Perfect Fit Franchises

By Shira Boss-Bicak

Let’s just come out and talk about it. An increasing number of business school graduates and corporate executives are going into low-technology franchises like Dunkin’ Donuts and gas stations. The format lets them run their own show just like full-fledged entrepreneurs while providing a corporate security blanket that keeps the risk of failure low. There is just one catch: running a Subway or 7-Eleven lacks cachet. In some business circles, franchising is referred to as the F word.

"I’m convinced that 95 percent of people who want to be in business for themselves should own a franchise," said Rob Bond, a publisher of several books on franchising. And yet, he said, "there is some kind of social stigma to running a franchise."

Some corporate refugees, stung by the disapproval of their parents or even their wives, actually try to hide their new occupation from friends. Others plow ahead, sometimes with the help of career coaches, defiant about their choice and glad to be rid of corporate shackles.

"Neither my wife nor my mom was pleased with the whole thing, because they’re embarrassed," Jim Yang, a 1997 Stanford M.B.A. who opened a Cold Stone Creamery, said to a crowd of business school students at his alma mater during a panel discussion on franchising last year. "When people ask my mom what I do for a living, she lies!"

The audience laughed, probably not sure to what extent Mr. Yang was joking. Then another panel member stepped in to commiserate. John Zoglin, who got his M.B.A. from Stanford in 1984 and left a job at Hewlett-Packard to open a Sylvan Learning Center, pointed to Mr. Yang and said: "My mom is like yours. She loved me being at H.P., she didn’t want me off being a tutor!" He added, "But I was so much more proud to say I had my own thing."

Lindsay Held spent more than a decade trying to choose between law and investment banking before he chucked both and got behind the counter of a low-calorie dessert parlor. After graduating from the Columbia Law School, he spent eight years as a corporate lawyer. Then he went to the Wharton School of the University of Pennsylvania, and after that worked for two years as an investment banker. Imagine his former law school classmates’ surprise, then, when they stopped in for a dessert at a Tasti D-Lite shop on the Upper East Side and were waited on by Mr. Held. First, Mr. Held explained, there was the recognition (yes, it’s him!) and then the inevitable curiosity: "Um, what are you doing here?"

Two years after leaving his Wall Street career to open first one and then a second Tasti D-Lite, Mr. Held says he still loves serving customers. His parents must have guessed there would be moments like these. "Why, after three Ivy League degrees," he says they asked him, "hadn’t you remembered that in first grade you wanted to be an ice cream man? There’s always the question of the prestige factor, which entered my head," he said. "But I said: You know what? I want to have my own business. I want to build something."

His predicament is a common one for people who abandon the cushy realm of corner offices and six-figure salaries for the rough-and-tumble world of franchising. Career counselors like those at the Entrepreneur’s Source in Southbury, Conn., itself a franchise, try to help corporate types make the adjustment to business owners by focusing on lifestyle and personal aims as well as career goals. "We tell them to put their emotions aside and to gather facts," said Brian Miller, an executive vice president. "You can’t open new doors when your mind is closed."

In addition, top business schools are starting to add franchise classes to their elective course offerings and are holding panels featuring franchising at entrepreneurship conferences. The Kellogg School of Management at Northwestern University added a franchise class three years ago, and now it is oversubscribed.

To be sure, the number of franchisees with M.B.A.’s is still small. Even so, said Mr. Bond, the author, more people with a business background are considering it, especially when they can expand to multiple units, which is generally the only way they can overtake their old salaries.

Mr. Miller of the Entrepreneur’s Source said that company was seeing a growing number of corporate managers and executives exploring entrepreneurial opportunities.

"They’re tired of the corporate life and want to have control over their destiny," he said.

Another reason for their growing presence is a rising financial bar that excludes the rank and file. Dunkin’ Brands requires its franchisee candidates to open at least five doughnut stores and to have liquid assets of at least $750,000 and a net worth of $1.3 million. Five years ago, a franchisee could open one store and had to show $200,000 in liquid assets and $400,000 in net worth.

Some other chains, too, will sell only multiple units, which means a bigger investment. "We see franchise companies all the time that are slowly raising the financial standards as to who can get in," said Steve Hockett, president of FranChoice Inc. in Eden Prairie, Minn., a consulting firm that helps match entrepreneurs with franchisees.

Most franchise opportunities still start as "onesies and twosies," as one M.B.A. who owns dozens of Applebee’s restaurants rather disdainfully referred to individual store ownership. A common pitfall on that level, experts and many owners say, is a franchisee’s expectation that he can hire managers to do his work for him. The inefficiencies that can result from such an arrangement are one reason some franchisers ban absentee ownership, at least for the first year. At the Stanford event where Mr. Yang spoke about franchising, a young man asked him, "How dirty can you expect to get your hands in the day-to-day operation of the business?"

Quite dirty, Mr. Yang replied. He described how in the early days of owning his first Cold Stone Creamery he was mopping the store floor at night and pulling gunk out of the sink’s drain. "You have to make the commitment to roll up your sleeves," he said.

Anyone who is bothered by that thought should probably steer clear of franchising, in the view of Mr. Hockett, the franchising consultant. He tells prospective franchisees to imagine they are at a friend’s barbecue.

"If you’re embarrassed to tell your friend what you’re doing, it’s not a fit," he said. After facing down the barbecue test, he said, some would-be franchisees do back out, saying they had not thought about the question that way before.

The perception of franchise ownership might be changing slowly. "We used to battle it 15 years ago in the hair business – that has a real status problem," Mr. Hockett said. "But as Great Clips has grown, there are a lot of people looking around and going, ‘Wow!’ "

Perfect Fit Franchises provides no-cost assistance to entrepreneurs nationwide, helping them identify business opportunities that match their interests, backgrounds and financial means. We offer hundreds of business opportunities in a multitude of categories.

We are an affiliate of the world’s largest business consulting network with more than 25 years experience helping entrepreneurs like you find and own their own businesses.

Contact us at 1-866-391-3134 or moreinfo@perfectfitfranchises.com.

PFF BUSINESS JOURNAL
VOLUME 115

Insights from an Experienced Franchisee

By Stephen Shapiro

In 1988 my family and I ventured into the world of business ownership. Armed with what we believed was a “good tip,” the “right feelings,” a business that “inspired us,” and the inarguable position that “everybody knows who they are,” we became franchisees with one of the worlds largest franchise companies.

Now, more than 14 years later we are still in that franchise. It is our boss. Its customers are a slave to our marketing, familiar with the products but nonetheless no longer satisfied with them. For a number of years after our multi-unit purchase we would pull ourselves out of bed at 5:30 in the morning. We would look at one another like, “what are we doing?” and drag ourselves into the workplace.

We made a mistake. We have been paying for it ever since. Oh, it’s not that the business doesn’t provide us with a good income. The business from a monetary standpoint is a great business. The business does not provide us with what we had purposed or hoped that it would.

Perhaps it is that we really didn’t have a way to articulate what it was we wanted. Maybe we never spent the time and effort it takes to understand what it was we had desired by our becoming business owners. Whatever those elements were that led us to the decision we made, they were the wrong ones.

So in the next few paragraphs I will hope to enlighten you and perhaps provide you with some guidance on finding your right business fit. It’s out there. You just need to be looking at the right things in order to truly find it.

Here are some of Shapiro’s laws of franchise purchasing:

If You’ve Heard of It You’ll Pay Too Much for It
This is a general rule. Forget about choosing a franchise because YOU have heard of it. There are more than ,3000 franchises operating in the U.S.A. I bet you can’t name a dozen of them without a cheat sheet. Most people can’t name more than six. Franchises, by their nature, and most of the top 1,000 create brand awareness by virtue of the continuity in product and service delivery as well as the consistent message of a higher quality of marketing they provide.

You may ask, “If I don’t use brand awareness to buy a franchise, what do I use as my main criteria?” According to a 2001 study conducted the International Franchise Association, the top 5 reasons franchisees themselves give for their success are as follows: 1) Strong operating system, 2) support system that has depth and breadth, 3) training program that goes beyond the initial program, 4) R&D that provides options and strategy for future growth and business development, and 5) Marketing programs that can be reproduced with ease and with the collaboration from the parent company pinpoint my market and address its needs.

