Tag Archives: Franchise Fred

Franchises Built for the New Normal

As published in the October issue of Global Franchise Magazine.

We live in interesting times, which a Chinese proverb tells us this is a curse. In franchising it can be a blessing to those franchise models that see flexibility and a focused view on customers.

Artificial intelligence is powering business automation; and digital technologies are transforming clunky analog processes at a rapid pace into self-help time and cost efficiencies. Franchise industry adoption of new age operating processes is in full swing, so there is no slowing down the future.

As a consequence of the pandemic and continually changing consumer behavior, what we once thought of as normal business practices just a few years ago will never be the same. Your franchise business could be in peril if you utilize stagnant “old-school thinking,” ignoring the modernized preferences of today’s customers with special attention on differences among different generations.

Franchises that have remained flexible and nimbly embracing change are being rewarded, often driving record sales and new unit growth. Unique innovations across industries have been implemented to entice today’s consumers in new ways, such as double drive-through lanes to keep fast-food fast. Ecommerce delivery drop-off and pickup packages at pack and ship retail stores adds time-saving convenience and service when needed. Postal Connections® has been following a retail business strategy of blending high tech with high touch service to remain relevant for consumers and local businesses. Paperless and cashless transactions are another technology driver impacting retailing. Recognizing this at Postal Connections, a new consignment sales service using eBay enables customers to turn over the selling of their items online to our staff expertise and iSOLD It® automated system. Using a software system, staff are able to assess item values and sales volatility to advise customers on pricing. Seller identities are transparent online, automated payments are received and franchisees earn a service fee that is directly deposited by eBay into their business account.

In another retail sector, a 2020 study from Wakefield Research found that when faced with change, 85% of restaurants completely reorganized their operations, changing the way they interact with customers as we know it. But, restaurants are not the only ones impacted by modernizations, all of franchising has been impacted. Thus, here are three things to keep in mind as you consider your evolutionary plans for the new normal.

Embracing New Technologies

Technology innovations are the driving forces of our modern society. A whopping 95% of Americans own a cellphone of some kind, with over 85% of those being smartphones. This means that a great minority of the American population does not own a smartphone. One aspect at the intersection of technology and businesses coming together that has taken off is mobile applications. In 2018, 42% of small businesses already had a mobile app, and this has only increased in the last three years. Now, businesses can be an earworm in our phones and with consumers carrying a piece of them everywhere we go.

With increased technology, the way we think about currency has changed. Years ago, the concept of “cashless” businesses was unheard of, and now, especially in big cities, they are a normal occurrence. What started as the takeover of credit and debit transactions, is now the takeover of mobile payment options such as Apple Pay, or even unconventional payment methods like Bitcoin. With the click of a button, you can pay for your items without picking up a single penny. Though not all businesses will or even should go cashless, providing sufficient currency options for customer payment is essential in the modern era.

Home delivery options within businesses were proven to be saving graces throughout the pandemic and continue to remain a staple. E-commerce has simply soared to unimaginable heights due to what began as stay-at-home orders and turned into time and convenience efficiencies for society at large. Postal Connections has seen a surge in our pack and ship services from this transformation (systemwide revenues were up nearly 10 percent in 2020 over 2019. Currently franchise locations are nearly 15 percent up in 2021 over 2020), and we’ve embraced by reinvesting in our own technologies to reinforce the uptick in delivery preferences for consumers and businesses.

Whether it is taking the form of delivering food from a local restaurant through third-party mobile applications, or e-commerce orders for whole new wardrobes through extensive online shopping options, the ease of not having to leave your home matched the needs of modern consumers in a post-pandemic world. For instance, we have adjusted to at-home convenience with our proprietary iSOLD It on eBay operating system. It works on mobile devices so Postal Connections staff can go to a seller-customer’s home or business to start our service. Robust e-retailing options are one of the most transformative aspects of new normal operating processes, though concerns remain with supply chain issues.

Labor Light

According to a 2019 study from Oxford Economics, Robots could take over 20 million jobs by 2030. Where factory workers once sat, and secretaries once made phone calls, there could be an individual computer controlling all of the work. Labor supply for many franchise sectors is as small as ever, and businesses are looking for ways to operate “labor-light” business models, requiring as few bodies as possible.

