We have found that by specializing, that has allowed us to become very focused and actually substantially increase the quality of what we do. When you do one thing over and over again, you tend to get very good at it.
The biggest difference is that we have a large support staff, like accounting and law firms. Most brokers are solo, with no support staff at all... Another major difference is that we cut out the number one investment of time in the deal, which is physically meeting with the buyers. We feel very strongly that this is unnecessary.
We model our fees after other professionals like accounting and law firms. We work on a fee basis with a small success fee on the backend of the transaction.
First, we would have a phone meeting with you, the owner. We discuss your objectives, your business, the industry, and dozens of other questions about your business. After that meeting, we would prepare a framework of our recommended steps. And no two transactions or businesses are the same. So every single one of those is customized. Next you would review the process or framework, discuss it with your advisors if you want to, and then we can tweak the process if necessary.
You shouldn't buy a five-bedroom house in a three-bedroom neighborhood and expect to be able to sell it in 10, 15 or 20 years. And the same thing for entering into a franchise; you need to really think about the exit strategy, what type of management model you have, and how you're going to get out of that.
With the turn-key aspect of a franchise, not only can you plug and play, if you will, but you can also validate with other people.
They'll (franchisor) give you the system and encourage you in every way, shape and form to duplicate it, but you have to do the duplication of that, which means going out and getting your own local customers.
Jeff: Dispelling the myths and understanding the trends to help your franchise business flourish. Whether you're a franchisee, franchisor or a private business owner considering franchising your brand, you've come to the right place.
From our studio in Southern California, with guest experts from across the country and around the world, this is “Deal Talk,” brought to you by Morgan & Westfield, nationwide leader in business sales and appraisals. Now, here's your host, Jeff Allen.
Jeff: Hello and welcome back to the web's number one content source for small business owners committed to building a business for eventual sale. Here on “Deal Talk” it's our mission to provide information and guidance from our growing list of trusted experts that you and all small business owners can use to help you build your bottom line and improve your company's value.
Right now if you think of franchising as an industry it's booming. So much in fact that more and more small business owners each day, perhaps just like you, are making preparations to grow their companies, their own brands through franchising. But there are a lot of myths out there that may prevent some business owners from taking that step, or prevent aspiring entrepreneurs, for example, from owning and operating the location of an existing franchise brand, perhaps a legacy brand that has seen nothing but success throughout its history.
To help us dispel some of those myths as well as talk about the trends contributing to franchise growth is Mr. James Channer, senior franchise business adviser with Your Franchise Success, LLC. James Channer, welcome to “Deal Talk.” It's good to have you on.
James: Jeff, fabulous to be here. Really jazzed and excited. Thanks so much.
For individuals that are current business owners, I really encourage them to evaluate their business, do a valuation, take a look at not only the dollars and cents of your business but take a look at what your consumers are saying, what your clients are saying, and explore your business with respect to franchising.
Jeff: You're welcome. Thank you for answering the call, so to speak, James. We were glad to have an opportunity to chat with you a little bit. I am intrigued though a little bit about your company, about your organization, fill us in a little bit as kind of an icebreaker, about what Your Franchise Success is all about.
James: Thanks, Jeff. So YFS, Your Franchise Success, we're a professional franchise adviser. Our core business is to help folks all across North America, individuals that are interested in redefining their career, finding their purpose in business ownership through franchising. So we take those individuals and provide a very educated, very structured due diligent process to evaluate franchise opportunities. We also have been in franchising for nearly 60 years, our advisers and management team. We also then do help franchise companies emerge into franchising through franchise development consulting assistance. So we'll help them evaluate who are the ideal candidates to be joining their franchise and assisting them in recruiting and finding those franchisees.
Jeff: Very good. And toward the end of the show we're going to give you, our audience a chance to jot down a telephone number and maybe a website so you can interface with the folks over there at Your Franchise Success, and maybe connect with James for an opportunity to speak with him and maybe talk about some future opportunities that he can point you toward, as far as franchise ownership is concerned.
And we're going to start off by talking about the myths of franchising, James, and we got to know a little bit about you, and it all of a sudden kind of conjured up in me an idea about, and I think I heard this some time ago, and they said the only way that you can be successful as a franchise owner/operator is to have had some past history with a franchise ownership, whether that be as the past owner of a franchise business or as an employee working for a company with franchise locations. Is that true or is that just a myth?
