5 Things To Know Before Buying A Franchise

5 things you need to know before you buy a franchise

Learn The Answers To 5 Critical Questions Before Buying a Franchise

“Retired” too early, RIFfed, laid off, sick of your job or just ready for something new?  Maybe you’re just ready for a transition in your career and you’re convinced you have the business savvy, education and have even managed to save up some money…Now What? It must be time to chase the American dream and go into business for yourself.  Buying a franchise might be just the right thing to do.  Here are the 5 Things You Must Know Before Buying A Franchise.

Buying a franchise can be a much safer investment than starting your own business.  In theory franchises offer business systems proven out over time with strong leadership, great economic models, well financed R&D and experienced support teams…in theory.  How can you be sure?

For many people, buying a franchise could be one of the largest financial commitments in their entire lives and it will be a very emotional experience. Friends will say they read something bad about what you plan to do on the internet. Spouses will doubt you.  You will doubt you! A little self-doubt can be motivating. You need to ask yourself, “What evidence do I have that I can’t do this?” Then ask yourself, “What evidence do I have that I can do this?” Doubt is just a lack of information.  So how do you find a great franchise and get the information you need to overcome the doubt?

Most people pull out their darts and throw them into the franchise cyberspace hoping to hit that great franchise bulls eye; this looks good, that looks good, Oh, how about this one, my friend told me this one was good, never really having any idea if those franchises are really what they are looking for.

The internet will offer some good marketing pieces and flashy sales literature for sure, even some carefully worded FAQs.  All of that will certainly work as a decent brand introduction.  But then it’s just like when buying a new home, would you ever buy a new home just looking at the sales literature without ever going inside the front door? Of course not! Looks good on the outside, as do many franchise systems, but what about the foundation, the utilities, the roof, the schools or the neighbors? You’ve got to get more information before buying a franchise.

You may hire an independent home inspection company, a pool management company, a landscape architect, have a chat with the neighbors and even hire an appraiser all in an effort to learn as much as possible before spending your hard earned money.  So why wouldn’t you do the same research on a franchise you are thinking about buying?

I typically tell all of my clients that until they can answer 5 critical questions about a franchise system, they will not have enough information to make a decision.  The 5 questions are:

  1. Do the unit level economic model proven?
  2. Does the franchisor offer a strong value proposition in exchange for the fees they charge?
  3. Does the industry have broad appeal…trendy?
  4. What are people saying about the brand?
  5. Are you a culture fit for the system?

Many of my clients say, “I just want to do some independent research” before I schedule a live call.  This is probably one of the most destructive and self-defeating things you can do if you are serious about finding a great franchise.

The franchisor is not in business to deceive or “sell” the franchisee prospect.  The franchisor is in business to successfully and quickly grow their brand. Trust them.  If they are not trustworthy it will show soon and it will be evident over the course of discovery and validation.

The answers to these simple questions can all be found but you are going to have to open many doors to find them. Read closely, here is the golden nugget in this post…The information you need to make an informed and educated decision before buying a franchise will not be found online on a public access web site!  Believe me on this one!

So where are the answers?

Of course some online research is necessary…but don’t believe it all.  Many of the answers can be found in the Franchise Disclosure Document…if you can get one and know how to read it. They can be found in determined validation with the existing franchisee base…if you can get their contact information and know which questions to ask. And can be found by meeting with the franchise leadership and support teams…if you can get an invitation to the corporate office.

Let’s review each question:

1. Do the unit level economics work?

This is usually the first question every prospect asks…what’s in it for me? What are the chances that my investment will make me money?

Every franchise must have a federally required Franchise Disclosure Document (FDD).  But of all the information that is required to be in this document by the Federal Trade Commission, a financial proforma or financial modeling information is NOT required. Unfortunately that is true. And if the FDD does not contain that information, then, anyone from the corporate office involved in selling the franchise cannot provide the information even if they have it!  So where is it found?  By talking with the existing franchisees!  The FDD must contain the contact information for every current franchisee and the contact information for all franchisees that have left the system over the past 12 months.

The franchisees are not legally restricted from divulging any information they are comfortable sharing.  Ask questions!  Every franchisee will have a different story, but if you speak to enough of them, the true story will emerge.

Great systems will have strong financial models with greater than a 1:1 ratio of first year sales to development costs, the ability to net a good six figure income, and the ability to repay your initial cash investment quickly.

2. Does the franchisor offer a strong value proposition in exchange for the fees they charge?

Here is where a franchise system will succeed or fail and where the great franchisors set themselves apart from the pretenders. This is where the royalties and fees are earned!

Every franchise will charge a royalty fee and many have additional “brand development” or “national marketing fund” fees.

Royalty fees will typically run from 4-7% of gross sales.  A few are less and some are more mostly it depends on the industry. But the support package that is offered is the great differentiator among franchise systems and where the franchise system builds its value.  The good ones earn their fees.

Brand Development or National Marketing Fund fees typically run 1 or 2% of gross sales and can only be used for marketing programs that can affect all franchisees equally.  This piece is essential and should be charged.  This is a bonus for the system and like a high tide raises all ships it will help all units in the system grow.  If it is not being charged, ask why and when they plan to implement it.  It is some of the best money spent!

Where will the answers be found…in validation calls with existing franchisees and in visiting the corporate office.  Call the franchisees and be diligent in your efforts. Remember, the franchisees are busy people. Be well prepared in your questioning and respect their time. They will be your best resource for accurate information.

Visit the corporate office, ask questions and take notice of the scenery. The strong franchise systems are resourced ahead of the curve.  They have the technical and human resources in place and are prepared for growth.  Strong franchise systems should offer support virtually from the first introductory call through opening and throughout the term of the franchise agreement.  Make sure the people and tools are in place.

To earn their royalty fees great franchise systems will offer site selection criteria and assistance, lease negotiation assistance, design assistance, preferred vendor arrangements for cost containment, IT systems for payroll, accounting, data management and security.  They will also have tried and proven marketing programs, web sites and operational and administrative support.  This is the backbone of the “system”; if these are not in place the system will not be able to support the franchisee.

3. Does the industry have broad appeal…is it trendy?

We all remember the growth and crash of the “froyo” craze; Frozen Yogurt. The early adopters did quite well and then the competition grew in location and brand, diluted each market and now it’s hard to find one still open.

Make sure the industry is based on solid, historical data. How long has it been around?  Is this just a new variation on an old theme?  This will take some research and some intuition…being trendy won’t last but solid industries will evolve and grow.

4. What are people saying about the brand?

With social marketing these days, this research is easy.  Go to the Facebook page of the brand; see if they have a LinkedIn profile, Twitter feed, Yelp reviews.  But remember, most people will only comment on social media if the experience was less than expected. Expect some negative but look for the positive.  Great brands will show it.

5. Are you a culture fit for the system?

This is the hardest question to answer, and consequently the most important.

Franchise agreements typically run from 7-10 years.  They are very difficult to get out of.  Even if you can, you can bet it will cost thousands if not hundreds of thousands of dollars to terminate the agreement.  This I can GUARANTEE, at some point in the term of the agreement you will have a conflict with your franchisor…GUARANTEED.  You need to have a good feeling for how the franchisor will handle the conflict.

There will be hints to this:

  • How does the franchisor handle “negotiation” on the franchise agreement?
  • Are you even allowed to “negotiate”?
  • How many terminations in the system (some are expected and even good) and is there litigation connected with the terminations?
  • What type of communication style does the corporate office have with the franchisees?
  • What is the cultural feel in the corporate office?
  • How do the franchisees feel about the corporate office?

Another indicator of culture is in how the employees interact in the corporate office, including such details as the “musak” in the background.  Consider the branding on the walls and the overall feel of the atmosphere.  In addition, how the franchisor manages their office is a great indicator of how they will manage the system.

These 5 questions must be answered before buying a franchise, well before the franchise agreement is signed,.

A franchise agreement is not to be entered into flippantly or without a thorough understanding of the agreement and the franchisor.

Just like a real estate agent can open the front door on a new home and show you around, the franchisor should open the door to completing and facilitating the proper due diligence in researching their franchise system.

Many franchises look the same from the outside and even in some of the services and products they offer. Successful businesses will always be imitated. The real difference between franchise systems may not be seen from the outside, it is in their commitment to the franchisee’s success. If the franchise system has the necessary components in place and is well resourced, most likely the franchisees are happy and successful. If you are searching for a franchise, it is imperative that you do the research necessary to answer those 5 critical questions and validate the system.

Franchise, Start Up or MLM? Ask These Questions Before You Buy

Franchise, startup or mlm?

Dreaming of Being Your Own Boss?

