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FranchisingOpportunities inSouthern California

September 14, 2015 • An Advertising Supplement to the Los Angeles Business Journal

WANT to be your own boss, but not willingto take on the risk of starting your ownbusiness from scratch? Franchising can

be a great alternative if you want to have someguidance in the start-up phase of the business.

A franchise is a business model that involvesone business owner licensing trademarks andmethods to an independent entrepreneur.Sometimes, franchises are referred to as chains.There are two primary forms of franchising:

• Product/trade name franchisingFranchisor owns the right to the name or trade-

mark and sells that right to a franchisee• Business format franchisingFranchisor and franchisee have an ongoing

relationship, and the franchisor often provides afull range of services, including site selection,training, product supply, marketing plans andeven assistance in obtaining financing

Before Investing in a Franchise

Before you decide to franchise, you need to doyour research. You could lose a significant amountof money if you do not investigate a business care-fully before you buy. By law, franchise sellers mustdisclose certain information about their businessto potential buyers. Make sure you get all theinformation you need first before entering intothis form of business.

To learn more about franchising opportunities,visit the website for the Federal Trade CommissionBureau of Consumer Protection (ftc.gov).

The decision to purchase a franchise involvesmany factors. To help you explore if franchising isright for you, consider the following questions:

• Do you know how much you can invest? • What are your abilities?• What are your goals?

Franchising Strategy

You need a strategy before investing in a fran-chise. Doing your homework about the franchisefirst will help you gain a solid understanding ofwhat to expect as well as the risks that could beinvolved.

• Be a Detective: In addition to the routineinvestigation that should be conducted prior toany business purchase, you should be able to con-tact other franchisees before deciding to invest.

You can obtain a Uniform Franchise OfferingCircular (UFOC), which contains vital detailsabout the franchise’s legal, financial, and person-nel history, before you sign a contract.

• Know What You are Getting Into: Beforeentering into any contract as a franchisee, youshould make sure that you would have the rightto use the franchise name and trademark, receivetraining and management assistance from thefranchisor, use the franchisor’s expertise in market-ing, advertising, facility design, layouts, displaysand fixtures and do business in an area protectedfrom other competing franchisees.

• Watch Out for Possible Pitfalls: The contractbetween the two parties usually benefits the fran-chisor far more than the franchisee. The fran-chisee is generally subject to meeting sales quotasand is required to purchase equipment, suppliesand inventory exclusively from the franchisor.

• Seek Professional Help: The tax rules sur-rounding franchises are often complex, and anattorney, preferably a specialist in franchise law,should assist you to evaluate the franchise packageand tax considerations. An accountant may beneeded to determine the full costs of purchasingand operating the business as well as to assess thepotential profit to the franchisee.

Get More Information

Many blog articles covering franchise tips andbest practices are available from SBA at sba.gov.

If you are considering purchasing a franchise,FTC’s Bureau of Consumer Protection has a widerange of resources and guides at business.FTC.govto help you buy a franchise avoid franchisetaboos.

Information for this article was provided by the SBA.

A Franchise Business Primer: What to Consider and What to Expect

This special advertising supplement did not involve the reportingor editing staff of the Los Angeles Business Journal.

SPONSORED BY:

33 38_franchising_opps_09_14_15.qxp 9/10/2015 3:28 PM Page 33

34 AN ADVERTISING SUPPLEMENT TO THE LOS ANGELES BUSINESS JOURNAL SEPTEMBER 14, 2015

By LARRY SCHWARTZ

THE franchise industryhas experienced a radi-cal transformation over

the past 5 decades. This pros-perous and dynamic industryhas evolved from what wasonce a restaurant centricexpansion strategy to a majorcomponent of the U.S. andworld economy. Franchisesrepresent hundreds of industrysegments, 3000+ brands, andcontribute to more than $889billion in economic outputand $521 billion in GDP.

Like the majority of the U.S. economy,franchising was severely affected by therecessionary period of 2008-2011. Duringthis timeframe, business capital was virtu-ally non-existent and new business devel-opment came to an abrupt halt.However, the very circumstances thatoverwhelmed an industry, simultaneous-ly established the foundation for itsgrowth. With so many people losing con-fidence in the perceived stability of cor-porate America, as well as having experi-enced devastating losses in real estate andsecurities markets, franchising hasemerged as a viable alternative for peopleto become entrepreneurs and have morecontrol over their financial future.