James: It's just one of those myths that are out there, Jeff. We do hear that a lot with respect to having to have particular industry experience. What's so great about franchising particularly now here in the 21st century here and now in 2016, Jeff, is that there's over 3,000 franchise concepts in well over a hundred industries in the United States, a little less than Canada, about 1,400 franchise concepts in Canada. All of those franchise organizations, those franchise concepts are looking for individuals that have transferable skills, management skills, communication skills, leadership skills, ability to lead teams, ability to manage finances and administration.
And so there are so many individuals currently today in corporate America and corporate Canada that have built tremendous reputations and have built experiences in their career, and there are so many franchise concepts that are looking for those types of individuals to run and lead their business within their franchise organization.
Jeff: So really, what you're talking about here is what's important skill sets, personality, character, and just kind of overall ability. If you've shown that you have kind of exhibited success in your past then there's some opportunities out there for you because the space is so huge.
James: Oh yes, absolutely. You touched on kind of the values and characters. And that's what we're really finding here at Your Franchise Success. We take individuals through a discovery process, really a character assessment and personality aptitude test that's called the spot on profile. We look at individuals’ values because what we're finding today in franchising is that it's so important for a franchise organization and those respective potential franchise buyers to have that alignment, that the values and then those motives and behaviors are going to be properly aligned. Where, for example, there are many franchise organizations out there today that are doing a contributor type of model in their business concept.
Tutor Doctor is an example of a company that I've had a long history with, we work very closely with here at Your Franchise Success. Tutor Doctor is an in-home tutoring franchise that’s done very well for the last 10 or plus years. Hundreds and hundreds of franchisees across North America and abroad. But the key thing that they look through in their discovery process and selection process of finding the right franchise partners is individuals that aren't just looking to make money but also looking to make a difference.
Because in their business they're doing in-home tutoring to students of all ages really almost across the globe now because they're in so many countries. But it's very important for them to find those individuals with those contributor type of values, that it means something for them to see individuals, young children and their parents realize success in their children's education. And so that's just one example of so many different types of franchise opportunities that are really ensuring that there's an alignment between the value sets of their organization and their culture and their franchise partners.
Jeff: One of the things that we continue to trumpet on this program, James, each and every show, is the need to always be on the lookout for opportunities to improve value, improve value on our businesses. Because at some point in time, let's face it, unless we just ... work is our number one priority and passion in life, and that's what we want to do until we finally just drop dead one day walking down the hall from the coffee room.
James: Whoa, that's a little more...
Jeff: Well, that's some strong coffee out there as you know these days, James. But I think the thing is we're always looking for ways to improve the value of our company so that we can get that premium value one day when we sell our business whenever that might be. And a lot of companies are just in their growing phases now. Some people have been in business for 20 years and they're still looking for ways to grow their companies. And one of those ways to do that is through franchising.
One of the myths that are out there is a guy or a lady who's owned their own business, it could be a beauty shop or it could be a tire store, whatever the case may be, there's no way that I could possibly franchise this business because it's just not possible to take an existing privately held business and grow it through franchising because it's just way too competitive.
James: You know there's certainly that myth and what I would say to individual business owners, currently entrepreneurs, is to really take the time to talk to people in franchising. There's such a great community of franchising. I've been in franchising now in nearly 18 years, I love it. And one of the things I love about the franchising community is that it’s a community of individuals that come together to help one another. The best practices that are shared from franchisor A to franchisor B is significant.
And they're such a great association, the International Franchise Association, IFA, in the United States, and the Canadian Franchise Association here in Canada, great associations. There's just so much best practices and information shares that goes on. And so let me share a little bit of that.
Jeff: Please, if you would.
James: For individuals that are current business owners, I really encourage them to evaluate their business, do a valuation, take a look at not only the dollars and cents of your business but take a look at what your consumers are saying, what your clients are saying, and explore your business with respect to franchising. So let me give you a little bit of story of one company that's done that.
Companies called The Middle Spoon in a place that a lot of people haven't heard, Halifax, Nova Scotia. Halifax, Nova Scotia, Jeff, is literally you come out of Maine, cross the border, go a bit further east, boom, you're going to end up in Halifax. And so Halifax, Nova Scotia, about 20,000 people. There's a couple there, Lacey and Ciaran Doherty, that started a concept called The Middle Spoon Desserterie & Bar.
