Posted on November 14th, 2013 No comments
Rita’s Water Ice is one of my favorite American franchises. It’s headquartered in Philadelphia, the greatest city in the world, and it’s perfect for Kuwait and the Middle East. Rita’s serves authentic Italian water ice — cool and refreshing, a favorite treat for children and adults — it can be low-cal, too, but we usually don’t want it that way! I don’t know why it’s not already in Kuwait, given that this is a “hot” franchise market, but I was pleased to see Rita’s marketing itself and looking for prospects who want to buy franchises at the Abu Dhabi Franchise Conference. Can’t be long until we can enjoy Rita’s locally!
Posted on November 14th, 2013 No comments
Posted on November 9th, 2013 8 comments
For the last 30 years I’ve asked my audiences (mostly prospective franchisees) the same question: “What’s wrong with franchising?” And through the years thousands of people have told me that the Franchise Fee is too expensive. Today I’m starting a series of arguments about the Franchise Fee. From time to time I’ll update this topic. Look for other argument series about other topics in this blog.
Typical Franchise Fees
Franchise fees typically range from $10,000 (rarely less) to $50,000 (sometimes more) and they are paid in a lump sum to the franchisor at the time of signing the franchise agreement. Prospective franchises often complain that the fee is too expensive. From the get go I’ll agree: Some franchise companies charge inflated franchise fees and you should avoid them. But most of the franchisors I’ve assisted through the years — especially the most credible franchisors — require very reasonable franchise fees. In fact, many franchisors should increase their fees, but they’re afraid to because they would exceed the typical range.
Before you come to any conclusions about the amount of the franchise fee, I encourage you to consider several points of view, as well as the facts surrounding franchise fees. And rather than tell you everything that’s important to know about franchise fees in one article, I’m going to share my ideas one at a time. Over a period of time I’ll write a dozen, maybe more, “arguments” about the franchise fee and after you’ve read them you may see things the way I do.
No Franchises Sold Here!
By the way, it’s never my intention to get you to agree with me so that you will buy a franchise. Whether you buy a franchise or not matters not to me — at least not financially. I don’t sell franchises. That separates me from most of the people who write franchise blogs. Of course, it would matter to me if you bought a franchise and you were not a good fit for franchising, or if you passed on buying a franchise because you didn’t understand something relative to franchising. I’m an educator first and foremost, and I do not get paid for convincing people to buy franchises. I get paid for speaking, training, coaching, and writing books (sometimes articles) that provide honest, credible and objective information about franchising so that my audiences can make informed and wise decisions.
So when a prospective franchisee says the franchise fee is too much money, I want to know: Compared to what?
Sometimes the prospect will say, “Compared to what it would cost me to start the same kind of business on my own.” Fair enough. In fact, many franchisors started their original business for less than they now charge for the franchise fee. One of my books includes stories about numerous franchisors (i.e. Two Men & A Truck, Little Caesar’s Pizza, Jani King, etc.) that started their businesses for less than $10,000.
Keep Comparisons Fair
But franchisors are not selling a “similar” kind of business. Franchisors are selling a specific brand identity, with a brand promise (that may or may not be valuable), plus training and support, and an operating plan for developing a successful business. Yes, you could start a pizza or cookie or plumbing business, etc. for a small amount of money — probably less than $10,000 even today — but it won’t be part of a franchise network and it won’t come with the intellectual property already explored, tested and certified.
Don’t confuse starting a business from scratch from buying a franchise business that comes with bells and whistles. To get your own bells and whistles you’ll need to do a lot of huffing and puffing, and possibly spend several hundred thousands of dollars (or more) as you test your ideas and figure out how to make your business prosper. Maybe it makes sense to pay a fee to learn from someone else’s huffing and puffing. It’s an expensive proposition to develop your own concept. On the other hand, you might develop the next McDonald’s!
Posted on October 26th, 2013 16 comments
A question franchise buyers frequently ask at my How to Buy a Franchise seminars goes like this: “If I buy a franchise where I’m one of the first franchisees in the system, is that the kind of franchise to buy? Should I be concerned about owning a franchise when there aren’t many other franchisees connected to the brand?”
