The Kensington Company - Stony Brook University Frannet… · Growing markets driven by...
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Careers in Franchise Ownership[Consultant Name]
Stuart Levenberg
The Kensington Company
The Kensington Company
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The Kensington Company
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Who is FranNet?
• International Franchise Consulting Firm
• 70 Offices in North America, Europe, Asia
• Worked with the SBA since 1987
• We match folks who want to be in business with a franchise that meets their needs.
• FREE!
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Topics for Discussion
1. Why business ownership?
2. Buying a business versus starting a franchise.
3. Franchise myths.
4. Risk and rewards.
5. Simplifying the search.
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Why Own Your Own Business?
Imagine for a minute…
You are the owner
of a successful business…
How would your life be better?
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Why Own Your Own Business?
Control Financial Security No More Layoffs Money
Fulfillment Flexibility Independence
SUCCESS
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The Question:
Yet … most people choose to work for someone
else!
Why?
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Some of the AnswersRisk:
A job is safer than a business I’ll wait until the economy is better
Money: A business costs a lot of money to start and run
Knowledge: I don’t know where to start or find what I’m looking for
Skills: Running a business takes specific talents and skills
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Perception of Risk: Job
Is working for someone safe? Short term yes, but …
Can you be sure your job is safe?
Can performance determine security?
Will you meet your long-term financial goals of security and retirement?
Ris
k
Time
Job (Then) Job (Now)
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Business Ownership
At first, owning your own business can be scary, but ...
• No one can take it away. You can’t be downsized, transferred or fired.
• You can grow the business at the pace you want.
• The longer you own your business the safer it becomes.
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Perception of Risk: Economy
We’re being bombarded with news about bad times, financial meltdowns, huge deficits, and the
worst economic problems in their lifetime
What Can You Count on for Retirement Safety?
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Perception of Risk: Economy
• Lost home equity
• Lost substantial portions investments portfolio
• Lost jobs and not sure where or if they will find another
• Many industries are being: transformed, restructured, and perhaps replaced
What Can You Count on for Retirement Safety?
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Lower Your Risks
Concerned about starting a business during poor economic times?
Lower the risk by looking for businesses with specific market characteristics.
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What About The Economy?
Growing markets driven by demographics• Ex: Senior Care, Residential Repairs & Cleaning, etc.
Essential services• Ex: Hair Care, Automotive, Damage Restoration, etc.
Business that help other small businesses thrive• Business Coaching, Expense Analysis, Sales Training,
etc.
Many businesses thrive in all economic conditions
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The Question Becomes
Where are the
good, proven, successful, safe and
affordable businesses?
Many businesses thrive in all economic conditions
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Things to consider
• Professionals still need training
• People still want quality education for their kids
• Homeowners still prefer to fix their homes rather than move
• Businesses still need there offices maintained
• Employers outsource and use personnel companies rather than committing to new hires
Many businesses thrive in all economic conditions
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What is Small Business?
• 94% of all US Businesses
• The engine that creates more than 75% of all new jobs in the US
• Accounts for 50% of GDP.
• The way that 5 out of 6 Millionaires made their money
Source: The Millionaire Next Door by Stanley and Danko
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Business Ownership Options
1. Create a start-up business
2. Buy an existing business
3. Buy a franchise
Is this a make or buy decision?
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Start Up Business
Advantages Disadvantages
• Must create systems
• No one to turn to for help
• Limited financing options
• Years before you make money
• Highest failure rate
• Total control
• Make all decisions
• Keep all profits
• Biggest upside
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Buy an Existing Business
Advantages Disadvantages
• Cash flow & good will
• Actual historical results
• Attractive to lenders
• Established location & customer base
• Employees in place
• Systems may be in place
• Owner financing
• What is the real cash flow?
• What is the good will?
• Hidden seller motives
• Employee defection
• Higher Debt Service
• Poor training/support by the former owner
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What is Franchising?
The creation of a distribution channel to build brand identity and attain market dominance…
QUICKLY!
