6 Steps to Franchising Your Business ============================== From drawing up a Financial Disclosure Document to figuring out what potted plants will line the storefront, when turning a business into a franchise the devil is in the details. The pay off, however, can be lucrative, as franchising is one of the best ways to spread a brand and grow a business quickly. Data released by the U.S. Census Bureau in 2010, the first report drawn up by the Bureau that gathered information on franchises, says that franchises made up 10.5 percent of business across 295 industries in 2007. Franchises accounted for $1.3 trillion in revenue and $153.7 billion in payroll disbursed to 7.9 million workers. For businesses that are looking to become franchises, there are franchise consultants. Dennis Mulgannon walked the beat as a police officer until 1983, when he decided that he wanted to start his own business. He opened a sandwich shop in the San Jose area. He named it SUBS2U. His chief competition was another upstart shop down the block called Subway. That crashed and burned, Mulgannon says of his first try at his own business. But I kind of cut my teeth and fell in love with the franchise process. Now Mulgannon is a franchise development consultant and director of franchising for Junk King, a junk hauling service that was founded in 2005 and now has 31 franchisees managing 58 units in the United States. Mulgannon said that potential clients come to him with some sense of why they want to become a franchise, but where they are in their planning tends to vary. Usually they are at the level where they want to scale, and they want to grow. They’re looking at themselves, they’re looking at their business, and they have some level of success, Mulgannon said. They want to utilize other people’s skills and other people’s capital to grow their brand. Here are six tips for any small business owner thinking about turning their company into a franchise: 1. Know your business inside and out. The directions provided to each franchisee will likely have to be precise. Business owners, however, are frequently accustomed to running their companies on intuition, and it may be difficult for them to itemize all the infinitesimal but important obligations they fulfill every day. Franchisees will not have the freedom to improvise, and will need to be told how to do everything from keeping the books to ordering supplies. Every step of the process must be carefully outlined. The business owner may have to rediscover what it is like to run a company for the first time. Tariq Farid had owned four flower shops by the time he was 19. He remembers sitting with his mother, who helped him around the shop, when he was making sixty dollars a day, and he’d tell her of his dream to someday make seventy. When he reached his goal, he turned it in for another dream. Soon he was telling his mother that he wanted to make eight, nine thousand dollars a day. It never ends, he says. It still hasn’t for Farid, CEO and founder of Edible Arrangements. That early experience was better than any business school for Farid, but it still didn’t prepare him for the challenges of building his next idea, a shop that sold bouquets made of carved fresh fruit, into an international franchise. When he started out, he says, the franchising wasn’t part of his business plan. We mostly focused on building the business, says Farid. Which means no job was too small for Farid to take on himself. When the company website needed photos of the product, Farid became an amateur food photographer. When his shop needed a more robust back end to allow them to fill more orders online, Farid built it. With his head buried in how to increase revenues that were already steadily growing, Farid says he didn’t think much about franchising until a man walked into his shop one day and said he wanted to open an Edible Arrangements in Boston. To see what might be involved in opening a franchise, Farid decided to do a test run himself, in the form of a second store. He found a building, filed the documents, and went through all the minutiae himself, from interior decoration to training the staff. He forced himself to work through each step of the process exactly as a new franchisee would. 2. Learn about the legal issues. Mulgannon advises all business owners looking to get into the franchise business to pay close attention to Item 19 on their FDD filing. This is where a franchisor outlines financial performance information. Mulgannon says that if everythings not in order in a companys Item 19, hell decline to work with them. These legal complications are an area in which the hopeful franchisor may want to seek out professional help. Farid wouldn’t exactly advise anyone to go about franchising their business without expert advice. I was mostly doing it myself, Farid says of his early efforts to raise money, cut through the legal thicket, and build his trial franchise. “We had no money, and it was tough to go to a bank with a basket of fruit. The one consultant Farid did go to unintentionally set the ambitious business owner on the right course. I went to this consultant and he gave me a bill, he said it would cost $100,000, Farid says. Farid told the consultant he couldn’t afford that. I think he jokingly said, ‘Why don’t you try it yourself,’ and I took him seriously. I didn’t think he was kidding. Farid says that he made a lot of mistakes, and he did end up hiring franchising consultants ultimately, but by that time he had learned plenty himself. The International Franchise Association is also a great resource when it comes to the legal issues surrounding franchising. The IFA compiles information on franchises, lobbies for legislation favorable to franchises, and provides resources and aid to businesses looking to become franchises. The association also publishes reports on the legalities involved in franchising, including one titled An Introduction to the Law of Franchising. Whether or not an interested small business owner manages to plow through the 450-page revised second edition may itself be a litmus test of an entrepreneur’s conviction. 3. Know how you want to grow. The idea of growth is appealing, but a small business owner wants his or her company to scale at a reasonable rate. For some companies looking to become franchises, the new business model may mean expanding coast to coast, even internationally. For others, it may mean adding a handful of new outlets. The experts recommend growing at the rate natural to your business. When a business comes to Mulgannon to explore the potential of franchising, the first thing he does is sit down with them and carefully examine their proof of concept. Before I start with anybody or take them on as a client I have to do my own due diligence to ensure my eyes are wide open. When a franchise wants to grow, Mulgannon said, they have to consider where their business model will work and how far they can expand their brand into unfamiliar territory. He worked with a company called Erik’s DeliCafe, a popular sandwich shop and caterer in northern California. The company has reliable brand recognition in California and some surrounding states, and they decided, with Mulgannon’s help, to expand in California and into northern Nevada. They grew, but within the scope of their brand recognition. At the other extreme is international franchising, something Mulgannon says he has explored with Junk King. I put together a deal with a Panamanian investment group to develop Junk King throughout Central America, Mulgannon says. They sought us out, and I spent twelve days there negotiating an international master license. Mulgannon is confident that this deal will allow Junk King to spread its brand beyond the United States with minimal risk.
Posted on: Wed, 31 Dec 2014 22:54:39 +0000
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