Today, the franchise industry is thriv-ing. Industry leaders and key perform-ance indicators across the board supportthis fact. This year, the InternationalFranchise Association (IFA) reportedrecord attendance at its industries annualconference. According to the FranchiseBusiness Economic Outlook for 2015,franchise organizations are reportingrecord sales and the number of new fran-chise systems and locations being devel-oped are at their highest level in years.

Additional factors contributing to thislevel of growth is the increasing numberof entrepreneurs seeking ways to own andoperate a proven business model with thesupport of the franchisor and their estab-lished brand equity. In addition, emergingmarkets overseas thirsty for U.S. brandsand their know-how are providing fran-chise organizations with more opportuni-ty than ever before. Concepts from out-side the U.S are also finding opportunitieshere with a growing and diverse con-sumer base showing an appetite for newand unique products and services.

Investment activity has also spiked.Private equity firms and other investmentgroups are seeking out opportunities inthe franchise industry based on its cur-rent and projected growth, diversifica-tion, quick expansion capabilities, rela-tively lean operating structure and recur-ring royalty structure. Many of theseinvestments and acquisitions are beingbased on extraordinary valuation’s, oftenexceeding 8-10 time earnings multiples.

Industry experts are confident thatthis is not simply a reactionary trend, buta permanent shift in entrepreneurshipand a solid investment strategy. This hasled to strong growth not only amongestablished franchise organizations; it hasalso prompted other successful businessowners to consider franchising as a viablestrategy to expand existing businesses.

Franchising is Regulated

Before you decide to franchise yourbusiness, or invest in a franchise concept, it

is important to under-stand that franchisingcomes with its own set ofrules. The industry is high-ly regulated and its uniqueoperational requirementsmust be understood.

Feasibility

With all of its success,there are some cases wherefranchising may not be theright strategy for somecompanies. Making thatdetermination can only bemade after developing clear

growth objectives. These objectives must besupported by thorough due diligence inconsultation with industry experts.

Questions To Consider:• Do I want to achieve significant

growth in my company/business?• What are the options available to

my company and me to achieve mygrowth objectives?

• Is there a big enough market for myproduct or service in other markets?

• Does my product or service havelong-term staying power?

• Is my business model scalable?• Is my team committed to the

process of building and managing a fran-chise system?

Franchising Your Business – What You Need

To Know

For new and early stage franchisors,significant effort must be put into build-ing the right system infrastructure andplanning how the franchise is going tooperate. Proper planning will ensure thatcompanies have the confidence andknow-how to successfully operate andbuild the organization. To accomplishthis, it is critical for early stage franchisorsto surround themselves with the rightteam of industry advisors and develop thekey support tools they will need.

The Team

For new and early stage franchiseorganizations it is important to seek outindustry professionals that can provide a“turn-key” consulting and advisorypackage to help establish the franchise.An experienced and reputable franchiseconsulting firm will be able to providethe guidance, insight and professionaladvice needed to assist the companywith all aspects of strategic planning,operational readiness, and organization-al infrastructure. They will also have anexperienced support team, extensiveresources and an established network ofindustry professionals to help develop

all the key components of thefranchise system.

The System

Building and managing a successfulfranchise company requires detailedinsight to all aspects of the industry, itshistorical landscape, current trend lines,and each of the many componentsrequired to operate the business. Criticalcomponents include corporate and unitlevel operations, branding/marketing,franchise sales, real estate procurement,construction, training and support, tech-nology, accounting and finance – andwhile several of these components areubiquitous to any business, franchisingchanges the game.

A successful franchise system can bevery profitable for both the company and

its franchisees. The keys to its successreside within the commitment by thecompany to invest the time and resourcesnecessary to build and manage the sys-tem and to support its franchisees, who,in turn, must willingly adopt the cultureand effectively execute its obligations tothe company – and the system as awhole. Building the right team is a cor-nerstone of the foundation on which asuccessful franchise system is built.

Larry Schwartz is Director & Senior Consultantfor the Armanino Franchise Services Group. Forquestions about this article or for more infor-mation as to how the Armanino FranchiseServices Group can help provide the right teamand the right tools, contact Schwartz directly at(310) 478-4148 x5759 or [email protected].

