade off your reality for the franchisor’s reality. And Isabel,” I concluded, “the franchisor’s reality is the only reality that counts in franchising. Think about it . . . and we’ll talk again . . . if you’re still willing.”

“Of course I am,” she said. “You don’t scare me!”

For More Franchising With Isabel Blogs, Read:

Is Franchising Indentured Servitude?

Figuring Out What You’ll Earn As A Franchisee Even When The Franchisor Doesn’t Tell You

Figuring Out What You’ll Earn As A Franchisee Even When The Franchisor Doesn’t Tell You — Part II

Photo image by: striatic

If You Don’t Want Or Need A Safety Net, You Don’t Want Or Need To Buy A Franchise

“So, maybe you don’t really want a safety net, Isabel.”

She’s back! (The previous Isabel post will lead you to even earlier posts that chronicle her buying journey as a prospective franchisee). And once more, she’s not ecstatic. 

“Am I giving up my soul?”

“I don’t want to give up my soul,” she said. “I just want to own and operate my own successful business.”

Oh boy. Here we go again, I thought, back to the indentured servitude nonsense, when I first started chronicling Isabel’s adventures. 

“We’re not going there again,” I said. “I know you’re the client, but we’re not going there again.”

“No, no, I agree,” she assured me. “This isn’t about that. This is about my ability to make decisions relative to how I operate my business. Can we talk about that?”

Franchising always includes controls

“Certainly we can,” I said, “but don’t expect too much. You’re talking about buying a franchise, Isabel. By definition there will be controls. Controls mean limitations.”

“But there are some things that I just want to do my way, at least once in a while. I want to test my ideas! What if I come up with the next greatest product for the franchise, something they wouldn’t have thought of without me?”

Controls are limiting to franchisors, too

“That’s a risk the franchisor is willing to take,” I explained. “People think only franchisees take the risks in franchising. Franchisors do, too, but in different ways. Their controls sometimes limit their ability to expand and grow and develop new products and services, but that’s a risk they are willing to take. You’ve got to take that risk, too, or don’t buy a franchise.”

“But it shouldn’t be that way,” she protested. “I’m a reasonable person, in spite of my excited personality. I have ideas. If it’s a good idea, I don’t plan to keep it to myself. I’ll share it with the franchise. I just want to be able to test my ideas.”

Do it your way, test your ideas

“Then start your own business!”

“I can’t do that,” she said. “First, I don’t have the money, and you know that.”

Uh-oh.

Suddenly that excited personality was kicking into gear and I was going to take the brunt of it. Rather than tell her to “Go get the money!” which is what an entrepreneur would do, I bit my tongue. Plus, she’d need a lot more than just start-up money if she intended to “test” her ideas.

Testing ideas is a risk

It’s in the testing that businesses fail. It costs money to test ideas! That’s why franchisors don’t want franchisees to do it. Franchisees only have so much money, and they generally don’t like to raise more money. They need to invest their money wisely as they open and build their businesses. Investing it in tests isn’t always wise, and in fact, usually doesn’t work out.

That’s why there are controls!

But rather than explain all that now, I calmly said to Isabel, “This isn’t my fault. I’m not forcing you to buy a franchise or even to start a business. So before you get too excited, let’s stay grounded. Is there a second reason why you can’t start your own business?”

Franchising also comes with know-how

“Yes,” she said. “I don’t know how. I know I don’t have all the answers to the issues that I’ll face in starting up my own business. I don’t know enough about location, for example. I don’t know how to deal with landlords. I need some equipment and I don’t know what to buy without someone’s guidance. I don’t know enough about marketing, and I’ve never really liked to sell. That’s why I’m interested in a franchise. They’ll help me with all of that.”

It’s called a safety net

“Indeed, a good one will. That’s the safety net they throw out to their franchisees. They provide training, guidance, support, know-how, along with a brand name! But not everyone wants a safety net, Isabel, because it also comes with a price. Controls! Some people are bent on doing it themselves. If you’re one of them, please don’t buy a franchise. Get off this merry-go-round of shopping for a franchise. Save yourself the aggravation.”

“You mean save you from my excited personality, don’t you!”

I enjoy this fringe benefit

“I didn’t say that. I enjoy your excited personality. I consider it a fringe benefit to my fee!”

She laughed.

“Look, Isabel, don’t beat yourself up on this issue,” I continued. “Either you should or you shouldn’t buy a franchise. I don’t expect you to make that decision overnight, but eventually you have to. There’s nothing wrong with saying you want to do it on your own. It just creates a different set of issues for you. And, there won’t be a safety net. So think about that and . . .”

Do you want a safety net?

We’ll catch up again with Isabel in the near future. Meanwhile, a safety net may or may not be for you. If you don’t need one or want one, then you don’t need or want to buy a franchise.

Because a good franchisor always provides a safety net and insists on doing so!

You’ll Also Enjoy Reading:

Find A Franchise System That Helps You Capture & Keep The “Right” Customers. Nothing More Important Now! 

Figuring Out What You’ll Earn As A Franchisee Even When The Franchisor Doesn’t Tell You

Whose Opinion Counts When You Interview Franchisees? 5 Steps To Help You Decide!

Photo image by: divemasterking2000