You’ve heard the song, “Take this job and shove it!”  It has always been the battle cry of new business in America.  According to a CNN/Gallop poll, approximately 70% of all Americans say they would like to own a business.  However, when you consider the number of all new businesses including low cost direct sales companies, network marketing and multi-level-marketing companies, less than 15% of our population ever venture out to become business owners.

Sadly, Americans are not overwhelmingly risk takers, even when considering the low cost, low risk MLM alternative to buying a franchise or the more expensive and riskier startup.

Why Most People Don’t Start Businesses

Most people are willing to work hard for success.   It is said that the definition of an entrepreneur is someone who is willing to trade a 40 hour work week for an 80 hour work week.  So maybe it’s the “hard work”  that kills the dream in would-be entrepreneurs.  I don’t think so.  In my experience talking to thousands of new franchise candidates, I have come to believe it’s a fear of failure that causes most capable men and women to never even give it a go!

However,  The Future Looks Promising

Franchising has rebounded since the recession of 2009.  The nation’s franchisors are opening new units at a pace of about 12,000 a year according to the International Franchise Association’s 2015 Economic Impact Report.  In addition, according to the Direct Selling Association, network marketing membership went from 18.2 million to 20.2 million in 2015.  That’s 5,500 new people every day in the United States joining a network marketing company! Furthermore, that number is probably much higher when considering the number of network marketing companies that are not members of the DSA.  These numbers are not even counted!

3 Things to Know When You Are Going Into Business

There is an old business adage that states, “If you fail to plan, you can plan on failing.”  People fail in business because either they fail to diligently research a new business opportunity, or there are simply no verifiable facts to analyze.

When I work with a client trying to find a great business opportunity, we focus our research in 3 primary areas:

  1. Is the unit level economic model of this business proving out over time for the vast majority of its participants?
  2. What is the intrinsic value in buying this particular concept/model?
  3. Are you a culture fit for this business?

How do we uncover the answers to these questions?   Research, analysis and validation.  Let’s look broadly at three business categories from the perspective of the three questions above:

  1. Business Start Up
  2. MLM (network marketing/direct sales)
  3. Franchise

Independent Business Start Ups

First, let’s take a look at independent business start ups.   In Neil Patel’s 2015 Forbes article, he states that 90% of business start ups fail in the US.   This number is widely distributed throughout business circles.   But this group of failures is made up of the risk takers, true entrepreneurs, and business pioneers.   These entrepreneurs are willing to venture into uncharted markets at the risk of losing it all for the slightest opportunity to hit the jackpot.  Many fail, yet many shake off the dust and jump right back into a new venture.

These business models are rarely validated prior to the investment.  Typically, there is no verifiable information on average revenues, true costs or expected profit margins because they are not following an established model.  These are the trail blazers.

Most Americans are not pioneers, but God bless those who are.  By creating new and successful business models through determination and failure, they will pave the way for the smart franchise buyers of the future.

What About the MLM?

Millions of Americans are sold the dream of an MLM.  The industry proudly touts the magnificent lives of the leadership.   You see the the luxury cars, huge mansions, extravagant vacations, and their “six figure incomes.”  Lives full of grandeur are held out as the carrot of success,  and some actually achieve it.  The Direct Selling Association states that the drop-out rate in MLMs is right around 50% annually.  The unveiled truth is that the vast majority make little headway toward the larger goal of building a sustainable business.

MLMs are very low cost/low risk endeavors.  Typically the barrier to entry is simply a couple hundred bucks.   But when you try to do the necessary research and validation to truly prove out the model realistically, where do you go?  Your friend or neighbor who is trying to “recruit” you into this fabulous opportunity isn’t what you would consider a “success.”   Of course, they show you pictures of what their glamorous “success” looks like,  and you may even get the opportunity to meet a person who certainly appears to be a “success.”   The thing is,  there is never any actual data on the average revenue generated to support the expected travel costs, the cost of marketing products let alone the mandatory “tools” of the trade.

Are MLMs Really a Wise Choice? 

What is the intrinsic value of an MLM?  Let’s look at the pros and cons.   Normally, in an MLM type business, the entry “kit” includes a package of products priced out at “wholesale” pricing.   That’s good.   If I am going to represent a line of products, I better be familiar with them.   Does the offering include any training?  Typically,  there is very little if any.  Does it include access to IT systems, operating manuals and/or marketing plans?  Sometimes, but most are not very sophisticated.  Is a tried and true business plan being offered?  Is there an opportunity to write one?  In order to make a rational decision on a business venture, the wise thing to do would be to study the model intelligently prior to committing money, time and energy into the offering?  Normally, all there is is word of mouth and a few comments on the internet creating the perceived validation.  Which admittedly is not my idea of good research and analytics.  In conclusion, due to the difficulty in determining value in the MLM model, it would be hard for me to recommend this option.

Finally,  Franchising

Only in franchising is there a Federal Trade Commission mandate that every franchise sold in the US have an itemized full disclosure document.  It is required that every candidate interested in buying a franchise be given this document at least two weeks prior to any money exchanging hands.  Typically the research and validation process takes much longer.

Within this mandate, an incredibly important disclosure on the experience of the leadership team can be found.  In addition, there is a full financial disclosure on the health of the business, along with any and all costs, fees or expenses that may or may not be incurred by the buyer.  Also included are the expectations of both parties outlined in detail, and the success rate of past franchisees is clear and evident.   What is expected, but not necessarily required, is a full disclosure on the financial model at the unit level.   However, a list of franchisees with contact information is required, and EVERY candidate should call as many franchisees as possible in order to get a clear understanding of every aspect of the business they are considering.

I represent some terrific “work from home” franchises that start as low as $15,000,  which is not much higher than an MLM if all costs are honestly disclosed.  Even the low-cost franchises fall under the same disclosure laws as the most expensive ones.

Conclusion

In the end, the choice is yours:  Risk it all on a new start up by blazing a new trail for others to follow, chase the near-impossible dream of an MLM, or follow the established,  verifiable path that others paid the price to pave. With all the facts laid out, it would seem that the choice is obvious.

Are Franchise Agreements Really Non-Negotiable?

Franchise agreements...are the non-negotiable?

Franchise attorneys, franchisors and franchise consultants will go to great lengths explaining that franchise
agreements are largely non-negotiable instruments.  There is good reason for this.  Inherent in the “brand promise” of the franchisor is ensuring delivery of the consumer experience and all elements that make the brand distinctive.  For most brands, the brand promise is keenly developed over time.  It is deeply guarded and defended at all levels. Crafting franchise agreements in a way that safeguards the brand promise while ensuring a consistent consumer experience is imperative, regardless of location or operator.

One of the many risks of expanding a brand through franchising is the exposure to possible dilution of the brand promise.  New franchisees investing in franchises learn at every step of the qualification process that they are buying into a system.  Standardization of franchise agreements helps to sustain the “value”  inherent in the franchising system.  That “value”  is that all franchisees would be held to the identical brand representation, processes, policies and procedures while delivering the goods or services overseen by the agreement.  Everything is designed to protect the brand promise.

Sounds good,  right?  Well,  it is not completely true.

While it is true that franchise agreements are unilateral in nature (not fair, one sided, ridiculously hard to get out of) they are not always “non-negotiable.”  Nor should they be.  You will rarely hear a franchise agreement referred to as a “franchise contract.”   Why?  Because an “agreement” certainly sounds more like two parties entering into an arrangement with full disclosure and acceptable terms.

Savvy franchisors seek to bring new franchisees into their system.  They look for those that possess the experiences, skills and unique characteristics that improve their odds of success while enhancing the value of their brand.  As a result, these unique differences sometimes necessitate small changes to the franchise agreement that are recognized as negotiable.  Conceivable,  as long as the negotiated changes do not “materially” change the standard agreement and there is accepted business logic behind the changes.  Thus, it can be advantageous to all parties including the system itself to negotiate certain terms.

Territory size and term length of an agreement would be examples of items which are negotiable more than others. The negotiation must contain logical and reasonable objectives on both sides.   However, these revisions cannot be considered material.

Negotiation in franchise agreements is rare,  but franchisors allow it in certain cases.

There are other items that franchisors may choose to negotiate.  Payment terms, training, transfer terms, cure periods, franchisor’s right of first refusal and renewal terms are just a few.  Again, I do stress that any negotiation is rare and only entered into at the franchisor’s sole and absolute discretion.  There may also be certain state laws and regulations that require immaterial changes to the franchise agreement.  Here, they are entered as an addendum to the agreement and specific only in the state requiring the changes.

As the brand grows and evolves over time, so does the standard agreement.  It is normal that, on renewal, a franchisee will be required to sign a new “then current” agreement.  If still applicable and non-material, new negotiations may be entered into by both parties.

