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FRANCHISINGAUGUST 2008 YOUR GUIDE TO FRANCHISING
PAGE 3WHY FRANCHISING WORKS
PAGE 5FIVE THINGS TO LOOK FOR IN A FRANCHISE
PAGE 7FINANCING YOUR FRANCHISE
MSA’s extensive list of established and start-up clients speaks for the firm’s quality, professionalism and expertise.Whether you want to maximize your operational efficiencies, expand internationally or grow through franchising, rely on the seasoned professionals at MSA for straightforward advice based on your goals and the best interests of your company.
Contact Kay Marie Ainsley, Managing Director, at 1-770-794-0746 or Contact Michael Seid, Managing Director, at 1-860-523-4257.msaworldwide.com
CONTENTSForeword 2
Why franchising works 3
Spotlight on a unique franchise idea: Pet Butler 3
Successful International Franchise Enters D.C. 3
Established Concept in Seventh Consecutive Year of Growth 3
Understanding the franchise relationship 4
Franchising gives veterans a future 4
Top five things to look for in a franchise 5
Fitness franchising: Building a better America one franchise at a time 6
Entrepreneurial Passion: A one on one with Pat Croce 6
Financing Your Franchise 7
Preperation: The Secret to Franchising Success 7
FRANCHISING – A TITLE FROM MEDIAPLANETPublisher: Brian D. Aitken, +1 646.922.1413, [email protected]
Editor: Jon AlisterCo-Editor: Colin DeVriesCopy Editor: Anastasia NovozhilovaDesign: Jez MacBeanPrint: Washington PostPhotos: istockphoto.comMediaplanet is the leading publisher in providing high quality and in-depthanalysis on topical industry and market issues, in print, online and broadcast.For more information contact the Director of Business Development at +1 646 922 [email protected] this section: This sepcial advertising section was written by Media-planet in conjunction with the advertising department of The WashingtonPost and did not involve the news or editorial departments of The Post.
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ForewordFRANCHISING
Today’s rapidly-changing economy presents both challenges
and opportunities for tomorrow’s franchise small-business
owners. But optimism remains strong in view of how well
franchises have performed during previous economic cycles.
Franchising is a method of distributing products and services
that involves a franchisor who lends its trademark and business
system to a franchisee who pays a royalty for the right to use that
trademark and system. Franchised businesses operate in every
state, the District of Columbia and in every Congressional Dis-
trict in the country.
GrowthIn a recent report the International Franchise Association’s Edu-
cational Foundation determined that the franchising sector of
the economy expanded by over 18 percent from 2001 to 2005,
adding more than 140,000 new businesses and 1.2 million new
jobs. Direct economic output of franchises grew by more than
40 percent to $880 billion in 2005.
Franchising now provides more jobs than many other busi-
ness sectors, including durable-goods manufacturing and fi-
nancial-activities. It is clear that franchising is a critical engine of
economic growth helping entrepreneurs realize their dreams
while building local businesses, one opportunity at a time.
OutpacedThe study also shows that from 2001 to 2005 franchised busi-
nesses outpaced the economy as a whole in growth of jobs,
payroll and output. In fact, growth in employment was three
times higher for franchised businesses than for the economy
as a whole.
The impact of franchised businesses goes far beyond direct
employment and payroll contributions. Franchised businesses
purchase products and services from non-franchised businesses,
and their owners and workers contribute to the growth of non-
franchised businesses. As a result, the total impact of franchising
was to provide 21 million jobs and $660.9 billion of payroll in
2005. Output produced because of franchised businesses grew
to more than $2.3 trillion in 2005.
Today, there are more than 900,000 U.S. franchised establish-
ments operating in many lines of business, including automotive,
commercial and residential services, quick-service and full-service
restaurants, lodging, real estate, retail products and services, and
business and personal services.
Franchises offer great advantages for those who want to be-
come small-business owners. With all of the sources available it’s
sometimes difficult to find the right information, so it is with
great pleasure that I introduce this special report which sheds
needed light on why
franchising works
and what you can
do to best prepare
yourself to join this
exciting industry.
BY MATTHEW SHAY, PRESIDENT AND CHIEF EXECUTIVE OFFICERINTERNATIONAL FRANCHISE ASSOCIATION
Matthew Shay, President and Chief Executive Officer International Franchise Association
BY COLIN DEVRIES & JON ALISTER
Fortunately, more unique and interesting
franchise concepts are surfacing today than
ever before. These concepts answer the
question: “What can I offer my customers that
they can’t get anywhere else?”