They would franchise this business. And what's cool about their business is it's fresh desserts made daily from scratch, with love, just like your grandmother used to do. And they've added in that same type of care to cocktails. So they're kind of a bistro dessert meets kind of high, upscale, speakeasy.
Jeff: My question is, what do we have to do to get one of those down here in Southern California where I am?
James: It would blow up, and here's the crazy thing, which just shows the limitless possibilities of franchising. One of their first franchisees after they've kind of grown in their own neck of the woods there in Eastern Canada, their first U.S. franchise location is in Houston, Texas, 2,500 miles away.
James: That's the power of franchising. Think about it. Here are all these folks in a Southern State, 2,500 miles away from where the concept was founded, but it just speaks to if you do the right things, if you create the right value proposition, if you create raving fans, if you have passionate leadership and individuals that are willing to invest in the proper systems and belief in supporting your franchisees the right way, you could take your business anywhere. And they're a perfect example of that.
Today, right now, franchising is the fastest growing sector within all sectors of the economy. Franchising now provides more jobs than any other sector in the U.S. economy.
Jeff: That man right there is James Channer. And James is talking with us from north of the border today, in the Toronto, Canada, region. James, senior franchise business adviser with Your Franchise Success, LLC. Shorten that to YFS. You're listening to “Deal Talk,” my name is Jeff Allen.
Good to have you in once again. James, continuing with our discussion here on the myths of franchising, so many people are caught up in the big names of the franchise world. And so you have a number of people who are interested in business ownership perhaps for the first time. And you have those business owners who are considering maybe doing other things.
Maybe they're selling their own privately held company but they need to do something else and they're a little bit leery about getting into the franchise world because they know that only the biggest names in the world are the really successful opportunities out there and they don't want to enter what they've deemed to be kind of this corporate structured kind of a thing. Is there any truth to that whatsoever about the franchise opportunities, the really successful ones are really only the big names, heritage, legacy names that people hear out there?
James: Listen, Jeff, there's certainly a lot of success in franchising with respect to the mega brands that have been really the forefathers of franchising, from your McDonald's and your 7-Eleven's, and even the next generations in terms of your Supercuts and Great Clips, and again, large, thousands and thousands of locations, great brands.
But most of the franchise concepts out there today, the average franchise system has less than a hundred franchisees. And so here at YFS we're working with hundreds of franchise companies, but we do find there are several really A+ opportunities that have 50, 100, 150 franchisees, or maybe even just a few hundred. So there's certainly a lot of upside in terms of their growth potential that have well-established systems that have been in business for a long time. But we talked about a little bit of trends. So certainly I would say that individuals that you want to be looking at, long sustainable curves of growth within the particular industries that you want to consider.
So one of those industries that we've heard a lot of discussion about in terms of statistics with respect to demographics in the aging population is senior care. So currently over the last 10 or 15 years there's been a tremendous amount of senior care growth activity in terms of both independent businesses and then franchise concepts in that space. And there are many very good successful franchise organizations out there in that space, others well over 40 franchise concepts in that sector. But they're only at the tip of the iceberg, because as you and I well know our parents are getting older and it takes more effort, and time, and money for us to care for them.
And they also have strong balance sheets and personal wealth and income, and they want to also enjoy life. And so we certainly see that that particular sector has still a significant amount of growth. Right At Home is one of those companies that we work like many others here at YFS that's again one of those very strong, well-respected leaders within that industry, and again, that's just to name one. What we really do is look at the individual's values, and as I mentioned before, identify which one of those companies in that sector would be a good fit, but I would say, Jeff, that certainly a sector that has been franchised and certainly more and more growth in terms of brand and market cap is going to happen within franchised businesses within that sector specifically.
Jeff: We're a little bit over halfway through on this segment of “Deal Talk,” and when we come back we're going to talk more to James Channer with YFS, and we're going to talk about the trends in franchising and really perhaps some of those trends that are really contributing to franchising success across the board. You're listening to “Deal Talk,” my name is Jeff Allen. And we'll be right back after this.
If you'd like to share your knowledge and expertise on any subject related to selling businesses or helping business owners improve the value of their companies, we'd like to talk with you about joining us as a guest on the future edition of Deal Talk. Interested? Contact our host Jeff Allen directly. Just send a brief email with "I'd like to be a guest" in the subject line. In a brief message include your name, title, area of specialty, and contact information, and send it to email@example.com, that's firstname.lastname@example.org.
