NFA Franchise Consultants
18Oct/18Off

Franchise Location Specialists

Franchise Location Guest Post By: Harold Shumacher, version 2

So you've finally made the commitment to be a franchisee. At the end of the day the key thing is your franchise location.

When I got started in this business, over 25 years ago, an elder sage told me there are three keys to the retail business; location, location location. Not much has really changed. The right franchise location is key.

You’ve done your homework, and you're ready to find a franchise location. What's next?

Sure, you can drive around and look for leasing signs, contact the landlord, negotiate your deal and hope for the best in acquiring your franchise location, or you can work with a real estate specialist who focuses on this area of expertise to help you find the best possible franchise location.

Why Use A Commercial Leasing Specialist?

Ideally, a franchise location specialist can provide you a turn key approach to one of the biggest decisions you'll make as a franchisee, the franchise location. If you ever bought a house through an agent, then you already know how it works.

A tenant rep, another name for someone who works on your behalf to find a franchise location, should be able to provide you current market information, what rental rates and extra charges are involved in the franchise location. Remember, tenants typically pay their share of real estate taxes, property maintenance and insurance in most commercial settings in addition to base rent for a franchise location.

Are there any new projects planned that might provide a suitable franchise location? If so, when will they be completed and how do they compare to those currently available? Perhaps the best information a leasing specialist can provide is what properties could be available or may have a lease expiring soon where the landlord would welcome your franchise location.

How To Find A Franchise Location Specialist

Many franchisors have established relationships with leasing specialists throughout the country. While you can't be required to utilize a particular agent, this specialist might be your best first stop for helping you secure your franchise location.

If the franchisor doesn't have such a person, look around the market and ask other business owners you may know for recommendations. In most major metropolitan markets, there are a number of tenant brokers, many with specific niche market specialties (retail, restaurant, auto, industrial etc.), who can help you find your franchise location.

How Much Will A Location Specialist Cost?

Typically the broker, much like your residential agent, represents you but is compensated by the landlord or owner. Most states require clients to sign a form recognizing which party is being represented and the source of compensation. If this is not made clear to you in the beginning, don't hesitate to ask questions for clarification.

Now, good luck hunting for your franchise location!


Harold Shumacher is the president and managing broker of The Shumacher Group, Inc. an Atlanta, GA based firm that specializes in representing national and regional retail and restaurant companies. Throughout its 25 plus year history, the company has worked with several national franchisors and has helped select hundreds of franchise locations.

13Sep/18Off

Franchise Location, Location, Location

Franchise Location Guest Post By: Harold Shumacher, Version 1

So you've finally made the commitment to be a franchisee.

Maybe it's a retail concept, a restaurant, an auto repair business, a storage facility.

Franchise LocationIt really doesn’t matter because at the end of the day, the key thing is your franchise location.  When I got started in this business, over 25 years ago, an elder sage told me there are three keys to the retail business; location, location location. Not much has really changed.

The difference between the right franchise location and a franchise location that is merely acceptable is similar to Mark Twain’s famous line about the difference between lightning and a lightning bug. So how can you make lightning strike where you want and find the right franchise location?

Franchise Location Approaches

One theory which I call the McDonald's approach, is to go where your competitors are already located, especially if they‘re successful. They’ve already proven the franchise location works, and your job is to out perform them.

A bit scary? Another theory is the pioneer approach, find a franchise location where there's no competition and stake out the turf. Do a good job and you might be able to scare off any future competitors from your franchise location.

Somewhere in between is the deliberative approach to finding the right franchise location, which includes identifying your customers - who are they? where do they live? where do they shop? what are the local market conditions? is the area in decline or on the rise? what's going on with housing prices, schools, crime rates, traffic, planned road improvements? These are all factors that should go into your franchise location decision-making process.

You’ve done your homework, and now you're ready to find a franchise location. What's next? Sure you can drive around and look for leasing signs, contact the landlord, negotiate your deal and hope for the best in acquiring your franchise location or you can work with a real estate specialist who focuses on this area of expertise to help you find the best possible franchise location.

(More next month)


Harold Shumacher is the president and managing broker of The Shumacher Group, Inc. an Atlanta, GA based firm that specializes in representing national and regional retail and restaurant companies. Throughout its 25 plus year history, the company has worked with several national franchisors and has helped select hundreds of franchise locations.