System integrity is vitally important to maintaining a strong franchise offering.  Illustrating this, the last thing a franchisor wants is to entertain a phone call from a fuming franchisee.  Especially when the franchisee is questioning why another has signed a significantly different, possibly less restrictive agreement than they did.  In such a case, there better be a logical and reasonable rationalization as to why.

Why You Should Use a Franchise Consultant

Why you should use a franchise consultant.

Considering buying a franchise?

Franchising is complicated.  As such, it’s important to understand why you should use a franchise consultant instead of handling it all by yourself. To illustrate, let’s draw on some similarities between buying a franchise and buying a home.

People make very few large financial decisions in their lives.  They may buy a few homes, but typically that’s just about it.  According to the 2010 US government census the average home in the US sold for $272,900.  Lending Tree data shows the national average for a home loan in 2011 was $222,261 with a $1,061 average monthly payment for a 30-year mortgage at 4 percent.   Statistically in this case, the average cash down payment would be over $50,000.   According to the National Association of Realtors, agents or brokers are used in over 90% of all transactions.

The average cost to buy and set up a franchise will vary widely from under $50,000 to well over $1MM.  The total cost of a typical franchise in my portfolio can run from $100,000 to $400,000.

Many franchises require a cash expenditure of between $50,000 and $100,000.

This is very similar to a home purchase, but with a much greater degree of risk.  Businesses close every day for a myriad of reasons; poor management, poor location, major market shifts, lack of operating capital or even poor business planning.  A home purchase has historically been a very wise and solid investment.  According to the latest small business data the 5 year survival rate for the average small business is only near 50%.  The current foreclosure rate, even in today’s economic climate, is 1 in 775 households.

So, if you use a real estate agent to sell your home, why not use a business consultant to buy a business?

Real estate agents and brokers provide value in the sales process.  They narrow the search by selecting homes for the buyer to visit within the buyers established parameters for size, features, neighborhood, price, school systems, etc.  They work to pre-qualify the buyer so that the sales process runs smoothly and the sellers are speaking only with qualified buyers.  The best part is that the cost of the home is typically not affected by the broker’s fee for adding value to the process.  The brokers are paid only if a sale is transacted and paid by the seller for successfully matching buyer and seller.

A franchise consultant provides a similar service at no cost to the franchise buyer.

The consultant pre-qualifies the buyer while assembling a financial and personality profile.  Next, the consultant scours their franchise portfolio to find a selection of business opportunities within a defined set of parameters, all set by the buyer.  The consultant then runs an analysis for unit level economics, value for ongoing fees paid and culture fit.

Due to the high risk factor,  the franchise sales process is highly regulated by the FTC.

A good franchise consultant helps the buyer navigate the lengthy and arduous task of analyzing the Federal Disclosure Document (FDD).   A typical FDD document may be over 200 pages.  Next, the franchise consultant facilitates validation: the process of interviewing existing franchisees.  Like buying a home, the more due diligence performed in the buying process, the greater the likelihood for success.  And, as in a real estate transaction, the price of the franchise is not affected by the broker’s involvement.   Finally, similar to real estate, the consultant/broker is paid by the seller and only if a final sale is transacted.

So, the moral here is: don’t try to do it on your own.  The average franchise term is 7 to 10 years and the agreement is written to the advantage of the franchisor (not to mention the fact that it is extremely difficult to get out of.)  Ask for professional help in one of the most critical financial decisions of your life.

Validation: Questions to Ask Franchisees Before You Buy

franchise validation

Buying a franchise? You better have a list of questions to ask franchisees.

A common question/concern among those who consider buying a franchise is, “How do I know the franchisor is telling me the truth?”  It is understandable considering the sales world we live in today.  However, if you want to have a high level of confidence in the franchise you have decided to purchase, there is a way.  It’s actually baked in to the franchise buying process.  “Validation” is having a list of questions to ask franchisees who have already purchased the franchise you want to buy.

My business has been built on helping people get all the information they need to feel fully informed and confident in making, arguably, the most important decision of their lives:  investing in themselves.

It is very normal to fight the internal battle and lose out to the fears that make indecision easy.  The consequence of indecision will result in an indeterminable and enduring emptiness.  A lingering, haunting feeling of “what if.”

Well, the reason you didn’t was because you didn’t have enough information.   In addition, you probably had some misperceptions and uncomfortable feelings that you did not fully resolve.  You bailed out too quickly! You need to finish the whole process.

The last and most important step when researching a franchise is validation.

Validation is unique to franchising.  What other type of business could you start in which you could call other business owners and they would be honest with you about whether or not it was a good business to be in?  You can learn whether or not the franchisor had lived up to its promises.  You can find out whether or not everything the franchisor had told them was accurate.  This couldn’t be done in any other business system. You could try, but it’s the rare business owner that would help you.

Yet many people never validate what they have been told by the franchisor.  They either blindly accept what they have been told or they dismiss that they have been told without evidence.

There are 21 required items for disclosure in the Federal Disclosure Document.

In an attachment or exhibit to the document there is always a list of all current and past franchisees, with contact information.  I feel it is the most important step in the research process to call as many of those franchisees as possible.  You need to get confirmation that everything you have been told is the truth.  It is necessary to get a good feel for the actual support you’ll receive from the franchisor.   In addition, you need to get a sense of the culture being nurtured by the franchisor.

Mostly, I have found franchisees will be very open and honest about their experience.  Many will tell you whether or not they think they made a mistake in accepting the franchise.   You’ll find out if they feel the franchisor has assisted them through hurdles and roadblocks they experienced along the way.  In the validation process you will gain a confidence that you are making the right decision and that what you are hearing is accurate.  Some franchisees will be proud to disclose how much they are making.  Some will just provide an overview of their perspective; good, bad or indifferent.

It is best to go into a validation call with a prepared list of questions to ask franchisees.  Ask the same questions to all, and the truth will fall on the trend line.  Only then can you truly complete the research and make a fully informed and educated decision to either move forward or back out.  It will be your decision and there will be no lingering feelings of “what if.”

How to Get Your Confidence Back After Losing a Job

How to get your confidence back after losing a job

“I personally dealt with this challenge five years ago.”

So many articles have been written lately on the serious topic of how to get your confidence back after a job loss.  Those of you who have read my e-book, Pink Slip Paradise, know I personally dealt with this challenge five years ago.  Most articles express the similar thoughts.  They deal with the internal negative emotions of avoiding depression and isolation, taking care of yourself physically, staying focused and resetting goals.  All of these sentiments are internally focused to keep you from jumping off the cliff.

The dominant theme in these articles seems not to be a loss of income but a focus on the stress of losing your identity, the loss of a routine and a feeling of losing purposeful activity and a social network.  Now if your glass is half empty, it’s probably easy to fall into the abyss of “Woe is me, I’m in such a bad situation,” blah, blah and blah.

Let’s look at the true situation you are in.  By no fault of your own, other than being experienced, knowledgeable and pretty successful in your field (i.e. too old and too expensive), you find yourself job free.  You should probably celebrate the loss of your mundane routine; no more rush hour traffic!  Heck, you probably didn’t even like most of the people you worked with, and climbing the corporate ladder had become such a drag.  Now should be the time of your life!  A time when you are still young, healthy and energized enough to take on the world.

Why not take this opportunity make the changes in your life you’ve always wanted?

I only found a couple of articles that even mentioned what I think is the absolute most important thing you can do to learn how to get your confidence back after a job loss; focus on the opportunities ahead of you!

A recent Wall Street Journal article, Laid Off? Rethink Goals, describes how being laid off can be a blessing in disguise.  Being laid off gives you the chance to switch to a job that’s more personally and professionally fulfilling.

In a work.chrom.com article by Scott Thompson, How to Regain Confidence After a Job Loss, he talks about taking time to do something you love and expanding your horizons.  Most of us have dreamed of one day learning to paint, play the guitar or maybe even spending some time with your wife learning the art of ballroom dancing. Whatever your dream and desire, you are now free to do it.

Over 70% of Americans say they want to become business owners.  Only 1 in 10 ever does.  You’ve been given a second chance in life at a time when you can take advantage of it.  Don’t waste this one.

It’s certainly easier to dwell on the loss, but that is wasted emotion and is not healthy.  Take the time to turn that lemon you’ve been handed into sweet lemonade and make the most of the opportunity you’ve been given.

So, what actions do you take to get your confidence back?

Now, if the lemonade still  leaves your glass half empty, review my compilation of all the great advice I found on the subject of how to get confidence back.