Is it Time to Franchise?

FRANCHISING OPPORTUNITIES IN SOUTHERN CALIFORNIA

LARRY SCHWARTZ

Your franchise logo is an important way to carve

out your identity. Here is an example logo of a

successful, emerging franchise, ElectroBike.

A successful Franchise-system can be very

profitable for both the company and its franchisees.

The keys to its success reside within the commitment

by the company to invest the time and resources

necessary to build and manage the system and to

support its franchisees, who, in turn, must willingly

adopt the culture and effectively execute its obligations

to the company – and - the system as a whole.


September 14, 2015 an advertiSing Supplement to the loS angeleS buSineSS Journal 35

We’ve just joined forces with Armanino—the largest independent accounting and business consulting firm based in California. The same team is in place to provide franchisors with strategies to grow your franchise system, secure franchisee financing, conduct FDD audits, supply standardized reporting and other specialized services. And beyond that, we’ll have much more to offer especially in the areas of media and PR consulting. As Armanino, we’ll be just like the RBZ you’ve known, but with even more resources. Learn more by visiting armaninollp.com.

armaninollp.com

We’ve changed our name. Not our values.RBZ is now Armanino.


By LULU CHIU, SUSAN GRUENEBERG,JOSHUA SCHNEIDERMAN andELIZABETH WELDON

THE hottest issue in franchisingtoday has united franchisors andfranchisees in a battle to defend

franchising itself against a movement tounionize workers and a perceived imbal-ance in the workplace. It is an effort tomake franchisors responsible for theirfranchisees’ employees by making thefranchisors joint employers of thoseemployees.

The basic theory behind this threatstems from the demise of large compa-nies that formerly employed workersfrom cradle to grave, providing themwith salaries, benefits and pensions. In aneffort to develop a more efficient eco-nomic model (and more profit forinvestors), many of these companiesbegan outsourcing elements of their oper-ations, and focusing instead on their so-called core competencies. Dr. David Weil,the current head of the Department ofLabor’s (DOL) Wage and Hour Division,refers to this structural change as “fissur-ing.” The fissured workplace has devel-oped as a result of a number of methodsof doing business, including franchising,according to this analysis.

How to fix the problem? In the opin-ion of some, the solution is to make fran-chisors responsible for wage and hourviolation complaints of their franchisees’employees. Studies have shown that fran-chisors’ who own operations have fewerlabor law violations than those of fran-chisees. If the franchisor is responsible,that translates into fewer violations,right? Coincidentally, it also makes col-lective bargaining and unionization aneasier process. The National LaborRelations Board (NLRB) has targetedMcDonald’s, allowing complaints to pro-ceed against both the franchisee and thefranchisor. The Occupational Safety andHealth Administration (OSHA) is explor-ing making franchisors liable for work-place safety. And, of course, the DOL isbehind the new standard for joint

employment as well. The problem is, if the franchisor is

responsible, why would it ever risk plac-ing control of operations and employeesin the hands of a third party, a fran-chisee? If this quest is successful, fewercompanies will franchise and fewer indi-viduals will have the opportunity to owntheir own businesses as franchisees. Anextremely successful method of productand service distribution will wither onthe vine.

While this battle plays out, what canfranchisors do to protect themselvesagainst becoming joint employers? Hereare a few suggestions:

Focus on the “Operations Manual”

Protecting brand standards is good;exerting control over franchisees’ opera-tions is bad. A franchisor should considerrenaming its operations manual and call-ing it a brand standards manual.Franchise Agreements will often define anoperations manual broadly to encompassall information related to the franchiseincluding “manuals, handbooks, policies,guidelines containing information relatedto the franchise system and other writingscontaining the franchisor’s standards,methods and procedures.” Many fran-chise agreements even incorporate themanual by reference in the agreementitself. The problem is that these fran-chisors likely did not intend to incorpo-rate sample employee handbooks or

employment forms into their agreementsince that might be later used to bolsterclaims of joint employment. Franchisorsshould instead consider limiting the defi-nition of manual to a single documentthat protects the brand and excludesemployment related information.

