As a matter of fact, in a post I wrote titled “5 Great Questions To Ask Franchise Company Executives,” I didn’t even include a question concerning franchise company financials. Maybe I should have.

The economic environment over the last three years in the US has been challenging, to say the least. By now, you know that the housing market has been hit hard, lenders for the most part still aren’t freely lending small businesses money, and millions of people are having difficulty finding good jobs.  While signs of optimism are starting to appear, it’s going to be awhile until this optimism is reflected on company balance sheets, including the ones that are located in the finance and accounting offices of franchisors, nationwide.

It’s Not a Perfect World

Hopefully, you weighed the pros and cons of entering into an arrangement with your franchisor well before you became a franchisee, and you did top-notch research. Your research included talking and visiting with several current franchisees, and you spent a day or two at corporate headquarters getting to know the staff there. Basically, everything lined-up the way you’d hoped, and your decision to move forward felt right. Except for one thing;

Your franchisor declared bankruptcy.  In franchising, bankruptcy is not a very common occurrence, but it can and does happen.  So, what can you do to protect your interests?

Protect Your Interests

As angry as you probably are, this isn’t the time to let your emotions get the best of you.  It’s also not the time to gather suggestions from well-meaning friends who “only want to help,” but may in fact make things even worse for you. The most important thing for you to do is to find out exactly where you stand, and it’s relatively easy to do. That’s because it’s all in black and white. Remember that franchise contract you were required to sign?

I reached out to Rush Nigut, an Iowa franchise attorney, and asked him what some of the options are that a franchisee has when their franchisor is in trouble:

Small Business Trends: What is the first thing franchisees who finds themselves in this situation should do?

Rush Nigut: The first thing a franchisee should do if the franchisor is in trouble is to review the franchise agreement to make sure the franchisor is meeting its obligations. If not, a franchisee will want explore whether there is a breach of contract and whether the franchisee can possibly terminate the agreement if that makes sense.

Small Business Trends: Franchisees spend a lot of time and money to find and keep customers. Can they keep their customers if the franchisor goes under?

Rush Nigut: Obviously, franchisees will want to keep their customers or clients; they’ve worked hard to get them. But they need to make sure that they avoid any non-compete enforcement. Many franchisees are under the mistaken belief that the customers belong to them. Instead, the termination provisions and non-compete provision written into franchise agreements tend to favor the franchisor.

Small Business Trends: What about licenses and trademarks? Can a franchisee still use them?

Rush Nigut: A franchisee may want to look at extending their license agreement to allow them to use the trademarks of the franchisor in certain instances. I know of a franchisor that got into trouble and agreed to allow the franchisees to use the franchise name and trademarks even though they could not continue the franchise business. A critical issue in that situation was gaining access to product that had been solely supplied by the distressed franchisor.

Small Business Trends: Rush, I know that every situation is different with regards to franchisors that go under; one size doesn’t fit all. How proactive should franchisees be in situations like this? How aggressive should they be?

Rush Nigut: Joel, my goal in distressed franchisor situations is to make sure my clients don’t sink with the captain. It’s crucial for franchisees to be proactive, and they need to try to be aggressive in enforcing their rights. It may even be beneficial for franchisees to band together. Waiting to see if the franchisor will make it is probably not good business, in most cases. Franchisees need to see an attorney that knows franchising immediately, so that they can understand their rights.

The bottom line; if your franchisor runs into serious problems, don’t take a wait and see approach. Move quickly, so you can protect yourself, and increase your odds of staying in business.

Going Under Photo via Shutterstock

From Small Business Trends

What If Your Franchisor Goes Under?

Bubbles occasionally burst in business, too.

Anita Campbell, Founder of Small Business Trends, recently wrote about Instagram, the photo-sharing application that was purchased by Facebook for $1 billion. In her thought provoking article, she made a point mentioning the fact that The New York Times, (which has been publishing continuously since 1851) has a public stock value less than Instagram’s $1 billion price tag. (Amazing!)

In response to one of the comments on her post, Anita responded by reminding readers of the fact that Instagram doesn’t even have a revenue model yet. And yet, Facebook wrote a huge check for it. What gives?

It’s been said that, “Pain has no memory,” and this transaction could prove to be one of the best examples ever given for that quote. Could we be headed into another dot-com bubble?

To refresh your memory, I’ve included the formal definition of one, for your reading pleasure. From Wikipedia;

“A combination of rapidly increasing stock prices, market confidence that the companies would turn future profits, individual speculation in stocks, and widely available venture capital created an environment in which many investors were willing to overlook traditional metrics such as P/E ratio in favor of confidence in technological advancements.“

Maybe this time it will be an “App” bubble…or maybe even a “Tool” bubble. Only time will tell.