  • Deal With Your Emotions
    • Don’t let your job status define you.
    • Know Your Accomplishments and What You’ve Learned
    • Allow time to heal.
  • Stay future-focused.
    • Don’t Drift
  • Prioritize self-care.
    • Exercise is a great way to burn off stress
    • Stay away from sugar and carbs
    • Alcohol in moderation
    • Use positive affirmation.
  • Maintain/Develop a routine.
    • Treat finding a job as a job.  Not having control of your job search can have a negative effect on your self-esteem.
  • Avoid Isolation – reconnect with family and friends
    • Tap your network.
    • Surround yourself with positive people
    • Find a supportive network.  Get involved with an out placement firm
    • Meet other job seekers.
    • Help others.
  • Rethink Goals (lower your goals?)

Women’s Resale Clothing Franchise Opportunity

Clothes Mentor

Why a Women’s Resale Clothing Franchise?

As a professional franchise consultant, I like to keep my finger on the pulse of current marketing trends. Whenever I can, I attempt to get feedback from real people about their buying habits that might give me some insight into current trends of the franchising industry. I was looking for some feedback about a franchise I was curious about, a women’s resale clothing franchise.

Every Tuesday morning I start my work day as many small business people do, by attending a business networking meeting at a local restaurant. This particular group is predominantly professional women in many fields. Recently, I asked the group to give me feedback on whether or not they would shop at a resale clothing franchise. OVERWHELMINGLY the response was “YES”, they do or would shop at resale clothing stores.

These are professional women in the Washington DC suburban market, a very economically stressful, “keep up with the Jones’s” environment.

Yet, the answer was overwhelmingly “yes”.

As we all know, this market is flooded with high fashion women’s clothes retailers. Quality brands like Coach, Michael Kors, J.Crew, Tory Burch, Kate Spade and Louis Vuitton are represented in virtually every corner of the shopping world. According to market research, this is a vibrant, $42 billion dollar industry. The women’s high fashion market is steaming!

So, if my not very scientific survey is even close to representative and the market is saturated with high fashion quality retailers, my next assumption is why wouldn’t a high fashion women’s resale clothing franchise be an excellent business model for this area…or any area for that matter? I went searching and found NTY Brands. (NTY, as in New To You).

Introducing Clothes Mentor: Top Women’s Clothing Franchise Opportunity

NTY offers 5 different women’s resale clothing franchise concepts, but the one that really attracted me was the Clothes Mentor franchise, a reseller of women’s high fashion brands.

The brand names I am talking about live in expensive real estate, the large suburban Malls and pricey haute couture urban corners.  Certainly these are a shopper’s paradise of selection and assortment. But for retailers in these centers the margins are tightened with outrageous real estate costs, exorbitant overhead and excessive competition in these select centers. In this game of high risk and high reward retailers place their bets on high revenues and volume to drive bottom line profitability. Gross Profits of only 20-30% are standard.

At Clothes Mentor selective purchasing programs and site selection are the keys to high gross profits and low overhead.  NTY helps new Clothes Mentor franchisees engage in a precise process to determine ideal locations along the same traffic patterns that the Mall shoppers are traveling on.  However, Clothes Mentor offers a much lower cost per square foot keeping the real estate costs in line.

Clothes Mentor owners are trained to use proprietary technology to identify the highest quality in popular local clothing lines.   CM then pays local patrons cash for their lightly used garments to stock their inventories.

Clothes Mentor customers craft a diverse and dynamic marketplace.  NTY VP of Franchising, James Wollman, described the consumer activity in the store as broken out into 3rds.  About a third only sell to the store, another third only buy from the store and the final third enthusiastically buy and sell.

The end result is a retailers dream: high volumes, low overhead with typical gross margins as high as 64%.

The consumer experience is similar to any high end retail experience.  Clothes Mentor provides great selection in brands they are already buying, but at prices up to 70% off Mall pricing.  In addition, Clothes Mentor shops are NOT consignment shops with dingy lighting, sloppy merchandising and low volumes. CM offers brightly lit, modernly and professionally merchandized stores.

The executive leaders at Clothes Mentor are retail pros. NTY Franchising President, Ron Olsen, boasts a long and successful career.  Beginning in retail with Dayton–Hudson Corporation, owners of Target and Marshall Fields to name a couple.  Ultimately, in resale franchising with successful brands such as Once Upon A Child, Plato’s Closet, Play It Again Sports and Music Go Round.  Today Clothes Mentor has grown to over 140 units and earned a #210 ranking in the Entrepreneur Top 500 franchises in America.

From a Franchise Consultant’s perspective, Clothes Mentor offers everything a new franchisee could ask for:

  • a well-known brand in a hot market
  • professional training and support
  • state of the industry technology
  • great unit level economics
  • the lowest franchise fees in the industry.

I Rate Clothes Mentor a CHOICE PICK.

As an independent franchise consultant, I engage in franchise development with over 300 growing franchises. I look for specific attributes that are similar among industry leaders and successful franchises overall. The Clothes Mentor resale clothing franchise has them all.

Best Franchises to Buy: A Franchise Consultant’s View

best franchises to buy

I’m asked all the time, “What are the best franchises to buy”?

Everyone looks at McDonald’s as one of the quintessential best franchises to buy, but, is it the best? For a select few, it’s terrific.  How about 7-11, arguably the largest franchise system in the US, is it the best?  I’m sure many people have done very well in that system.  Choice Hotels?  Great system, not great for everybody.

How about Subway?  KFC? Burger King?  All strong franchise systems with excellent name recognition, but in my opinion, and I owned a restaurant for 7 years, there are much better ways to make money than in the restaurant business.

So, what ARE the best franchises to buy? The truth is there are many, many terrific franchises available today and no two people are exactly alike.  Although there are certain attributes shared by all great franchises, the best franchise for my clients is the one that has each of those specific characteristics and aligns well with their individual profiles.  It will be a franchise that they can afford and one that will provide a system of support that utilizes their strengths and complements their weaknesses in order to help them achieve their individual personal and professional goals.

The fact is that a person cannot just call the corporate office and simply buy a franchise.  Franchises are awarded to new franchisees after candidates clear a series of qualification hurdles.  Simply said, if the franchise executive does not like the candidate or does not think they can afford to buy and build the business, a candidate will not get past the first, introductory call.

Choosing the right franchise

There are many great franchises.  I look for franchise systems that are leaders in their business categories and have been franchising long enough and have developed enough franchised units (50+) to be thoroughly vetted and experienced in the “business of franchising.”  I also look for brands that offer excellent training, pre and post opening, proven marketing programs, back office and operations information technology systems, and most importantly, excellent validation from current franchisees in the areas of unit level economics and value.

Many of the top franchisors now offer franchisees operational efficiencies such as call centers to assist in scheduling sales calls, new technology to aid in managing off site time & attendance and real time logistics, state of the industry Customer Relations Management systems and buying protocols formerly only available to large corporations.

When searching for the illusive “best franchise to buy,” it’s best to be prepared, honest and truthful about yourself and your situation in life.  Ask yourself: How much can I really afford to spend?  Do I have access to enough capital to live while the business is ramping up to support me?  Is my spouse supportive of my desire to become a business owner? Do I have the skills and personality necessary to sell my product or services?  The answers are embedded in the treasure map to finding your best franchise opportunities.

There are top franchise opportunities in just about every business segment;

  • The old standards of the service industries; painting, cleaning, renovation & remodeling
  • New businesses being spawned by new laws and evolving consumer buying habits
  • Businesses that identify environmental realities and address them
  • and of course businesses that address the aging of the Baby Boomers

Franchise ownership can be the ticket to the American Dream and finding your tailor-made best franchise to start can be like having the winning lottery ticket.  Identifying your ideal franchise will take time, effort and working with a professional who is experienced and can help you navigate through the due diligence of research, analysis and validation.

Pink Slip Paradise: Beat the Downsize With Franchising

Pink Slip Paradise

Franchise
Sid Lee, President, Choice Franchise Advisors

At the time, he was an executive with Starbucks leading a comfortable suburban life in Bristow Virginia with his wife Lisa and his daughter Alexandra.  In addition to being active in his community HOA, he was also a prominent high school football referee.  Nice comfortable life.

However, as is the story with countless other middle to upper income executives in corporate America who are age 50 and above, sometimes termination comes out of the blue.  In the summer of 2010, Starbucks did a corporate reduction in force leaving Sid with some decisions to make and a short time to make them.  For many, this scenario means financial loss and extreme family stress. For some, however, it could even mean divorce and family displacement.

Sid was terrified at first, but in the end, it was a blessing.

After six months of frustration, he came to realize that being an overqualified 57 year old ex-executive had made him unemployable.  Business ownership seemed to be the only option.  It was at this point that he discovered franchising.  After making an investment of $25,000 along with months of training and study, he launched his new career as an entrepreneur in the franchise industry.  He went on to blog about the experience in a way that could help others in similar situations.