Selling your business may be the most important business transaction you'll ever undertake so don't go it alone. Work with an organization that has made it their business to sell businesses and that's all they do. Morgan & Westfield at 888-693-7834. At Morgan & Westfield we know that selling your company is not something you should take lightly. It can be a stressful, difficult, even emotional process.
That's why it's important to work with a team whose one and only specialty is selling businesses throughout the United States. Morgan & Westfield will help you every step of the way. From helping you plan your exit strategy, to preparing a comprehensive appraisal, and locating the right buyers.
Without the right team behind you, you could be leaving money on the table. So don't leave your most important business transaction to chance. Call Morgan & Westfield for a free consultation at 888-693-7834, 888-693-7834, or visit morganandwestfield.com.
Don't forget, you can listen to “Deal Talk” not only on iTunes, Libsyn and Stitcher radio but also to morganandwestfield.com, morganandwestfield.com, where also right below the media player there you've got the full transcript of the show. So if you're listening on iTunes, Stitcher and Libsyn right now that's fine, keep doing it. But if you want to go back and maybe there's some key points here in this discussion that you want to recall or you want to look up, you can find it all right there in writing, there at morganandwestfield.com under the “Deal Talk” tab. So we hope that you do that and check that out.
And also, don't forget that you can provide us with your input. What do you think about “Deal Talk”? If it works for you, let us know what you like about it. If it doesn't work for you, let us know what it is that we can do to make this show even better, won't you, email@example.com, firstname.lastname@example.org, powered by you, our listeners.
Jeff: I'm Jeff Allen with James Channer, senior franchise business adviser at your Your Franchise Success, LLC in the Toronto area. And we want to talk now, James, about trends in franchising. We talked about the very top of the program about how franchising is just exploding all over the place and you mentioned that yourself and you're kind of right there at the front lines, you can see it.
But let's talk about some of the things in franchising right now that have become noteworthy, that may be contributing to franchise success regardless of the industry that you're in.
James: Right. Great question. One of the things that we're seeing with respect to franchise growth and development are individuals coming into franchising that desire a business that will allow them to continue with their current employment. And so many franchisors, franchise concepts over the last several years have begun to define and really expand their business ownership models, where the actual owner operator doesn't just have to be the individual that's fully in the business day-to-day running the business but could also be an individual whose going to be an owner executive that's actually working on the business and managing a manager, and allowing that business to really be operated by an individual who isn't a specific franchisee that signed the franchise agreement.
And so we in franchising call those owner executive models that have a semi-absentee component. And we've seen those types of businesses expand quite rapidly and for obvious reasons. It gives an additional layer of security in terms of the financial income that an individual, a new franchisee continue to earn at their current day job, but then give them the ability to build that wealth and equity within their own business over time.
And so their business is in the personal care category to niche categories, and even other new developing categories, a concept called Pro Martial Arts that does confidence and development self-discipline and honing athletic skills in a healthy and fun environment in a martial arts club environment where the program director and the individuals that are working in that facility with children, a lot about anti-bullying and self-confidence programs kind of tied into a martial arts model.
Those individuals running that business isn't the individual that owns that particular franchise, that particular franchise owner, and they like individuals that come in and purchase not only one location but are committing to opening two, three, four or five locations, that actual investor is still operating in other, in either their own business or possibly working for a big corporation. And so we're seeing a lot of that.
It's very popular in the hair care industry as well. Big brands like Supercuts and Great Clips, Sports Clips, these are all national brands that we all hear on the radio and see in our local communities. And many of their franchise owners, actually exclusively their franchise owners are individuals that have other jobs and are generating other income in other places. And because those companies have found, those franchise concepts have found that the particular values and skill sets, and the financial wherewithal, and the acumen that those particular individuals have are the types of franchise partners that they want to attract.
Jeff: And so really these people are investors. They see themselves as inventors or investing in their own future and perhaps those of their family members but they're not actually in it for a career. Now there may be those individuals who at the end of the day end up taking more of a hands-on role down the line, and we've talked to a couple of people here on “Deal Talk” who did just that, as a matter of fact. They had their own jobs as you talked about before, they became a little bit more involved in the business after they left their first careers, very interesting. What about some key industries that have really taken off, or types of franchise businesses that you've seen a lot of growth in, James, in your experience?
