Category Archives: Franchise Evaluation

Ten Things to Watch for with Franchises

Don’t Have a Big Idea but want to be on Your Own?

Joining a franchise system might be the best thing for you if you want to be a business owner but not from scratch. A franchise might work if you:

· Are drawn by the security of having an already-branded business with proven services or products.

· Like the idea of an operation that has already done the hard trial and error work of establishing business operations and building a demonstrated support system.

· Are comfortable with following franchise guidelines.

· Already have or can get the franchise fee and startup costs.

· Are willing to part with some of what you make in the form of monthly royalties, advertising fees and other costs.

· Know it will take a lot of work and are willing to do it.

Even if you’re okay with these factors, it’s a good idea to hire an attorney that specializes in franchising to help you see it all the way through.

Ten Things to Beware of from a Potential Franchise

If having a franchise does appeal to you, be wary of franchises that:

· Do not offer a proven business concept coupled with a successful operational system.

· Lack brand recognition.

· Have a history of litigation or continual strife with franchisees.

· Offer minimal startup help and little ongoing training and support.

· Advertise very little if at all.

· Balk at territory exclusivity

· Are reluctant to give you a list of former and current franchisees.

· Use franchise fees to pay for selling new franchises.

· Obligate you to purchase services, inventory or supplies from their approved vendors (or the franchise itself) at inflated prices.

Being a franchisee can result in a fruitful work life. Just make sure you perform proper due diligence.

Four Business Skills Needed to be a Successful Franchisee

Every American has the right and opportunity to become a business owner. It’s a huge part of the American Dream and if you have the drive and desire to own a business and create income you can do it, too. It’s a dream that people from other parts of the world continue to risk life and limb to acquire.

The benefits of the franchise model are reduced risks to achieving that dream. Postal Connection offers a proven business model and systems in place to help franchisees become as successful as their dream requires.

Skills Needed to be a Good Business Owner
However, It helps to understand a few of the basic tenets of business when embarking on business ownership whether it be an independent business or a venture with an established franchise. While attaching yourself to a franchise can help, you still want know the basics of the following four areas:

Sales: Learning basic salesmanship is essential since sales is what makes any business run. This means knowing how to satisfy your customers, creating appealing offerings and knowing what people respond to in relation to what you offer.

Marketing: This is related to sales but it’s more about understanding where your customers and prospects come from and figuring out how to attract them to your business. A good franchise system can help enormously with this.

Accounting: Basic knowledge of your revenue streams (where they come from and how you can get more), your expenses (and how can you reduce them) and how revenue minus expenses equals profit which every business needs to survive.

Strategic Planning: Usually, when running a business, you find yourself planning 3 to 6 months ahead under an umbrella of a 1 to 5-year overarching strategy. You create these strategies and plans. You also have to be flexible in your thinking and know when to stick with, alter or even jettison a strategy/plan if it’s not working.

A strategy would be something like this: The goal is to increase revenue by 10% in 2016. A plan to achieve that might be that you will introduce high margin products into your mix of offering in 2016.

You don’t have to be an expert in each one of these areas but acquiring some basic knowledge of them will help your business run smoothly. Many community colleges offer useful workshops in these and other business disciplines.

Being Your Own Boss

A recent Gallup Poll indicated that 79% of all Americans still list business ownership which included franchise ownership, as a dream. The best thing about that stat is that the dream lies within your grasp!

The second best thing about business ownership is what comes with it- you are the boss of the whole enterprise. No one to answer to but yourself. It’s a liberating feeling, especially if you’ve spent time in the corporate trenches with less than desirable bosses.

If that sounds appealing to you, the next step is to consider these four questions:

How much sales, marketing and management experience do you have? If you have been involved as a manager or sales/marketing rep in any size company, you most likely have a solid foundation for business ownership.
How motivated are you to strike out on your own? This is a key question. If a dream of being your own boss has kept you up at night and occupies your thoughts during the day, it may be a sign you are ready to venture out on your own.
What level of financial acumen do you possess? Having the ability to understand cash flow, how timely bill paying can save money, how to purchase and where you can get the best returns on your money will help you carry out the most important functions of funding your business.
Are you truly driven to use these and your other talents to compete and succeed? The possession of an inner drive, cannot be underestimated. Running a successful business means you will be investing in a sustained period of hard work. This needs to match with your personality.