As Sid’s brother, I’ve observed his transition from executive to business owner over the last 5 years.  At my urging, Sid has organized some of his blogs into a book aptly titled “Pink Slip Paradise.”  If you are an executive and have experienced a corporate downsize, reduction in force, layoff, or a similar separation from your income, download “Pink Slip Paradise” on the bottom of our home page.  Learn about franchising as an effective method of replacing your income and starting a wealth building process that is gaining in popularity around the world.

Here are the top 5 questions answered in Sid’s book, “Pink Slip Paradise”:

  1. Should I start a new traditional business or buy a franchise?
  2. What are the benefits of using a franchise consultant?
  3. Why can’t anyone just go out and buy a franchise?
  4. What are the 3 ways of funding a franchise?
  5. How do I validate (prove worthy) a franchise?

Download a copy of Sid’s book at the bottom of our home page.

Sid Lee’s Client Testimonials

Sid Lee's client and peer testimonials

Sid Lee’s Franchising Client Testimonials:

Sid Lee testimonialsSid Lee, Founder and President of Choice Franchise Advisors, has helped many individuals officially enter the world of franchising.  As a franchise consultant, your success is measured by your ability to help new franchisees with your hard work and dedicated assistance.

He has achieved this by providing three major services for his clients:

  1.  First, he assists his clients with exhaustive franchise research.
  2.  Second, he provides powerful corporate franchisor introductions, and finally…
  3. He provides valuable opportunities for extensive franchise validation with current and former franchisees.

Ultimately, Sid’s goal in working with his clients is to help them reach the highest level of confidence possible, resulting in their purchase and operation of a successful franchise.

The following list of client testimonials will help distinguish Sid as the ideal choice to help you find the perfect franchise for your needs.


franchisor, America's Swimming Pool Company“Our company, America’s Swimming Pool Company, has worked with Sidfranchisor many times over the years.  He is a tireless worker that is always attentive to his client’s needs and finds the right opportunity.  Sid is an outstanding consultant that listens to his clients, which ultimately is the best quality a broker can exhibit.”

Jef Flournoy, V.P. of Sales & Development, ASP Franchising, LLC, Macon, GA


cleaning_authority“I contacted Sid at a time when I was looking for my next franchised business, but had no idea franchiseewhat I wanted to do. He very patiently listened to my requirements and presented me with perfect franchise systems to explore that fit my needs. After my insistence to research some 20 plus franchisors, I ended up becoming a franchisee of the very first system that Sid presented to me. I couldn’t be happier with the franchise. Sid’s pick was perfect for my financial and lifestyle goals. His approach is very patient, helpful, knowledgeable and professional. I highly recommend Sid if you are at all interested in franchising.”

Mike Cartier, The Cleaning Authority, Franchisee, Stafford Springs, CT


Thomas Steffie“Sid Lee was a valuable ally in my search.  I did not start out looking for a franchise, but Sid requested I give him a enviro-master serviceschance to show me what franchises were available in my areas of interest.  Sid then produced a great list of companies with precise summaries.   Next, he made valuable introductions and gave excellent advice leading me to the right opportunity.   Sid is a true professional and I recommend his services to anyone searching for their next business.”

Thomas Steffie, Enviro-Master Services franchisee for the Ithaca NY market.


 


Karen McFadden with her MomDear Sid Lee, You have been the best possible advisor for my  mother and I. I know that this was not an easy journey yet here we are and I have the opportunity to do what I love.  I have no possible way of fully repaying you for all of your time, effort and energy you have put into our dream of being business owners.  …Thank you very much and I do look forward to working with you again in the near future should you remain in the making dreams come true business…

Karen McFadden, New Franchisee, Parker-Anderson Enrichment, Peris, CA


 


A Downsized Executive’s Story: Pink Slipped in 2010

Executive's story: Pink Slip Paradise

An excerpt taken from Sid Lee’s franchise success ebook, “Pink Slip Paradise”.


The worst and best day of my life…the day I was pink slipped.

There are 3 letters that are not found in The American Dream…J-O-B!  Here are some recent headlines:

  • Standard Chartered to Cut Senior Staff by 25 Percent
  • Tribune Publishing Announces Staff Reduction
  • Toys ‘R’ Us Brings Temporary Foreign Workers to U.S. to Move Jobs Overseas
  • The Daily News Layoffs and Digital Shift May Signal the Tabloid Era’s End
  • Caterpillar to Cut Up to 10,000 Jobs, Citing Falling Demand
  • More layoffs in the oil industry announced this week, including 950 Chevron jobs cut in Houston.
  • Halliburton, Baker cut workforces deeper, bringing layoffs to 27,000
  • Walmart CEO tells staff 450 job cuts aim to make are to become more “nimble” retailer

I can go on and on and it’s not a happy ending. And the truth is, none of us are immune from the possibility of being fired, pink slipped, laid off, RIF’d, let go…whatever you want to call it.  Did I say NONE OF US? Unfortunately, it is fact and we all know someone who has been given the gift of a pink slip. Gift? Yes, gift.

Change is good, if you are prepared for it.  I was not.

As with most of us, I certainly was not shocked when I was fired…I’m sorry, retired. I had heard the rumors, witnessed the continual reductions in force several times during the few years prior to my release.  But, up until then I had been one of the lucky ones who was still employed.  Then came the day I remember most, October 10, 2010.

My boss and I had received the same notification. We both received meeting planners to be at a mandatory meeting on the same day, one half hour apart.  As I was a remote employee, my meeting was a conference call. She worked at the corporate headquarters, her meeting was personal. I called her and said, “Hey if HR is in the room, just text me”.  She replied, “It’s worse than that, my meeting is in the HR office.”  Done deal…

I was terrified and had not really planned for this event.  I never received a bad review and was very productive over my career.   Fooled, I thought I was a member of the “protected class.”  But, I was over 50 years old and none of us are immune.

As most of us dumped into this situation do, I began working on my resume and increasing my LinkedIn connections.  I thought I needed a new job.  I even got one for a little while.  It paid me less than I had been accustomed and was a little out of my wheelhouse.  However, I was happy to be re-employed.

…then it happened again.  I was pink slipped about a month before Christmas.

This time I said to my wife and family…”never again”.  This day changed my life.  I was going to become a business owner, not an employee.  Over the course of my career I had worked for some terrific people and learned from some of the best.  I had the skills, the education and the experience…but did I have the confidence to do it alone?

Fortunately, I had saved some money during my career and my credit score was good.  I knew that at 58 years old, I was going to be nobody’s first choice for a new corporate position. So, I started looking for a franchise.

I am now in my third year and have increased business every year with some terrific help and support from other professionals in my network and my affiliated corporate office.  My family’s life style has not changed and I am very confident now that I can, with more hard work, become even more successful as a franchise development consultant than I ever would have been in my corporate job.

Maybe I would not have been ready for entrepreneurship earlier in my career, but today I feel like I should have done this many years ago.  As an employee, I was always just one corporate decision away from the unemployment line.

 But, as a business owner, it’s always up to me.  I can’t be fired.

Most high schools and colleges don’t teach entrepreneurship.  Most of us are taught from a young age to work hard, do well in school and get a good JOB. Truth is, there is no JOB in the American Dream.  The American Dream is about defining your own success.  It’s about owning your own business where there is no cap on what you can earn and no restrictions on who can do it.  People from all over the world view the USA as the land of opportunity.  Mostly they immigrate here to become business owners.

Today immigrants constitute 12.2 percent of the total U.S. work force, and 12.5 percent of the total population of U.S. business owners.  Immigrants are nearly 30 percent more likely to start a business than are non-immigrants.  In addition, they represent 16.7 percent of all new business owners in the United States.  The total business income  generated by immigrant business owners is $67 billion, representing 11.6 percent of all business income in the United States.

Getting pink slipped should not be the worst day in anyone’s life.  It should be considered a gift, the gift to step out and experience what the rest of the world knows. The rest of the world sees the USA as the land of opportunity.  More of us should.


You can read Sid’s book by downloading from the bottom of our home page.

Start a Business or Buy a Franchise…Which is Better?

Start a business or buy a franchise?

Entrepreneurs: Should you start a business or buy a franchise?

As a qualified, well prepared and well-funded entrepreneur, there is no better vehicle for achieving goals than to be in business for yourself.  A business is simply a process designed to advance goods and services to the marketplace in order to create value and profit for owners and customers.  Of the many options posed for those entering business, prospective entrepreneurs eventually wrestle with our question: “Should I start a business or buy a franchise?”

 

The answer?  It depends upon your personality type, how much money you can muster up, your risk aversion and your skillset.  It also depends on your aptitude to plan and execute. Overall though, it depends upon your drive, determination and ability to persevere.

Obviously, millionaires are built on platforms other than franchises or traditional start-ups. Distributorships and MLMs are two examples.  MLMs are easy and inexpensive to set up, but success rates are horrible.  Distributorships are restrictive and can range from simple home based models to huge warehouse facilities. Furthermore, for a business prospect to be successful with a distributorship, you better hope that the brand you represent has staying power.  Ask some old Schlitz beer distributors about that!