James: Yeah, great question. Certainly the personal care and health and wellness are industries that are seeing a significant amount of just overall growth. Because, let's be honest, when we look at ourselves, we want to continue to pamper ourselves and feel good about ourselves, and there's so many different ways to do that, both from an emotional and spiritual standpoint, to a physical and health and well-being standpoint. And so currently we continue to see significant amount of growth in that area.
One concept that I'm going to be meeting with here with the next week or two to kind of discuss their plans for growth was referred to me that I'm really excited about is Fuzz Wax Bar here out of Toronto, a couple of downtown locations. Their concept is simple, they focus on one thing and one thing only, waxing. A Fuzz Wax Bar, all they do is waxing. They do female waxing, which is obviously very big for that gender, but also male grooming has become a significant growth sector. Because, again, males, we become more vain. I don't know about you, Jeff, but certainly we see men doing pedicures and such.
Jeff: Not me there, James. You won't see me in one of those places, I'm just telling you.
James: Hey, listen, buddy, it is a growing segment particularly for millennials and folks that are younger than you and I.
Jeff: And we'll never understand it, would will we, James? But it's true. It's absolutely true, and I know a couple of guys that I had worked with, prior organization, and that was just part of their routine, man, that's what they did.
James: Yeah. I get a trim here, a waxing there, it's happening. I mention the Fuzz Wax Bar because there's also another time with respect to the trends in franchising that the two founders of this business are millennials, two female entrepreneurs that are millennials. And so the millennials are certainly coming into franchising, not only as franchise owners but also as in terms of franchisees owning and operating their own business. But there are also individuals that are coming in as franchisors, founding businesses and then franchising them.
That's what's really exciting, that the future outlook of franchising is very bright because millennials are looking at empowerment through entrepreneur and business ownership both as franchisees and also franchisors, founding companies and growing them. So really exciting time across North America here that we're seeing.
Jeff: James, you know, we're kind of running short on time, so we want to go ahead and just wrap up the last couple of minutes here, which is just a couple more questions for you. You know we're becoming so socially connected across the world and this is something that has really become a 15-20 year phenomenon really, almost two decades old now where Facebook, Twitter, LinkedIn, Google+, whatever other types of social media, Instagram, that you use or that you participate in. We're one world now, and it would seem to me that this would be an area where franchise businesses would really be able to take advantage and use social media for marketing and promotional benefit that would really help to kind of jump and increase sales traffic into the stores and contribute to their success. Have you seen this as well?
James: Oh absolutely. And it really kind of speaks to the marketing strategy, the business strategy of franchising, to really dominate markets. When you look at one of the core elements of franchising, every franchisee contributes. And this varies from a dollar, to two, to three dollars depending on that particular franchise organization. They're contributing that into a marketing fund. So for every sale dollar that a location generates they're putting a penny or two pennies into a fund. So you think about it, if you've got even 50 franchisees, and it's a business that is typically generating a million dollars in sales just because of the type of business that it’s in, that's $50 million generated by 50 franchicees that are generating a percent or 2% of that gross amount into an ongoing fund. And so that really kind of then really magnifies and just kind of jolt amount of steroids with respect to branding equity and awareness, and just drawing in fans on all these social media sites from a regional basis, right down to the local basis.
So back to your point earlier, so if you're an independent business owner today and you're looking at your business, that's one of the powers of evaluating your brand for franchising. Because you're actually going to be providing support, and training, and guidance to individual owner-operators, and they're going to contribute back a penny or two pennies of every dollar back into a fund that collectively you're going to be able to use for the benefit of every independent business owner in your brand. That's the power of franchising.
That's the power of franchising. It's leveraging those experiences and those resources to build better businesses for more success for all of us.
Jeff: A couple of key takeaways that you can leave us with, James, here as we wrap up our discussion today about franchising, where it's headed, why it's a great opportunity for business owners to grow their brands.
James: Yeah, absolutely. What I would say is that both in Canada and the United States right now the individuals that are working that aren't in their own business are considering it significantly. I looked at some statistics here earlier today, 55% of all Americans want to own their own business. Seventy percent of high school students want to start a business. This is when I talk about millennials. My 18-year-old son who's going off to university, he's talking about when he gets out he wants to run his own business. That's what's happening today.
So the future franchise and business ownership is bright, which I think should attract more and more businesses to evaluate franchising for some of the points that we've made that we talked about earlier. And then individuals that want to start and own and operate their own franchise, as I mentioned earlier, that there's thousands and thousands of different franchises and a lot of different industries.