Just so you know, brand awareness was #8.
Franchises that have developed strong brand awareness started with those five above. Some of them have forgotten those five. They haven’t forgotten that their name now means they can overcharge however. Be careful. Choose a franchise on its depth and not glitz.

Choose Substance NOT Inspiration
“When I get into business for myself, I am going to choose something that will really get me revved up… something I can’t wait to get to in the morning!” My wife used to say something similar about me… before we were married.

Every business has perceived strengths and weaknesses. Choose your business on its ability to meet your needs and implement your strengths. Think Objectively! Research it.
* If you need a business to provide you a substantial six figure income then that is a criterion.
* If you have a sales background, choose a business that can take advantage of it.
* If you personally need a flexible schedule, don’t choose a business that has long retail hours. (Unless you can verify that it can be run with a manager.) A B2B or service business may be better.
* If you are project-management focused, choose one where you have deadlines or provide a custom product.

Unless you are the franchise company pioneer; the person behind the idea or Walt Disney, don’t look for someone else to be your inspiration and don’t look for your work to inspire you. Allow your hobbies, family, faith, your love of music, theater, and the arts, etc. to inspire you.

More of my friends who never got into business use this as their excu… er… reason. Well, forget it. You are fooling yourself. If you are using the old, “it doesn’t inspire me” reasoning what you are really saying is that, “I am happy with other people telling me when and where I work and how much I will earn. It’s ok if I am laid off again. The status quo is good enough.” The fact is it just doesn’t hurt enough for you to make the jump. When it does, you will realize that you should find a system that allows you to dispassionately and without bias choose a business that meets your goals and isn’t found in your dreams.

Choose Simple over Complex
This was the Steve Shapiro problem. When I looked at businesses, I looked at everything. I came back to the one that made me feel most comfortable. It was subjective. I didn’t really know. Because I had heard about this business, I thought, it must be the right business. I was wrong… dead tired wrong.

The fast food industry, many forms of capital intensive businesses (although not all) and those that require a heavy investment in either tons of low wage earning employees (such as fast food) or multi-faceted high paid technicians are generally complex businesses.

I would bet my favorite bagels for a year that if you like complex business providers, you are yourself a techie or someone who likes gizmos. I will also bet there is a business 50% less complex where you could work less and earn more.

Choose simple business models over complex models. They will allow you to work harder on your business and will help you to spend less time investing in the day-to-day operations of the business. Simple business plans that are service focused are even better. They typically provide a highly leveraged product or service that is just full of gross margins and revenues.

Further, those businesses are most easy to replicate. You can get them up and running quickly, turn profit more quickly and move onto your business plan for growth whether that means expanding your product/service offering or opening additional units.

Some Final Thoughts
Other types of business that have a tendency to strangle the entrepreneur in all of us are those with either high inventories that require you to invest large numbers in things that sit in your showroom or in your backroom waiting to be turned into finished product. Be wary of businesses where more than 30% of your working capital is invested into inventory.

Secondly, remember no one business is meant for any one of us. I have described some things that are definite challenges to the franchise owner. We have been involved in the fast food business for over 14 years now. We are good at it. We don’t like it. We have come to realize that as a family we appreciate our time together, our play time and our times when we can get away and do things without heavy repercussions. Make sure you know your own personality. Our business would be perfect for the person who enjoys the public, likes repetition, desires to work 70 plus hours a week, and gets a kick out of the general “busy-ness” of it.

This last year we vowed to expand our business plan and have added a fun business to our portfolio. Yes, it is a franchise. No, it is not food. What it gives us is hope for our future. Working the hours we want, making the kind of living and developing the equity in our business we want.

Now, if we can only get this boat anchor off our necks!

Steve Shapiro is a multi-unit franchisee with a major fast food organization. He is also a franchisee in a business consulting organization along with his wife and brother. Steve is also a writer and lecturer.

Perfect Fit Franchises provides no-cost assistance to entrepreneurs nationwide, helping them identify franchise business opportunities that match their interests, backgrounds and financial means. We offer hundreds of business opportunities in a multitude of categories.

We are an affiliate of the world’s largest franchise consulting network with more than 25 years experience helping entrepreneurs like you find and own their own businesses.

Contact us at 1-866-391-3134 or moreinfo@perfectfitfranchises.com.

PFF BUSINESS JOURNAL
VOLUME 114

7 Deadly Mistakes & How to Avoid Them

Every day, 125,000 people world wide start a home-based business. More people are looking for time, freedom and financial independence rather than stability and job security. Increasing focus on family values and quality of life are driving people to start a home business. How many people actually enjoy success with a home-business? According to Entrepreneur Magazine over 90% of people starting a home business fail to attain the desired results.

This PFF Journal will provide you with the framework to properly evaluate whether or not a business opportunity is worth pursuing or will lead you to lose a considerable amount of money and time. This report is invaluable “insider-guide” to any Home Business Opportunity seeker.

This information has never been offered anywhere else and comes from extensive experience in Network Marketing, Direct Sales and MLM (multi-level marketing). Let’s look at the 7 mistakes you don’t want to make, that can have you ‘dead in the water’ instead of making money with your ideal opportunity and how to avoid them. Read carefully, avoid the costly mistakes and, more importantly, find the Home Business that is for right YOU.

1. Making a decision based on hype.
Most people join a business opportunity for the wrong reasons, often based on the hype presented by a skillful salesperson. They are led to believe that it is very simple and easy to make a significant amount of money immediately. They are presented with testimonials of several key income producers who have generated multiple six figure incomes.

Of course, if these people attained this level of income, anyone can. Right? Wrong! There are a number of high producers with every Business Opportunity. Unfortunately, the number of failures is significantly greater. Inquire about the percentage of success versus failure? How many active distributors are there? What is the experience of the average or typical distributor?

The answer to these questions will give you a more realistic view of the opportunity. Getting into a Business Opportunity based on hype almost always guarantees failure. This is not suggesting that the decision should take forever, but “jumping” into it without any research is not the mark of good business person.

The best way to eliminate the hype trap is to concentrate on the benefits that you can attain. They have to be specific and measurable. Continue to read the report to discover the essential elements for selecting the right opportunity for you. People often make emotional decisions and use logic to justify them. That is exactly the reason clever salesmen are successful in selling opportunities based on hype. Passion and excitement are a very important part of this business. They should come from proven results, exceptional products and a great system enabling success for the majority, not just a few producers.

Take the time to do your due diligence and avoid such a costly mistake. Make sure that YOU can succeed with this opportunity and, not only that you could succeed, but others who you will introduce to this opportunity can succeed as well!

2. Not researching the company
If you don’t research it, your prospects will. If the company has any negative information, it has to be addressed in a precise way. Let’s face it — you would have not joined Enron knowing the potential problems they might well have had. This may not be easy to do. However, should you be unable find out such key information – for whatever reason – then you should just say “no” and walk away.

As in any business as a distributor, you have to make sure that the company has a solid track record. Leadership and positioning in the industry is very important for your success. The leadership of the company does not have to be defined as years in this type of business but the experience of the key individuals in similar businesses in the past. Experience in marketing, positioning, advertising, automated systems and business management should also be taken into account.

Identify the growth of the opportunity by the number of the distributors joining the program over a period of time and see whether the company experiences growth or decline. Check the Internet forums to identify the company’s reputation. The word of caution is that you will find some negative publicity for any company on the Internet and you have to be able to tell the difference between the real issues versus the typical negativism spread by the competitors and former distributors who feel they have been taken advantage of and yet jump into a similar opportunity so that they can complain once again.

Check the Better Business Bureau, www.BBBOnLine.Com, and Attorney General for any active complaints. Again, the presence of complaints is not necessarily an indication of a bad company, however if there are unanswered complaints, you should proceed with extreme caution.

A company should provide extensive training in areas key to your success. You should also look for a track record of continuous improvements and vision of the future. Evolving technology, creative marketing, superior product, and reliable system support are attributes of a solid company that will always position itself ahead of crowded competition.

It is important that you feel comfortable with the company. If not, then you should continue looking for the right Business Opportunity for you.