One such franchise concept is Pet Butler, a pet
waste cleanup service with over 125 franchises in
27 states in just 30 months. According to Matt
“Red” Boswell, CEO of Pet Butler, it’s not only the
interesting concept but the unique turnkey busi-
ness model that is responsible for their growth in
what many consider a slow economy.
“We have broken down the barriers which keep
most people from business ownership,” Boswell
said. “We take the headaches and hassles out of run-
ning a business, allowing franchise partners to focus
on growing their business and making money.”
This concept, while certainly attractive to
pet owners, also provides an unusual
amount of ongoing support for their fran-
chisees. The key to success, Boswell says, is
the in depth support systems Pet Butler pro-
vides, which essentially eliminates operational bur-
dens such as billing/collections, routing, marketing,
and customer service. When considering how to be
successful in differentiating yourself from the com-
petition take into account how saturated the po-
tential market is and what, if anything, the franchisor
does to create a niche in the market. It may also be
helpful to keep in touch with current events, espe-
cially spending trends. In Pet Butler’s case, they no-
ticed spending on pets increased by $2.3 billion dol-
lars a year since 1997 and took the initiative to
creatively grow in this virtually untapped market.As
evidenced by Boswell’s concept, innovative business
systems coupled with a proactive response to cur-
rent
events can
mean enormous
growth and suc-
cess for franchises.
• For more informa-
tion on Pet Butlers
services and franchise
opportunities log on to
www.petbutler.com or call
1-800-PET-BUTLER.
SUCCESSFUL INTERNATIONAL FRANCHISE ENTERS D.C.
Yogen Fruz, a Canadian based frozen yogurt
concept, has recently launched its plan to open
in Washington D.C. , Virginia and Maryland.
The concept currently operates 1,100 units
across 20 countries. Their success has thrived
on providing healthy and nutritious products,
and was ranked the number one “Franchise in
the World” in Entrepreneur Magazine in 1999.
“We want to make Yogen Fruz accessible to
people all across the metro D.C. area. When
someone thinks about frozen yogurt they will
think about Yogen Fruz,” John Kane, Yogen
Fruz Master Franchisee for Virginia, Washing-
ton DC, and Maryland.
• For more information on Yogen Fruz,
including franchise opportunities, log on to:
www.yogenfruz.com
ESTABLISHED CONCEPT IN SEVENTHCONSECUTIVE YEAR OF GROWTH
Little Caesar Enterprises, Inc. built more do-
mestic units than any other pizza chain in
2007, while simultaneously being recognized
as the top value quick serve restaurant chain
in the U.S.* Last year, more stores were opened
by new franchisees than in any other year
within the last decade. Even with current eco-
nomic pressures, the world’s largest carry-out
pizza chain is growing and plans to open ap-
proximately 100 stores in the Washington DC
area in the next 10 years.
To learn more about franchise opportuni-
ties please visit www.LittleCaesars.com or call
1-800-553-5776
*”Highest Rated Chain – Value for the
Money” based on a survey conducted by San-
dleman & Associates, 2007.
Spotlight on a uniquefranchise idea: Pet ButlerAs a prospective entrepreneur you are likely trying to find a way tostand out in the business world. With many franchise conceptsproviding similar products or services it can be challenging to dif-ferentiate yourself and your business from the competition.
Why franchising works: Thepower of brand recognition
FRANCHISING
BY COLIN DEVRIES
Time and time again you will hear someone
order a “Coke” at a restaurant where they
only carry Pepsi. Or someone might ask you
to hand over a Kleenex from a generic box of tis-
sues, or refer to generic lip balm as Chapstick. This
phenomenon can be described as brand associa-
tion, when one brand has become so recognizable
it becomes synonymous with a type of product.
That same principal of brand recognition is one
reason that franchising is so successful. Con-
sumers are comforted by recognizable brands
and often are willing to pay the extra price for the
reliability, quality and reputation associated with
it. There are numerous other advantages to own-
ing a franchise, which explains why franchising
works so well:
• The products and methods are proven to work
and increase the chances of success for the fran-
chisee
• A franchisor offers a wide range of support to
the franchisee, not available if they started a
business independently
• Consumers are familiar with the company and a
certain level of quality and consistency, which is
mandated by franchise agreement
• Franchisor assists in marketing plan, site selec-
tion, training, and business operations.
The concept of franchise interdependency, in
which franchisors strive to preserve their logo,
service mark, and operating system through fran-
chisee management, is a major component in the
success of the system.