We have all heard complaints that robots are growing so complex that they have the ability to take over our jobs. Though this sentiment is often laughed off, it is a genuine reality and concern. But, given current labor shortages, there may be no other answer. The more automation built into business models today, the greater the likelihood of operating a business designed for today and beyond.

Likewise, the simplicity in business models needs to be optimized – the lower the employee count, the greater the attractiveness of the franchise for franchisee recruitment. Today, blending high tech with high touch services fosters personalized attention with as little as just a few employees. The combination of human interaction and tech forward innovation becomes a powerful benefit for many who want to save time, don’t want to do it themselves or seek expertise and comforting attention. Especially among service business franchises, the human element is key to customer loyalty and earning a margin for being there.

One aspect that many businesses have adopted is the concept of “self-service.” This takes the form of self-checkout at a grocery store or an ordering kiosk at a restaurant.

Another dying concept is that of picking up the phone. 88% of Millennials prefer texting over phone calls, and the same can be said for Gen-Z. Picking up the phone and engaging in a time-consuming conversation that could have been a simple text feels like a waste of energy for these groups. Nowadays, to accommodate these young individuals, there should always be an online option. Being able to make a haircut appointment on an app at the click of a button versus having to spend time speaking to another human is a sigh of relief. Scheduling and booking appointments, tickets and more online takes franchise industries is a huge step in the right direction.

When we look at customer satisfaction, consumers tend to be happiest when the task requires the least time and brainpower. The “labor light” model with fewer employees, do it yourself options, and single-click versus phone call options make the world run smoother, especially among younger generations who are the most savvy technology users.

Supply Chain

Right now it is hard to get many things. We are consistently hearing about shortages within the narrow supply chain crowded with back orders. Supply shortages are up 6 3 8% in the first half of 2021. It is vital that businesses dependent on hard and soft goods, foods and delivery of operating supplies remain up to date and prepared to tackle these challenges.

The modern business will make adjustments to accommodate services and offerings depending on product availability and delays, without compromising quality and reliability. One example of this recently were the U.S. meat shortages. Supply chain issues are to blame. These shortages have led to shifts in consumer behavior, and leave consumers looking for alternatives. Other shortages include car-chip shortages, impacting the number of new cars produced, home furnishings and less essential items such as pool equipment.

In the very near future, drones may very well be dropping our stuff off, and we may leave our own homes less. People are continuing to work from home (with roughly 22 million Americans still in “WFH” mode), shop from home and do things without any human interaction. This is new behavior, and a big change from old fashion ways, but adaptation to new supply chain requirements is imperative. We are gripping onto any human interaction we can get, though now we are launching into a new normal filled with endless possibilities and personal capabilities using technology. Agile and flexible franchise concepts will flourish as they recognize that younger people from a new generation coming into consuming and commercial leadership have the right to do things the way they want.

Fred Morache is the COO and Managing Partner of Postal Connections/iSOLD It, bringing more than 25 years of experience in the franchising and pack and ship industries to his leadership role.

Franchising and Millennials – A Surprising Match Made in Heaven

Commonly, the main group of individuals interested in buying franchises has been those on the “bridge to retirement,” as I like to call it.

The “bridge to retirement” refers to those who have had a successful career in their established industry, and are now looking for the opportunity to be their own boss and establish a new source of income. This franchise ownership will carry them into retirement and could be an excellent opportunity to provide their family with an existing business.

However, in recent years, a new group has emerged in the franchise ownership space: Millennials. Gen Y, or Millennials, are the generation made up of those today who are between the ages of 25 and 40. Many Millennial-aged professionals are choosing to take control of their personal and professional futures by grabbing hold of the opportunity to enter entrepreneurship. Only now, more and more are choosing to do it in franchising, mainly because of the level of support and the proven business model that comes with a franchise. It almost could be considered entrepreneurship with a parachute.

Business, especially franchising, must deal with the most powerful force known-to-man: Aging. The latest statistics reveal the obvious that “the two generations following the Baby Boomers are larger and growing faster than Boomers who are aging out,” according to the Pew Research Center.

As reported by FranchiseInsights.com: July 21, 2021 – For the first time in history, more Millennials are seeking franchise ownership than Baby Boomers. While Generation X, has shown the greatest share of franchise interest for some years, that share may have peaked in 2020 at 48.2%, based on year-to-date data in 2021 through June.