3. Failure to recognize a weak/overpriced product.
Does a tangible product exist? Does it have value on it’s own without the money making opportunity? If not, then all you have is a ‘Pyramid Scheme’. The product is what validates an opportunity. Is there a market for this product? Is the product worth the asking price?

Remember, that any other benefits that are offered to you in addition to the product, such as training, mentoring, tools, etc., should not be considered part of the price of product. That means that if someone offers you a personal development program for $2,000, you should ask yourself “Can I purchase this program in an open market for a similar price?” If you cannot establish comparable value, then you should pass on this opportunity. Some opportunities claim that their product is valued much higher than what it’s priced.

Make sure they provide you with a sound explanation and proof of their claims. Anyone can claim their product is worth some outrageous price and present testimonials to back up their claims.

The product must be consistently in high demand. There are many new products that come to the market place that are yet unproven and thus a lot of factors would play into their eventual market success. It might be unwise to proceed unless you have confidence in the product. A product must produce results and demonstrate that it truly works, to enable you to feel great representing it. It’s all about integrity. Products with integrity stand the test of time.

The bottom line is that the product should have a clear value at a fair market price. It’s also beneficial to feel enthusiastic and passionate about your product, so try to align yourself with a product that you, yourself would use and can stand behind. Passion is contagious and is a true indicator of a quality product you can honestly represent. If you are excited about the product, then you are already half way towards creating a successful Home Business.

4. Seeking the lowest price instead of the greatest value
When considering a business opportunity some people make the cost to join the deciding factor. They are afraid of risk and are attracted to opportunities they can get started with for free or at a minimal cost. This is a critical mistake.

Value must be considered over cost to join. How much do you value your time? How fast can your financial goals be met with this opportunity? These are points you need to consider. What is the advantage of getting involved with an opportunity for free or at limited cost when generating any real cash flow may take over 2 years?

Wouldn’t you rather be involved with an opportunity with a $1,000 investment where you can start generating cash within days or weeks, assuming they have a good product and system for you to succeed? Some distributors in order to entice quicker sales might offer a price cutting deal or a shorter qualification/training process. This tactic will shortchange you out of valuable training time and support from your immediate leadership team. This may greatly slow your progress. The real value is not in the money you’ll save but in the mentoring, training leadership and support your team should provide. Ask for specific benefits to signup with this distributor. What does he/she offer you that could not be obtained from any other distributor representing the very same opportunity? If a discount of the product is the only benefit that is being offered this might not represent a significant value that you should be looking for.

Look for these true values and you’ll be off to a good start.

5. SYSTEM
According to Robert Allen, SYSTEM stands for Save Yourself Stress, Time, Energy and Money. There are 2 parts of the system. First one is a financial and compensational model. It deals with “how do I make money with this opportunity?” This is what we call a financial compensation model.

Many distributors often promote the compensation model as their marketing advantage. You often see in their advertisement that they are not MLM and that they have a great SYSTEM in place. Finding the best compensation system is part of your research.

There are several popular compensation systems in the market place. There are typical MLM, 1up, 2up and other network marketing compensation systems. You will find that there are many debates on the Internet about the advantages and legitimacies of each of these systems.

The bottom line is that all of them are legitimate if the product is tangible. You have to find which one better suits your financial goals. Do not look at the financial compensation system as the only vehicle to achieve your end results. Anyone who attempts to convince you that their opportunity is better because it is not MLM , and therefore you will be able to generate cash faster, does not have a clear view and is attempting to sell you on the wrong premise.

Leave that opportunity right then and there! The financial compensation system is just a part of your overall research however it can determine whether you can attain your financial goals by just simply doing your math and researching the numbers. You will be surprised how many people buying into any business opportunity would disregard the simple arithmetic. Be precise. It is your business.

The second part of the system is the assistance provided by the company and your immediate team to help you generate cash flow. In a typical home business opportunity, one would market or advertise the product thru direct marketing, Internet and other channels. Then, the opportunity is presented to the prospect thru the Internet, phone conference or even a tour or demonstration. Finally, the questions are addressed during the final stage of the process which many call “the close”.

You want to be specific about the system that will help you to complete the transaction and collect the payment. We have seen many opportunities advertising “unmatched training” as a distinguished feature of their systems. That is a very good feature but not suited for everyone. However, if you will get an extensive amount of training on how to prospect and you are not a salesman, this possible advantage is not for you no matter how great their training is.

So what are the real advantages of the system? A good system should simplify your work, eliminate time consuming activities and provide you the tools for better marketing and advertising plus increase your chances in completing the sale by offering competent support during the close phase. All of that is critical and the degree to which these options are provided to you, should guarantee your success.

The key attributes of a successful SYSTEM are marketing, unique tools, professional product presentation and professional closing. Each one of these components reflects criticality on your results. You do not start from scratch and reinvent the wheel. That always proves to be costly.

So even if you have a great sales background and the system will not offer you proven and tested marketing tools and techniques you will not be successful. Make sure to walk through carefully what they call a SYSTEM and if it does not Save You Stress, Time, Energy and Money, then look to another opportunity.

6. Inferior Tools
What tools will be available to promote and present this Business Opportunity? Many people don’t realize that marketing is crucial to the success of a business enterprise. Marketing is salesmanship in writing. Advertising costs, marketing pays! The majority of businesses use advertising – which costs a bundle and often delivers dismal results. Advertising costs often exceeds the cost of the product. You should carefully review the tools that will be made available to you for marketing and make sure they will produce favorable and predictable results.

Any business requires effective marketing. Many companies provide prewritten advertisements to be placed in newspapers, magazines or on the internet. Ask who designed these ads; were they tested; what are the average results from these ads; and where do they recommend you place them? The art of writing an effective ad can’t be underestimated. Most of the business opportunity promoters would tend to oversimplify this area and you should be able to determine whether they have proven advertising tools. If the answers are not specific and detailed, you will be paying a great deal for advertising without knowing whether or not it has any value.

Web pages provide an option for online advertisement so that you could promote your opportunity on the Internet. Think about the webpage they offer as it could be the very one that introduced you to this opportunity – is the copy compelling and informative? How is it different in a crowd of competitors or is everyone in the company using the same replicated website?

A lot of people don’t know how to market and advertise on the Internet.

Ask what tools are available to assist with online marketing. If you get generalized answers you can expect to pay a lot for a steep learning curve.

The bottom line is if you don’t have a good handle on how your marketing will be done, you’ll be spending a lot of time and money on advertising.

7. Overstated Claims of Automation
Our entire modern world is only possible because we can automate many things. Nowadays, many business opportunities promote themselves as being over 90% automated. If that were true, there’d be a higher than 10 % success rate in Home Business Opportunities. Right?

Some companies use flashy presentations to promote their offers, and would have you believe that this automates 90 % of the work. Of course, this is not true. What about lead generation, marketing and closing? That would amount to a lot more than 10%.

Full automation is when you are not involved in the end to end process. This is difficult to achieve, but in order to support the claim that “success can be duplicated by anyone” there must be a degree of automation in place that will be doing the more unpleasant and inefficient grunt-work for you, predictably and reliably every time. Automation enables duplication. You and everyone who comes after you should be able to duplicate the desired results.

At best, most companies offer replicated websites, sales scripts, sample ads and closing assistance for sales completion. You still have to place the ads, put up the replicated site, drive traffic to the site, generate or buy leads, and possibly talk to your prospects.

What you should be looking for are sound and proven marketing techniques that would effectively introduce your opportunity to Home Business seekers, something that qualifies them and has professional closing support. If any of these components are not available and tested, then your level of participation would drastically increase and therefore the chances for duplication would be much less.

Make sure that you fully understand which parts of the system are truly automated, and which are fully hands-on. The more each process is automated the less is left to chance and a higher rate of success can be predicted.

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In conclusion, starting a home-based business requires that you take careful steps and do extensive research to be sure that the opportunity is well suited for you and you understand all the details involved. Selecting the right business for you will make your life more exciting and rewarding. It will have a tremendous impact on your family and friends. It will generate the life that you desire and enable you to attain your dreams.

Now go and find your home-based business that will bring your goals to life. Best wishes and prosperity to you and your business. You deserve it.