 

5Aug/18Off

Franchising – A Win-Win for All

Franchise Guest Post By: Carol Haas, Esq. | Boca Raton, Florida | Version 1

Discovering The Franchise: Undercover BossThe recent popularity of the CBS TV Show, “Undercover Boss” is introducing more entrepreneurs to the world of franchising, showing both how a successful franchise works and where they can fall short.

Both the franchisor and the franchisee have their responsibilities, and if each does what they signed up to do, both can have a successful and lucrative business venture.

Why are franchises attractive to entrepreneurs? First and foremost, it’s the brand awareness.

Franchisors generally decide to franchise when their store or service grows in success and has developed customer loyalty.

Rather than starting from scratch, the franchisee can have a product that is already recognized for quality and service. And most likely, the product or service has been trademarked or service marked, adding additional value to the business.

Franchise Marketing, Support Is Key

A franchise also provides another short cut – marketing support. Chances are the franchisor has done market research and knows the most effective way to attract customers, both nationally and locally through advertising, public relations, and social media.  And they can provide marketing tools that are tried and true.

In addition, a franchisee generally benefits from the franchisor’s buying power.

The Franchisor most likely has long standing relationships with suppliers which often provide lower costs of goods for the Franchisee.

Other advantages of buying a franchise include a greater likelihood of success than going it alone and help with selecting a location, signing a lease, initial training/ongoing support and possibly obtaining funding.

But the franchisor benefits equally from the relationship. They use franchisee’s money to more quickly grow their brand and add additional revenue streams.

Once they’ve created the prototype, it can be replicated many times over as a turnkey operation.

There can be bumps in the road for both the Franchisor and the Franchisee, but as demonstrated on “Undercover Boss,” clear communication between the two can create a successful opportunity for both.

 

5Jul/18Off

Franchise Laws

Franchise Laws: Why Are They Important?

Stephen S. Raines
President, National Franchise Associates
Atlanta-based Specialists in Franchise Consulting & Franchise Development Success

Franchise LawsIn my over three decades as a franchise consultant, I am often asked “What makes one franchise program succeed while another franchise doesn’t?”

Rarely is there a single reason for success or failure in franchising.  Here, I will examine some of the factors that can help you create a successful franchise program.

As a franchise consultant, I often start the franchise development process by discussing franchise laws.  Federal franchise law designates the Federal Trade Commission as the responsible agency.

According to these franchise laws, all franchise prospects must be given the company’s Franchise Disclosure Document (FDD) no later than the first face-to-face meeting.  Federal franchise law, known as the FTC Rule on Franchising, mandates the specific format and the required information for the FDD.

In addition to the federal franchise laws, fifteen states have enacted franchise laws.

Theses state laws typically prohibit the offer or sale of a franchise within the state until a franchise disclosure has been registered by a designated state agency.  The applicable agency in California, for example, is the California Department of Corporations.  These state agencies often have the power to demand changes to the company’s standard FDD created under the federal franchise laws.

With most state franchise laws, the Franchisor must complete the state registration before (1) selling a franchise to a resident of the state or (2) selling a franchise to be operated in a franchise registration state. In addition, if the Franchisor’s home state has state franchise laws, generally the company must register in that state before it can offer franchises in any state.

The fifteen states with state franchise laws include California, Hawaii, Illinois, Indiana, Maryland, Michigan, Minnesota, New York, North Dakota, Oregon, Rhode Island, South Dakota, Virginia, Washington and Wisconsin. 

Of these, Oregon does not require a registration and Michigan only requires a notice along with the preparation of a state-specific cover page.    These state franchise laws require the payment of a registration fee ranging from $50 to $750.

In addition, the Franchisor should anticipate having to pay legal fees to comply with the specific state’s franchise laws.  Remember, most state franchise laws grant the state regulators the power to compel a Franchisor to make state-specific changes to the FDD before granting registration.

A few states have less complex state franchise laws.

For example, Connecticut and North Carolina require the payment of a fee and the filing of the company’s FDD if a Franchisor does not have a federally registered trademark.

Anyone considering franchising their business should pay attention to both federal franchise laws and any pertinent state franchise laws.

5Jun/18Off

Franchise Strategy

Franchise Strategy: Is Your Business 'Franchiseable'?