Business and franchise ownership is a life altering decision. It’s best to invest in some soul searching while taking a realistic inventory of your talents, skills and experience prior to starting an any type of enterprise.

Deciding on a Franchise Product or Service to Sell

It’s a big decision deciding what you want to sell, what business or franchise product or service speaks to you and will also make you money when you decide on what type of franchise to buy or business to own.

Have you ever thought about why stores in your neighborhood sell what they sell? For example, a Postal Connections in Islandia, New York, is an agent for U-Haul and a store in Redmond, Oregon, sells greeting cards and locally made gifts and crafts.

How did they and how do other local stores decide what they want to sell and what would also work in their markets? Here are 15 points to consider when making this decision:

Do you like the product you’re considering selling to the point that you would buy it yourself?
Would you champion it to a friend or family member?
Does it look like the product or service has staying power…will it still be moving over the next five to ten years?
Can the product be advertised and sold for a reasonable COGS (Cost of Goods Sold)?
Can you make money selling it?

Is there a demand for the product in your local area?
What problem does the product resolve for your customers… how does it improve their life?
Who will you be selling it to…what are the demographics?
Do you like the customers who will be using this product or service?
How will the product or service by promoted and sold?

Does the need exist for the product?
What is the guarantee, service process or replacement procedure?
Name three ways the product is superior to its competition in the area.
Is the product priced lower and/or of better quality than similar products?
How is the product or service manufactured or produced?

To sell a product or service, everything has to be right: price, timing, demand, supply and especially your contentment in selling it.

Five Paths to Franchise Financing

You’ve found the ideal business in the thriving world of franchising and are ready to live the dream of business ownership where you are supported by the strength of a national franchisor.

As you ponder how to pay for it, there are several sources of funding that you may want to look into:

Home Equity: If you own enough of your home and feel confident about your business decision, you can take a second mortgage or set up a line of credit with your lender. You will not need a business plan for this type of financing so this method can often be the simplest route to business ownership.
Small Business Administration Financing: SBA backed loans can be a great source of funding especially for those who may not quality for traditional financing sources.
Traditional: This is where you go to a bank and get the money. You will need a pretty good credit rating, a solid business plan and some on-hand liquid capital. However, the rates can be very competitive if you meet all of the criteria and your franchisor might even help with your business plan.
IRA Money: You can roll your IRA money into a business loan. The advantage is that no penalties are associated with this conversion and you will not need a business plan or good credit because it’s your money.
Franchisor Programs: Some franchisors offer in-house financing or have established partnerships with lending companies. Because the lending company has confidence in the concept, it can be easier to get a loan.

You can also borrow money from family and friends. If you have built up good credit, you might even be able to get a loan online or quality for an unsecured business credit line.

The point is that there are several alternatives to franchise financing. Find the one that works best for you.

The importance of Pre-qualification to a Franchise Investment

Similar to buying a home, it is vital that a perspective franchise buyer has realistic expectations, preparation and know cash flow capabilities to make a franchise investment. For years, mortgage companies have pre-qualified borrowers to establish a price range for the home they would lend to. The benefits are many, including a pre-qualification provides tremendous buying power and the right guidance on lending ratios—debt to income level, for example. This knowledge gives the buyer confidence for making purchase decisions.

Investing in a franchise is very similar. The amount financed to own a franchise is an important consideration—debt service is a fixed cost that must be paid every month. Realistic business expectations, solid revenue and cost estimates, are critical to purchasing a franchise opportunity. The Franchise Disclosure Document [FDD], a FTC filing, is where you’ll find this. With this Document and your current financial records are what’s needed to easily achieve a funding pre-qualification.

Once a franchisor knows you have the financial capabilities, the more eager they will be to advise you in many areas such as site selection, space lease payment levels, potential sales territory and marketing plans even before you join their network. At Postal Connections we are able to guide people to funding sources and offer advice to make qualifying easier.