Perfect Fit Franchises provides no-cost assistance to entrepreneurs nationwide, helping them identify business opportunities that match their interests, backgrounds and financial means. We offer hundreds of business opportunities in a multitude of categories.

We are an affiliate of the world’s largest business consulting network with more than 25 years experience helping entrepreneurs like you find and own their own businesses.

Contact us at 1-866-391-3134 or moreinfo@perfectfitfranchises.com.

PFF BUSINESS JOURNAL
VOLUME 113

10 Important Steps to Optimize Success

In qualifying for a franchise, financial and non-financial criteria are involved. Being able to make the down payment on a potential franchise is just one of the pieces of this puzzle and does not automatically qualify you.

In addition to the financial component, franchises want to ensure that candidates have an entrepreneurial passion, confidence in their own abilities, a collaborative working style and the necessary transferable skills required to successfully operate the business. In essence what franchises are looking for are business partners with whom they can achieve a long-term and prosperous relationship.

So what if you meet all the non-financial criteria? What then do you need to watch out for regarding your finances or those of potential business partners?

Financial qualification is not complicated or difficult, but like any process it’s important to follow the DOs and avoid the DON’Ts. Not all franchises are created equal, and financial preparation is not necessarily consistent across the board, so review the following criteria and take them seriously in order to ensure a smooth beginning and long term success in your business. Here’s a list of ten important Dos that will help increase your chances of successful financing:

1. Remember the five “C’s

Nobody wants to take a chance on just anyone, and bankers and financial institutions are no exception to this rule. When reviewing the loan request, the lender is primarily concerned with repayment. Loan officers judge loan applications on what is commonly referred to as the five C’s of Credit.

* Character –Once a lender takes a look at a copy of your credit report they can see your debt repayment trends. They want to know if you have a consistent history of paying your bills and if they are paid on time.
* Cash flow — Historical and projected statements are used to determine your ability to repay the loan and still have adequate funds to run your business.
* Collateral –This is an asset or something you own that a lender can seize in the event that you fail to repay your loan. Often assets purchased with the loan may serve as collateral. If your business does not have enough collateral, the lender will look at your personal assets. In summary, you need to have business or personal assets to back the loan.
* Capitalization — Money to put down, fixed assets, or even inventories. You don’t have to be fully capitalized to qualify for a loan.
* Conditions — Factors that affect the success of the company such as industry/local market trends, government regulation and competition.

2. Be truthful to your banker and business consultant

No one is perfect and life happens. Don’t fabricate your credit history. Instead, if you have blemishes on your report, be up front and explain them to your lender or business consultant. Examples of such blemishes could include credit ruined by a spouse, unexpected medical bills, unemployment and disability. All this information is readily accessible to any lender and they can always validate what you tell them.

Be prepared and pull a copy of your credit report in advance to ensure that it is devoid of errors and inaccuracies. Knowing your personal credit score is an added bonus. Individuals in all states are now entitled to a free copy of their credit report every year, so pull one from each of the three major credit-reporting agencies and review them thoroughly. Corrections may be made online or via mail.

The three major credit agencies are Experian (www.experian.com), Equifax (www.equifax.com) and TransUnion (www.transunion.com).

3. Don’t expect the bank to foot the entire "tab"

Your application is on shaky ground if the loan request puts the bank in over four times your net worth. High debt compared to your stake in the business gives the lender excessive control over your operations. Lenders do not want to own your company. Finally keep owner’s draw or officer’s salary reasonable. Don’t give the impression that your company is being milked.

4. Know how much money you need to borrow

Always be specific about the loan amount and provide a detailed schedule that shows how you intend to use the borrowed money. Demonstrate your need and do not borrow more than you need.

5. Document how you intend to pay back the loan

Business loans need to be paid back through continuing cash flow, therefore the need for realistic cash flow projections.

6. Prepare the required documentation to support the loan proposal

Just as with startups or existing businesses, most lenders require a business plan when funding a franchise. With franchises, however, you have a wealth of reliable information available through the company’s Uniform Franchise Offering Circular (UFOC) reflecting historical success rates and financial performance. In many cases, the franchise may also be able to help by providing samples

of business plans used by their existing franchisees. Also, many well-established franchises have “pre-qualified” their opportunities with the Small Business Administration (SBA).

7. Be realistic about how much and what type of asset-based collateral is needed to put your request over the top.

Inventories/receivables are not enough to secure long-term (5+year) loans. You need to reach into your personal net worth and put up hard stuff such as real estate. Reluctance to offer a personal guarantee will only serve as a negative and could possibly kill your deal.

8. Reference the latest edition of the Robert Morris and Associates’ (RMA) Annual Statement Studies.

In the business-planning world, the RMA is analogous to the bible and is very popular with lenders. The ratios from this book are a representative sampling of small, medium and large entities within most industries. Lenders frequently use these ratios to determine if a particular business’ ratios are in line with those of other established businesses of similar size.

9. Understand how to “shop” your loan

Even after meeting all of the above financial criteria, it is still possible to get turned down for a loan. A couple of reasons may be that you shopped at the wrong bank or financial institution. Some lenders specialize in certain industries or types of business and don’t know anything about your type of business. As a result your business is viewed as a risky proposition. Doing a little bit of research upfront goes a long way and can save you the grief of being turned down by certain financial institutions. Another unknown fact is that for every lender you shop for your loan, your credit score declines by three points!

10. Tap into the vast amount of help to get a first class loan package together

Experienced business consultants have a lot of training and experience with business loan applications and know what lenders are looking for. When shopping for a qualified business consultant, look for the following traits:
* Has a passion for what they do
* Knows what lenders are looking for and want
* Keeps up with the latest changes in their field of expertise
* Is able to identify problems quickly
* Has creative problem solving skills
* Professional
* Has great people skills/compatibility
* Gives clients more than they expect

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About the Author:
Lola Aré is a business consultant with Strategic Thinktank, Inc. (www.strategicthinktank.com) with more than 15 years experience in counseling, mentoring and assisting startups, franchises and existing small businesses. Lola can be reached at 248-553-8250 or lola.are@strategicthinktank.com.

Perfect Fit Franchises provides no-cost assistance to entrepreneurs nationwide, helping them identify franchise business opportunities that match their interests, backgrounds and financial means. We offer hundreds of business opportunities in a multitude of categories.

We are an affiliate of the world’s largest franchise consulting network with more than 25 years experience helping entrepreneurs like you find and own their own businesses.

Contact us at 1-866-391-3134 or moreinfo@perfectfitfranchises.com.

PFF BUSINESS JOURNAL
VOLUME 112

Franchise Earnings Claims Reflect Confidence and Success

It’s been said that, in life, there are no guarantees, and the only two things we can rely on are death and taxes. Yet we all strive to achieve the greatest chance of success by basing decisions on factual data and reliable information whenever possible. And the bigger the decision, the more important that becomes.

If you were buying a used car, you’d want to have it checked out by a certified mechanic. And few people would buy a house without first having it inspected by a licensed professional. Starting a business should be no different.

That’s why entrepreneurs look to franchising. Franchising offers the greatest chance for success with the least amount of risk through business models that have been time-tested and refined by an existing community of franchisees. Indeed, statistics show that 93% of franchises are still operating and successful after 4 years, while only 27% of independent start-ups survive that long.

In an earlier PFF Business Journal (volume 105), we explained the importance of the Uniform Franchise Offering Circular (UFOC), a document every franchise is mandated by the Federal Trade Commission to make available to prospective franchisees. As we said, UFOC could stand for “Unlimited Facts on Company”, because it’s far more than a circular. Because every UFOC contains 23 standard items, we’ve seldom seen one that’s less than 100 pages. And while a UFOC is not exactly exciting reading, it should be viewed as required reading by anyone seriously considering a franchise.

Item 19 in the UFOC addresses financial performance, and may answer the question every franchisee candidate wants to ask: “How much money can I make?” It is here that the franchise may state earnings claims based on prior financial performance of existing franchisees.

Two important things to keep in mind. First, most franchises do not publish earnings claims in their UFOC, though for those that do, it should be viewed as a positive reflection of the company’s confidence and consistency.