The Gen-Y or Millennial cohort (ages 25-40 in 2021) is growing rapidly in share, and now makes up the second largest generation of future franchise owners at 24.7%, edging out Baby Boomers at 23.4% of franchise inquiries.

So, what does all this mean? See the last discussion in Franchise Fred below. Millennials are interested in many things at home and work that have not been the priorities of the Baby Boomer (ages 57-75 in 2021) and the Gen X cohort (ages 41-56 in 2021). Technology, environment, personalized service and meaningful work come to mind as top priority among Millennials. Franchises that embrace these aspects of human endeavors and business interests will fine the greatest appeal.

Millennials now represent nearly 20% of new franchise owners, otherwise known as franchisees. Plus, that number is increasing in part because this age group brings a lot to the table. Their skillset often works hand-in-hand with owning and operating a franchise business.

Some of the talents commonly found in Millennials include:

Increased collaboration
Enhanced problem solving
Interest in self-improvement
Competent communication

Let’s explore some of the main reasons why Millennials are a great fit for franchising.

Strong knowledge of technology

Technology and computers are as natural to this generation as walking. Millennials are the first generation to have been raised in a highly tech-advanced culture. The ease with which they absorb new technology makes them skilled for franchise business management, which is a challenge to older franchise prospects.

Millennials fully embrace digital life by not only purchasing technology but also consuming technology in their daily lives. To stay up to date with the latest trends and consumer behaviors, almost all businesses are now building platforms and digital tools, which boost their effectiveness. These tools, such as mobile applications, can embrace the franchise owner and customer needs and expectations.

In 2021, the integration of technology into businesses is a must. As an example, we have invested heavily in advancements for our franchise, Postal Connections/iSOLD It®, and now consider our concept to be at the leading edge of the business services franchise category. New service centers are equipped with digital menu boards for ease of customer service, websites configured to download files and online ordering and as well as eBay technology, such as Quicklist™ for iSOLD It services, is being implemented.

Purpose

It’s a common misconception that this generation is lazy and unmotivated. Rather it’s quite the opposite. Millennials are just motivated differently than previous generations, and we have to take that into account as they pursue franchise investments. According to a 2018 study, Millennials want to spend their time doing work that has a positive impact on others.

Millennials seek purpose in their lives and their careers. Many are naturally inquisitive and eager to learn from others, making them great candidates for franchising. The best type of franchises for Millennials are those with strong missions that give back to their communities to tie into a greater purpose. At Postal Connections, we start when our candidate joins up as a franchisee with explaining what our operating values—service that is trustworthy, friendly, savvy and leading edge—means to business activities and treatment of customers.

Schedule

Being tied to a desk and a specific schedule is often viewed as an ancient practice for Millennials. Online meetings, classes, and smartphones have made it easier to be efficient and flexible with scheduling. It has been found that companies that offer flexible scheduling are much more successful than those with the standard 9 to 5 schedule. When you can “be your boss” you can have the flexibility that you would like. Owning your own business and making time for family or other commitments when needed creates freedom and control. Franchises that offer business models with flexible operating standards, instead of regimented and mandatory requirements offer Millennials a place to apply entrepreneurial creativity to advance the business.

One of Postal Connections’ newest franchisees, a Millennial, Lee Kennedy in Bend, Oregon, has found a great path with opening his first Postal Connections franchise. He has chosen to operate the business with help from his family – a selection he made strategically as a way to incorporate those he loves into the business for now and future generations. His strong desire to learn and grow within his business and the community is proving to be an asset.

“I have been impressed by the Postal Connections franchise model since day one and have witnessed firsthand how a business service center with time-saving, personalized services will meet the needs of residents here in my Bend community,” said Lee Kennedy.

As Millennials begin to lead us from the office life and launch their careers to new entrepreneurial models through franchising, we can learn a lot from them. Careers are moving away from what we once knew, and begin to incorporate more technology, purpose and flexible scheduling of work, we look ahead to new, successful models of franchising. Franchises that accommodate savvy customer needing support working in with online commercial and customized service solutions. The future of franchising is expanding beyond the traditional “bridge to retirement” goals, but is a refreshing direction to launch careers as “budding entrepreneurs” for a new generation of individuals becoming their own boss.