Naturally, I started thinking about my industry, and some of the possible “Franchise” bubbles that could be on the horizon, but for reasons that have nothing to do with a “no revenue” model.  Take these examples:

Example #1:  Frozen Yogurt

In the 1980’s, shops appeared almost everywhere; the big names were Arkansas-based TCBY, and I Can’t Believe It’s Yogurt, which was purchased by Yogen Fruz in 1996.

I remember how “hot” frozen yogurt was back then, because it was around the time my Dad started his franchise consulting business, and TCBY was all he talked about. TCBY remained popular for a few years, but they ran into problems, and ended up being bought by Mrs. Fields Famous Brands. (Mrs. Fields just recently avoided a 2nd bankruptcy filing.)

Two dominant brands battled it out in the 80’s, and both were bought out. Today, there are more than 20 different frozen yogurt franchise brands competing for prime retail space, and consumer dollars.

(FYI; in the past year, I’ve been contacted by no less than four people who’ve wanted guidance on turning their one-independent frozen yogurt shops into franchises.)

Example #2:  Senior Care

On the surface, seniors are a strong demographic to target. According to the US Census Bureau, 20 percent of the US population will be 65 and over by the year 2050. (Currently, it’s around 13 percent.) Obviously, this is a growing market.

Recently, I thumbed through a recent copy of The Franchise Handbook, a 25-year old publication that’s delivered to bookstores on a quarterly basis, and counted 35 different Senior Care franchises. While that may sound like a lot of franchises focused on the senior population, you need to realize that those are only the ones that advertised in one particular publication. There are even more.

In August of 2010, I wrote that:

“I’m getting a little concerned. I’m starting to wonder if there will continue to be enough senior citizens to go around.”

In addition to the plethora of franchises that are focused on senior care, there are thousands of independent small businesses that offer the exact same services throughout the country.

Those are two segments in franchising that I’m keeping a close eye on. I’m also monitoring trends in fitness franchises, food franchises, (especially burger and pizza operations) and commercial cleaning franchises.

So far, all the franchise types that I’ve mentioned are bringing in revenue, and for the most part, they’re adding new units.

Here are my questions:

1. Are these franchises still selling like mad because there’s a real need for their services and/or products?
2. Are franchise development teams able to easily sell new units because they’re using the, “There’s still plenty of business out there,” mantra?
3. Am I being paranoid about possible franchise bubbles?

I’d love to hear your opinion.

Bubble Photo via Shutterstock

From Small Business Trends

Bubbles Do Burst

Before I share some of the reasons why, read The State of Green Business from Kelly Spors, as it will help set the table for this post.  While Kelly’s report paints a mostly positive picture about green business, I’ve been noticing a few hiccups as of late, including;

• Solyndra - this was the solar panel manufacturer based in California that declared bankruptcy last August. Now, Solyndra is not the first solar panel company to declare bankruptcy, but it’s the one that has garnered most of the publicity. That’s because US taxpayers helped fund it through loan guarantees that were part of the 2009 stimulus package.

According to an article in The New York Times, taxpayers may end up being on the hook for almost a half a billion dollars. Solar panel manufacturers and sellers probably didn’t see too much of an uptick in business in the days and weeks following the Solyndra news.

• Chevy Volt - General Motors is shutting down the Detroit plant that produces the $40,000 Chevy Volt for 5 weeks. Currently, supply is exceeding demand, so GM has decided to allow the two to catch up with each other.

Some say that Volt sales are slow because of the $40,000 price tag. Some say that it’s a combination of price and plug-in.  The bottom line; US consumers aren’t flocking to showrooms to buy electric automobiles.

• Rapioli - One would think that a huge forward-thinking company like Apple would be interested in reusable plastic shipping packaging that can be used to ship its products all over the world and back, but so far interest in Rapioli has been tepid. This environmentally friendly, patent-pending product was first recognized for its innovation by the EPA, and was awarded a grant from the California Department of Conservation, Division of Recycling.

Toyota made a commitment to test the product, because it was in line with their zero-waste mission, but nothing came out of it; they didn’t buy Rapioli. It can be quite a challenge to convince a huge company to buy a cutting-edge green product.

• The Green Franchise Sector - When the green business movement started to gain traction, a few franchise concepts started to appear that capitalized on things like green energy and the use of environmentally-friendly products.

The first green franchises that appeared were of the solar variety. The franchisors that set these new concepts into motion were based on the west coast of the United States, and most of the people that invested in solar franchises set their businesses up in places like California, Nevada and Arizona.  One of the main reasons for these locations being first on the grid was the fact that there were, (and still are) financial incentives from the government for homeowners that had solar panels installed. That’s since changed, and for the better, as you’ll see on this Database of State Incentives For Renewables And Efficiency.