Define the Franchisor/Franchisee

Relationship

Most current forms of franchise agree-ments will include a provision statingthat the franchisee is an independentcontractor and that no fiduciary relation-ship exists between the franchisor andfranchisee. That may no longer beenough to protect franchisors.Franchisors should consider stating thatthe franchisor has no direct or indirectcontrol over or responsibility for hiring,firing, disciplining or training the fran-chisee’s employees.

Educate Field Personnel

Employees and representatives of afranchisor who regularly interact withfranchisees (referred to as “field person-nel”) are frequently not clued in to legaldevelopments in franchising. Franchisorsshould routinely educate their field per-sonnel to understand what a jointemployer is and what vicarious liabilitymeans. Training should include what tosay and not to say to franchisees andfranchisees’ employees to reduce the riskto the franchisor. For example, field per-

sonnel should notdirectly communi-cate about the busi-ness with non-man-agement employees,but should insteadcommunicate aboutthe business with theowner or generalmanager of a fran-chised business. Fieldpersonnel also needto know that theymust not play a rolein hiring, firing, set-ting wages or work

hours, or in disciplinary decisions of thefranchisee’s employees.

Revisit Inspection Procedures

Franchisor inspections of franchisees’businesses are a key component to quali-ty control in most franchise systems.Inspections help preserve brand stan-dards and ensure compliance. Inspectionagents need to be educated on how tocommunicate issues to the franchisee,how to document their findings and howto properly follow up to ensure correctiveaction has been taken. Franchisors mightalso consider hiring third parties to con-duct inspections to distance the fran-chisor from the process and to ensurethat inspections are conducted in a sys-tematic fashion.

Lulu Chiu is an Associate at Snell & Wilmerin Los Angeles. She can be reached at (213)929-2548, [email protected].

Susan Grueneberg is a Partner at Snell &Wilmer in Los Angeles. She can be reachedat (213) 929-2543, [email protected].

Joshua Schneiderman is a Partner at Snell &Wilmer in Los Angeles. He can be reached at(213) 929-2545, [email protected].

Elizabeth Weldon is a Partner at Snell &Wilmer in Orange County. She can bereached at (714)427-7461,[email protected].

Can a Franchisor Avoid Becoming the Joint Employer of itsFranchisee’s Employees?


LULU CHIU SUSAN GRUENEBERG JOSHUA SCHNEIDERMAN ELIZABETH WELDON

SNELL & Wilmer’s franchise groupprovides comprehensive legal serv-ices to franchisors, subfranchisors

and master developers in a variety ofindustries including food and beverage,hospitality, transportation, energy, homeservices, health care, sports and fitness,real estate, entertainment and commer-cial cleaning.

The firm’s attorneys advise clientsthrough every stage of the franchisingprocess, from structuring the franchiseprogram and regulatory compliance tofranchisee relations and dispute resolu-tion. Snell & Wilmer helps U.S. conceptsexpand both domestically and interna-tionally, and assists non-U.S. conceptsenter the U.S. market.

As a full-service business law firm withover 400 attorneys practicing in morethan five dozen areas of law, Snell &

Wilmer provides clientswith access to attorneyskills and knowledge specif-ic to their particular busi-ness and industry.

Snell & Wilmer’s fran-chise attorneys work seam-lessly with their colleaguesin other practice areas, suchas corporate, employment,securities, mergers andacquisitions, immigration,real estate, tax, appellateand intellectual property, toprovide clients with a fullrange of legal services andsolve clients’ most complexlegal issues.

Visit www.swlaw.com tolearn more.

Snell & Wilmer: Comprehensive Legal Services for Franchisors



THE American Association ofFranchisees and Dealers (AAFD)announced earlier this year the for-

mation of several new franchise associa-tions as chapters of the AAFD. Each chap-ter will leverage the combined voices ofall its members to establish an environ-ment of collaboration between fran-chisees and franchisors. The five newchapters represent franchisees from:ARCpoint Labs, Coastal Angler and TheAngler Magazines, SERVPRO, WirelessZone, and Zippy Shell.

Each new chapter has formed a steer-ing committee and is actively defining itsgoals and recruiting members. Once eachchapter reaches its recruitment goal, itwill become an “active” chapter withinthe AAFD.