Franchise Headquarters
Franchise Operators
Customers
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Franchise is…
A license to use:
• Name and trademarks
• Products
• Business Systems
In exchange for:
• Initial franchise fee
• Ongoing royalties
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Government Disclosure: FDD
• Franchisor Info– Time in business– Business experience– Bankruptcies– Litigation
• Costs– Total Investment
• Franchise fee• Other fees (Adv, Equip, Supplies,
Insurance, etc.)• Working capital
– Royalties
• Franchise Contract
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Government Disclosure: FDD
• Obligations for Franchisor & Franchisees
• Territory
• Listing and Contact Info For:
• Current franchisees
• Past franchisees
• Earnings Claims
• Financial Statements
• Manager Policy
• Renewal, Termination & Transfer Policies
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Due Diligence
• Current and past franchisees will let you know the success or failure rate.
• How Do we research an Established Business for Sale? What is that process?
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Franchising Myths
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Franchising Myth #1:
“Only fast food and retail”
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Franchising Fact #1:
FACT:
• Over 3,100 different franchise companies
• In more than 80 industries
• With over 900,000 operating units
Popular Categories
• Education
• Retail
• Pet Care
• Cleaning
• Real Estate
• Senior Care
• Home Repair
• IT Services
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Franchising Myth #2:
“Franchises succeed because of the quality of the product”
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Franchising Fact #2:
FACT:Can you make a hamburger?
Is your hamburger better than McDonald’s?
If it is not the product then what is it?
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Franchising Fact #2:
FACT:
It is all about the Business System:
• Marketing • Sales • Operations• Accounting
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Franchising Myth #3:
“Successful franchises emerge in a new industry with no new
competitors”
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Franchising Fact #3:
FACT:Successful franchises emerge from well established industries by creating consolidation.
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Franchising Fact #3:
FACT:• It’s The System
• McDonald’s started when there was a burger joint on every corner.
• More recent examples are in Consumer and Business services
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Franchising Myth #4:
“Franchises are expensive”
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Franchising Fact #4:
Total Investment Percent
Under $100k 52.5%
$100 to $250k 32.7%
$250 to $500k 9.2%
Over $500k 5.6%
Franchise Times Magazine Survey,
Franchising is All Right, Thank You
FACT:
52%33%
9%
6%
Under $100k $100 - 250k
$250k - $500k Over 500k
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Financing Facts:
How Much Do I Need?
Typically, 25-30% of the total investment will be your money.
Financing is relatively easy to get for 70-75% of the total investment including working capital.
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Financing Facts:
Sources:
• Personal savings• Friends, relatives or partner• Home equity line of credit• Financial Institutions• Seller financing – resale• 401K, IRA, etc.
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Franchising Myth #5:
“High return requires a high investment”
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Franchising Fact #5:
FACT:
There is no automatic correlation between the cost of the franchise and the potential return.
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Franchising Fact #5:
FACT:
Service businesses require far less capital investments and frequently yield higher returns.
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Franchising Myth #6:
“Industry experience is required”
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Franchising Fact #6:
FACT:
Only 25% of franchisees are in the same industry as they were employed.
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Why Own a Franchise?
• Over $1.0 Trillion Dollar Business
• Only 12% of units are franchised
• Franchised units get 43% of the $$
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Why Pay Royalties?
• Good franchisors lose money in the short term on almost every franchisee
– Small royalty payments
– Support costs are high
• They make money in the long term
– Bigger royalty payments
– Support costs are low
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Why Pay Royalties?
You’re making a trade-off:
You’re exchanging some profits in the long term for risk reduction in the short term
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Why Pay Royalties?
• Franchised businesses get 50% of the retail and service dollars in the US annually
• Over 1 Trillion Dollars per year and growing• Yet, only 12% of the businesses are
franchised
Financial justification for paying royalties!
Statistics from International Franchise Association Estimates
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Franchises Are Not All the Same
• Many Units vs. Fewer Units
• Older, well established vs. Newer
• Structured vs. Flexible Systems
• Expensive vs. Inexpensive
There is no automatic correlation between
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Why Franchising Works
Proven, systematic approach to starting and staying in business
– Experience
– Simplicity
– Initial Training & Ongoing Support
– Name Recognition
– Sales, Marketing & Operational Systems
– Culture of Teamwork
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Why Franchising Works
You’re in business for yourself, but not by yourself…. franchises are a hybrid between corporate executive and an entrepreneur.