While it’s great to see more states offering subsidies to homeowners that convert their homes to solar energy, the up-front cost is still out of reach for most people. (Approximately $30,000) We’ll have to wait and see if the interest in solar energy remains strong, but more importantly, we’ll need to find out if wallets will actually start opening for solar panel installs.

I Believe 

I’ll admit it; I get energized about the possibilities surrounding all things green. I like seeing an occasional wind turbine spinning silently along my local freeways. Once in a while, I see a house that has an array of solar panels set up, and it’s a good feeling to know that a few residents have taken it upon themselves to move towards energy independence.

It’s also a good feeling to learn that a number of small businesses have started to focus on sustainable practices. But, will more small businesses move in the green direction? And, can they?

I’d like to think so, but I’m not so sure. A lot of small businesses have had to downsize their workforces, and scale back on things like inventory, and operating hours. As the US economy continues to rebound, will small business owners be thinking about how to go green? Or will they be thinking about how to make up for lost time, and focus on increasing profits?

What do you think?

Golden Concept Photo via Shutterstock

From Small Business Trends

Are Green Businesses Still Golden?

If you’ve done a good job with your franchise business selections, including making sure that the opportunities you’ve looked into are easily within your budget, and you’ve done a stellar job with your research, there’s only a couple of things left for you to do.

The first thing involves energy. You’re going to have to decide which opportunity you’re going to focus all of your energy on. Once you’ve done that, you’re a lot closer to becoming an owner.  The next thing you do will probably involve travel, and with it, some out of pocket expenses. It’s the Discovery Day; it’s the day that you travel to franchise headquarters to meet the franchise team.

You Need to Get an Invite

Not just anybody can attend a Discovery Day. Only candidates that qualify financially, and have been through every stage of the franchise exploration process with their franchise development representatives can get an invite.

Most franchise development representatives don’t extend an invitation to their franchise candidates until they’ve gone through several specific steps in the process. The candidate’s credit history is checked, and there’s usually a background check done, too. In addition, the development representatives must feel confident that their candidates have a good understanding of the business itself, and what their roles would be in the operation of it.

It’s also the job of the representative to help their candidate’s get a feel for the (FDD) Franchise Disclosure Document, and to answer questions that they may have along the way. All franchise buyers must be presented with this document before they’re permitted to actually buy the franchise opportunity. The items listed, (23 of them) include company financials, executive backgrounds, and the actual franchise contract.

If you’ve met the criteria identified above, and you do get invited up to headquarters, should you go?

The answer to that question depends on how serious you are about becoming an owner of the franchise in question.

For Serious Candidates Only

When my clients ask me if they should attend a Discover Day that they’ve been invited to, I tell them to only go if they’ve made the commitment to buy the franchise. That’s because by the time Discovery Day rolls around, the candidate should know just about all there is to know about the opportunity. No more research should be needed. The candidate should have a pretty good idea on how his or her franchise will be financed, and should have a franchise attorney standing by to look the franchise contract over, which may be sent home with the candidate at Discovery Day.

That’s right; a contract. That’s why only serious franchise candidates should pay a visit to franchise headquarters …  candidates who are just about ready to take the leap.

What to Expect

Your day at headquarters will allow you to see the entire operation in action. You’ll get a tour of the facility plus you’ll spend some time in all the different departments. You’ll meet the CEO. You may have an opportunity visit one or two franchise operations located in the vicinity of headquarters

When you attend the franchisor’s Discovery Day, you’re going to notice a difference in the way that your franchise development rep is communicating with you.  Eventually, things may start to feel a little more salesy than they have been during your past interactions. Your representative could be close to making a sale — and a commission.

But, two things need to happen before that sale can take place:

1. The executive team needs to feel that you’d be a good franchisee, and if so, formally approve you. If they do so, your franchise representative will call you a day or two after your Discovery Day visit, and tell you that you’ve been approved as a franchisee and that they’d love to have you as one.
2. The second decision will of course be yours —  The Decision to become a franchisee.

Your Discovery Day will fly by. Absorb as much as you can. Get a feel for the company culture. Then go back home and sit on things for a couple of days. Bring the franchise contract to your (franchise) attorney.  If everything looks good, you’ll have a decision to make.  You’ll know what to do.