Stephen S. Raines
President, National Franchise Associates
Atlanta-based Specialists in Franchise Consulting & Franchise Development Success

Franchise StrategyIn my over three decades as a franchise consultant, I am often asked “What makes one franchise strategy succeed while another franchise strategy doesn’t?”

Rarely is there a single reason for success or failure in a franchise strategy.  Here, I will examine some of the many factors that can help you create a successful franchise strategy.

As a franchise consultant, when talking with a company that wants to consider a franchise strategy for growth, one of the first issues to address is what makes a business “franchiseable”.

There are a number of issues that make a company a good candidate for a franchise strategy.

Some or all of the following questions may apply when you are trying to determine if your business is franchiseable:

  • Can the business concept be duplicated?
  • Can you train the franchisees and their employees to operate the franchise in a reasonable amount of time?
  • How does the cost to open the business compare to the amount of money the franchisee can expect to generate over the first few years of operations?
  • How much direct competition exists?
  • Can you position your franchise strategy to create competitive advantages?
  • What size and type of market is necessary to support one of your franchises?
  • Is your franchise strategy dependent upon one or two vendors?  If so, does this reliance make your franchise strategy vulnerable?
  • Are any special licenses or advanced degrees required to operate your business?
  • Have you been in business long enough to prove the viability of your concept?
  • How complicated is it to open a new location for your business?
  • Does your franchise strategy have a relatively short life expectancy?
  • Do you have sufficient trained personnel to help you implement your franchise strategy initially?
  • What is the growth potential for your industry?
  • How challenging is it to find an affordable location for one of your franchises?
  • What is the likelihood that you can add additional products or services to your business, making your franchise strategy even more profitable for your franchisees?
3May/18Off

Master Franchise Agreement Pros/Cons

Master Franchise Agreement Basics

Stephen S. Raines
President, National Franchise Associates
Atlanta-based Specialists in Franchise Consulting & Franchise Development Success

Master Franchise Agreement TypeIn my over three decades of experience as a franchise consultant, I am often asked “What makes one company succeed in franchising while another doesn’t?”

Rarely is there a single reason for success or failure in franchising.  Here, I will examine some of the many factors that can help you create a successful franchise program.

As a franchise consultant, I often address with potential Franchisors the different types of franchises, each requiring its own Franchise Agreement.  There are three main types:

  1. Individual Franchise Agreements
  2. Area Development Franchise Agreements
  3. Master Franchise Agreements

Each of these Franchise Agreements has pros and cons.

With individual unit franchising, you sign a Franchise Agreement granting one franchise operation, usually within a specific territory.  With an Area Development Franchise Agreement, you and the Area Developer negotiate a territory, the number of franchise operations to be opened and a timetable for opening those franchises.  If the Area Developer does not meet the Franchise Agreement terms, the territory reverts back to the Franchisor.

With a Master Franchise Agreement, the Master Franchisee is granted a territory in which to sell franchises, assist the franchises sold and receive the bulk of the funds generated from initial franchise fees and royalties. Again, if the Master Franchise Agreement terms are not met, the territory reverts back to the Franchisor.  In my March blog, I addressed the pros and cons of the Individual Franchise Agreement and in April, the pluses and minuses of the Area Development Franchise Agreement.

The pros of a Master Franchise Agreement include:

  • Master franchising has the potential to generate the fastest growth to build your brand and revenues.
  • The Master Franchise Agreement requires less of your time and effort to sell, train and service franchises.
  • A Master Franchise Agreement provides economies of scale that help franchises operate more efficiently.
  • If in your business, the Franchisor sells products or services to individual franchisees, you can generate more sales more quickly through master franchising.

The cons of the Master Franchise Agreement include the following:

  • Choosing the wrong Master Franchisee can have tremendous negative impact on your brand and your franchise program.
  • You can lose control of your franchise program.
  • Historically, master franchise programs are not as successful as Individual and Area Development Franchise Agreements.
  • Master Franchise Agreements are more suited to certain industries, such as service businesses.

You must carefully explore which type of Franchise Agreement(s) best meets your goals for franchising your business.

To be continued...

10Apr/18Off

Area Development Franchise Agreements

Area Development Franchise Agreements (and other main types)

Stephen S. Raines
President, National Franchise Associates
Atlanta-based Specialists in Franchise Consulting & Franchise Development Success

Area Development Franchise AgreementsIn my over three decades of experience as a franchise consultant, I am often asked “What makes one company succeed in franchising while another doesn’t?”