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Business Success Survey
Years in Business Independent Franchises
1 Year 92% 97%
5 Years 23% 92%
10 Years 16% 90%
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Be Aware of Statistics
• Big franchisors skewed the percentages because they had few failures
• Not all units are still run by the founder
• There are no average franchises
• You should only care about your success
• Make sure the franchise you are interested in is a great fit for you
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Why Own a Franchise?
If you pick a franchise that is a great fit for you, it is:
– Vehicle that can get you to your destination while meeting your lifestyle and financial goals
– Way to reduce risk
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How Do You Find Franchises That Are a Great Fit?
Separate the function of the business, from the function of the business owner!
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How long will finding the right franchise for me take, and what can I expect?
Business Model
Discovery
Due Diligence
YES/NO LaunchPlanning
Financing
Explore More
Flow of Process
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Determine Your Business Model
Identify your…• Financial & Lifestyle Goals• Where do you want to be in
5, 10, 20 years?
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Determine Your Business Model
What do you want from the business?
• Challenge, recognition, prestige
• Build equity for retirement
• Time for family and interests
• Independence and control
• Financial security
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Determine Your Business Model
Transferable Business Skills
• Sales?
• Management?
• Customer Service?
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Determine Your Business Model
Business Preferences• Employees• Budget • Business environment• Full or Part-time & Hours• Number of units• Type of customers
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What does the Solution Look Like?
Something StableSomething SafeSomething AffordableSomething I can Plant Roots withSomething I can GrowSomething I can rely onSomething where my Job won’t disappear simply because of a corporate makeoverMost Importantly… Something I Know I Can Do, and Do Well!What else should be on that List?
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Finding a Great Fit
Match your business model with franchisors who are looking for people with your characteristics, attributes, goals and business preferences.
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Finding a Great Fit
• Interview at least 15 to 20 franchisees, the ones who are doing well and the failures.
• How are you the same or different?
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Plan Your Strategy
When you are thinking about
being a business owner, you
should develop a:
• Short-term strategy
• Long-term strategy
• Exit (Destination) strategy
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Short Term Strategy
Find a business you can get into where you will not fail
The more research you do the more you improve the odds of success
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Long Term Strategy
The most important element:
The business must give you the lifestyle you want and allow YOU to meet your goals
Freedom, Recognition, Achievement, Control, Money, etc. (the things that YOU value the most)
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Exit Strategy
Your goal is to create a valuable asset that has strong resale value:
• Sell the business
• Run business past retirement
• Keep the business but back away from the
day-to-day:• Pass it down to the kids
• Bring in a manager
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Conducting Your Research
We'll coach you through a 4 Step Research Plan and you’ll determine if one of the franchises is great fit for you.
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Conducting Your Research
1. Talk with Franchisor and receive the FDD
2. Validate with Franchisees (call and visit)
3. Visit with the Franchisor
4. Consult with Professional Advisors
The closer you get to a decision,the more fear you will feel
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Professional Advisors
Additional Resources You Should Use
Accountant Franchise Attorney
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Business Selection Criteria
Do I “Fit” this business
– Attributes
– Characteristics
– Goals
Am I willing to follow the franchisor’s system?
Is it affordable?
Is the risk level acceptable?
Will I enjoy my business?
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Business Selection Criteria
Does it have room for growth?
Can I develop a strategic market advantage?
Is it in a stable, not fad driven industry?
Can it meet my financial and personal goals?
Do I have the support of my family?
Never settle for something that does not fit your business model
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Getting Started with FranNet
First: Set an appointment for confidential consultation
Second: Complete a Personal Franchise Assessment Profile, prior to meeting
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Getting Started with FranNet
• Third: Determine your unique business model. The consultation and Personal Franchise Assessment Profile helps us help you establish clear goals and objectives.
• Fourth: We then match your business model tothose of successful franchisors in our portfolio of companies.
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Questions?
Remember, if you don’t have a dream, the person you work for probably does...
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