LOCATION, LOCATION! But First What is the Business

Typically, when people make the decision to own their own brick and mortar business, they begin to envision themselves in a specific location. It’s natural to think about where your business would operate considering you’ll be the owner, you know the community, and it’s probably a venue or address you’ve always found well-suited for a business.

Franchising offers a strong opportunity for entrpreneurs to pursue those business ownership dreams right in the community where they’d like operate. In fact, in many cases, franchises offer sophisticated real estate site mapping services to provide accurate information about opitmal location placement. It will include drive-by traffic and many other details pertaning to the viability of the location.

Not all franchises can offer a new location in your neighborhood or dream location. Of course, many established franchises already have someone occupying a protected franchise territory which blocks new franchisees with the same brand from doing business inside the current franchisees designed territory. This is important to all parties concered and avoids dimenished revenue potential and failures. Frequently, established franchise brands first select a site and offer than offer this to a franchisee candidates.

However, many franchise candidates believe they already know where to place their units and they start scouting locations, contacting real estate brokers and begin to get “hard wired” into the fact that “this is the place.”

Yet, in most cases this puts the cart before the horse. Since every franchise has a different set of characteristics that have proven the model out, it’s important to first match up with the franchise model of your choice, then look for a location. A potential franchisor should be able to describe the type(s) of neighborhoods, traffic paterns, customer income levels, kids, etc. are needed to be successful. The franchisor should be able to expalin competitor issues and greatest potential where the“under-served” marketplace(s) are. Get this information when you start looking to save time and intelligence for where to go for a good location.

The franchise model that you choose to join is an invaluable guide in the site selection process. With that said, there are always a few things to keep in mind when considering locations to open your franchise:

What size location does the franchise’s corporate leadership recommend?
- You pay rent based on how much space is being occupied. Too much room is wasteful because space cannot be used to produce revenue. Too little space and there is not enough room to tend to customers and maintain back-of-the-house operations. Early in the process of considering a retail franchise selection, visit an existing franchisee’s business. View how the location’s space is used first-hand.
How well do you know the area?
- The key here is knowing the immediate and surrounding areas like the back of your hand, including where direct or indirect competitors who may influence your prices up or down are operating. Assuming you’ll do a great job with delivering the product and/or service, will your franchise business depend on generous margins from loyal customers or mainly from other demographics? First consideration is to think as a customer might. Convenience is KING. Is a location easy to travel to? Can you get into and out of the site without dealing with no-turn postings or difficult traffic? Is there enough parking near the store?

A few years ago in Southern California, one of my pack, ship and postal store Franchisees chose what at first look seemed to be a perfect site. The space and rent level were OK. The location was at the corner with a high-level of traffic who would see the store sign and know what was being offered. And best of all, it was one door down from the hottest coffee shop concepts.

After signing the 5-year lease it was discovered early that the popularity of the coffee shop was a plague to nearby parking, easy access with drive lane lines and coffee customers who came and left without a 2^nd stop to other mall merchants.

The lady Franchisee resolved at the end of here 5-year lease not to renew and move to a larger space 100 yards to an adjacent mall. She kept her customers from the first location and spike new revenue helped by accessible parking, easier access and egress and more space to offer new products and service.

Consider from the start whether high traffic counts into the center can be a boon or curse for the personality of your franchise business.

Shopping malls can be a great location for franchisees to open a site. A shopping mall-based business will bring traffic and customers on your first day of business. Remember these hints when you start the site-selection process:

Having an exclusive right in a retail mall or shopping center to sell your specific items is a major key.
- The right to sell things in your store needs to be defined on the lease. It’s important to know there usually are two categories of “Use” in a commercial lease. One is “exclusive use” and another is right to sell even though another store or business is selling the same or similar things. “Exclusive” is the key to avoid competition from retail neighbors in the mall such as grocery stores, pharmacy or other businesses that sell a specific product that you also sell. Start your site selection efforts by getting information on “Use” for any location you may think is good for your business. Landlord’s, R.E. brokers or questioning current tenants can get you this info. It will save time if you do this up front—don’t wait until you ask for the lease. Be ready, learn what may be competitive threat by getting product/service sales percentages in a typical store. The franchisor will know this. It’s important to know if a sales item is a minor portion of your revenue and negotiate the right to sell but not exclusively.
Be aware of your direct neighbors and other nearby businesses.
- Often, the mix of fellow mall and shopping center occupants or nearby businesses may be traffic generators for the area surrounding the site or, they can deplete customer traffic to your business. Grocery stores usually boost traffic for their neighbors while destination enterprises such as furniture stores, home improvement, auto parts, movie theaters, etc. where people come, buy, and leave, can hinder traffic.

