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Postal Connections franchisee Lee Kennedy

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.

Anne Marie Marvin

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:

  1. 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.
  2. 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 2nd 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:

  1. 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.
  2. 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:

  1. 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.
  2. 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.
  3. 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!

Married Couples Turn to Franchises To Own Their Own Business

The last year-and-half has seen rapid changes to commerce and where we work and live. Beyond the much-reported ascendancy of ecommerce and working-at-home, there is strong evidence married couples are seeking new opportunities to be their own boss. They want to participate in the American dream to own their own business, opposed to working for others. Large numbers of married couples are turning to franchises.

Franchising has unique, positive benefits for married couples wanting to control of their careers while building a financial asset. Couples have unique advantages to join a franchise. They combine financial strength, talent, and family support frequently with participating children.

Research from FranchiseInsights.com by Franchise Ventures, a large collection of internet lead-source companies for franchisors, measures and analyzes online franchise candidates who come to them to investigate opportunities.  From January to April 2021, it is revealed that “Nearly two-thirds of prospects [candidates] interested in buying a franchise are married….” “This is significantly higher than the national marriage rate of 55.7% for adults aged 24 and older.”

Married couples exploring franchise opportunities, according to FranchiseInsights.com, account for 65.5% of inquiries and are significantly above the national marriage rate of 55.7% of adults 24 and older 

Business is exciting. Not only the financial rewards but also the emotional gratification especially shared by a man and wife team. As an entry-level business model franchising is a good option since you start up with a proven business, something that works. For married couples, the franchise business formula is ready to go and ongoing training and support enables the couple to combine their financial strength and apply different talents while maintaining a household or continuing a separate career or simply keeping either person from becoming exhausted. Plus the old saying about franchising applies: Go into business for yourself, but not by yourself.

From my years in the franchise business here are key ideas for married couples:

  • Test with discussion what is the most important, 1 goal spouses shared. Before looking into a franchise business, before investigating a formula—e.g., restaurant, senior care, cleaning, plumbing, educational tutoring, etc.—agree on the reason you want to own your own business. This is critical to combining talents and energy as business partners. A few examples:
      • Make as much money as possible
      • Build an asset and income bridge to retirement
      • Create a family business
      • Gain experience as a business owner while building an asset that can be sold
      • Have a business near home
      • Develop a multi-unit business with greater revenue and asset value

Investing in franchising by married couples has the career strength and creativity from two entrepreneurs with the multiplier of talent for operating the business. Below are three examples for how this has worked for others.

Elizabeth & Jim Bowe Franchisees (center), and Franchisors Andy Thompson (Right) and Fred Morache (left)

Couples focused on their shared No.1 goal in choosing a franchise investment. This is demonstrated in a couple’s priority to build a family business. The couple bought out of relative’s failing franchise and revived it into be a thriving, profitable venture. Combining their talents a commercial airline pilot and housewife-mother concentrated on building a family retail operation, turning the store into one of the national chain’s top performing sales units. They achieved a million sales operation in one store. 

But priories grow, just as families do. Now the couple own three franchise stores in southeastern Pennsylvania and employ many local people while their family business served as the nexus for their children to learn how business works, successfully finish college and venturing out on their own.


  • Only after a shared goal, begin investigating franchise concepts that excite both of you. Most important, be sure you agree on the knowledge, talent, and capacity that each spouse will provide to the business. Avoid that one-half effort is excited and the other is lukewarm for a concept. It’s too easy when on partner pursues a separate career or the household. Emotional, physical support and financial decisions suffer. A harmonious and cooperating married couple is a powerful business force.
  • When you land on a franchise concept know the requirements of the business. The franchisor will provide a Federal Trade Commission (FTC) document called the Franchise Disclosure Document (FDD). It is filed annually to certify the details of the franchise business. Both parties should review and discuss what’s required what the obligations are and whether you can do what it takes. There should be no verbal promises from the franchisor that are not in the FDD.
  • Often married couples have different talents that complement each other—one is a savvy user of technology; another is a people-person; one is focused on financial matters while the other is a visionary with creative business solutions; one has a high-level physical drive while the other is less so, etc. The best part, is unless the couple are newly-weds, a married couple should know each other.