Discovery Photo via Shutterstock

From Small Business Trends

The Franchise Discovery Day

For example, if you want to get involved in a franchise business that’s focused on renewable energy and maybe even sustainability, no problem; do a Google search of “green franchises.” Maybe you’re comfortable calling on customers and giving sales presentations; there are several opportunities (such as Sandler Training) available for you. Do you like food? (Silly question!) If you’ve always wanted to own your own restaurant, there are hundreds of unique food franchises, such as these gathered by Franchise Direct, to choose from.

Not all franchises require a commercial space; Pillar to Post and Mosquito Squad offer ways to be your own boss without having to negotiate a lease for the business. Another advantage of investing in a home-based franchise is that you can be up and running pretty fast. One more thing: Remember that your customers aren’t going to find you if you’re sitting at home. You’re going to have to do some serious networking. Your networking should always include being on the lookout for strategic referral partners, as John Jantsch suggests.

Some Things Haven’t Changed

In last year’s post on the top franchise trends, I wrote about the fact that small business lenders weren’t all that excited to lend money for franchise startups. As much as I don’t want to start going all negative here, it’s still true today; lenders aren’t lending enough, The New York Times reports, especially to small businesses.

I also wrote about the fact that homes had gone down in value: “Real estate is usually a major part of a franchise candidate’s net worth statement, and that’s now a problem. Home values are low, and in some cases, homes are underwater.”  According to Carole Cohen, a Cleveland Realtor who’s really dialed into the market, “Home prices in our area are down 26 to 28 percent.” (Her income took a hit because of the low prices.) Carole works for a family-owned real estate company, but there are real estate franchises, too, as this Red Carpet report points out.

What Has Changed?

The franchise industry’s focus has changed. By “industry,” I really mean only one part of the industry, but it’s a big one: The International Franchise Association, which is an association that promotes franchising.

I’m still trying to decide whether the combination of social media, and the business transparency that tends to be associated with it, has turned the IFA into a more powerful industry force, or not. On one hand, some of the higher-ups from the IFA, like Matt Haller, the Sr. Director of Communications, are starting to get a bit more active on Twitter, and have started to write some blog posts. However, the growth of social media has evened the playing field in the franchise industry; now voices outside of the IFA–independent ones–can be heard loud and clear, too. The industry is changing, and anyone with an Internet connection can watch some of the changes that are happening in real time.

For 2012, the IFA has decided to focus on two areas in 2012; one is nothing new, but the other one…

1. Military Veterans 

Veterans who are interested in possibly becoming franchise owners will undoubtedly run across the VetFran program. This program, founded in 1991, features 400-plus IFA member franchisors that offer training, mentoring and financial incentives to veterans interested in small business ownership and/or a career path in franchising. To date, approximately 2,000 veterans have become franchise business owners through this popular program.

I’ve personally assisted with our veterans, and have even been able to help a few of them become franchise owners. Today’s veterans have three things going for them when it comes to operating a franchise business. They are:

• Finely-honed leadership skills
• Personal discipline
• Comfort with technology

I’m all for helping the men and women who’ve made major sacrifices to help us keep our freedom. Thousands of veterans are returning home from our wars, and need jobs and opportunities. For veterans who want to become business owners, franchising is certainly one path that they should look into.

Of course, they’re going to need small business loans in order to start these franchises, and that’s the part that worries me. That’s because a large number of veterans have had several tours of duty. It’s not like they’ve had a chance to build up their nest eggs. Hopefully, banks will come up with some creative loan programs to help veterans get into business for themselves.

2. Pro Athletes 

There’s really only one reason that the IFA is courting professional athletes, and it’s pretty obvious; the athletes don’t need small business loans. Can you think of any other reason?

According to the Bureau of Labor Statistics, there were about 16,500 professional athletes and sports competitors who held jobs as of 2008. This includes every sport, including all of the athletes who aren’t ready for prime time yet (that is, the minor leagues).

The thought of having 16,000 wealthy prospective franchise owners eventually searching for business opportunities in the world of franchising is a nice one. After all, what franchise development director wouldn’t want to have a slew of highly qualified candidates like Magic Johnson requesting information about a particular franchise concept?

While I don’t see hundreds of former professional athletes clamoring to become franchisees, if enough of them do, it could be terrific publicity for the franchise industry. I just don’t see it as a game-changer. (That sporting reference was unintentional!)

2012 will be a very important year in franchising. If the U.S. economy continues to struggle, growth will continue to be sparse in the franchise industry. But if things finally do start to turn around, there’s a lot of pent-up demand for the great products and services that franchises provide to both consumers and businesses.

If lenders start making more loans available for people who want to start businesses, there’s a large pool of prospective franchisees sitting in the wings, waiting to take their shot at The American Dream.

The franchise community is ready and waiting to help them do just that.