Keep in mind these specific things your franchisor can help you determine when finding a new site:

Help review the lease with you before you engage an attorney.
- Legal advice is expensive yet needed when you are considering signing the lease. The franchisor is there to help review the lease and guide you concerning typical terms.
Rent and common charges
- Negotiate a rent abatement for the first few months. This is usually a reduction and not free rent. Monthly abatements from the front of the lease can be added to the back of the lease, so make sure to negotiate shrewdly. Typically, landlords will abate the first few months, but not the Common Area Charges (CAM). This occupancy cost also called the “Triple Net” monthly charge for taxes, insurance and administrative work managing the property. You pay a portion of the total mall or center CAM based on the percentage of space you occupy. Learn what this expense is when you get the rent figure because frequently it can add 25% to 33% more to the rent.
- Franchisors should be able to tell you how much a typical franchise business should get in what is called “tenant improvement” allowance. This is money the landlord allots to the new business to customize the location for the specific model. Know the condition of the space you’re considering. If the site is new or perhaps recently vacant, the tenant improvement may need removal of walls, a new ceiling cover or flooring, relocating utility outlets, paint, etc. These improvements can be costly and impact your initial investment and cash operating reserves. So negotiate aggressively! Most important be assured by the landlord the heating and air conditioning system (HVAC) is inspected with a certification it is good condition. This item when it goes down can break the back of a new franchisee.
Location-based services
- The franchisor should identify all necessary vendors that can service important supplies and goods due to the location and protected territories of competitors. Be sure your franchisor discloses whether there are any typical items the franchise model sells but cannot be sold at the location chosen. This frequently occurs with a nearby competitor has the exclusive right to sale an item your business depends on. It also can occur if a vendor product/service cannot be sold in a business model in your city, county, state etc. This can include districts and proximity to a school

Learn more about franchising opportunities with Postal Connections.

Are you still learning about franchising and do you remain curious if it is right for you? Lean into franchise investing a bit more with Postal Connections/iSold It’s top executive Fred Morache. For a fresh perspective and high-quality educational information on franchising, read the Franchise Fred blog. Check back regularly for new articles!

What Does Customer Relationship Management Mean to You?

Customer Relationship Management or CRM means software developed to store and manage your customer, prospect, leads, business partners and business contacts information. CRM is generally tied to large companies, though software including Zoho CRM , TeamSupport, Pipedrive, Prophet and more claim to work well for smaller companies.

The advent of CRM solutions means that consumers expect companies, no matter what size, to understand the relationship they want and meet those desires. Consumers expect any brand to meet their expectations although, many companies do not. Often, companies are good at capturing data like gender, age, income and maybe even matching customers with purchasing information. Companies like this may think of customers as resources to upsell or cross sell to rather than as individuals seeking meaningful interactions.

Customer Relationships

B to C companies often blunder when relating to customers. They may treat those seeking a simple exchange of money for goods or services like a friend and interact with a customer wanting to be treated like a friend as a transaction.

Blow are examples of three firms that used CRM data, yet made relationship mistakes:

· A loyal on-line retail customer was frustrated by a policy of requiring signatures for home deliveries occurring while she worked. Managers were not flexible to her concerns and one blew it by offering her a $200 gift card. She promptly canceled a $7,000 order.

· A plus-size clothing store repositioned itself to be more relevant to younger, thinner customers only to find themselves alienating established customers who felt disrespected and betrayed.

· A dedicated customer of a grocery delivery startup sent in suggestions to fix operational glitches. However, the only responses he received were promotional emails urging him to order more frequently. The customer cut back his patronage believing the company did not want a relationship on his terms.

29 Customer Types

One research firm identified 29 distinct types of buyer-company relationships which is more eye-opening and more valuable than demographics. For example, there is the customer that likes the basic exchange. They seek product / service dependability and don’t want to think too much about it. Another is the customer wanting recognition as a business partner. These types want to work with the company long term to solve problems. The buddy customer wants an interaction but doesn’t want to be tied into a close relationship that limits freedom.