An entrepreneurial couple’s shared goal was to diversify their agricultural, seasonal business in their Oregon smalltown. They invested in a mail, pack & ship service franchise opening “…where everybody knows your name.” Both husband & wife are savvy customer service and marketing experts sharing owner-operator duties in-store while the partner switches off to manage other outside priorities. The wife contributes her talent gained from advertising experience. The husband adds a sharp eye for new sales opportunities introducing new services and products that attracts customers.

Postal Connections franchisees Don & Sue Harteloo,

In their 18th year as Franchisees, the couple’s harmony and talents have consistently made their hometown franchise store a success while continuing a successful second unrelated mail-order business.


 

  • Funding is always a key issue, especially for married couples, are there more than themselves to consider. Do you lead a family unit with kids or parents? The household budget needs to be kept in place at greater or lesser levels. It will affect funding a franchise. The FDD gives you a range a range for initial investment. You have the advantage of combining incomes and investments. Currently, SBA backed loans are offering favorable funding terms and low interest rates. Typically, these loans require 20% to 30% down of the total loan and a logical business plan. Experience in the business is a big plus. Be sure to consider in your loan application two key expenses that often are overlooked
    • Household expenses projected for the next year. Which spouse can cover this with separate employment until the business is making money? Or perhaps a household reserve set up by adding to the loan debt?
    • A business operating reserve is always needed for a new business. It’s rare to open a business and have salary or profit to support operations with labor cost, maintenance and repair, marketing and advertising cost, etc. The best way to get an answer for how long is phone calls to current franchisees and ask “how long?”

A married couple’s shared commitment started with building an asset bridge to retirement. They brought savvy and unbending enthusiasm to their franchise investment following a lay off due to a corporate failure. The couple’s partnership has been supported a two-track career strategy with the wife as an employee of a private educational system and the husband develops a new franchise business that is the asset that can be increased and cashed in when the times comes.

Located in Boise ID, the mail, pack & ship service center has had one of the fastest new store revenue climbs and continues in 2021 on a rapid pace with 6-month 2021 sales 75% higher than first half 2020. The wife continues to bring home stable employment and benefits; while the husband succeeds in being his own boss. He brings retail and sales experience to his operation; and keenly understands how personalized customer service is key to loyalty where a population relies on ecommerce yet starved for face-to-face service attention when needed.


  • An important aspect of choosing a franchise is how well will you get along with the franchisor. My company, Postal Connections®, a mail, packaging, shipping & business services retail service center arranges a personal, face-to-face meeting with one of the owners and the candidates where they live. We asked that both spouses attend. It’s important to know each other as persons before an Agreement is signed. This is not a howdy visit, but a meeting for a day or more to discuss goals, remaining Agreement questions, business practices, obligations, etc. There are many ways franchises do this personal introduction: discovery days at HQ, phone conversations, regional meetings with representatives, etc. Because a franchise relationship is for several years, it is important to know each other. The confidence of both spouses that commitments and support will be there and when you pick up the phone there already is some understanding for why you called.

The History of Postal Connections of America

Today, you know your Postal Connections of America (PCA) store as a one-stop shop for many useful items and services for businesses and consumers. The stores offer anywhere pack and ship, printing, copying, shredding, mailbox rentals, office supplies, computer rentals, notary services and much more. In addition, to maintain the local flavor of the stores and because so many are community driven, several stores offer other items. These have included stocking greeting cards, gifts, local craft merchandise and selling media like games and DVDs.