Secondly, while franchises are required to present accurate financial data, there are no standard guidelines for the amount of information or the format in which it is presented.

Earnings claims may reflect average financial results for all franchisees, or it may only include data for a select community (i.e. franchisees who have been in business for at least 12 months). It may reflect performance for only the last 12 months or may enable the candidate to review financial trends over multiple years. Many earnings claims also include average cost of goods, cost of sales, sales margins and other useful details – but some do not.

Again, franchises are only required to explain how and from where the data has been formulated, and to ensure its accuracy using generally accepted and approved accounting procedures. So while more information is always better than less, it’s important for you as a candidate to understand both the content and context of the information provided.

At Perfect Fit Franchises, we like to see earnings claims in the belief that they reflect ongoing growth, success, and confidence. Here are a couple of examples of excellent opportunities that do publish detailed earnings claims that we recommend on a regular basis:

Example 1: Retail
This company has a direct-to-consumer business model, providing substantial costs savings to the customer by cutting out the middleman. Their products are built onsite from pre-manufactured components to the customer’s specifications. This company provides earnings claims over the previous 36-month period and will match their financial performance against any franchise of any type.

* Established: 1958
* First Franchised: 1986
* Franchised Units: 75
* Average per operation annual gross: $1,600,000 (average between single and multi-unit operations (see earnings claims for details)
* Average cost of goods: 45%
* Profit margin (before other non-material costs): 55%
* Average ticket (transaction): $575
* Close ratio: 74%

Example 2: Decorating
This is a home-based business providing window decorating products and services to both consumer and commercial customers. Its aggressive and successful business model has earned them #1 ranking in this $10BB industry for eight straight years. As a mobile service, this franchise offers relatively low start up costs and a low-overhead, no-inventory business model.

* Established: 1992
* 1st Franchised: 1994
* Franchised Units: 750
* Average per territory annual gross: $348,000
* Average cost of goods: 49%
* Profit margin (before other non-material costs): 51%
* Average ticket (transaction): $800 – $1200
* Close ratio: 75%

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In conclusion, though publishing earnings claims is always a positive factor, the lack of earnings claims should not be viewed as a negative. Many excellent franchises do not do so for a variety of reasons.

If a franchise does not explicitly state earnings claims, then Item 20 in their UFOC provides an alternative means to gauge financial performance. It is here that the franchise lists current and former franchisees. And unlike personal or professional references one might include in a resume, the franchise is required to list all franchisees, not just the best ones. Even if the franchise has published earnings claims, you’ll want to contact as many of these people as possible to inquire about their individual financial success.

Perfect Fit Franchises provides no-cost assistance to entrepreneurs nationwide, helping them identify franchise business opportunities that match their interests, backgrounds and financial means. We offer hundreds of business opportunities in a multitude of categories.

We are an affiliate of the world’s largest franchise consulting network with more than 25 years experience helping entrepreneurs like you find and own their own businesses.

Contact us at 1-866-391-3134 or moreinfo@perfectfitfranchises.com.

PFF BUSINESS JOURNAL
VOLUME 111

The Process is Designed to Ensure the Best Fit

Have you ever bought anything over the internet – perhaps, for instance, a pair of pants? It’s a fairly painless process: point, click, wear. And even if you order the wrong size, exchanging the pants for a pair that fits better is usually easy to do. As long as you are able to pay for the pants, the merchant is happy to sell you any style, color and quantity.

But what if internet merchants required you to qualify before allowing you to complete the purchase? What if they wanted to make sure you could really afford to buy the pants? That you would keep the pants clean and pressed? That you would only wear them with tasteful, color-coordinated outfits? Having to qualify might be enough to motivate you to drive to the store to buy the pants instead or discourage you from buying them at all.

Entrepreneurs also “shop” for business opportunities on the internet, where information on over 6,500 franchises can be found. And much like buying pants, finding the right fit with a business should be an important objective. But that’s where the similarity ends. And problems arise when entrepreneurs fail to acknowledge the differences.

One common problem: entrepreneurs sometimes see themselves as the buyer and the franchise as the seller. Be clear about one thing: you are not “buying” a business any more than a franchise is selling one. Franchises are not looking for customers or employees. They seek good business partners with whom they can achieve a long term and prosperous relationships. Thus, franchises are never sold; they are awarded.

In order to be awarded a franchise, a candidate must qualify – personally and financially. In fact, the process is – or should be – far more involved than qualifying for a home mortgage, where the company is only concerned about your credit history and financial ability to make payments. A mortgage company doesn’t care if your working style is collaborative, if you are good at managing people, or if you are a team player. But a reputable franchise definitely does care about these characteristics. So much so, in fact, that a candidate who is only financially well-qualified is usually not accepted as a new franchisee.

To illustrate this, we recently worked with a client who was extremely well qualified from a financial standpoint. His liquid capital and net worth far exceeded the minimum requirements of the franchises in which he was interested. However, he underestimated the importance of non-monetary factors, believing that “flashing a wad of cash” would easily qualify him for whatever business he chose. He thought he was buying a pair of pants. However, none of the franchises we represent viewed him as a good prospect.

Rest assured that franchises do not insist that you have specific industry experience. In fact, more often than not, franchisees choose businesses that reflect their interests – not necessarily their professional backgrounds. And the very nature of franchises – a proven system with excellent training and ongoing support – makes this possible. What franchises do look for are candidates with (1) an entrepreneurial passion (2) confidence in their own abilities (3) a collaborative working style (4) and skills that are transferable to successfully operate the business.

So, assuming you enter the dialogue with the right frame of mind, what should you expect in return? Well, most franchises recognize that they also need to earn your trust. As they qualify you, they understand your desire to qualify them. Thus, if you are genuinely interested, they will open their books to you, be extremely forthright and honest in sharing minute details of their operation, and will put you directly in touch with existing franchisees.

In fact, the franchise industry is highly regulated in this regard and is mandated by the federal government to provide full disclosure. This is made through their UFOC (Uniform Franchise Offering Circular), a document every franchise is required to make available to serious candidates. The UFOC contains all the critical details you need to fully evaluate the business opportunity and the company that stands behind it.

So overall, this process is a two-way street – where both parties evaluate each other openly and honestly. And while franchises aren’t looking for employees, this process is very similar to a job interview, where the job applicant and company concurrently evaluate each other’s qualifications. The applicant hopes to be awarded the job; the company hopes to earn the applicant’s skills and talents.

To ensure a constructive and beneficial dialogue, here are a few things to keep in mind:
* Understand that this is a business relationship – not a purchase.
* Enter the process in good faith, willing to fully disclose while expecting full disclosure in return.
* Assume that if you see a franchise as a good business opportunity, others probably have as well. Thus, the company is probably talking to many other candidates.
* Never hesitate to talk with the franchise directly. It is absolutely the best and only way to get all your questions answered.
* Don’t assume that the company views the discussion as a sign that you are ready to move forward. They understand that they are likely one of many opportunities you are investigating (just as you are one of many candidates they are considering).
* Be wary of franchises that focus solely on your financial qualifications.
* Always request the UFOC and review its contents in detail.

In summary, “fitting” into a business is far more important than into a pair of pants. And the qualification process is designed to ensure the best fit.

Perfect Fit Franchises provides no-cost assistance to entrepreneurs nationwide, helping them identify franchise business opportunities that match their interests, backgrounds and financial means. We offer hundreds of business opportunities in a multitude of categories.

We are an affiliate of Business Alliance, Inc., the world’s largest franchise network with more than 25 years experience helping entrepreneurs like you find and own their own businesses.

Contact us at 1-866-391-3134 or moreinfo@perfectfitfranchises.com.

PFF BUSINESS JOURNAL
VOLUME 109

FCI BUSINESS JOURNAL
VOLUME 101 – DECEMBER 2004

The Ultimate Distribution Channel
Opening Multiple Doors to Success

“Build a better mousetrap and the world will beat a
path to your door.”

Ralph Waldo Emerson (1803 – 1882)

As much as Mr. Emerson’s comment is a tribute to the free enterprise system, it’s not likely it was any truer in his time than it is today. Anyone building a better mousetrap in the 1800s would have had a difficult time letting the world know where their door was. Ralph died in 1882, long before there was mass media, sophisticated advertising, a world wide web, or a true appreciation of marketing.