“We are incredibly excited to welcomeall five of these chapters under theAAFD’s tent of Total QualityFranchising,” said Robert Purvin,Chairman of the AAFD. “Many of these

organizations are household names andrepresent hundreds of franchises acrossthe country and the world. As thesechapters grow, their voices will reverber-ate. With the help of the AAFD, I believethese chapters will be able to create realand meaningful change within their fran-chise system to establish a more collabo-rative and fair culture.”

ARCpoint Labs is a national leader inproviding drug testing and clinical labtesting for screening and employmentpurposes. It is a fast growing franchisorthat covers 21 states. ARCpoint fran-chisees have developed the ARCpointOwner’s Alliance and are activelyrecruiting members. Coastal AnglerMagazine offers franchisees the ability topublish their own local issue of CoastalAngler Magazine and The Angler. Theorganization was founded in 1996 andoperates approximately 60 units.SERVPRO is a huge franchisor, support-ing over 1,650 units across the country.

Its franchisees provide home and busi-ness restoration after floods, fires, andother natural disasters. Wireless Zone inpartnership with Verizon Wireless sellscell phones and other technology prod-ucts and operates approximately 400franchise units. Zippy Shell is a movingand storage solution and provides cus-tomers with shells that they pack. ZippyShell can then move the shell to theowner’s new location or store it. In2014, Zippy Shell became the fastest-growing storage and moving companyin the United States.

The announcement of these five newchapters comes on top of an announce-ment of six previous new chapters by theAAFD in November of last year:BrightStar Care, AmeriSpec HomeInspection Services, Benjamin FranklinPlumbing, Mr. Sparky, One Hour AirConditioning & Heating, and WindowWorld. Since that announcement,Benjamin Franklin Plumbing and

AmeriSpec Home Inspection Serviceshave become active chapters.

The AAFD acts as a catalyst in thefranchisee chapter formation process byproviding coaching, offering a vehicle fororganization, helping franchisees build aleadership structure, and providing toolsto support an effective franchisee associa-tion. The AAFD further helps chaptersbuild effective leadership, define goalsand objectives, build a compelling mem-bership purpose, and open a constructivedialogue with their franchisor manage-ment team.

The AAFD is the oldest, largest, andmost respected direct member franchiseetrade association in the United States.The nonprofit organization has formedexclusive chapters for over 80 franchisesystems and seeks to foster its vision ofTotal Quality Franchising—a collabora-tive franchise culture that respects thelegitimate business interests of fran-chisors and franchisees.

The AAFD Announces Five New Franchisee Chapters


BUSINESS Owners, Entrepreneurs andSmall Business Service Providersare growing their sales with social

media. Key benefits of social mediainclude attracting and engaging withmore customers on Facebook, Twitter,LinkedIn, Google+, YouTube, oGoing,blogs and more.

“Social Media provides businesses anunprecedented direct communicationwith customers! Using social media, abusiness directly informs their clientsabout what’s going on, promotes newoffers and services, and provides customerservice; the clients freely express with thecompany their experiences, ask questionsand provide direct feedback in a publicsetting. This level of intimacy and engage-ment hasn’t been achieved before,” saidSanjay Dalal, founder & CEO, oGoing.

oGoing is the nation’s fastest growingsmall business social media marketingnetwork. Thousands of Business Owners,Entrepreneurs and Small Business ServiceProviders are using oGoing to generatewarm leads, attract new customers, pro-mote products and services, share deals,and engage with clients directly.

oGoing presents 5 social media tips andbest practices for a business to attract morecustomers using social media marketing:

1. Know the customers

Take time to know your customersthrough social networks. Stand in theirshoes. Learn more about their business.Ask the question: “What are their needs?”Find them, and Search their social mediaupdates. Learn more about the customer’scustomers. The more knowledgeable onebecomes about the customer’s business,the more products and services the busi-ness can ultimately offer to them.

2. Connect with customers

After determining who the customersare, a business must take the logical nextstep: Connect or Follow them! Once con-nected, most social media networks share alive news feed of the following user’supdates. Thus, when a business is logged in,they see latest news stories about their cus-tomers. Reading what’s going on providesgreater understanding of the customers’

current situation, needs and events.3. Engage with customers

Reading the customers’ updates andgaining further knowledge about them areimportant first steps. Next step is to beginengaging with the customers. The bestway: Reply to their updates and Ask ques-tions. When a business responds to whattheir customers are saying, and begins aconversation, that’s when engagementbegins. Social media is all about “live”conversations. Besides replying publicly, abusiness can also ask direct questions tosolicit a response, reply privately or send adirect message for further intimacy.