Franchise Photo via Shutterstock

From Small Business Trends

The Top Franchise Trends for 2012

There are 3,000 different franchises available in the US, and they fall under five general categories.  Cost-wise, they range from $50,000 to over $1,000,000.

Food Service

This category includes everything from:

• ice cream shops like Dairy Queen, ($382,000-$1,828,000 total investment);
• to fast food franchises like Buffalo Wild Wings, ($1,389,200 – $3,148,200 total investment);
• to sandwich shops like Subway ($84,300 – $258,300)

Since food-related franchises are the most visible of all franchise types, (as well as being the highest percentage of franchises) it’s a common starting point for would-be franchise owners, who like the idea of associating with a popular type of business.

Retail

This category of franchising is a highly visible one. Retail franchises are for people that want customers to come to them, as opposed to having to go out to find them. For instance, The UPS Store ($150,984 – $337,946) has thousands of locations. Other retail franchise businesses include:

• Batteries Plus, ($159,300 – $313,900)
• EmbroidMe, ($85,460 – $232,465)
• Supercuts, ($112,550 – $243,200)

It’s common for retail franchise owners to own more than one store; they’re called multi-unit franchisees.

Personal Services

This sector of franchising tends to cater to busy families, and more recently, seniors. Service Brands International is a great example of a franchisor that focuses solely on this busy segment. Their brands include:

• Mr. Handyman, ($91,500 – $132,600)
• Molly Maid, ($71,525 – $116,200)
• 1-800-DryClean, ($59,800 – $78,950)
• Protect Painters ($78,850 – $97,950)

Franchisors like US Lawns, ($48,500, $56,000) and 1-800-Got-Junk, ($107,400 – $140,400) also provide much-needed services.

When it comes to keeping our senior citizens in their homes, (as opposed to a nursing home):

• BrightStar Care, ($90,895 – $155,723)
• Synergy Homecare, ($53,300 – $115,300)
• Visiting Angels, ($52,285 – $84,035)

Those are just three of the over 30 different senior care-related franchises being offered. Read about the senior care franchise numbers.

Business to Business

This category of franchising attracts sales and marketing minded folks. These types of franchises are outbound franchises; franchisees go out to find their clients and customers:

• Servepro ($127,300 – $174,700) is a company that specializes in water and fire damage clean-up and restoration.
• Jani-King ($13,150 – $93,150) is in the commercial cleaning business, servicing office buildings, restaurants, and stadiums/arenas.
• TeamLogic IT ($91,850 – $148,850) is a franchise that provides IT consulting services to small businesses.

Several types of home-based franchises fall into the B2B category, too. OneCoach ($40,100 – $318,800) franchisees offer consulting/coaching services to small businesses. Cost-cutting is an important part of running a business, so franchisees of Expense Reduction Analysts Inc., ($66,100 – $81,750) consult with business owners and executives on how to do just that.

Children’s Services

When it comes to children, consumers generally spend their money, freely. Opportunities in this sector abound, and for people that love children, this is a popular sector. In January of 2002, President Bush signed the No Child Left Behind bill, which increased funding for school systems. Since then, the school systems have reached out to the franchisees of Sylvan Learning, ($179,069 – $305,090) and Huntington Learning Centers, ($197,450 – $382,450) to help them with students who may be struggling in school.

Parents that need a place to hold their children’s birthday parties can go to Pump It Up, which offers an indoor arena featuring giant inflatables. Child safety is an important topic these days, and the 250 locations of Ident-A-Kid,($34,005 – $44,205) work with schools and community centers to provide identification cards for children.

Next we’ll cover how to find and research franchises.  Click on page 2 below to continue . . .

From Small Business Trends

Types of Franchises And How To Find Them

Pros

Operating system:  

This is the system developed by the franchisor that enables the business to be easily replicated by franchisees.  This includes standard operating procedures and methods. By getting an already-established operating system, it means you don’t have to start from a blank sheet of paper creating everything yourself for your business. When I think of “systems” I think of McDonald’s. They’re the franchise industry standard.

Formal training program:  

Good franchisors provide good training to franchisees.  This usually includes classroom-style training at corporate headquarters. Franchisees are taught things like pre-opening procedures, daily operations, marketing techniques, hiring practices, software use, and more. There’s usually on-site training also, right at the new franchisee’s location.

Read more about franchisee training at Entrepreneur.com.

Specific marketing and advertising plan:  

Part of the general business plan, the franchisor will have a proven, detailed plan that allows its franchisees to rapidly get to market with their products or services. Here’s what a franchise marketing plan looks like, courtesy of the folks at Palo Alto Software.

One new trend in franchise marketing involves automated solutions that are designed to help franchisees at the local level. Companies like Balihoo are leading the way with this new technology.