Aside from the proven brand and operating
system, franchisors often offer ongoing support
for their franchisees. Typically, this support begins
before the franchise location even opens its’ doors
through in-house training programs. This initial
training coupled with the ongoing marketing,
training and software support sets franchisees up
for success in this competitive market.
Even in times of economic hardship the fran-
chising industry has maintained its resilience.
“Franchising is countercyclical in many ways to
the rest of the economy,” says Michael Seid, co-au-
thor of Franchising for Dummies, “and has proven
to be very resilient over the past 55 years since
modern franchising was born.
“We are already seeing signs that, in a few
months, franchise sales will again be robust, as for-
mer employees become new business owners
under a franchise banner.”
With proven techniques that continue to inno-
vate and grow, the success of franchising is limit-
less. Utilizing a rigid business format with tested
methods, brand recognition, quality assurance,
and a vast support network the industry will con-
tinue to thrive and make the dreams of fran-
chisees a reality.
Understanding thefranchise relationshipBY COLIN DEVRIES & JON ALISTER
The relationship between the franchisor and
franchisee is a codependent one. This
codependency often relies on the fran-
chisor providing marketing support, ongoing
back office support, assistance finding a great lo-
cation, and training for the average investor. In
return, the franchisee is expected to make in-
vestments, stay loyal to the franchisors business
style and of course, turn a profit.
A franchisee is expected to invest by paying an
initial franchise fee, legal and accounting fees,
building and rent costs, equipment, and adver-
tising fees. Franchisees also pay royalties, which
are often four to eight percent of a franchisee’s
total sales.
While these costs may seem great, they are ac-
tually often less than if one were to start an in-
dependent business, based on the higher returns
franchises typically earn.
As of July 2008, all franchisors are required to
provide the Franchise Disclosure Document
(FDD) to potential franchisees in order to explain
obligations, financing, restrictions, and financial
performance. Financial performance is essential
for franchisees to understand the potential profit
margin and overall fiscal wellbeing of the fran-
chisor.
“Franchisees need to perform due diligence
when looking at potential franchise opportuni-
ties,” said franchise attorney Brian Schnell, of Fae-
gre & Benson LLP. “That disclosure document has
critical information about that franchisor which
franchisees need to make an informed invest-
ment decision.”
New laws imposed by the Federal Trade Com-
mission (FTC) have made it difficult for all fran-
chisors to produce the FDD, however. Schnell
warns this could be a bad sign. “Everybody was
aware of the July 1st deadline, and if they haven’t
met it was there a good reason or not? And what
does that say about the franchisor’s ability to
meet other deadlines?”
BY COLIN DEVRIES & JON ALISTER
Every year over two hundred thousand ser-
vicemen and women enter the civilian
workforce, often with astounding leader-
ship experience. To assist with the transition, 346
companies have signed on for the International
Franchise Associations VetFran program which
provides incentives for honorably discharged
veterans to open their own franchises.
Franchisors, such as Dunkin’ Brands, offer qual-
ified veterans a considerable discount on initial
franchise fees — often by as much as twenty per-
cent. Other incentives offered to veterans in-
clude financial guidance and, in some cases, even
lower royalties.
GrantsSupplementing company offerings are grants,
provided by the IFA Education Foundation, to
veterans for business development, education,
training, and technical assistance.
To date, nearly 1,100 franchises have been ac-
quired through the VetFran program and have
helped veterans successfully make the transition
into the civilian world of business.
Franchising givesveterans a future
FRANCHISING
Prompt & Professional Responseto Due Diligence:It’s natural for every franchisee to go
through an interview process with each
company they are interested in pursuing.
Typically, franchisors will have lots of
questions about the franchisees back-
ground and credibility, and franchisees
should have just as many questions
about the franchisors performance and
outlook. Both franchisors and franchisees
should expect prompt and professional
responses to all research questions. Fran-
chisees should beware of companies
that appear agitated by requests or that
do not provide a prompt response.
Strong Training Programs:Some prospective franchisees may
have had prior franchising experience
and may not need much training. How-
ever, for the majority of prospective
franchisees, training is imperative to
successfully operate a companies’ fran-
chise. Prospective franchisees should
be on the lookout for franchises that
offer operations, payroll, marketing and
business training as well as general on-
going training and support.
History of Litigation:With over 900,000 franchised estab-
lishments in the United States alone,
there are bound to be lawsuits. One
consideration should be the ratio of
lawsuits to franchise locations. A global
franchise may have a hundred lawsuits
pending every year while a small fran-
chise operation may only have ten.