Rarely is there a single reason for success or failure in franchising.  Here, I will examine some of the many factors that can help you create a successful franchise program.

Last month, I addressed the different types of franchises, each requiring its own Franchise Agreement.

There are three main types:

  1. Individual Franchise Agreements
  2. Area Development Franchise Agreements
  3. Master Franchise Agreements

In February, I reviewed the pros and cons of the Individual Franchise Agreement.

With an Area Development Franchise Agreement, you and the area developer negotiate a territory, the number of franchise operations to be opened and a timetable for these openings.  If the area franchisee does not meet the terms of the Franchise Agreement, the territory reverts back to the Franchisor.

The pros of an Area Development Franchise Agreement include:

  • Targeting area developers can be a faster franchise growth strategy.
  • The candidates with the resources to open multiple locations often are more savvy business people.
  • The Area Development Franchise Agreement requires less time, effort and funds to sell, train and service franchises.
  • Operating multiple units can be more cost-effective through economies of scale.
  • At the outset of a franchise program, an Area Development Franchise Agreement can be a valuable supplement to the Individual Franchise Agreement.

The cons of an Area Development Franchise Agreement include:

  • Because the requirements are higher, there are fewer qualified candidates.
  • There is more heated competition for qualified Area Developers.
  • A Franchisor with less involvement and control over the franchises risks the dilution of the brand and operating system.
  • At the outset of a franchise program, the Franchisor may be weaker than the Area Developer, making it difficult to enforce your Franchise Agreement.
  • An Area Development Franchise Agreement may not work in certain industries or franchise strategies.
  • Often, owner-operated franchises are more profitable.  An Area Development Franchise Agreement eliminates the owner/operator.

You must carefully explore which type of Franchise Agreement(s) best meets your goals for franchising your business.

To be continued...

5Mar/18Off

Individual Franchise Agreement

Individual Franchise Agreement (and other main types)

Stephen S. Raines
President, National Franchise Associates
Atlanta-based Specialists in Franchise Consulting & Franchise Development Success

Franchise AgreementIn my over three decades of experience as a franchise consultant, I am often asked “What makes one company succeed in franchising while another doesn’t?”

Rarely is there a single reason for success or failure in franchising. Here, I will examine some of the many factors that can help you create a successful franchise program.

As a franchise consultant, I often address with potential Franchisors the different types of franchises, each requiring its own Franchise Agreement.

There are three main types:

  1. Individual Franchise Agreements
  2. Area Development Franchise Agreements
  3. Master Franchise Agreements

Each of these Franchise Agreements has pros and cons.

With individual unit franchising, you sign a Franchise Agreement granting one franchise operation, usually within a specific territory.

With an Area Development Franchise Agreement, you and the Area Developer negotiate a territory, the number of franchise operations to be opened and a timetable for opening those franchises. If the Area Developer does not meet the terms of the Franchise Agreement, the territory reverts back to the Franchisor.

With a Master Franchise Agreement, the Master Franchisee is granted a territory in which to sell franchises, assist the franchises sold and receive the bulk of the funds generated from initial franchise fees and royalties.

Again, if the terms of the Master Franchise Agreement are not met, the territory reverts back to the Franchisor.

The pros of an Individual Franchise Agreement include:

  • It gives you the ability to manage your franchise growth.
  • Individual Franchise Agreements allow you to make sure the Franchisee can effectively operate multiple locations before granting them.
  • A committed owner-operator frequently is the most motivated manager.
  • Franchisee-operated units can be more profitable because they eliminate a manager’s compensation package.
  • There is a much larger pool of candidates who can qualify to open and operate one franchise as opposed to multi-unit owners.
  • If there is a problem Franchisee, it is limited to one location.
  • Individual Franchise Agreements allow a new Franchisor to learn the ins and outs of franchising with less risk due to large numbers of Franchisees.
  • If the Franchisee proves to be capable, you can always sell him/her additional units, using your Individual Franchise Agreement.

The cons of the Individual Franchise Agreement include the following:

  • This strategy may lead to slower growth overall.
  • It can be more complicated to operate a franchise company with more Franchisees.
  • It is less efficient to sell, train and service individual units.