Product supply line / purchasing power:  

When the franchisor buys products that the franchisees will use or sell, there’s a discount involved, because the franchisor is really purchasing these goods on behalf of  a large number of franchisees.  The franchisor has bulk buying power.  This makes it tough for an independent business to compete on price with the franchisee. 7-Eleven (over 36,000 stores worldwide) is one franchisor that does this quite well.

Support staff:  

Usually based at the franchisor’s corporate headquarters, the support staff can help franchisees with whatever problems they are experiencing. These support areas include, marketing, technology, sales, real estate, and operations. Some franchisors have field reps that go out to visit and assist franchisees at their locations.

Cons

Rules:  

Part of the attraction of the franchise business model is of course, the system. For a system to work properly and effectively, the users of the system must follow it closely. The franchise operations manual contains pages and pages of rules that franchisee’s must follow.

For instance, if you’re a franchisee of Ace Hardware, there will be certain items that you must carry in your inventory. If you invest in a Seattle’s Best Coffee franchise, you’re going to have to be open certain days and times. You’ll also have to purchase and use the technology that the franchisor has chosen. Everything that you’ll need will be disclosed to you, before you sign the franchise contract.

Complex legal documents:  

All franchisors that are registered in the United States must have a Franchise Disclosure Document (FDD).  All franchise buyers must be presented with the FDD before they are permitted to purchase a franchise business. There are 23 items listed in this document, including specific information about the executives of the franchise, litigation, start-up costs, franchisee obligations, franchisor assistance, and information about site selection, territory restrictions, and more. The actual franchise contract is included in the document, and it’s written in fairly complicated legalese.

Reputation management:  

Your local reputation is only as good as your franchisor’s. If the franchise brand runs into trouble, you will probably suffer at the local level. Case in point:  a pretty distasteful video that two employees of a local Domino’s Pizza franchise filmed, was posted on YouTube in 2009. Things got so bad that the president of Domino’s decided to film an apology and put it up on YouTube, himself. Dominos franchisees were definitely affected by this negative publicity.

Limitations on product/service offerings:  

If a franchisee owns a franchise like SignsNow, he or she is only allowed to sell signs, banners, and related sign materials. If the franchisee wants to add window cleaning services to the business, if it’s not in the franchise agreement, then it’s not going to be permitted.

* * * * *

When it comes time to decide on buying a franchise — or not buying a franchise — you will have to weigh these pros and cons.  You know your tolerance level for things such as needing to follow rules … versus making your own rules.  You also know whether you are the type of person who can create something from scratch, or whether you are more successful when systems and processes are already set up for you.  You will need to think long and hard about what is right for YOU.

From Small Business Trends

Pros and Cons of Buying A Franchise

It used to be that folks would graduate from college, land a well-paying corporate job, and move up the ranks in the company until it was time to retire. Those were the days…. Today, people are graduating and landing corporate jobs, but they’re finding themselves out of that job 4 years later.    (According to the Bureau of Labor Statistics, the median number of years that wage and salary workers had been with their current employer was 4.4 as of January 2010.) Is it any wonder that we’re seeing more and more people take a serious look at other career alternatives, including franchise ownership?

What is a franchise?

A franchise typically involves the granting by one party (a franchisor) to another party (a franchisee) the right to carry on a particular name or trade mark, according to an identified system, usually within a territory or at a location, for an agreed upon term. The franchisee is granted a franchise license to use the franchise company’s trademarks, systems, signage, software, and other proprietary tools and systems in accordance with the guidelines in the franchise contract.

Not only must you run the business according to the operations manual and the franchise contract, but you must pay them an upfront franchise fee (license fee), and ongoing royalties. The average franchisee fee ranges from $25,000 -$35,000, although some franchise fees can go well over $100,000, as in the case of what’s called a Master Franchise. In a Master Franchise, like Jan-Pro Cleaning Systems, one buys the rights to an entire area, and it’s usually based on population.

The royalties are usually based on a % of gross sales. Royalties range anywhere from 4%, like over at Batteries Plus, a retail storefront type of franchise, all the way up to 9% as in the case of MRINetwork, an executive recruiting franchise. Some franchisors like Fantastic Sam’s, a hair salon franchise, charge a flat monthly royalty fee.

In addition to royalties, franchisees usually pay into a national monthly advertising/marketing fund, which amounts to 1-2% of gross sales.

How big is franchising, as an industry?