However, when broken down, those
100 lawsuits from the global franchise
may only represent one lawsuit per
hundred franchises, while the other
franchise concept may have one law-
suit for every ten franchise locations. It
is important for the prospect to care-
fully read the Franchise Disclosure Doc-
ument (FDD) to see how the franchisor
has dealt with these issues.
Financial Strength:Surprisingly, the financial situation of a
franchisor is often overlooked. It might
make sense for those franchisees, without
a financial acumen, to have an account-
ant review the franchisors FDD to ensure
they are making a sound investment.
Attitude of the existing franchisees:In a great franchise almost all of the
franchisees will be happy with their
present business as well as their
prospects for the future. Prospects
should take the time to meet with ex-
isting franchisees and assess their de-
meanor. A few revealing questions for
existing franchisees are: Are you happy
with your financial results? Did you re-
ceive adequate training? Do you re-
ceive ongoing support? And, what
about your relationship with the fran-
chisor would you like to see improved?
If a franchisor satisfies these five pre-
cursors then the franchisee has likely
found a strong all around franchise op-
portunity. As long as the opportunity
is what the prospective franchisee is
looking for on a personal level, they
should be able to achieve success with
that concept.
Top five things to look for in a franchiseThere are thousands of questions every entrepre-neur has when considering which franchise opportu-nity to pursue; we’ve narrowed down the top fivethings to look for in a franchise.
BY JON ALISTER
Now more than ever, the world needs something “lite.” Tasti D-Lite is a franchise opportunity like no other. Lower calories, lower carbs, and lower fat … with the creamy delicious taste and texture people crave. It’s been the talk of New York for more than 20 years. This fast-
growing, frozen dessert concept is simple and fun to operate.
Coming soon to this area – claim your territory now.
Learn more at tastidlite.com. Click on “Own a Center.” Or call 866.424.4640.
Now healthy eating comes
in a cone.
© 2008 Tasti D-Lite LLC All rights reserved 0708FD018
FRANCHISING
BY JON ALISTER
Entrepreneurs interested in opening a
franchise often have a difficult time
choosing where to invest their money,
time, and career. One way to ensure
you make the right choice is by invest-
ing in a concept that reflects your pas-
sions, personal interests and financial
goals. If you’re passionate about health
and fitness, you may want to look into
the highly successful industry of fitness
franchising.
Every day hundreds of Americans as-
pire towards a healthier lifestyle by
signing up for a gym membership, per-
petuating the growth of this $14.8 bil-
lion dollar industry. With over 40 mil-
lion health club members nationwide,
it’s no surprise that Entrepreneur mag-
azine ranked fitness as the fifth hottest
franchising trend in 2005.
One of the most innovative fitness
franchises on the market today is Ex-
treme Boot Camp: an intense outdoor
physical fitness program designed to
provide fitness enthusiasts with an out-
let to be their own boss. This concept is
suited for both the personal trainer look-
ing to secure a steady stream of income
as well as the experienced entrepreneur
looking to diversify their portfolio.
Currently, this concept exists solely in
California. However, according to Extreme
Boot Camps’ President Danny David,
there is an aggressive campaign to grow
this franchise both domestically as well as
internationally: beginning immediately.
The key to this franchises’ growth is
the tailored approach it takes to sup-
port each franchisee on an individual
basis. According to David, “we take
some of the most talented personal
trainers and teach them how to run
their own business. That’s everything
from day-to-day operations to the im-
portance of marketing, and marketing
frequently. Sure, some of our fran-
chisees’ are experienced entrepreneurs
and don’t need the help, but the sup-
port is always there if they ever do.”
Fitness franchising: Building a betterAmerica one franchise at a time
Entrepreneurial Passion: A one on one with Pat CroceBY BRIAN AITKEN
Passion is the driving force behind many
successful businesspeople, but what role
does passion play in franchising? Ac-
cording to successful entrepreneur Pat Croce
it’s imperative that aspiring franchisees “take
action on their passion.”
First, and foremost, it’s necessary to deter-
mine what that passion is. For some, that may
mean investing in a coffee franchise in pursuit
of their life-long devotion to the perfectly
roasted espresso… for others, though, it may
be to have more free time to spend with fam-
ily, or even just to be their own boss.
According to Croce, the next step is to “do
what successful people do, not what they say.