While those tools exist today and provide a modern inventor with numerous avenues to promote his product or service, few products or services can survive with only one “door”. And that’s why successful companies have developed broad and sophisticated distribution channels to provide multiple paths for their customers to find them. After all, a faucet manufacturer could never be successful purely on its own. That’s why faucets from Delta, Moen and other such manufacturers can be found behind the doors of The Home Depot, Loews, True Value Hardware and a multitude of other distributors. Manufacturers rely on vast networks of such business partners to market and sell their products.

Is it any wonder that franchises work in the same way? Franchises are, in essence, sophisticated distribution systems, and that’s why they look for successful franchisees — large and small, — to become distributors. And the size of the franchise is often inversely proportional to the size of the distribution channels they seek. Large, well-established franchises may have evolved to a point where they no longer need large franchisees to help them grow quickly. Alternately, smaller and newer franchises more likely welcome relationships with large distributors who can assist in developing a regional presence and name recognition faster than the franchises can do it on their own. Such large distributors are called “Master Franchisers” and present a unique and potentially lucrative opportunity for business-savvy entrepreneurs.

LEVELS OF FRANCHISING
Master Franchising is best understood when compared with the other levels.

Single-unit franchising is the first level and is where most entrepreneurs (new to franchising) begin. At this stage, a franchisee opens a single location. If a retail operation, the territory is predefined and protected, or if it’s a home-based franchise, the territory may consist of a few specific zip codes. At this level, the franchisee usually remains very involved in the day-to-day operations, and even if he puts a general manger in place, the franchisee will likely remain as hands-on a possible to ensure the business’s success.

Multi-unit franchising involves opening more than one unit, usually at a reduced cost per unit. This not only provides an initial lower costs, but likely will provide additional downstream savings since there will be increased economy of scale for goods/services serving multiple units. With multi-unit franchising, locations can be opened anywhere with usually no requirement that territories be adjacent to one another. At this level, a franchisee typically puts middle management in place earlier or even immediately to oversee the success of the larger enterprise.

Area Development is similar to multi-unit franchising, but usually involves more units covering a larger territory or geography. This could be as small as a portion of a large metropolitan area or as large as a whole state. With area development, the number of units to be open (and the time frame for opening them) is also predefined. Like multi-unit franchising, an area developer achieves significant savings per unit. Unlike multi-unit, area development usually involves contiguous real estate with the exclusive rights to develop units along a predefined schedule. An area developer will generally focus on overall operations and expansion while relying on middle management almost immediately.

Which brings us to Master Franchising, the highest level. With master franchising, you get all the benefits mentioned above without the expense of having to develop the concept from scratch. You get control of the successful franchise system in a specific geographic area, a proven track record that works, the brand name and even a partner in the form of a corporate office and other master franchises to give you valuable support, & latest innovations and business expertise when you need it.

Master franchising is similar to area development, but with one important difference. Where an area developer owns all of his units, a master franchiser actually adds other franchisees within his geography. You are still a franchisee, but you are also a partner with the franchise, acting as a major distribution channel for the franchise business opportunity itself. This typically creates multiple revenue streams. With master franchising, you can generate income through your own units if you wish, with a significantly reduced royalty and franchise fee. In addition you can generate sales through:

* Franchise Fees: When you add a franchisee, you receive a franchise fee. Most franchise fees are between $20,000 to $30,000 and in a typical master franchise program you get to keep most of the fee!

* Ongoing royalties: This is the ultimate income source. Once you help set up a franchise, you receive royalty income for the rest of the life of that franchise. Imagine receiving 2% to 5% of your franchisees’ volume every month for many years.

* Products or additional services: Often products or additional services needed by the franchisees are sold in the master franchisee’s outlet at an excellent income.

* Real Estate: If real estate is involved with the franchisee’s location, often the master can become involved in development of sites and receive other types of real estate related income.

Master Franchising also offers significant non-financial benefits. Master franchisers own and enjoy a high quality-of-life business. Here are some additional key characteristics of a typical master franchise:

Fewer customers: Your customers are your franchisees. You help support a small number of franchisees who typically own several franchise units each.

Fewer employees: Typically you will operate a master franchise by yourself and then expand to have an administrative assistant, a trainer or other support person and a franchise sales person. As you grow bigger, you add more of these positions into your staff and perhaps a general manager to run the whole operation and can back away almost completely if desired. We have found that many master franchisees after working for 3-7 years can retire and live off a extremely good income and spend one or two days a month in the office.

Minimal office space: Many master franchises can be started out of a home office. Once you get enough franchisees in place you can expand into outside office.

Accelerated Equity: You build equity in the business at a much faster rate than a normal business: Once you add a few franchises or open your own units, you increase the value of your business significantly. Not only do you have an existing business with cash flow, but you have additional
franchise opportunities to sell which gives the master franchise a higher value typically between four to nine times earnings instead of the typical 1.8 to 2.8 times earnings of normal businesses.

Low Overhead: Usually you don’t have to jump into business with a large office, staff and overhead expenses. You can expand it as you go.

Your Own Units: You have the option of setting up your own franchises at reduced rates: As you open your own outlets you create another asset of value. You now have your master franchise with a specific value and also your own franchise with its value. As the value of your franchise increases, it increases the value of your master franchise. They are separate assets you can sell when you wish.

Exclusive Territory: Only you and your designated franchisees will be allowed to develop franchises in your territory.

Latest Technologies: Being part of a larger franchise system allows the best ideas to flow into the corporate office and then into the field. You will have your own research and development built right in.

No Experience: You don’t need experience in the specific industry: You will receive industry specific training and support from the corporate office. It can be started part-time and then you can move to full time as required by the business you bring on.

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In conclusion, we think Ralph Waldo Emerson would have loved master franchising. It’s not just a better mousetrap. It’s an opportunity that creates multiple doors! Through all of which you can gain financial and quality-of-business benefits. Master franchises typically enjoy a 92% success rate. And while it’s true that, overall, franchising offers success with the least amount of risk, master franchising may be the best kept secret in business today. Is Master Franchising right for you? Contact us today to investigate the possibilities.

Perfect Fit Franchises provides no-cost assistance to entrepreneurs nationwide, helping them identify franchise business opportunities that match their interests, backgrounds and financial means. We offer hundreds of business opportunities in a multitude of categories.

We are an affiliate of the world’s largest franchise consulting network with more than 25 years experience helping entrepreneurs like you find and own their own businesses.

Contact us at 1-866-391-3134 or moreinfo@perfectfitfranchises.com

PFF BUSINESS JOURNAL
VOLUME 108

Opportunities Offer Reduced Cost & Complexity

“When people go to work, they shouldn’t
have to leave their hearts at home.”
— Betty Bender

Here’s a modern-day version of Betty’s quote: “When people go to work, they shouldn’t have to leave home – period!”

While it’s been said that home is where the heart is, it’s become increasing true – especially over the last decade – that home is where the franchise is. Home-based businesses are certainly not a new concept, but until the early ‘90s, most were independent start-ups and consultant-based initiatives. Today, the home-based franchise industry is growing exponentially, enabling entrepreneurs to run legitimate and successful businesses with relatively low cost and complexity.

Let’s start by drawing an important distinction: There is a BIG difference between home-based franchises and business opportunities (often called “Biz-Ops”). A home-based franchise offers a proven business model; a biz-op generally offers far less quantifiable proof. Here’s how one such “opportunity” is being marketed today:

“If you ever desired to make a million dollars but never found the right vehicle, then you may be like me, an attorney who was trading his hours for dollars, spending 60-70 stressful hours per week, and missing out on the important things in life. But this opportunity turned things around. Now I spend my days at home, adjusting things around my family’s baseball schedules, soccer schedules and school event schedules, finding time to throw the football with the boys or go walking with my wife, and otherwise enjoying life. I started part time spending a couple hours per day. Six months into this I was able to walk away from a stressful law practice. My income doubled in just eight months, spending half the hours. Making a multiple six figure income with this stress-free business is something you deserve as well. I’ll show you how to reproduce exactly what I have done.”