It’s an important question relative to how to buy a franchise and I answer it with this true story.
One Monday afternoon a new franchisee in Kansas telephoned his franchisor in Dallas and said, “I need help. Either your franchise doesn’t work, or I’ve got a problem. I cannot close any deals and I am ready to quit.”
“What are you doing Thursday morning?” the franchisor asked. He was also the founder of the franchise company.
“I’ve got sales appointments set for that day, but I don’t know that I’ll be able to do any good with them. . . . Why?”
How many franchisors will do this?
“Can you pick me up at the airport at 9 in the morning? I’ll go on those sales appointments with you and we’ll figure out what’s going on.”
“Wait a minute,” said the franchisee. “Are you saying you are flying here to see me?”
“Why, you don’t want me to?” asked the franchisor.
“Sure. But I didn’t expect you to do that. I thought maybe you could tell me over the phone how to solve my problem. Or maybe I should just sell the franchise.”
The franchisor laughed. “If you’ve got a problem, it’s my problem, too. I’ll send you an email in about an hour to give you my itinerary. In the meantime, don’t sell the franchise and don’t worry. Oh, one other thing. See if you can set up several more appointments.”
Small Franchise Advantage
That story explains what may be the greatest advantage of buying a franchise from a franchisor who has sold only a small number (under 50) of franchises. That kind of franchisor, providing he or she is honest (they’re not all honest), remains accessible to franchisees and will help solve problems even if it means visiting the franchisee.
I can vouch for this story because the franchisor was my client (the late Ken D’Angelo, founder of HomeVestors, which was one of America’s most viable franchise ventures until the real estate bubble burst several years ago. I was CEO of the company at that time.) Ken invited me to join him on this journey to Kansas City and I watched as the master worked.
The master at work
Once we landed in Kansas we didn’t stop until early evening. The franchisee had set up six sales calls – his goal was to buy houses at a discount – and we accompanied him on each call. For the first two calls, we watched. Then we went to lunch and Ken evaluated the franchisee’s performance. He recalled each question that the sellers had asked the franchisee and reminded the franchisee of how he responded to each question. And then Ken reconstructed the calls and showed the franchisee what he would have done had they been his sales calls.
He bought two houses!
We went on the next two sales calls and Ken bought two houses. The franchisee was amazed (I was, too), but Ken didn’t seem surprised. (On our way home the next morning he told me he got lucky, but Ken was one of the most humble franchisors ever). The franchisee handled the next two calls on his own and didn’t buy a house, but he demonstrated greater confidence. As it turned out, one of the sellers called him three days later and he got the sale. I don’t remember what happened to the other opportunity and it didn’t matter. By this time, this franchisee was re-energized and he became a productive member of the HomeVestors’ network.
Of course, it wouldn’t have happened had Ken not picked up his phone that Monday. That’s one of the other good things about small-network franchisors. They have more time than money, and Ken couldn’t afford to hire someone to answer his phone for him! He also couldn’t afford to send a field trainer in his place. Ken was eager to go on these calls himself because he always wanted to know how he could improve his franchise system.
A franchise to buy
Yes, you should be concerned about buying a franchise that not many other franchisees have purchased . . . on the other hand, if you can find a franchise concept that you love, one that may even be “hot,” and a franchisor who you know will place your best interests before his own, you can be a little less concerned.
Posted on September 7th, 2013 No comments
Asking 101 questions before you invest in a franchise sounds like a lot of work, doesn’t it? The good news is that you don’t have to ask 101 questions — however, you do need to ask the right questions before you invest in a franchise, and many people simply do not know what to ask. In this e-booklet I’ve listed important questions to be asked of franchisors, franchisees, professional advisors and even franchise suppliers. There could be more than 101 questions to ask — if you have a question that I missed, please let me know — but these questions will help you think about franchising in advance of making a decision, and you’ll know who to ask to help you make a decision.
Looking for reviewers! I just posted this book and it’s had no reviewers — will you be the first?