Here are some simple tips:

Be able to prove your financial status (Borrowing from your rich uncle, unless documented is not a serious financial status)
Be prepared to have funds available buy the franchise, run the franchise for several months and pay your bills at home.
Work with the Franchisor to understand financial requirements from signing an agreement (most franchises require payment of a fee), installation cost for the business, marketing cost from Grand Opening to reaching break even.
Use borrowing or leasing to an advantage. Borrowing can get you into business now and interest rates are at historic lows. Leasing does not impact your credit scores and if “closed-end” you own everything after the last payment.
Have enough money to advertise. A start-ups always need funds to build awareness and advertise incentives to try your business.
Understand how to use leverage and avoid over-extending. This aspect is very important and your chosen Franchise should be willing to give you straightforward and specific advice.

We’ll help you determine the best match for financing and cash management. Franchising is an active investment that requires ongoing work and capital. But the rewards are tremendous, as long as you finance properly based on thoughtful business expectations and a realistic plan for paying back the borrowed money.

Alan George, Postal Connections Franchise Development

The FTC and Franchising

Consider these powerful facts about franchising:

There are about 825,000 U.S. franchise business
40.9 percent of all retail businesses are franchises
Franchising contributes 8.2 million direct jobs and 18 million indirect
Franchising adds $2.1 trillion to annual U.S. Gross National Product [GDP]

That’s the way it stands now but it was a long road getting there. Some of the most popular and well known franchises were created spanning many decades:

Howard Johnson 1925
Kentucky Fried Chicken 1930
Baskin Robbins 1948
Dunkin Donuts 1950
Burger King 1954
McDonald’s 1955

However, the success of these franchisors and others spawned some unfunded and poorly managed franchise ventures in the 1960s and 1970s. Some even bordered on fraud where money was taken from those eager to own businesses but a franchise was not delivered as promised.

The FTC and IFA

The federal government stepped in in the form of the Federal Trade Commission (FTC). Many regulations were added to bring full disclosure of what potential franchisees might be getting themselves into.

In addition, the International Franchise Association (IFA) was founded in 1978. It’s a reputable industry group where franchisor members use the IFA icon to show compliance with best practices and full disclosure. (In 1978, membership was only for Franchisors, today individual franchisees can join.)

Full Disclosure Documents

Also, the FTC created the Uniform Franchise Offering Circular (UFOC). This was updated in 2007 and is now called the Franchise Disclosure Document (FDD).

Along with the FDD, the business contract (Franchise Agreement) must also be included. Every franchise is governed by these two documents. In fact, if it’s not in the Franchise Agreement, it’s not an obligation.

What’s in the Documents?

A legal description of the business & the term
Franchisee & franchisor obligations
All fees & payments
Detailed Lists of what is included with the fees
Statement of average unit sales (Item 19, optional)
Rights to transfer, expand & renew the franchise
Territorial rights
Signatures to the contract
Current & former franchisees list
Audited statement for the franchisor
And more…

Obviously, for potential franchisees these are must read documents. They are designed to make sure that everything is above board and the franchisee is getting good value at a fair price and that it’s something that can be verified.

A Veteran Discovers the American Dream in Franchising

What do you do if you’re a veteran who is reentering the workforce? You might get a traditional job. However, after serving in the military and coming out with a set of impressive skills like humility, a service mentality, discipline and most importantly, the ability to see any situation all the way through, you might consider owning a business. These skills and others acquired in military service makes you a perfect candidate for entrepreneurship.

Marc Richard- Franchisee of the Year

That’s what happened with Marc Richard. He bought a Postal Connections franchise in Vero Beach, FL in 2010 and proceeded to thrive in the franchise environment. So much so, that in 2011, he was named Franchisee of the Year.

He also will be a forum presenter at the Military Officers Association of America Career Fair held the week of May, 12^th, 2014. He transitioned from graduating from West Point to serving as a US Army infantry captain to joining the workforce to becoming an entrepreneur which is the topic of his speech at the Career Fair. Marc is uniquely qualified to speak about his experiences which may help other veterans seeking a path after their honorable service to our country.

Veterans in Business for Themselves

One of the paths for veterans is business ownership. According to the Small Business Association and US Census Bureau stats. many veterans are doing just that. Consider these statistics from a survey conducted by the Census Bureau:

In 2007 (the latest year figures are available for), there were 2.45 million businesses with majority ownership by veterans, representing 9% of all US firms.
8.3 percent of the respondents had service related disabilities.
California, Texas, Florida, New York and Georgia had the largest number of veteran-owned businesses.
75.1 percent were 55 years and older and tended to be better educated than other business owners.
Finance, insurance, transportation, construction and scientific and technical services were among the industries that veterans were involved in.
The largest capital source (reported by 61.7% of the respondents) was personal or family savings followed by business loans (9.8%) from commercial financial institutions.