Is it possible to earn $100,000+ per year working solely from your home computer less than 20 hours a week with no requirement to market and sell your products or services? Perhaps, but if it were easy, wouldn’t we all be doing it!?

As a more reliable alternative, we recommend looking at home-based franchises. Home-based franchises offer a wide range of businesses with the added benefit of low cost and complexity. Though operating from an office is always an option, when a business is home-based, there is no expense for real estate, leases, construction, insurance and other costs typical of fixed retail operations. And there is usually little or no expense for equipment, inventory or employees. Even if you have employees, they can usually also operate from home.

Home-based franchises sometimes involve mobile services, which gets your product or service out to the client vs. requiring them to have them come to you. As well, such franchises can be business-to-consumer (B2C) or business-to-business (B2B) — or both.

Here are just a few examples:

* Accelerated Account Receivables (B2B)
* Artificial Turf (B2B & B2C)
* Bath & Kitchen Refinishing (B2C)
* Business Consulting (B2B)
* Carpet & Upholstery Care (B2B & B2C)

* Commercial Building Maintenance (B2B)
* Commercial Cleaning (B2B)
* Communications Consulting (B2B)
* Company Cost Savings (B2B)
* Decks & Outdoor Structures (B2C)

* Dry Cleaning (B2B & B2C)
* Equipment Leasing (B2B)
* Home Decorating (B2B & B2C)
* Kitchen Remodeling (B2C)
* Lawns & Landscaping (B2B & B2C)
* Live-In Home Care (B2C)
* Management & Sales Training (B2B)
* Mobile Car Wash (B2B & B2C)
* Mobile Pet Grooming (B2C)
* Mobile Photography (B2B & B2C)

* Non-Medical Home Care (B2C)
* Pavement Maintenance (B2B & B2C)
* Power Washing (B2B & B2C)
* Property Restoration (B2B & B2C)
* Property Maint. & Repair (B2B & B2C)

* Real Estate Sales (B2C)
* Residential Cleaning (B2C)
* Roof Inspection (B2B & B2C)
* Tax Preparation & Review (B2B)

Can You Live Where You Work… and Work Where You Live?
A unique situation occurs when a business is operated from the home. Conflict can result from the infringement of the customer/business interaction on family functioning. A family and business does not integrate successfully in the same space without some planning. Five considerations:

* Family cohesion. Each household will need to answer the following: 1)What will the business demand from the home space? 2) What does the family need from the space in the home? 3) How can you develop a management plan for household space use that best accommodates your family and your business?

* Personal and family time schedules. If the schedules of family members are fixed and intermeshed (one car and each person needs to be on time for various commitments), a business would have to meet this time schedule. It would be difficult to retail items such as paintings and crafts if customers stop by anytime.

* Use of space. Is your business one which requires storage space, an area for customer interaction, specialized tools and equipment, or convenient access for pickup and delivery? Is confidentiality a problem? The arrangement of space may affect ongoing family activities. The most convenient part of the house for customer interaction, pickup and delivery is often the most shared and public parts of the house (kitchen, living room, etc.). Space separations must be maintained for deductions as business expenses for tax purposes. One must determine if this part of the house has too many uses that are part of the pattern of your family’s life to also be used in the business.

* The Neighborhood – How do your neighbors feel about a business in the neighborhood, and what city and county codes permit your business to be established in the neighborhood? Higher traffic in the neighborhood may cause disenchantment among friends and neighbors.

* Risk handling behavior. Another aspect of family functioning that relates to a business at home is the family’s attitude toward risk. Some are risk seekers who look for opportunities to be tested, willingly take financial risks, and promote novelty and change in their lives. Others tend to avoid change and desire a secure environment at home and around the family.

Personal Considerations
Beyond family issues, it is extremely important to think your personal needs. In our experience, two questions are very important:

* Time Management – Can you manage your own time? Most people, if asked if they could be 100% productive if 100% responsible for their own success, would say “H*ll, Yes!” In reality, setting your own schedule and being responsible for your own time – especially if you have previously depended on others to do that for you – can be a challenge.

* The Social Factor – Working from home can be a lonely existence. How social are you and how much do you depend on that human connection? Working from home doesn’t preclude communications with other people, but unless you are proactive in “getting out there”, it can certainly minimize your connections.

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In conclusion, why not work at home? Who wouldn’t opt for a 10 foot vs. a ten-mile commute!? Home-based franchises offer optimum convenience and reduced cost and complexity. But only you can decide if a home-based franchise is right for you. We stand ready to assist you with finding the ideal business, whatever that may be. Contact us today!

Perfect Fit Franchises provides no-cost assistance to entrepreneurs nationwide, helping them identify franchise business opportunities that match their interests, backgrounds and financial means. We offer hundreds of business opportunities in a multitude of categories.

We are an affiliate of the world’s largest franchise consulting network with more than 25 years experience helping entrepreneurs like you find and own their own businesses.

Contact us at 1-866-391-3134 or moreinfo@perfectfitfranchises.com

PFF BUSINESS JOURNAL
VOLUME 107

Which Type of Franchise is Right for You?

I n 1954, Ray Kroc mortgaged his home and invested his entire life savings to become the exclusive distributor of a five-spindled milkshake maker called the Multimixer. Hearing about the McDonald’s hamburger stand in California running eight Multimixers at a time, he packed up his car and headed West. He was 52 years old.

Ray Kroc had never seen so many people served so quickly when he pulled up to take a look. Seizing the day, he pitched the idea of opening up several restaurants to his brothers Dick and Mac McDonald, convinced that he could sell eight of his Multimixers to each and every one. "Who could we get to open them for us?" Dick McDonald said. "Well," Kroc answered, "What about me?"
Ray opened his first restaurant in Des Plaines, Illinois in 1955. First day’s revenues – $366.12. No longer a functioning restaurant, that building is now a museum containing McDonald’s memorabilia and artifacts, including the Multimixer!

There are two important points about this story. First, when inflation is factored in, $366 in 1955 equals more than $2,500 in today’s dollars. Thus, if Kroc had started his enterprise today, gross revenue would be close to $1,000,000 per year. Secondly, though McDonalds is now an internationally-known brand name, 50 years ago it was a “no-name”.
Conclusion: Building a brand versus buying a brand may be more successful.

We often hear from clients who are interested only in name-brand franchises. They believe in the value of name recognition and perceive the potential for instant success in what Ray Kroc and others like him have built. And that’s fine, because we represent a variety of franchise opportunities, including name brands and no-name brands alike. In general, we look for the following positive characteristics:

* Industries with high profit margins
* Reasonable initial and ongoing cost
* Successful track records
* Ethical business practices
* Excellent training and support

You may have noticed that brand-name recognition is not on the list, and here’s why. While there’s nothing wrong with strong and positive name recognition, it’s not necessarily a guarantee of success or future profitability. Here’s what we’ve learned:

Characteristics of Established Franchises:
* Better name recognition – Who can argue with the value of brands like Coke or Kleenex, names that are today synonymous with the products they represent? In fact, some brand-name franchises have actually adopted nicknames provided by their customers, like Mickey-Ds or KFC.
* More regional and national marketing – Advertising is never a bad thing, but who’s paying for it? Most well-established franchises charge a mandatory “ad fund” that may or may not best suit your local market.
* Experienced management – Many established franchises maintain consistent management, but executive managers often use their experience to establish competing brands.
* More refined training and support – Nothing succeeds like success, but well-established franchises may be more rigid in reinforcing standardization. As a franchisee, you may feel more like an employee versus an entrepreneur.
* Better purchasing power — Established franchises may enable you to acquire goods at less cost. However, they may require you to purchase goods through them — with an imbedded profit margin.