It’s up to the business owner to figure out which type matches the customer by developing “relational radar” to hone in on customer signals and then deal with them accordingly.

Fred franchises Postal Connections of America stores: http://www.postalconnections.com/

Franchise Forecast 2016

The International Franchise Association’s (IFA) state of the industry report for 2016 suggests a positive outlook for the franchise industry.

The report, compiled by IHS Economics, a well-known forecasting firm, projects that the franchise sector will outperform the overall economy next year by posting a 5.1% gain against a projected US gross domestic product increase of 3.1%.

Out of the 10 major franchise sectors IHS tracks, the following six will see the most growth:

– Personal Services: This includes businesses such as spas, childcare, tutoring, hair salons and specialty niches like learning-to-paint franchises. The growth is tied to the growing disposable income of the aging population.

– Lodging: With travel increasing because of the improving economy, many of the major hotel and motel chain franchises are expanding across the US.

– Business Services: Business services including tax franchises, staffing companies and pack and ship stores are also in a growth mode fueled in part because of the increasing number of self-employed workers who do not operate out of offices.

– Fast-Service Restaurants: Consumers are looking for better quality food served quickly. Franchises in this sector include Panera Bread and many of the fast food chains. This category is responsible for 40% of franchise employment and has 20% of all franchisees.

– Retail Products and Services: Stores including 7-Eleven, Pearle Vision and GNC are all niche stores that are posed for more growth in 2016 because of the country’s economic growth.

– Residential and Commercial Services: Along with the increase in business in general, places that service businesses like Service-Master will also grow.

2016 appears to be another good year for the franchise sector. Along with the built-in advantages of the franchise system, franchising might be the right choice for many aspiring entrepreneurs.

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.

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

Locking into the Franchise Formula

One of the main differentiators between buying an independent business and purchasing a franchise is the franchise formula. But what is a franchise formula? It is a proven model for marketing and operating a business from lawn care to garage door installations to educational systems to cupcake shops to a fast food restaurant.

Independent businesses also have a formula, but their model is about that specific operation and how the current owner works the business. It is not a proven formula beyond its current state because there is no proof of it working in another locale or under a different owner.

Asset Value

When you own a franchise business over many years you are continuing to pour value into your business and the franchise as a whole. As a result, the ability to sell if/when the time comes appears to be much greater. This is due to the fact that the franchise business is working in other locations among other owners.

What you’re really doing when you buy a franchise is investing in its formula. The impact of that can be seen in the business support you receive. (Remember, when you buy an independent business, the owner usually leaves after a short period of time and you’re on your own.)

Franchise support is typically extended to:

Marketing to target customers or protected territories
Operations support that starts with a complete description (manuals) of how the business works
Training, ongoing support and business concept updates
Financial sourcing and planning in support of the business’ progress
Site selection if the business is location specific
Brand identity

Due Diligence

Of course, not all franchises are created equal. And it is the individual’s duty to perform due diligence and confirm that the franchisor is meeting the basic expectations of the franchise formula. This is done by reviewing the franchisor’s claims, investigating current franchisee performance and carefully studying the Franchise Disclosure Document [FDD].

The final step in validating the franchise formula is having a personal meeting with the franchisor. This is where you get to probe about the business philosophy and the company operational practices. See if they’re realistic and most importantly, if they fit your expectations and personality.

(Image from Franchise Direct)

What Does a Franchise Cost and What is the Money For?

As one who offers franchise opportunities, typically the first question asked by interested people is how much does it cost to become a franchisee and what does this include? To answer this question it needs to be understood that a franchise is a system—usually including proprietary methods, training, a brand name and support from experts—for operating a proven business concept.

With franchising, no matter what your initial buy-in is, you should be able to make money. The franchise cost of entry and how fast you reach an ROI, greatly depends on what franchise you choose, what you can afford and the ongoing cost for operating the business. But where the initial investment money goes is similar for most franchises.

Below are the main initial costs:

Franchise Fee- This is what must be paid to become part of the franchise system. It is for the tried and true business concept, the expertise of the franchisor and the chance to become part of a money-making opportunity. This fee can run from a few thousand dollars to more than $100,000 for greater opportunities of revenue and for the higher end, well known franchises. It usually includes the rights to use proprietary materials and systems as well as the cost of training, initial marketing packages, software and website access.

