1

Franchising as anFranchising as anAlternative Career Alternative Career

OptionOption

Dan Johnson

The Entrepreneur’s Source

Date 4-23-05

Looking for a Change?Looking for a Change?

AgendaAgenda

• Why consider alternatives

• Options

– Starting an Independent Business

– Purchasing an Existing Independent Business

– Owning a Franchise

• Questions and Answers

Ever Considered Business Ownership?Ever Considered Business Ownership?

75% of people in the United States have a strong desire to be self-sufficient. They want:

• Control of their destiny

• Flexibility of their time

• Want to be their own boss

• More money

• Security

• Stability

• Build something for their

family

• The American Dream

Ever Considered Business Ever Considered Business Ownership?Ownership?

• But only 5% of these people make it happen on their own. What’s holding people back?• Can they succeed?• Concern they lack know-how• Financial risks• Don’t know where to begin• Skepticism: Too good to be true• Don’t have support• Unwilling to consider something new• F. E. A. R.

(False Evidence Appearing Real)

What Are My Career Options?What Are My Career Options?

Self Employment

• Starting an independent

business

• Purchasing existing business

• Owning a franchise

To succeed you must have:

• A marketable product or service

• A sound business plan

• An operations plan

• The know-how to manage, operate,

market, and grow a business

• Capital and expertise

• Desire to go it alone

• Ability to take risks

• Good luck

But some people thrive in this environment.

Starting a Business from ScratchStarting a Business from Scratch

• An established track record and

reputation

• Existing customers

• Existing cash flow

• Goodwill

• Lower perceived risk

Buying an Existing Business - BenefitsBuying an Existing Business - Benefits

• Finding the right business to buy at the right

price

• May be more expensive, especially if it is

successful

• The value of the business may have peaked

• May not know the whole story (2 sets of books)

• Hard to determine real value

• You face the same requirements as for all

independent businesses

Buying an Existing Business - ProblemsBuying an Existing Business - Problems

But there are things to watch out for:

Why Do Independent Businesses Why Do Independent Businesses Fail?Fail?

There are many reasons for failure:

• Don’t meet the requirements previously discussed

• Fall victim to The E Myth:

“Doing what you know, love and enjoy will bring

success”

but results in:

- Being “a technician”

- Working “in” the business, not “on” it

- Buying yourself a job

- Closing up to new possibilities

- Gravitating to the comfort of what you know

Why Do Independent Businesses Why Do Independent Businesses Fail?Fail?

Definition of Insanity

• Doing the same thing over and over again and expecting different results.

• Leaving a job only to become self-employed in the same field but expecting a different result.

• Most are retail operations, like fast food

• All the franchisor does is take your money and you get nothing in return

• You have to know all about running a business first

Franchising – Some MisconceptionsFranchising – Some Misconceptions

• Method of Expansion• Regulated by the Federal Trade Commission• Over 3500 options with 100-200 new each year,

with a new Franchisee every 8 minutes• 75 different industries• Different business models• There were more than 750,000 franchise

businesses in 2001

Franchising – What’s out there?Franchising – What’s out there?

Employment by Economic Sector 2001

3,629,000

6,826,0007,807,000

9,797,00010,335,000

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

Source U.S Dept of Labor

Information Construction FinancialFranchise

Durable Goods Mfg.

Gross National ProductGross National ProductDepartment of CommerceDepartment of Commerce

We spend 41% in Franchising

According to the SBA and the Census Bureau

• Small businesses create nearly 80% of all new jobs.

Characteristics of Franchising• Use of trademark, name, etc.• Interdependent relationship • Franchise fee• Royalty payments • Advertising fees• Typically don’t require experience or expertise in

the industry it serves• UFOC (Uniform Franchise Offering Circular)

Franchising CharacteristicsFranchising Characteristics

What are you likely to get with the fees?• Operating System• Training• On-going support• Software• Marketing assistance/materials• Equipment• Site location assistance• Build out assistance• Operational growth plans• Possibly, even financing

Franchising SupportFranchising Support

• Single unit– Owner Operators– Semi-Absentee– Absentee

• Multiple units– Add additional units over time– Commit to several initially, and open

within fixed term• Area Developer / Master

Franchisor– Duties typically are to recruit other

franchisees, provide training and support

Franchising – Different levelsFranchising – Different levels

Franchise CostsFranchise Costs

• Varies widely

• Includes

– Franchise Fee

– Start-up Costs

– Working Capital

• Consider, too, your own personal expenses

What are Franchisors Looking What are Franchisors Looking For?For?

• Franchises are awarded – it’s a two way street

• They do not want technicians – they want people

who want to be in the business of business

• They are looking for skills important to managing,

promoting, and marketing a business

• They want people who are willing to follow their

system

Franchising High Success RateFranchising High Success Rate

• A proven business system

• Training and ongoing support

• Being in business for

yourself, but not by yourself

• Win-win relationship … starts

with mutual benefits and

grows from there

Why is franchising so successful and so

popular?

Finding the Right FranchiseFinding the Right Franchise

• Possibilities Profile – Goals, Needs and Expectations– Transferable Skills– Strengths and Weaknesses– Likes and Dislikes– Communication Style– Behaviors, Values, Attitudes, and Interests– Inside-Out Approach

• Financial Considerations−Liquidity−Monthly Income Requirements−Borrowing Capacity−Net Worth

Finding the Right FranchiseFinding the Right Franchise

• No emotions – THIS IS BUSINESS

• Do your homework and validate

– Speak to franchisors

– Speak to franchisees

– Study the UFOC

– Study the marketplace and the competition

– Prepare a business plan

– Speak to people who can help you get

started: attorney, accountant, insurance

specialists, small business consultants,

bankers

Be ObjectiveBe Objective

• The key to success is

objectivity

• Keep an open mind

• Make no premature decisions

• Know first what you want out of

your business

Where Can I Get Help?Where Can I Get Help?

• International Franchise Association (IFA), 202-628-8000, www.franchise.org

• U.S. Government Small Business Association, www.sba.org

• American Bar Association’s Forum on Franchising, www.abanet.org .forums. .franchising

• IFA’s Supplier Forum publishes a list of firms that specialize in franchising law, www.franchise.org

• The E-Myth Revised by Michael Gerber• recommendations from other franchisees

Where Can I Get Help?

• International Franchise Association (IFA), 202-628-8000, www.franchise.org

• U.S. Government Small Business Association, www.sba.org

• American Bar Association’s Forum on Franchising, www.abanet.org .forums. .franchising

• IFA’s Supplier Forum publishes a list of firms that specialize in franchising law, www.franchise.org

• The E-Myth Revised by Michael Gerber• recommendations from other franchisees

Any Questions?Any Questions?

““Things may come to those who wait, Things may come to those who wait, but only the things left by those who but only the things left by those who hustle.”hustle.”

Abraham LincolnAbraham Lincoln