Advantages and Disadvantages of Buying a Franchise Versus Starting a Business

They are similar in the fact that the US congress has set up the tax code to give advantages to both types of business owners.  Both require detailed business plans and adequate funding. The elements of recruiting, hiring and training are inherent to both.  Both require precise marketing plans, IT systems, experienced administration and some sort of invoicing and payment processing.  They seem pretty similar, don’t they? No to mention that if an office is required, both will have sites to identify, leases to negotiate, furniture,  fixtures, equipment and signage to install.  So far they both sound the same.  However, that’s where the similarities end.

I ran into an interesting article by Funders & Founders that showed a first time entrepreneur’s startup business success rate at less than 1 in 5.  Now, it did show a higher success rate as those same entrepreneurs continued to fail on their second at a rate of 5:1 but improved to about 30% with their third venture, IF it was backed by venture capital and went public to IPO.  Still less than 1 in 3…not too impressive!

Let’s take that same model one step further, since they included venture capital into the mix.  Earlier we had examined everything it takes to open a business from business plans to signage, that all costs money.  So, let’s take a very modest and conservative estimate of $100,000 for each new opening.  At that rate the average entrepreneur will have spent $300,000 to have a 70% shot at another failure.  Now that’s an expensive learning curve.  They will most likely have to try it again and risk another $100K .  Really?  Over my wife’s dead body!

So, are the odds of success better in operating a franchise?

Not being prepared to manage a business through the ebbs and flows of an up and down economy decreases the odds of success in any business. To increase the odds of success, there are a couple key things available to prospective franchisees that are not available with traditional business startups:  mandated disclosure and validation.

The selling of franchises is heavily regulated by the Federal Trade Commission in an effort to maintain a level of integrity and honesty in the process.  The FTC requires that every franchise maintain, and in some states submit for approval, a document called a Federal Disclosure Document or FDD (formerly called a Uniform Franchise Offering Circular or UFOC).  This is a cumbersome and wordy document strewn with legalese, but it discloses just about everything you would want to know about a franchise.  The document includes all costs (real or expected), a short history of the executives, any bankruptcies or litigation, franchisor expectations of new franchisees and what the franchisee’s expectations should be of the franchisors.   However, the most important disclosure required is a list of all current and past franchisees with contact information.

Before making the decision of whether to invest in a franchise or not, every savvy potential franchisee calls as many of the franchisees on that list as it takes to get a clear understanding of the true value of the franchise.  This is a game changer.

As a result of mandated disclosure and thorough validation, potential franchisees learn the true value of the franchise or their interest, including:

  1. Industry and public respect for name brand and trademarks
  2. Level of proven success behind the business model
  3. Effectiveness and franchisor commitment behind the training programs
  4. Reputation and effectiveness of plug and play IT systems for operations, sales and back office management
  5. Value of the franchise culture of support, evolution and teamwork

In conclusion, everything from the business plan to the signage is similarly required of any business. It stands to reason that finding a franchise that offers all the above at an affordable cost makes the decision of whether to buy a franchise or start a business an easy choice.

The Importance of the Franchise Financial Statements

Things potential franchisees should know about financial statements

Franchise Financial Statements are the track record of the franchise. They are provided for you in the FDD and contain important information about the franchisor’s financial status and strength.

The two most important financial statements you need to review:

  • Balance Sheet
  • Income Statement (3 years preferably)

 THE BALANCE SHEET

A balance sheet is a snapshot summary of how much a company is worth on any given day. It reports the financial condition (solvency) of the franchisor. Look for 3 year trends.

Balance sheet categories include:

  • assets – what a company owns: current, fixed, and intangible assets.
  • liabilities – what a company owes: current and long-term debt.
  • stockholders’ equity – the company’s net worth; it is the money the company has taken in from the sale of stock plus any accumulated profits
  • Stockholder’s Equity = Assets – Liabilities = Net Worth

Things you want to see on a franchisor’s balance sheet:

  • increasing assets
  • increasing stockholders’ equity
  • more cash than debt
  • amount of current debt < (less than) 1/2 of the total assets
  • amount of current debt < 1/3 of the stockholders’ equity

Business stability ratios (these measure the business staying power):

  • Current = (current assets/current liabilities) company’s ability to pay bills, Rule Of Thumb is 2:1
  • Quick = (cash+ AR/current liabilities) company’s ability to generate cash, ROT is 1:1
  • Debt to worth = (total liabilities/net worth) “bankers ratio” measures risk, ROT is better than 1.5:1

THE INCOME STATEMENT

An income statement reports a company’s profit or loss. It shows a company’s income, expense and net income—also known as the “bottom line” or earnings.

Other names for an income statement include:

  • Statement of income
  • Profit and loss statements
  • Statement of operation
  • Statement of earnings
  • Results of operations
  • Statement of consolidated income 

Income statement categories include:

  • revenues
  • costs and expenses: cost of sales, selling, general administrative, interest expenses
  • income before taxes
  • provision before taxes
  • net income (earnings)
  • net income (earnings) per share

Things you want to see on a franchisor’s statement:

  • a profitable franchisor!
  • increasing profit
  • more revenue derived from royalties and system income than from selling franchises
  • increasing revenue trends, usually > 15%
  • increasing net income trends, usually > 15%

The financial statements should be audited financial statements and contain three years of financial data.
*Suggest that these should be reviewed by a CPA

“Pain” Drives Many to Learn How to Start a Small Business

The American Dream, Most will never learn how to start a small business

More than 7 out of 10 people in the US today have a dream of learning how to start a small business. It’s more prevalent in younger people than older people, and more prevalent in men than women.  How about you?  It’s the American dream of being your own boss; big desk, receptionist, polished dark wood office, walls adorned with lighted paintings, a nice new Lexus, beautiful home…the dream of success.

The dream is real in this United States.  Many people have achieved it, and many more will.  But even if you are in the 7 of 10 who want to learn how to own a business, you probably won’t.  Why?  The fact of the matter is that just over 1 in 10 Americans are business owners.  They are the entrepreneurs and franchisees who have overcome the internal objections, rejected the naysayers and dared to be independent.

Question:  What motivates the 10% to learn how to start a small business?

Answer:  They felt the pain deep enough to take action.

Why not you?  The truth is, you probably haven’t felt the pain deeply enough to make it happen.  Yet.

In my industry, about 4 or 5 out of every 100 inquiries is a qualified franchise buyer.  However,  only about 1 or 2 end up turning their dreams of business ownership into reality.  My interest is not in the 95 or 96 who are really not emotionally prepared, don’t have the necessary liquidity or credit, or are truly just dreaming.  Don’t get me wrong. It’s good to dream.  My interest, though, is in the 4 or 5 who are qualified, have the funds, have the experience and the dream.  However, in the end only 1 or 2 will act on it.  What is it that inspires the 1 or 2?  Their pain.

I ask every prospective buyer I work with, “So what has happened recently in your life to make you believe that now is the right time for you to learn how to start a small business?”  The answer is their “pain,” and it varies with each prospective buyer.

This evil “pain” can come disguised in many ways.  For many in today’s new corporate economy it’s the realization, that after being laid off, riffed, retired, downsized or simply fired in their mid to late 50’s, they are nobody’s prime candidate for a job.  They are too expensive, don’t have a wide enough employment window and honestly may not possess the “new era” technical skills of the younger generation.  After working the network, the job boards and social media, the ugly Mr. Pain exposes himself in the reality that the burn rate could exceed the severance & savings if the job search continues too long.

For some,  the “pain” transforms into a burning desire to achieve the dream.

Their dream has probably been smoldering for years, tamped down by the comments of co-workers, bosses,  friends and even spouses who have casually doused the flame in negativity.  But it’s not the dream; it’s the fact that the burning desire is finally red hot enough to ignite the fire.  At 211 degrees water does not boil.

Pain can be as simple the yearning to buy back a life.  How many executives are never home to see their kids grow up? How many proudly boast of being 1K or Platinum or whatever other lofty designation they ascribe to those who spend too many nights in nameless roadhouses, dining on cheap expense accounts?

Pain is different for everyone, but without the pain busting through the “break glass in case of emergency” capsule  the American dream will remain unrealized.  For those 8 in 10 who “dream” but never “do,”  the pain remains encased.

I think the worst nightmare I could think of would be to see myself laying on my death bed and thinking… I could’a, I should’a, but I never did.  And now I’m finally feeling the pain… too late.


If you would like to talk to Sid Lee and get your questions answered, sign up for a short, pre-consultation phone call.  You’ll be glad you did.  Sign-up here…


 

Middle Class Squeezed Out of Buying a Franchise

Is the middle being pushed out of the franchising opportunity

Thinking of buying a franchise?