4. Promote customers

Often times, owners and marketersforget that social media marketing is notso much about promoting their ownbusiness; rather, it’s more about promot-ing their customers. This simple factchanges how well engaged the customersare. When the company takes on theonus of promoting their customers, thereturns are tangible and immediate.What customer doesn’t like a public pro-motion in the form of a mention, shar-ing of their updates, or recommendation?

5. Ask for referrals from customers

After establishing a solid relationship

with customers and prospects on socialmedia, a business can begin to transformthis engagement into leads. Social mediacannot be an off and on affair. It has bean always on campaign. Hence, a busi-ness must frequently login to socialmedia networks and engage with theirclients on a daily basis. When the time’sright, ask the customers for new referralsand share with them new offers.

oGoing provides a powerful social media mar-keting network for small business that increas-es website traffic, improves SEO ranking, gen-erates warm leads and attracts new customers.

Five Small Business Social Media Tips to Attract Customers

It’s always a good time for small business

owners to reassess their company’s financial

health and their relationship with their bank.

The American Bankers Association offers the

following tips to help small business owners

enhance their current banking relationship or

choose the best bank for their needs.

Many small business owners have been

wondering what it takes these days to get a

bank loan. One way to influence your bank’s

decision is to establish a personal relation-

ship with your banker that shows him or her

just how valuable your business is.

Banks value long-term, profitable busi-

ness banking relationships. Bankers reward

these firms by extending credit with the most

favorable interest rates. These businesses

and their bankers understand that develop-

ing a meaningful relationship is a two-way

process—your banker has a role to play and

so do you.

So how do you know if you have a mean-

ingful and valued relationship with your

bank? To find out, take the following “relation-

ship test.” Respond to the seven statements

below with “true” or “false.”

1) My firm has a bank relationship manag-

er assigned to our account and we have con-

tact (by phone or in person) at least once per

quarter to update the bank on recent devel-

opments at our firm and within our industry.

2) Our bank relationship manager under-

stands our industry, our position in the indus-

try, our firm’s value proposition, where we are

today and where we’d like to be in the future.

3) We provide our banker with updated

financial information (historical and projected

balance sheet, income statement, cash flow

information to include projection assump-

tions and commentary on actual perform-

ance) regarding our progress toward achiev-

ing our goals on a timely basis.

4) Our senior management team meets

annually with our relationship manager and

his/her boss to discuss our firm’s financial per-

formance and challenges and to understand

the bank’s perception of our performance.

5) Our relationship manager proactively

brings us ideas to help us achieve our goals.

6) We understand how the current eco-

nomic crisis has affected our bank and our

relationship with the bank (i.e., the availabili-

ty of credit to our firm and the safety of our

deposits).

7) Our firm makes sure that our banker is

aware of all of our business with the bank

(e.g., both business and personal) and that it

makes money on our total banking relation-

ship. In addition, our firm provides our banker

with referrals to other profitable businesses.

If you were able to respond “true” to all

seven of these statements, you have posi-

tioned your firm well with your banker.

If you answered “true” to five or six, you

still have room for improvement in develop-

ing a meaningful dialogue with your banker

and benefiting from his or her advice and

counsel.

If you answered “true” to four or fewer, you

have not positioned your firm well with your

banker and are putting your firm at a competi-

tive disadvantage in terms of:

• receiving the funds you need to grow

and prosper;

• obtaining the best rates available for

the financial products and services your busi-

ness needs to operate; and

• receiving “ideas and advice” to help

you achieve your desired business goals.

Your firm should seek a bank that

rewards a relationship approach to doing

business with them, and a banker who is

able to give your firm the financial advice

that it needs to survive and thrive in today’s

ever changing economy. In return, your firm

should reward this bank with your business

and loyalty.

The American Bankers Association repre-sents banks of all sizes and charters and isthe voice for the nation’s $14 trillion bankingindustry and its two million employees. Learnmore at aba.com.

How Small Business Owners Can Assess Their Banking Relationships


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