According to a report put out by the IFA (International Franchise Association), franchising is huge. As of 2005;

• There were 909,253 franchised business establishments in the United States.
• Franchised businesses provided more than 11 million jobs, or 8.1 percent of the national private-sector workforce.
• Franchised businesses supplied an annual payroll of $278.6 billion, or 5.3 percent of all private-sector payrolls in the United States.
• Franchised businesses produce goods and services worth $880.9 billion per year, or 4.4 percent of private-sector output in the United States.

(Go to the IFA website to see the full report.)

Differences Between a Franchise Opportunity And a Business Opportunity

They’re both really “business opportunities.”

• A franchise business provides a detailed, step-by-step, business “blueprint.” There are very specific rules that must be followed, including the use of approved signage, and marketing materials, hours of operation, etc. Franchisors also provide ongoing support to their franchisees. Franchising is also highly regulated, and there are a lot of things that a franchisor must do to legally set it up.
• A non-franchise business opportunity also provides a “blueprint,” but it’s usually not as detailed.  There just aren’t as many rules, when compared to a franchise. The actual contract that you’re given to review prior to signing a business opportunity type of business may be one to two pages in length. Franchise contracts are 20 to 40 pages long. A good example of a business opportunity would be a mall kiosk type of business. The kiosk owner is provides with a pre-packaged set-up including the actual kiosk, the inventory, and preferred methods to make sales. In addition, there are no ongoing royalties, as with a franchise. Most of the time, pure business opportunities have a much lower investment than a franchise business. One reason for this is that once someone buys a business opportunity, the support provided by the business opportunity seller is very limited in most cases, as opposed to a franchisor, who must invest in an infrastructure that can handle the ongoing needs and contractual obligations of its franchisees.

From Small Business Trends

Introduction To Franchising

Back in the “Beaver Cleaver” days, if you wanted to be a white collar worker, you would go to a decent college and study hard. During your summers off, you would grab an internship with one of the local corporations you were interested in working for. Hopefully, you’d impress them enough to warrant a formal job offer after you graduated.

Then you’d start climbing the ladder.

If you were a fairly decent ladder-climber, every few years you’d get promoted, which meant more money and some added perks. Expense accounts, more vacation time and maybe even a nicer office were some of the more common perks back in the day. As strange as it sounds, you may have even been able to pick out your own company car.

Those were the days.

Fast-forward to 2011. I remember attending a conference in which Steven Little was the keynote speaker, several years ago. What he said in that speech still kind of freaks me out.

He said that today’s college graduates will have seven different careers. That’s not a misprint. Little didn’t say, “seven different jobs,” he said, “careers.” If he’s right, I’m wondering how college students go about preparing for a life of career changes, as opposed to job changes.

Some of the changes that are taking place in people’s careers are speed-related; business changes so fast these days. Technology has certainly played a huge role in these changes. The Internet has opened doors that were once impossible to open. Small businesses can be big businesses online. It’s a lot easier to do business globally.

Companies are doing more with less. Amazing computer software systems have eliminated the need for huge accounting and human resources departments. Automation systems in the manufacturing sector have enabled companies to scale back on the amount of employees needed to run shifts.

The downward trends in employer loyalty are also contributing to the death of the traditional career.

Milan Moravec, a management consultant, recently wrote:

“Until recently, loyalty was the cornerstone of that relationship. Employers promised job security and a steady progress up the hierarchy in return for employees fitting in, performing in prescribed ways and sticking around. Longevity was a sign of employer-employee relations; turnover was a sign of dysfunction. None of these assumptions apply today.”

Read his comment on The Performance Improvement blog.

So, how can you adapt to the huge career shifts that are taking place?

1. Mentally become a “free agent.” It’s absurd to think that your current job will last more than five years or so. (Obviously, lots of factors can affect this, but I’m using a broad brush here.) One-page resumes need to always be at the ready. Employees need to anticipate when things at their companies are about to change. Take calls from recruiters, and be nice to them. Pay it forward. They’ll remember you.

2. Find ways to generate extra income. Check out online income opportunities. I’m not talking about those lame “make money online” infomercials that are on television during the wee hours of the night. If you look hard enough, you’ll find that there are ways to generate some income via the Internet. My friend (and Small Business Trends contributor) Jim Kukral has a fantastic Internet marketing resource page set up. There’s bound to be something there to explore.

3. Take a class. A plethora of classes are offered day and night. Brush up on some skills. Learn something new. Learn a new career. Online classes are affordable and convenient. Community colleges can be great places to take a course, too. Here’s a list of community colleges, state by state.

4. Buy into a company. I know that lots of people have been left holding useless stock options from the companies that they’ve worked for and that have gone under, but it’s still worth looking into employee equity opportunities. Maybe there’s a small company that’s super-entrepreneurial in their thinking, and they only want to hire people who will buy in. Some people actually love their jobs; having real equity can be pretty exciting, too.