I think the single saddest reality I have learned since I qualified as one of the top franchise consultants is that “middle class” Americans save very little and mostly live paycheck to paycheck.  Unfortunately, the middle class seems to be largely squeezed out of buying a franchise.

The ideal candidate looking into buying a franchise in my franchise consulting business is:

  • 45-55 years old,
  • college educated (or has a Sr. level of business experience)
  • has $35,000 or more in savings
  • and has a credit score over 720.

When I got into the business, I honestly thought that sounded like most Americans.  The typical “middle class,” right?  Hardly.  And most of you reading this can probably relate.

It begs the question: What is “middle class?”

According to October 2015 Federal Reserve data the average American family also carries $7529 in credit card debt.  Some are fortunate enough to carry a $0 balance and that actually drives the average down! But when only those that carry a monthly credit card balance are considered, the average credit card debt jumps to $16,140.  That must mean that the vast majority of middle class Americans cannot save enough to sustain the family for 6 months between jobs.

OECD studies also show that Americans save about 4.5% of what they earn.  That is a very low rate compared to other developed nations, and even that rate is skewed by high earners who save at higher rates.  At 4.5% that means it would take over 22 years to save enough for one year in retirement at a current modest income.  Pretty sad indeed.

Now, there is some good news when 401k savings are reviewed. In an April 2015 article in Money Magazine, Donna Rosato reported that 401k savings had reached a record high.  Average Fidelity 401k balances for accounts over 10 years old had climbed to $251,600. Once again the average is skewed by high income earners…not the “middle class.”  According to a recent report by Boston College’s Center for Retirement Research,  the typical working household nearing retirement with a 401(k) and an IRA has accumulated a median $111,000 combined. This would yield less than $400 a month in retirement!

For households between ages 55 to 64 earning $40,000 to $60,000 a year,  the median balance in 401(k) and IRA accounts is just $53,000. For the same age group earning $138,000 or more, the median account is $452,000, according to CRR.  “Middle class?”  And these figures are from April 2015.  How has your 401k or IRA performed since then?

Who makes up the “middle class?”  The Pew Research Center has done many studies on the middle class, and there seems to be no universally accepted definition on what the “middle class” is.  But, whether it is defined through income, lifestyle, state of mind, or consumption, the typical middle class American is:

  • college educated
  • specifically skilled
  • employed in some level of management or sales
  • and constitutes somewhere between 25% and 66% of all American households.

Sadly, the following is the reality of the “middle class.”

I have discussed the fragile nature of U.S. employment in my book, “Pink Slip Paradise.”  When we strip away the facts, regardless of social status, the “middle class” American is:

  • college educated or has unique skills
  • in a semi-professional or management position
  • has tenuous employment (or hates the JOB)
  • has not saved enough money to sustain the family through a 28 week unemployment period
  • loaded with debt (we have not discussed college debt or mortgages)
  • lives paycheck to paycheck
  • not prepared for retirement.

Not a pretty picture.

So, since the Pew Research Center has already determined that up to 2 out of 3 of us fall into the “middle class” abyss,  it’s easy to understand why it is so hard to find an ideal candidate to qualify for and to learn how to buy a franchise.


 

Transitioning to the CEO Mindset

Transitioning to the CEO mindset

So who are those that transition to the CEO Mindset?

I saw a terrific quote in Forbes: “Behind an able man, there are always other able men.”

I have always believed that nothing of consequence was ever achieved alone and that typically great players make great coaches.  (Now that’s not quite like, “You didn’t build that!”)

Corporate America continues to skew younger in its focus on reducing fixed costs and improving shareholder value. In addition, our military continues reducing its human footprint.  As a result, many talented and experienced mid and senior level corporate executives and combat tested military veterans are now free agents.  They are hoping to utilize their skills and experience to get back into the civilian work force at levels equal to or at least close to the positions they left. The competition is tough, and landing those few jobs is a long shot at best.

So what are some other options?  For many of my military friends the option was simple.  They remained virtually at their same position, (sometimes even the same desk) and easily transitioned from US military to civilian government contractor.   For civilian corporate executives, the transition is not that easy and for many military veterans it can be a scary situation.

All successful business owners must adopt a CEO mindset.

One option available to those who dare to be different is to become a business owner.  That route takes a shift in mindset from being a loyal employee and doing exactly what you were told  (a “good soldier” so to speak), into a decision maker, a leader, a “the buck stops here”  kind of person.  The transition is not only physical, as you are exiting a relatively comfortable environment into one in which you might be very uncomfortable: self employment.  The good news is that most people who have already climbed the ladder, either in business or in rank, have already learned the skills they need to make the transition from the trenches to the penthouse.

The challenge for most is making that emotional transition from a support mindset to the decision maker mindset. The transition also includes a paradigm shift from an employee mindset of working for a paycheck to a CEO’s mindset of focusing on growing a business so that employees can be paid and the company earns a profit.

Many great books have been written on the CEO mindset.  Great universities study the psychology of leadership. Although worded differently, there are a few consistent themes in each of the studies:

  1. Be optimistic – Nobody wants to follow a person who is unsure of their future – a leader’s cup is always half full.
  2. Be willing to take risks – Leaders lead! You can’t be afraid of making a mistake. Great leaders process information and make a decision.  I have always lived by this adage:  Don’t be afraid to make the “right” decision.  Make the decision and then make the decision right.
  3. Communicate a clear vision – You must have a well calculated plan and be able to articulate it clearly to the team.  A very successful businessman once told me that if you have a well thought out plan and flawless execution, you have a very high chance for success.
  4. Be what you ask of your people – One of the greatest leaders I have ever known always taught, “What you do speaks so loudly that what you say I can’t hear.”  Think about it.  People will always follow a leader who has walked the talk and practices what he/she preaches.
  5. Be calm in the face of chaos – This can be the hardest emotional leadership trait.  It won’t always go according to plan. You must remain steadfastly confident,  yet willing to make a calculated change in course.
  6. Trust your teammates – Hire well, train well, develop your staff and trust that your team is ready. Great coaches are calm on the sidelines during the game, but meticulous, detailed and sometimes grueling in practice.

If you possess these qualities, you are ready for leadership.  As such, either traditional or franchise business opportunities could be the best path as you look for your next career.


If you’ve come to the conclusion that business ownership will be the best pathway for your future, schedule a pre-consultation call with our expert franchise consultant Sid Lee.  You’ll be glad you did.

Three Franchise Funding Sources

Franchise Funding, thefranchiseworkshop.com, the franchise workshop

The primary reason businesses fail in the US is not because the idea is bad or for lack of being mentally prepared, or even lack of experience.  It is for lack of full and proper franchise funding.

 

If you buy the most expensive car you can afford and then don’t have enough money to put gas in it, it probably wasn’t the right car for you.  The same is true for getting into business.  You’re going to need fuel for the vehicle.

All franchisors have financial requirements that all new franchisees must meet or exceed.  These requirements for liquidity and net worth are established to make sure the new franchisees have enough money to fully fund the startup of the business.  They must also have access to appropriate operating capital to fund the franchise business as it ramps up to profitability.

That does not mean that you have to empty out your hard earned savings or cash in your retirement accounts.  If you don’t have enough money to fully fund your new venture, or simply want to keep a rainy day fund, you’re going to need funding.  Where will you get it?

Never fear.  If you have guarded your credit score and have set aside enough money to pay the franchise fee in cash,  the funding is available.  Funding institutions will look for credit scores of 700 or better and $50,000 in liquidity as minimum requirements.  If you’re there, congratulations:  Your opportunities are limitless.

Here are 3 common ways to fund your new franchise venture:

Qualified retirement account funding: This is a program that has been approved by the IRS and the US Dept. of Labor for many years and is the fastest, most preferred franchise funding vehicle other than straight cash.

Very simplistically it works like this; after you are no longer employed by the company who offered your 401k or qualified retirement plan and while you are researching your new business, you will be thinking about which type of corporate model to establish to protect your new business.

You will need to set up a C-Corp because the IRS tax structure is different for C-Corps than other corporate classifications.  Then you will need to transfer your old qualified retirement account over to your newly formed corporation.

Don’t worry.  You don’t need to change brokerage houses;  just administrators and ownership.  If your retirement account was managed by Fidelity, for example, it can stay at Fidelity.   There is a small cost for setting up the new administration, but there is no penalty.  The advantages are many.

Retirement plans regularly invest in businesses.  Now it can invest in yours!  You can pay it back at your own schedule,  at your own interest rate,  and you can even fund your new salary and operating capital until your business has ramped up to the point where it can support you.  A high credit score is not required for this type of funding…it’s your money!

