For many new entrepreneurs, their start in running a small business comes in the form of buying a franchise. The benefits are many: you’ve got support provided by the franchisor, and you’re buying into a proven business model.
Here, Joel Libava, The Franchise King, gives us the lowdown on everything you ever wanted to know about franchises.
What’s the difference in what you offer to people who want to buy a franchise versus a franchise broker-consultant?
There’s a huge difference between the way I work with people who are interested in buying a franchise and the way franchise brokers-consultants do.
Franchise brokers and consultants provide free services…free “help” for people who want to buy franchises. The reason their services are free is because they work for the franchise companies…they’re paid large commissions to match people to the franchises they’re contracted with.
My services aren’t free. I’m paid for my knowledge and expertise. I’m not paid a commission. My advice is unbiased. I have no skin in the game.My income doesn’t depend on whether my clients buy a franchise or not.
I’m an advisor…not a broker or “consultant.”
How should someone starting a franchise prepare, versus someone starting a business from scratch?
Today’s new franchise owners need to set aside time to attend formal training — which will most likely take place at franchise headquarters. Franchise training classes range from 3 days to a week or more.
It’s also a good idea to spend time on the franchisor’s website so they can learn all they can about the brand, and the products and services offered.
Franchisees need to contact their state and local governments to find out what types of business licenses they’ll need to open for business. They should interview a couple of CPA’s and choose one that knows small business-preferably franchise businesses. A knowledgeable CPA can suggest beneficial tax strategies that franchisees can utilize.
Finally, the proper business entity needs to be set up. CorpNet representatives can assist with that.
Do you recommend incorporating or filing an LLC? Is that a requirement for franchises?
As my friend Chris Brogan says, “Your mileage will vary.”
When I joined my late father’s consulting franchise, we were an LLC. When I went out on my own, not only did I change the name, I turned the business into an S-Corp after a recommendation form a friend of mine who owned a small business. It’s worked out great.
Some of the people I’ve helped get into franchises launched their businesses as LLCs. Some are set up as S-Corps. Some are incorporated. I don’t have a specific recommendation. Here’s an idea: New franchisees can contact current franchisees in the system and ask them how they’ve set up their businesses.
Ultimately, franchisees need to decide what’s best for their situation.
How much support (marketing, sales, etc) does the average franchisor provide franchisees? What do franchisees have to take on themselves?
One of the best things about franchising: Support.
Every franchise sales representative tells prospective franchisees their support is great. It may be, but in order to find out if it is, would-be franchise owners need to contact existing franchise owners in the system their interested in becoming a part of to find out. Believe me, the franchisees they contact will tell them!
Support can include local marketing initiatives, IT help and troubleshooting, ongoing training, and in-person visits from the staff at headquarters. Franchisees are paying for this support every month by way of the royalties. (Franchisees pay the franchisor a percentage of their sales)
Franchisees are responsible for the day-to-day operation of their business. They do business development, employee training, hiring, firing, inventory management and more. When they need help with something, a call into franchise headquarters usually gets the ball rolling.
If you were going to start a franchise yourself tomorrow, what type would it be and why?
I wouldn’t invest in a franchise myself. Been there. Done that. I was a franchisee.
Now, please don’t take that the wrong way. I love franchising. I live it and breathe it. But, with my personality (I’m rather brash and outspoken) and my unwillingness to follow the rules, a franchise business just isn’t a good fit for me. I like doing things my way. I like making the rules…even breaking them at times.
Having said that, there are some interesting sectors in franchising.
Senior Care-for the right person, for someone who knows how to do business development…who’s excellent at sales, can be lucrative.
Healthy Fast Food is always on my radar screen. Consumers are time-starved; they sometimes need to grab some food while they’re on the run. But, a growing percentage of them are becoming unwilling to eat junk food these days, and that’s going to only increase.
What’s the difference/benefit of buying a brand new franchise vs an existing one (taking it over)?
Buying a startup franchise is the most common route to franchise ownership. Franchisees that choose this route have the most control at first as they are (with the franchisors help) choosing their own location. They’re really starting with a clean slate and can set the stage for their own growth.
Buying an existing franchise can be a good thing, too.
The main advantage is franchisees-from day one, have a business that’s up and running. It has customers and revenue. Those are good things.
Cost-wise, it can be more expensive to buy an existing franchise, especially of it’s a successful one, since the sales price is based on that success.
One more thing: Buying an existing business can be a long, drawn-out affair. It’s a negotiated transaction; that means lawyers and accountants get involved. It’s a way more complicated affair than just buying a startup franchise in your neck of the woods.
How much money do you recommend people have set aside for that first year of expenses (after they’ve paid their franchise fee)?
I tell my clients to have 9-12 months of savings set aside that they’ll use for household expenses. That’s in addition to having enough working capital to keep their franchise up and running. And, whatever that figure ends up being…add even more, just to have. If it’s not used, great! But, it will sure feel good knowing it’s there if it’s needed.
What should people look for when researching a franchise?
Happy and profitable franchisees. Seriously.
All of my books include a list of questions to ask existing franchisees. Some of the questions I want Asked are tough questions. But, they’re crucial.
Like “What do you wish you would have known before you purchased your franchise business?”
The answers would-be franchise owners will get from this question; priceless. Especially if they ask it of at least 12 different franchisees. Some of the answers could end up helping them achieve profitability faster.
What’s the biggest benefit to reading your books?
My writing style is very straightforward injected with a dose of humor. (I think some of the stuff I write is funny. Your mileage may vary.)
But seriously, my books take today’s would-be franchise owners from A-Z. Everything they’ll need to know about franchising is included. Readers will learn how to properly select and carefully research franchises…any type of franchise. My books are meant to be used again and again, since most people look into several franchises before deciding on The One. And…my eBooks come with a 100% money-back guarantee. I even have a special deal for Corpnet Blog readers and Corpnet customers.
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Anything else to add?
Franchise ownership isn’t for everyone. Like with any type of business purchase, there’s financial risk involved, although it can be mitigated by selecting the right franchise and doing the proper research. In addition, there are lots of rules to follow. There’s a 250 page operations manual to follow, too.
Having said that, franchising is the greatest business model ever developed. If you feel it’s for you, do your homework, and work with professionals.
The opportunities are out there. Go find one that’s right for you!