Characteristics of Newer Franchises:
* Exciting, cutting-edge concepts – Who introduced the 99 cent menu? Wendys did, thereby gaining 12% market share while forcing competing chains to slash prices and lose profits. Newer franchises are often more flexible, nimble and highly motivated to think outside the box.
* Business may have been designed to avoid mistakes made by older franchises – Look at any franchise established in the last 5 years, and you’ll find one that has striven to “build a better mousetrap” – through faster delivery, lower cost, increased convenience or a variety of other improvements versus older business models.
* Lower cost of entry and royalties – There is a well-established and successful bread franchise that has become unaffordable for most entrepreneurs. Ten years ago, they might have been interested in speaking with you. But today, they are only looking for operators with 1) specific experience 2) a minimum of $7.5mm net worth and 3) an interest in owning at least 15 units. There is a well-established and nationally-known pizza franchise. However, their franchise fee is considerably higher than average and operators are charged 11% royalties and ad funds. Newer franchises often provide the same high-quality products/services at far less cost to the franchisee.
* More opportunity to share in equity growth of the company – Just like people, franchises generally grow faster when they are younger and growth slows down with age. McDonalds is a good example where gross revenues per unit have crept up only fractionally over the last decade, not having kept pace with cost of goods, staffing and other business expenses. Of course you want your business to be profitable while you own it. But it’s equally important that the value of your business has increased when you are ready to sell it.
* More flexibility in working with franchisees – Every franchise has an established business model, and your success will be partly based on how well you follow it. However, older and more established franchises are often focused on maintaining their brand vs. building it. As a result, their business models sometimes become overly rigid. Newer franchises generally are more receptive to input and feedback from their franchisees and more flexible in their business models.
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In conclusion, franchises with strong brand names all have one thing in common: Every one of them started with no name recognition at all. They succeeded over time with products that met the needs of the marketplace, and “early-adopters” like Ray Kroc reaped the greatest rewards. Additionally, a well-recognized brand is not necessarily a guarantee of success, just as a lesser-known brand is not necessarily a negative. Finally, since franchises often focus on regional growth, what may be a “no-name” opportunity to you may be a very well-known brand elsewhere – and introducing that brand to your marketplace might be your best path to success.

Perfect Fit Franchises provides no-cost assistance to entrepreneurs nationwide, helping them identify franchise business opportunities that match their interests, backgrounds and financial means. We offer hundreds of business opportunities in a multitude of categories.

We are an affiliate of the world’s largest franchise consulting network with more than 25 years experience helping entrepreneurs like you find and own their own businesses.

Contact us at 1-866-391-3134 or moreinfo@perfectfitfranchises.com

PFF BUSINESS JOURNAL
VOLUME 106

The Franchise FDD is Required Reading

Traditionally, the three Rs stand for reading, ‘riting and ‘rithmetic. But when it comes to partnering in business, they stand for risk, reward and responsibility. If you are going to go into business with a partner, you want someone who will minimize the risk, maximize the reward and share the responsibility to make the enterprise successful. Realistically, most people choose a friend, a spouse or a relative – a partner they believe is predisposed to make an equal and positive contribution to the business. At times, however, such business partnerships have ended friendships – even marriages – and close relationships were lost as the businesses failed.

While it would be unusual indeed for someone to partner with a complete stranger, what qualities would you look for in such a new relationship? You’d want a partner who is hard working, has a successful track record and good relationships with previous partners, and operates on an honest and ethical basis. You’d also want someone whose talents and abilities would complement your own – whose strengths balanced your weaknesses and vice versa. While finding such an individual partner might be a challenge, finding such a company is not – at least when it comes to franchises.

That’s because franchises fully disclose all the information you need to know in order to determine if they are the right partner for you. In fact, the franchise industry is highly regulated in this regard and is mandated by the federal government to provide full disclosure. This is made through their FDD (Franchise Disclosure Document, formerly know as UFOC), a document every franchise is required to make available to serious candidates. The FDD contains all the critical details you need to fully evaluate the business opportunity and the company that stands behind it.

Because every FDD contains 23 standard items, we’ve seldom seen one that’s less than 100 pages. And while a FDD is not exactly exciting reading, it should be viewed as required reading by anyone seriously considering a franchise. Here are the federally-mandated items every FDD contains:

* Items 1 through 4: The franchiser’s background, the experience of key executives and the company’s litigation and bankruptcy history
* Items 5 and 6: All the fees charged by the franchiser
* Item 7: An estimate of the total investment needed to establish the business
* Item 8: Restrictions on the purchase of products to be used and sold in the unit
* Item 9: The franchisee’s obligations
* Item 10: Financing that the franchiser makes available
* Item 11: A summary of the services, such as training and site selection, that the franchiser provides in relation to the franchise program
* Item 12: Territorial protections
* Items 13 and 14: The status of the trademarks, copyrights and patents associated with the program
* Item 15: Obligations of the franchisee to participate in the actual operation of the franchised business
* Item 16: Restrictions on what the franchisee can sell
* Item 17: Renewal, termination, transfer and dispute resolution provisions
* Item 18: Public figures used to promote the franchise
* Item 19: A description of how well the franchises perform financially
* Item 20: System statistics and lists of franchisees and former franchisees
* Item 21: Financial Statements
* Item 22: Contracts
* Item 23: Receipt

Clearly, that’s a lot of information to digest, but it’s critical that you take the time to do so. In fact, the Federal Trade Commission (www.ftc.gov) ensures that you have that time by enforcing a minimum waiting period of 14 business days before any money is paid and any agreement to purchase is signed.

As a legal document, the FDD can be daunting, and while some items are shorter and easier to understand by the average person, others may warrant a review by your accountant or attorney. And while no single item should be considered unimportant, some will be of particular interest – like Items 19 and 20.

Item 19 addresses financial performance, and may answer the question every franchisee candidate wants to ask: “How much money will I make?” It is here that the franchise may state earnings claims based on the average financial performance of existing franchisees. Two important things to keep in mind. First, most franchises do not publish earnings claims in their FDD (though for those that do, it should be viewed as a positive reflection of the company’s confidence and consistency).

Secondly, franchises are strictly prohibited from making any earnings claims (verbally or in writing) that are not included in their FDD. Important note: Telling you “Our top 3 franchisees grossed more than $400,000 last year” is not an earnings claim. Saying “You can expect to gross $400,000 per year on average” is an earnings claim. And if it’s not printed in the FDD, the franchise cannot and should not communicate it in any other way.

If a FDD does not explicitly state earnings claims, then Item 20 provides the details that enable you to ascertain financial performance. It is here that the franchise lists current and former franchisees. And unlike personal or professional references one might include in a resume, the franchise is required to list all franchisees, not just the best ones. If you’re a serious candidate, you’ll want to contact as many of these people as possible to inquire about their individual financial success.

A few additional points to remember: First, a franchise is not required to provide their FDD to just anyone who requests it. Most will want to have at least an initial conversation with you and possibly have you submit a formal application. That’s because they qualify you as you qualify them. If you see them as a prospective business partner, they want to see you as a serious candidate as well.

Secondly, never acquire a FDD from any source other than the franchise itself. A franchise will never charge you for the document, but there are third-party companies that claim to provide FDDs for a fee. However, such companies may not have the most current version since franchises regularly update their FDDs – some as often as very 12 months.

There is no benefit to researching a franchise in “stealth mode”, so never hesitate to talk with the franchise directly. It is absolutely the best way to get all your questions answered, and it is the only way to secure a free copy of their current FDD. Also, don’t assume the company views the dialogue as a sign that you are ready to move forward. They understand that they are likely one of many opportunities you are investigating (just as you are one of many candidates they are considering).

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In conclusion, while the FDD is perhaps the single most comprehensive resource in finding the best franchise business partner, it’s not the only one. There are many other factors, not the least of which is taking the opportunity to meet the franchise management face to face. Almost all franchises regularly schedule candidate visits to their corporate headquarters, commonly called “discovery days”, because it’s these events that allow you to talk with top level management, get real insight to training and ongoing support, and personally meet those with whom you may be working for years to come. Meanwhile, think of the FDD as the franchise’s resume – a very large one indeed – and use it to determine if it’s time for a formal interview.

Perfect Fit Franchises provides no-cost assistance to entrepreneurs nationwide, helping them identify franchise business opportunities that match their interests, backgrounds and financial means. We offer hundreds of business opportunities in a multitude of categories.

We are an affiliate of Business Alliance, Inc., the world’s largest franchise network with more than 25 years experience helping entrepreneurs like you find and own their own businesses.

Contact us at 1-866-391-3134 or moreinfo@perfectfitfranchises.com.

PFF BUSINESS JOURNAL
VOLUME 105