SBA (Small Business Administration) Guaranteed Loans:  Many lending institutions offer SBA loans.  Again very simplistically, these are government guaranteed loans.  The specific terms of SBA loans are negotiated between a borrower and an SBA-approved lender. In general, the following provisions apply to all SBA 7(a) loans.

  1. SBA can guarantee as much as 85 percent on loans of up to $150,000 and 75 percent on loans of more than $150,000.  SBA’s maximum exposure amount is $3,750,000. Thus, if a business receives an SBA-guaranteed loan for $5 million, the maximum guarantee to the lender will be $3,750,000 or 75%.
  2. There will be varying fees depending on the size and guarantee on the loans, and interest rates will be competitive.

Unsecured Business Lines of Credit:  UBLOCs are a great way to create credit lines to use for startup costs, operating capital or unexpected business expenses.  These are credit lines set up based on credit score and history anywhere from $50,000 to $150,000.

The advantages are that you only pay back the amount you use, and the interest rates are very competitive (many times 0% for the first year.)  The set up costs will vary depending on the amount of credit needed and the program used.


If you have questions about franchise funding sources, or any other question about franchising, call or email Sid Lee at:

phone:  703-392-9085   email:  sid@choicefranchiseadvisors.com


How to Overcome the Fear of Buying a Franchise

buying a franchise, overcome your fear, franchising, going into business for yourself, franchise, franchises, thefranchiseworkshop.com

Buying a franchise, or simply going into business for yourself, is a very scary endeavor.  It is not for the faint of heart and should not be entered into without some trepidation.  The term, “by yourself” literally means “alone,” nobody to lean on;  nobody to help you in areas you may not be confident in.  Of course you’re going to be scared.  Who wouldn’t be scared attempting something they have never done and with nobody to help?

Fear has been described as False Evidence Appearing Real

For most of us, however, the foundation of our fear is built from learned behavior; lack of internal confidence developed over years of trying to grab the brass ring and coming up short.  In addition, external pressure from those around you, friends, loved ones, and even bosses who have in some way told you that you cannot do it.  It’s that little voice inside your head telling you, “You can’t do this.”

The fear of success is real, and let’s face it: success can be much more demanding than failure.  Noted Author, Mark McGuinness, states that “on some level, it’s more comfortable to stay in a familiar situation, even if it doesn’t feel great on the surface.  But achieving success (however you define it) means you are entering uncharted territory.  You are putting yourself out there to be scrutinized and criticized, and exposing yourself to new pressures and demands.”

It’s only human to wonder whether you’ll be up to the challenge.  A small anxious part of you would rather not take the risk.  You could always just stay at a JOB and continue to be miserable, always wondering,  “Why didn’t I?”  “Why couldn’t I?”

Embrace fear, and don’t go it alone.

Fear can also be the greatest motivator to fuel achievement, confidence, and ultimately, success.  I tell my clients all the time, “If you’re not a little bit scared, maybe there is something wrong.”

The process of “becoming” is rooted in “overcoming” those fears, both internal and external.  In the franchising world there is an old idiom:  buying a franchise allows you to go into business for yourself but not by yourself.   To begin overcoming those fears, you will need to find a great franchise system and then diligently research the franchise until you are satisfied with the answers to 3 critical questions:

  1. Do the Unit Level Economics work?  Are other people making money?  Is this a proven financial investment?
  2. Do they offer a strong value for the fees they charge? Franchises live on royalties, advertising fees,  technical fees,  and other fees they charge franchisees for services provided to the system.  Strong franchise systems will provide services and support in exchange for the fees in training, administrative process and procedures, marketing collateral, IT systems, ongoing training and much more.  Find one that offers support in the areas you do not feel comfortable.
  3. Am I a culture fit for this business? Franchise agreements can run from 5 to 20 years and are very difficult to get out of.  Make sure you are comfortable with the leadership, the direction they are taking the business and how they handle franchisee/franchisor conflict.  Over the course of your agreement there will be conflict.  How will they deal with it?  Is there litigation against the franchise? Do they sue their franchisees?

With my clients I look for a franchise system that has been franchising for over 10 years with over 50 existing franchisees.  These are successful franchise systems, proven many times over to produce successful franchisees.  The answers to those 3 questions will become evident through many conversations with the franchise executives and validation conversations with existing franchisees.

Finding a proven franchise system and becoming comfortable with the answers to those 3 questions will go a long way toward pulling you in off the ledge and alleviating your fears.

And remember, success is the best cure for fear.  Don’t go it “alone.”


Masters/Area Development Types of Franchising Models

types of franchising, master and area development models

A Brief History of Franchising

Franchising as a concept has a mystical history,  but its roots have been traced as far back as the Roman Empire in the Middle Ages up through the rule of William the Conqueror in England.  It was carried on by Louis Xlll in France,  always associated with a granting of rights in exchange for something.

Today’s usage of the term as a business concept is widely accepted to be traced back to before the Civil War when two great US innovators designed systems to expand sales and service of their inventions.  Either Cyrus Hall McCormick,  with his mechanical reaping and harvesting systems,  or Isaac Merritt Singer with his new sewing machines,  are usually credited with its birth in about 1850.

Franchising is flourishing today.  According to the IFA’s most recent Franchise Business Economic Outlook Report,  franchise businesses will add 247,000 new direct jobs this year (a 2.9 percent increase to 8.8 million direct jobs over last year.)  The number of franchise establishments will grow this year by 12,111,  or 1.6 percent,  to 781,794. Economic output from franchise businesses is estimated to increase by 5.4 percent over last year to $889 billion. The gross domestic product of the franchise sector is projected to rise by 5.1 percent this year,  which is faster than the 4.9 percent GDP increase forecasted for the economy as a whole.  The franchise sector will contribute about 3 percent of the entire U.S. GDP in 2015.  I guess the Romans were on to something.

The Evolution of Modern Types of Franchising

Whether it be Singer,  McCormick or even Ray Kroc,  franchising has evolved to include many types of franchising development agreements;  Single Unit Agreements,  Multi-Unit Agreements,  Area/Regional Development Agreements and Master Franchising are the most common.  The one thing they all have in common would be a development schedule whereby the franchisee,  in exchange for fees,  is granted a license to develop one or more units within a defined period of time.  Although with each of these agreements the franchisor is growing its franchise footprint and regional branding,  typically the franchisee’s objectives as motivation to sign each type of development agreement will vary in many ways.

I would qualify Single Unit operators as investors mostly new to the industry and interested in “buying a job” or “testing the waters” of a new investment objective. Multi-Unit operators are more highly capitalized seasoned investors willing to accept a higher level of risk mitigated by more units and an asset rich exit plan. These are both operator driven models based on individual unit level economics whereby the owners are the operators of record.

Development Driven Models: The Best Kept Secret in Business Today.

Area or Regional Development models are popular and are used to quickly grow a brand footprint by selling large exclusive geographic development rights to sophisticated investors acting as sub-franchisors for their particular markets. These agreements are unique in the fact that they are sold only once.  and the motivation for these agreements varies from operator driven models.  As unit level success is paramount in both models,  developers are more interested in creating cash flow from the sale of initial franchise fees to offset their development fee and in long term residual income driven by the royalty share from the franchises they sell.

The profile of successful developers is typically entrepreneurs with proven business experience and substantial capital resources.  Often,  they have operated one or more franchises within the franchisor’s system or another franchise company.  They may also have organizational and financial resources sufficient to commit to a large-scale investment.  Historically that model has been used by franchisors in more capital-intense industries such as lodging,  restaurants,  and automotive rental.  Currently it is expanding into the senior/home care and even marketing industries.

The financial model works roughly like this in most cases. In exchange for a development fee based on a projected number of proposed units or on population demographics,  the developer would be granted the licensing rights to the number of units agreed upon or,  in some cases,  a non-capped number of licenses.  Normally,  they would share in the franchise fees for each new license sold and in the royalty stream produced by each of the units sold for the life of the agreement. Typically,  the Developer would be required to open and operate at least one unit to be used as a training hub.  The hub would be required to provide pre-opening training and ongoing support for the franchisees in his/her market.

This model can provide the developer with a steady cash flow and a residual income for twenty years or more.  The asset and income stream can have a huge terminal value as a valuable and sellable exit strategy.

Master Franchising: The Ultimate Best Kept Secret

Master Franchisees would negotiate for and ultimately buy the exclusive development rights for a brand in an entire business segment.  Geographic area could be nationally or even internationally,  and is used often to expand into new global markets.  These agreements could be sold for captive markets where the franchisor has restricted access.  They can also be used to leverage a franchisee’s practical knowledge of the competitive landscape and specific expertise within a market.

The best model would depend on the specific goals, business and market experience of the new franchisee.