You must carefully explore which type of Franchise Agreement(s) best meets your goals for franchising your business.

To be continued...

3Feb/18Off

Franchise Development Success!

Franchise Development Success: The Critical Elements

Stephen S. Raines
President, National Franchise Associates
Atlanta-based Specialists in Franchise Consulting & Franchise Development Success

Franchise Development SuccessIn my over three decades of experience in franchise development, I am often asked “What makes one company succeed in its franchise development while another doesn’t?”

Rarely is there a single reason for success or failure in franchise development.  Here, I will use my experience in franchise development to address some of the factors that determine success.

As a professional in franchise development, I am often asked questions such as “Why do I have to go through all the hassle of franchise development?  Wouldn’t it be easier to just call my business a dealership or joint venture and skip all the legal requirements of franchise development?”

The answer to such questions lies in the legal definition of a franchise.  Over the years, the courts in the U.S. have determined that there are three elements of a franchise:

  1. The use of a common name
  2. The payment of a fee
  3. The rendering of substantial assistance

The courts have reasoned that completing the franchise development process is not very difficult.  Literally thousands of companies in the U.S. have successfully navigated franchise development.  There are a number of safeguards built into the franchise laws to protect both franchisees and franchisors.  Therefore, in order to afford these benefits to the parties involved, the courts will often be very liberal in ruling that a particular business relationship is a franchise.

In one court case, the payment of a fee as little as $500 was upheld as meeting the legal definition of a franchise.  The element of “the rendering of substantial assistance” has been met by one company helping a “licensee” develop a marketing plan.

If the courts rule that the relationship is not a franchise, the purchaser of the business opportunity has very few legal rights.  Therefore, courts will often bend over backwards to call the relationship a franchise in order to give the purchaser legal rights.

If you are contemplating offering business opportunities that share a common name, involve the payment of a fee and include your helping the purchaser, then I would advise you to carefully explore whether you are offering a franchise and should properly complete the franchise development process.

2Jan/18Off

In-House Franchise Sales, Good Idea?

Effective Franchise Sales: The In-House Sales Person

Stephen S. Raines
President, National Franchise Associates
Atlanta-based Specialists in Franchise Consulting & Franchise Sales Strategy

In-house Franchise Sales Person

In-house Franchise Sales Person, Pros/Cons

In my over three decades of experience as a franchise consultant, working in franchise development and franchise sales, I am often asked, “What makes one company succeed in franchise sales while another doesn’t?”

Rarely is there a single reason for success in franchise sales.  Here, I will examine one of the many factors that can help Franchisors create a winning franchise sales strategy.

If you looked at my October and November posts, you know that typically, there are three options for who is going to spearhead your franchise sales efforts, including:

  • Using the franchise management team (usually the owners of the franchisor company) as the franchise sales force
  • Retaining an outside franchise sales representative, such as a franchise broker
  • Hiring an in-house franchise sales person

Let’s assume that the owners/managers of the franchise company decide they do not want to handle franchise sales nor do they want to hire an outside sales representative.  The next option is hiring an in-house franchise sales person.  Here are the pros and cons of this alternative.

One of the pros for hiring an in-house franchise sales person is the control factor.  As a new franchisor, it is comforting to know at any point, you can go to your franchise sales person and immediately know the status of all prospects.  The success of a new franchise program often hinges on the ability to control the franchise sales process.

Another reason to consider an in-house franchise sales person is you can base the compensation package not only on the closing of a franchise sale but also on the success of the new franchisee. This adds an accountability factor to the franchise sales person’s responsibly to close sales with top quality candidates.

A third reason to consider an in-house franchise sales person is he or she will devote all of their efforts in selling your franchise exclusively.  An outside broker represents many franchise companies.  You should get substantially better results if the franchise sales person concentrates only on your franchise company.

There are also cons to utilizing an inside franchise sales person at the outset:

  • There is a substantial cost of hiring an effective franchise sales person.  As a new franchisor, a franchise sales person’s compensation package may not be affordable.
  • An in-house franchise sales person may generate too many sales too quickly.  Remember, you must have the infrastructure in place to enable you to provide the promised assistance to any franchises you sell.
  • Often, new franchisors want to close only one to three franchise sales the first year to allow them to streamline and polish their systems.  It is hard to justify the expense of an inside franchise sales person if only one to three sales are the target.