The History of Postal Connections of America

Postal Connections of America started in 1995, 21 years in business in 2016, an enduring accomplishment by any standards. The company originally built and furnished postal, packing and shipping stores for independent operators. The very next year, 1996, PCA started franchising by providing franchisees a support system for daily operations, marketing and preferred vendors.

In 2000, a holding company bought the franchisor as an adjunct to a collection of businesses, operating Postal Connections as a subsidiary. In 2002, the current owners, C. “Andy” Thompson and Fred Morache, joined Postal Connections as experienced managers to develop the franchise business.

New Franchisors

Andy and Fred ended up buying the franchise in 2007 and made it a privately held company dedicated to expanding franchise stores across the US. Their concept was to update the version of the original postal, shipping and business services concept they helped create at Mail Boxes Etc. which was based on providing community-oriented products and services, stellar customer service and competitive pricing.

Franchisees are encouraged to add new services and hard-to-find products unique to the community. The Postal Connections staff and area franchisees dedicate themselves to assisting and guiding franchisees to grow their shops.

We love this business!

Note: All stores do not provide all services. Contact the store in your area to inquire about a particular product or service.

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.

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.

FM Marc RichardMarc 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, 12th, 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.

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

FM logo 3As 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

FM Chart 2

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.

Small vs Big Franchises

FM Franchises on StreetFranchising is a uniquely American business model. In fact, the entire idea of selling a proven business formula to others with support over a period of years in return for royalties became popular in the US just after WWII. Since then, franchises have grown to account for a third of the businesses in the US There isn’t a small town or busy city street that doesn’t have a store or service truck operated by a franchisee.

An important factor in considering a franchise is deciding if you prefer a big or small franchise system.

Big Franchise Chains

These well-known organizations offer brand recognition that brings people to the business whether online, on the phone or on the street. You pay for the brand recognition in the initial investment as well as to an ongoing fund to continue promotion of the awareness and good image of the company. For example, some of them can cost as much as $500k for the total initial investment and up to 8.5% of your monthly sales.

Also, as a franchisee, you will work with staff operations, business development or marketing departments of these franchisors. Programs are sophisticated and typically originate and are directed from headquarters. Individual face-to-face attention is emphasized less and implementation of standardized programs are the most common solutions to business challenges.

Smaller Franchise Chains

Choosing a lesser known franchise brand, usually smaller but with a proven business model, are ideal for people who have fewer capital resources, seek flexibility in operating the business, and are prepared to do much of the marketing effort locally. The initial investment is less and the ongoing marketing cost, usually, is less. Initial costs may be as little as a few thousand dollars and ongoing royalties are generally low.

Points to Ponder

To help you decide what size & brand development fits your goals, here are three things to consider:

  • Be sure the franchisor is committed to be in business with you. This means the franchisor is “with you” as you set up the business. He thoroughly explains the business formula so you understand the financial model, the best sites to look for and how to work with vendors. Check to see if he can be reached in a timely fashion. Will he come to visit you when needed? Does he demonstrate understanding of your business goals and will he help you achieve them?
  • Be sure to know what resources are available to you through your franchisor. This includes working with you on a step by step basis in organizing the necessary opening resources needed to open your store.

FM logo 3Find out if your franchisor has a non-fiduciary relationship with any funding sources he might be recommending. Check out how the training program is run including the franchisor’s commitment to it.

  • Whether the franchise is large or small, make sure the business model is proven. That’s what you’re paying for. It’s supposed to have all of the bugs worked out of it and be ready to generate a profit assuming you put in the required effort.

One thing that cannot be discounted is how you feel after you meet with the franchisor. Are you getting a good vibe? No matter which route you take, a large or small franchise business, it has to feel right.

(Image from the William Rosenberg International Center of Franchising: guides.business.library.edu)

The Impact of Franchising in America

Periodically, the International Franchise Association Educational Foundation publishes a study developed by PwC that measures the contributions of franchising to the US economy.  The key economics measured in the study were jobs, payroll output and GDP establishments. It’s exhaustive research that even presents the impact on a state by state basis.