Often, veterans who go into business for themselves, especially in franchising, can take advantage of favorable offerings to ease the transition. For example, currently, Postal Connections is offering 50% off the franchise fee for veterans.

In addition, the turnkey nature along with the built in support system (In Business for Yourself but not by Yourself) features of a franchise can make it a very attractive option for veterans seeking their hard earned slice of the American Dream.

The Power of Franchising in America- By the Numbers

The importance of the American Franchise system cannot be overemphasized. Since the 1840s, when German brewers granted rights to taverns to craft their beer, the system made its way across the pond to gradually become the major force in American business that it is today.

Franchise Facts

There are 825,000 U.S. franchise businesses
40.9 percent of all retail businesses are franchises
Franchising generated 8.2 million direct franchise jobs and 18 million indirect
The business model contributes $2.1 trillion to the U.S. Gross National Product [GDP] annually

Franchise Ownership

Isaac Singer, who improved the sewing machine in the mid-1800s, is considered one of the first, if not the first, American franchisor. Now, the business models attract every type of individual seeking his/her slice of the enticing American Dream of business ownership. In franchising’s case, this is a tried and true business formula.

Current franchise ownership stats are:

20.5 percent are owned by women
24.4 percent are jointly owned by women
Since 2011, more than 5,000 US veterans and their spouses have started franchises
Minority ownership increased by 6.2% from 2002 – 2007
20.5 percent of franchises are minority owned. (Minorities make up 14.2% ownership of non-franchise businesses.)

Franchise Progress

There is a reason that franchising remains so popular among such a diverse segment of entrepreneurs. The formula is successful. Because, let’s face it, it’s tough to make a go of a business. With a franchise, however, you are in business for yourself but not by yourself. And that’s what creates the dynamics in these statistics.

Fewer than 5% of total franchises close each year
Nearly 97% of new franchises are still in business after 5 years (study done by Arthur Anderson/now Accenture on a sample of 400)
62.2 percent of all new businesses close after 6 years (U.S. Small Business Administration)

When considering a business opportunity, make sure you look at the power of a franchise. If you join one, you will be part of one of America’s great economic engines.

(graph from census.gov)

Financing Your Franchise Dream from an Unexpected Source

Did you know that you could finance your business from your 401K or IRA without incurring a tax penalty? When we say finance, we mean all costs associated with your business from living expenses until you get profitable to franchise fees.

Economy Affects 50+ Age Group

Our economy has changed dramatically in the past eight years. One result has been that many employees over 50 years old have lost their jobs and are having difficulty finding replacement employment. Often, they have valuable work experience and retirement savings to use toward another venture because they are not ready to retire. Many would like to create a career bridge to retirement while building an asset that can later contribute to their finances when that occurs.

401k/ IRA Financing Advantages

In our experience with franchise candidates 50 years old and more, we see retirement fund franchise financing becoming an important resource for getting into business. The benefits over borrowing from banks or other financing sources are many:

You pay the principle and interest on the loan back to your retirement fund. Of course, your 401K or IRA takes the risk. But that risk is often the same one that you would take by borrowing since most lenders require a personal guarantee to pay off your loan.
Funding via your retirement account does not impact your credit report or score.
It is often faster to get the funds via 401K/IRA rather than by typical lending processes.
There are several credible firms available to assist you in setting up funding via your 401K or IRA. These companies have experience in setting up a government accepted C-Corporation inside your retirement account so there is no tax impact and it passes legal requirements as a non-personally directed investment.
Often the investment of the C-Corporation is only one of several funds within your retirement account.

Tax Deductions

Your C-Corp will cost money to set up and there will be a monthly management fee to the company you select to handle this transaction. The usual cost of this is $4,000 to $5,000 for set up and under $100 per month in management fees. All of these cost are expenses that are tax deductions for your C-Corp.

Choosing a company to assist with setting up your 401K or IRA as a funding source should be chosen by performing due diligence just like in every aspect of your business buying exploration process.

Two sources that will come up when searching for 401k business funding are Guidant and Fran Funding. Spend time discussing their services with them so you can judge how exactly they will support your business.

(Pic from Fran Net.com blog)