5. Become the owner of a franchise business. Franchise ownership provides a corporate structure (which can be good for those used to working within one) and real ownership. It’s true that the franchise business model is a rigid one (which means that there are rules to follow), but it’s still your own business. You are the one opening the door to your  business, every day. It can be quite empowering. Here’s what’s trending in franchising.

Traditional career tracks are becoming extinct. Working at the same company for 30 years is a thing of the past. Don’t be frightened by this change. Instead, feel a sense of ownership. That’s because you’re really in charge of your own career–like never before.

From Small Business Trends

What Happened to Your Career?

In addition to lowering the U.S. credit rating, Standard & Poor’s stated, “We have changed our view of the difficulties in bridging the gulf between the political parties over fiscal policy.” Sounds like all the bickering that took place in Washington contributed to the downgrade, and there’s probably more of that to come.

Predicting the effects of an economic downturn on new franchise sales used to be a lot easier. If the downturn involved lots of unemployment, especially in middle management and executive areas, franchise interest increased. In addition, there was lots of interest (no pun intended) from lenders; they wanted to loan money to qualified franchise candidates.

Obviously, things are quite different this time around because of the small business lending situation, especially with startups. Although there’s been a little light at the end of the tunnel, lenders still aren’t that anxious to approve franchise startup loans, and that’s impacted new franchise sales. But franchisors aren’t giving up; some of them have taken matters into their own hands, and are intimately involved in the loan process from day one.

One such franchisor is Shelley Sun, one of most dynamic franchise professionals I’ve ever met. Shelley is CEO of Brightstar Franchising  LLC, a Chicago-based senior services franchise. According to a recent article in the Wall Street Journal, fewer than 10 percent of BrightStar’s 177 franchisees were able to secure loans. This prompted Shelley to hire a financing specialist to assist franchisees with the loan process, and it’s worked; 75 percent of her franchisees are getting their small business loans approved. Other franchisors are starting to follow her lead, so if you know someone who’s been downsized who specializes in small business loans, there could be some opportunities for them in the franchise industry.

Franchisors are a pretty entrepreneurial bunch; I’m confident that they’ll continue to come up with innovative ways to sell new franchises, as long as there’s a captive audience. But it’s the “captive audience” part that concerns me.

The uncertainty that’s been created by Standard & Poor’s downgrade could make it a lot more difficult for the current crop of franchise candidates to pull the trigger and become franchise owners. They may actually decide to skip franchise business ownership altogether, and make the fear-based decision of jumping back into the job market.

In a scenario like that, not only will franchisors lose new franchise sales, but the franchise candidates who decided to re-enter the job market could find themselves in an incredibly competitive arena with people who have been out of work for months….even years.

Here are some suggestions for those interested in exploring franchise ownership options in uncertain times:

1. Put together a detailed net worth statement. You need to know exactly where you stand financially before you start looking at any franchises.

2. Involve your spouse, significant other or anyone else that will be affected by your decision to become a business owner; their insights will prove to be valuable.

3. Align your top skills with franchise opportunities that will allow you to use them for maximum benefit. For example, don’t invest in a franchise that requires the owner to make cold calls all day, fivve days a week, in order to get customers, if you’ve never been in sales.

4. Go slow. Explore the franchises you’re interested in at a slow but steady pace.

5. Become an expert at fact-gathering. Ignore anything you hear during your research that’s hearsay.

6. Engage the services of a competent franchise attorney when you get close to decision time; don’t hire a general practitioner

7. Try to work with an SBA Preferred Lender located in your community. They can help streamline the loan process

8. Be prepared. Investing in a startup franchise business is a long-term play; you’ll need to forego a paycheck for awhile, so make sure you’re in a position to do that. One more thing: In volatile times like these, you’ll want to make sure that you have some extra working capital available to weather any more economic storms, so make sure  you figure that into your business plan.

9. Find a mentor. Focus on finding a very successful franchisee who is willing to be one phone call (or one email) away during your first few months as a franchise owner. You’ll save yourself a lot of aggravation. This should be in addition to any support that you’ll be receiving from your franchisor.

10.  Go back. If you decide to move forward, one way to work through the nervousness  you’re going to be feeling is by going back to the moment you made the decision to become a business owner, and try to re-live that moment. Something compelled you to do what you’re about to do. Is that “something” still there? If it is, you know what to do. If it isn’t, it may be time to move on to something else.

Even in volatile times, becoming a franchise owner is a viable option for those seeking change. If you’re thinking of exploring your options, doing so carefully and methodically will go a long way.

From Small Business Trends

Will The Standard & Poor’s Downgrade Impact New Franchise Sales?