Following are some of the findings from that study (2007 data, the latest data available):

More than 828,000 establishments operated out of US franchise systems. They produced the following:

  •  9.1 million jobs
  • $304.4 billion in payroll
  • $802.2 billion of economic output
  • $468.5 billion to the GDP

In addition, franchised businesses were 2.8% of all non-farm business establishments and their output contributed to 3.4% of the total US GDP.

Job Data

Franchising is a prolific employer. This is how jobs generated by franchising stack up compared to other sectors of the economy:

  • Durable goods manufacturing 9,171,500
  • Franchised businesses 9,125,700
  • Financial and insurance 8,801,600
  • Real estate and rental and leasing 7,765,500
  • Wholesale trade 6,582,600
  • Transportation and warehousing 5,949,900
  • Nondurable goods manufacturing 5,300,300
  • Information 3,556,900

Jobs generated by franchising are number two to durable goods manufacturing.

FF pie chartThis pie chart from the report that shows how franchising jobs are distributed among the different businesses.

When you break it down by state the number of people employed because of franchised businesses was the greatest in New York, Illinois, Florida, Texas and California. On total jobs in a state, franchising had the greatest impact in Mississippi with 15.8% of Mississippi’s private sector jobs related to franchising. In fact, in every state franchising ranked over 10% of private sector jobs except in New York, Rhode Island, Massachusetts and the District of Columbia.

This data underscores the considerable contribution franchising systems make to the US economy. You can read a PDF version of the study at http://www.buildingopportunity.com/download/Part1.pdf.

Fred Morache has spent many years in the franchising business and is currently the managing franchisor partner for iSold It and Postal Connections of America franchises

How to Decide Between an Independent or Franchise Business

FF te-deum blogspot.comHow to Decide Between an Independent or Franchise Business

When you decide to buy a business, one of the first decisions you will face is whether to purchase an independent or a franchise business. People succeed in both kinds of enterprises but there are significant differences between the opportunities. A big part of the choice may also be how well either one meshes with your personality. Talk with family, friends and trusted advisors to help get insights to this major career choice. Here are some points to consider:

Business Model

As an independent business you can change, add or eliminate products and services as you assess what works best in your market or even determine what your personal feelings are about what you sell.

A franchisor usually makes those decisions for a franchisee.

However, an independent business owner does not possess the security knowing that product lines and services have already been tested and maximized for the market. Franchisees give up the decision-making independence but reap the benefits of the tried and true.

Costs

In most cases, franchises have lower total investment expenses, especially up front. But, they have to pay ongoing royalties and may have little say in the timing and scope of other investments and renovations.

If an independent business owner is having a cash flow issue, expansion can be delayed. The owner can dictate the terms of any projects they pursue.

Brand

This can be a big advantage for franchise buyers. If the brand is well known and constantly cultivated, they will benefit from that exposure. It’s unlikely that an independent business owner will have the advantage of brand recognition unless it has been proactively marketed.

Resources

Franchisees have the advantage of a business system, a network of suppliers, marketing support and other services. These are especially helpful to those who might be lacking formal business education and experience.

Independent business owners are on their own. They have to develop their own supplier network, set price points and develop marketing strategies, all vital and daunting tasks, particularly for the novice. It can also result in a lot of trial and error to help figure out what works best which costs time and money. The independent business owner, however, retains complete control.

Support

Who can an independent business owner call in times of trouble? Maybe an outside advisor. A franchisee can call other franchise owners knowing they are experiencing the same situation. They can also call the corporate headquarters to get assistance in everything from training to troubleshooting.  That can bring a significant degree of comfort to the entrepreneur taking the business ownership plunge for the first time.

At the end, make sure whichever opportunity you select matches your personality.

Fred Morache has spent many years in the franchising business and is currently the managing franchisor partner for iSold It and Postal Connections of America franchises. 

(Pic from Te-deum blogspot)