Posted on August 26th, 2013 No comments“The reason so many of these franchises fail is because the franchisees think they get business automatically and they don’t know how to develop good relationships,” said the marketer.
“Not only that,” responded the plumber, who was not a franchisee, “they don’t know the numbers. They hire a lot of people and fall under that weight. They think they’re making money, but they’re not.”Excellent lessonsWow. Two excellent lessons in how to succeed in franchising — free, at Starbucks!It’s almost amazing that anyone succeeds in franchising simply because there are so many things to know not only about franchising, but about yourself if you’re the franchisee, and then how to operate the business. When you consider that people buy a franchise and go to the franchisor’s training program for a couple of weeks, or three, and then launch their business, real time, it’s surprising that more do not fail. How do you learn everything there is to know in such a short time frame? And what if you forget a step or two in the business building process?
Good franchisors know the answers to those questions and challenges.Proper support helpsI don’t know how many franchisees fail because they don’t know the numbers, or because they think they will get business automatically. But it’s a shame that any franchisee fails for those reasons. Good franchisors work hard to make sure these scenarios do not occur. With the proper support, a franchisor can know what a franchisee thinks — at least most of the time.
If you’re buying a franchise, investigate and evaluate the franchisor’s support. It could save your business, your money, and your well being mentally and physically.
What else should you evaluate when you consider buying a franchise? You’ll find a practical checklist in the Amazon best selling ebook Buy “Hot” Franchises Without Getting Burned.
Posted on August 25th, 2013 No comments
Posted on August 23rd, 2013 No comments
It probably shouldn’t be your #1 priority for buying a franchise, but buying one to learn what not to do in business isn’t a bad idea!
I had a favorite cousin who would have been better off buying a pizza franchise than starting her own pizza business. I said “had” because she’s now deceased, and part of her demise was due to the stress of trying to figure out how to operate her business successfully. Ultimately she lost her money, her marriage, and her life.
Do people want the best pizza?
The problem began when she baked a pizza and people told her how good it was. “This is the best pizza! You should be in the pizza business!” She heard that time after time after time. “This is better than any pizza on the market today.”
No doubt those statements were true, but what makes people think that consumers care about buying “the best” product? Do consumers really want “the best” pizza? “The best” cookies? “The best” hamburgers? “The best” food in general? Do consumers demand “the best” of any product or service? Consumers make buying decisions for many reasons, and “the best” isn’t usually one of them.
Even if consumers were to buy only “the best” there’s more to operating a business than providing a product or service. The most difficult task for most small business owners, including franchisees, is getting business — that is, creating buyers and customers, meeting their needs, and enticing them to return time and again.
A few questions to consider
My cousin discovered there was a lot she needed to know about operating her business. How many slices of pepperoni do you put on a large pizza and still keep it profitable and satisfying to the customer? How do you deliver pizza — or if you don’t deliver pizza, how many sales do you lose? What’s the cost to delivering pizza — do you need insurance for the drivers? And how do you figure out how many drivers you need and where to send them? How far can you travel to deliver a pizza and still earn a profit? Where do you advertise for customers? How often? What do you say in your ads to attract customers? . . . These are just a few of the questions that my cousin couldn’t answer. Neither could her friends who encouraged her to get into business.
When it came to making a great tasting pizza, no one could do that better than my cousin. When it came to making key decisions about the operation of her business, decisions that had nothing to do with pizza, no one could do that better than a pizza franchisor. With the right franchisor my cousin would have learned how to build a satisfying and profitable business, and she would have avoided everything not to do. Of course, she wouldn’t have been able to sell her pizza, and that’s probably what stopped her from considering a franchise, unfortunately.
Be careful if someone tells you that you make “the best” this or that and you should be in business . . . unless you know how to market it, sell it, and deliver it, you’re probably going to make too many costly mistakes simply because you don’t know what not to do. A good franchisor knows.
Watch these pages for updates about Buy “Hot” Franchises Without Getting Burned — soon to be an Amazon.com ebook.
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!
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