The franchise fee also can be based on the size of the territory (population) that you will service and how much support will be provided by the franchisor. For example, the iSold It franchisor offers both an at-home and a brick and mortar location franchise system. The franchise fees are different due to territories defined and training.

Build Out and/or Business Set-Up Expenses- These are expenses needed to make any modifications to the physical space to conform to the franchise standards. They include equipment, software (if needed), branding décor, sales materials, supplies, freight to deliver items, training, and other expenses the franchisor might incur to set-up your business.

For example, if you are opening a retail business, it would be flooring, cabinets, counters, sales inventory, equipment, signage, etc. It also includes construction costs, fees for any local licenses and materials needed to bring the store up to standard.

For a home based business it typically includes equipment needed to market and sell things, products, business supplies, and branding materials (whether online or printed). Typically, the franchisor is heavily involved in assisting you in this important process.

Liquidity or Operating Reserve- It will take some time before the franchise turns a profit so franchisors usually require new franchises to have cash-on-hand to take them through that period. This could be needed for as little as six months to over a year. It is the money needed to keep the business going until you pass a breakeven point. This is the financial number, often called fixed cost of the business, that you need to “keep the doors open” whether or not one sale is made.

Once you become a franchisee, your franchisor should spend time with you determining exactly what your breakeven point is. He should also help you plan several years out about how much sales revenue will come to you as wages or profit distribution.

These categories of cost, called Total Initial Investment, are the amount you should expect to invest in the new franchise. Every franchisor is required by the Federal Trade Commission to accurately report the Total Initial Investment to people considering purchase of the franchise in their Franchise Disclosure Document [FDD] and in any advertising stating the initial cost.

Example: Postal Connections Initial Investment

Click on this chart to enlarge it

But there is another potential expense for start-up not part of the initial investment that we encourage every franchise prospect to consider:

Professional Costs- In making a life-changing purchase like buying a franchise, you may want to hire an attorney to help you make a sound decision. The attorney will review all of the franchise documents to make sure they comply with local and state laws as well as to ensure you understand the franchisor’s and your obligations stated in the language of the franchise agreement.

If you need to set up a corporation and need help setting up your books, you may need to hire an accountant also.

Hire professionals who are familiar with the way franchises work.

Obviously, it’s important to understand what you will initially pay out and be comfortable about where that money is going and how it will come back to you with a profit. Never be too embarrassed to ask as many questions as it takes for you to fully understand what you’re paying for.

Five Reasons to Buy a Business

The franchise business has weathered the recession better than most industries and it shows considerable promise moving forward. Plus, this is the time when more people are patronizing local shops allowing for the flourishing of family capitalism rather than big business capitalism.

Good reasons to buy right now include:

Seasonality: Be ready to take advantage of the seasonal spikes that occur during the holidays. This can make a huge difference in revenue if you time it right. For example, Postal Connections of America does 2 to 2.5 times their average monthly volume between Thanksgiving and Christmas. That might be the best time to buy that franchise.

Financing: Not only may sellers and franchisors be more willing to finance but other funding options such as SBA loans, penalty free 401k funding and using unsecured credit are being made more readily available. This trend is definitely headed in the right direction especially when compared with a few years ago.

Buyer’s Market: Right now, prices on business and the equipment to run them (including real estate) are lower than usual. As with the stock market, it’s good to buy low and sell high which makes now a fertile business buying time.

When it comes to leases, landlords are open to negotiating favorable terms on prime space for a new franchise operation.

In addition, interest rates are at all-time lows. If you have a good credit history, you will be able to find excellent interest rates. Keep in mind that as the economy continues to heat back up, so will expenses.

Job Market: In addition to it being a buyer’s market for opportunities, it’s a good market for hiring qualified employees. Because individuals in all sectors are experiencing layoffs and downsizing, it’s highly probable that you will be able to get the right individuals to help your business prosper.

Risk: If you are concerned about the risk of going it on your own, an established franchise system reduces the worries of business ownership entry. In fact, it’s one of the big advantages of franchising. You build on the experience of a franchisor and established franchisees that can support and guide you through the process. Another positive is that a franchise system offers the buying power, efficiencies of scale and training you need to build a successful operation.

If you have a dream to be a business owner now is the time to go out there and make it happen.