Then set out to do it better, but don’t waste
your time reinventing the learning curve.”
Proven business modelsFranchising provides aspiring entrepreneurs
with proven business models to choose from,
so there’s no need to reinvent the learning
curve. However, as Croce states, “it’s important
to be persistent and patient. There’s going to
be rejections, objections and frustrations in
every business venture.”
When pursuing their passions, franchise en-
trepreneurs need to consider what they value
most in life. For many, it comes down to two
things: creating a game plan for success, and
acting on that game plan with conviction.
Best-selling author and entrepreneur, Pat Croce.
Revolutionary franchise concepts like
this thrive in a constantly changing world.
Not only are their fitness programs con-
stantly changing based on advances in ki-
nesiology and nutrition, but their execu-
tive team is constantly looking for new
streams of income for their franchisees.
Regardless of which business oppor-
tunity you pursue David suggests you
look into a concept built upon principles
you believe in, with realistic financial goals
and a work environment you love. For
many entrepreneurs, that environment
exists in the fitness franchising industry.
Benefits include
the use of pre-tax
dollars to invest in
your business, elimi-
nation or reduction
of outside debt,
cash to pay ex-
penses including
salaries and a qualified
retirement plan to build
long-term wealth.
able lender if they don’t provide finan-
cial assistance themselves.
Use Your 401(k) or IRA FundsAsset reallocation is another approach to
funding your new endeavor. The assets
in your 401(k) or other retirement plans
can be used to invest in a franchise; tax
deferred and without penalty. This is
based on the same techniques and pro-
vision of the Internal Revenue Code used
by large pension funds. One such pro-
gram is Benetrends’ Rainmaker Program.
The first step to using these funds is to
establish a separate qualified retirement
plan for your new company. Next, money
from your current plan is rolled over, fol-
lowing IRS guidelines, into the company’s
new plan. The money that exists in the
new plan is invested in your company
the same way large pension funds make
investments in other companies.
To take advantage of 401(k) self re-
liant business funding, the new plan re-
quires some annual administration to
comply with tax code and pension reg-
ulations. These services are available
through third party administrators or
other financial professionals.
history. Surprisingly, mortgages will
not count nearly as much as other
loans when lenders review the fran-
chisees’ credit history.
This is because people tend to pay
their mortgage before all other bills, so
lenders will be looking for late pay-
ments or defaults on secondary loans.
When it comes time to provide collat-
eral, a home and other personal assets
will be necessary to provide the lender
with full recovery in the event of a de-
fault loan.
Before reaching out to commercial
lenders or turning to home equity, fran-
chisees should look into what their
franchisor has to offer. Often, fran-
chisors can help franchisees find a suit-
There is a pretty common mis-
conception that entrepreneurs
can borrow all the money re-
quired to start a small business. In re-
ality, almost every franchisee will re-
quire an initial cash investment; like
investing in a mortgage this is typically
in the range of 20 to 30 percent of the
initial startup costs. This initial sign of
good faith is undeniable reassurance
to the franchisor as well as the lender
that the franchisee is committed to the
success of the business.
Credit and collateralAnother requirement for financing is
credit and collateral. Every lender will
be looking for proof of a strong credit
Opening your own business is an enormous invest-ment, fortunately, franchising eliminates some of therisk but you still need significant financial backing.While it is possible to finance a franchise soley utiliz-ing existing capital, most franchisees are required toreach out to financial institutions for assistance.
BY JON ALISTER
FRANCHISING
Preparation: The secretto franchising successBY JON ALISTER
As with any business oppor-
tunity, franchising requires a
great deal of due diligence
and preparation. Franchising
expert, Jim Amos, says “the
most important thing a po-
tential franchisee can do is re-
search. It’s very important to
talk to the right people, read
the right things, and make
sure you’re comfortable with
what’s being asked of you
and what you stand to gain in
return.”
DisclosureBefore a potential franchisee
ever gets to the point of re-
searching a franchises’ disclo-
sure documents they need to
honestly assess what they want out of this business and what they are willing
to do to achieve those goals. Once you’ve done that, Amos suggests talking
to the franchisees of the system you’re considering.
“Be honest with the franchisor and franchisees you speak with. Tell them
what you’re good at, what your skills are and what your long term goals
are.” Amos also suggests being honest with yourself: consider how much
capital you are willing to invest in a franchise and if you’re ready to take on
that initial risk and commitment in order to make those long term goals
come to fruition.
Jim Amos, CEO of Tasti D Lite
Financing Your Franchise