But here's what we know about the economy, that today, right now, franchising is the fastest growing sector within all sectors of the economy. Franchising now provides more jobs than any other sector in the U.S. economy. So franchising is growing. And then within franchising, regardless if you're in a Fuzz Wax Bar, or The Middle Spoon, or Tutor Doctor, or Pro Martial Arts, you're joining a community. You're joining a community of franchisees that are associates that are there to help you grow your business in that individual franchise. But then you're joining a bigger community of thousands of franchisees across the state, and thousands, and tens of thousands of franchisees across that country.
That's the power of franchising. It's leveraging those experiences and those resources to build better businesses for more success for all of us.
Jeff: James, if we've got anybody out there who'd be interested in contacting you to find out more about what your organization can help them do in terms of setting up their own franchise, or getting them placed, potentially helping them get placed into a situation where they could own their own franchise business, how can they reach you?
James: Absolutely. You can jump on our website at yourfranchisesuccess.com. Please feel free to fill out an information request, and we'd love to get in touch with you, or at email@example.com. And if you're in there in the continental United States, give us a call at our Michigan office at 248-496-2893, again that's 248-496-2893. Or if you happen to be on the north of the border like me, give me a call at 519-501-3743, again that's 519-501-3743. It's been excellent and a lot of fun to be chatting with you today, Jeff.
Jeff: James Channer, franchise business adviser at Your Franchise Success, LLC. Thank you for joining us. We appreciate it.
James: I appreciate it. Have a great day.
Jeff: Tell a friend about “Deal Talk” in addition to morganandwestfield.com. You can find us on iTunes, Stitcher and Libsyn. “Deal Talk” has been brought to you by Morgan & Westfield, a nationwide leader in business sales and appraisals. Learn more at morganandwestfield.com. My name is Jeff Allen. As always, I enjoyed having you with me today. Thanks so much for listening and let's talk again soon.
While we take reasonable care to select recognized experts for our podcasts please note that each podcast presents the independent opinions of such experts only and not of Morgan & Westfield. We make no warranty, guarantee, or representation as to the accuracy or sufficiency of the information provided. Any reliance on the podcast information is at your own risk. The podcast is for general information only and cannot be considered professional advice.
Jeff: Mark, there are probably a number of people who are listening to this program who did not hear your first appearance on our show. For those who did not get a chance to hear that program, just to kind of get people familiar with who you are and what you do at iFranchise Group, why you folks stand out in the market place?
Mark: We are the largest firm in the world that specializes in helping companies to franchise. We work with 98 of the top 200 franchise brands in the United States. And on a regular basis we work with companies that are probably a lot like a lot of your listeners are growing businesses, looking for ways to grow the business, maybe position it for an exit. We help them to capitalize on their intellectual property and franchise their businesses.
Jeff: We do appreciate the fact that you wanted to join us again for this discussion because today we're hoping to kind of cover some new ground maybe for a lot of folks who may not be familiar. And we'll start by talking about why franchising really can be such an intriguing option for those owners of small privately held companies who want to grow their business. What would you tell them if you're meeting for the first time and why it is such a great option to think about?
Mark: Franchising allows you to grow using other people's capital. It's really all about helping you to leverage I think is probably the best way of putting it. When you franchise a business you are working with the capital that's provided by your franchisee. The franchisee makes the entire the investment in opening the business, in running the business, all the working capital that's devoted to it and they actually pay you for the right to do that in the form of franchise fee and an ongoing royalty.
In addition to being able to grow with other people's money and I guess going back to the other people's money part you're not borrowing money to do that. You're not going to the bank and borrowing money. You're not taking on an equity partner. You still own the whole business but you're just sort of selling the intellectual property. The second big advantage to franchising is that you get really highly motivated managers who stay with you long time. When you think about it, if you to hire a manager for a small business that might be one step on their career path and when they leave they're going to be gone and you're going to be looking for a new manager. With a franchisee, they've invested maybe their life savings in buying that franchise, they're going to be there a long time. And chances are they're a higher caliber person and they certainly can be very highly motivated by the fact that they did put their life savings into that business. And so you find that franchise businesses tend to outperform from a numbers standpoint, from a financial standpoint, they tend to outperform non-franchised businesses.
And the last piece of the puzzle for franchising is speed of growth because of the fact that you're leveraging off both the time of the franchisee and the capital of the franchisee you can grow much faster through franchising. One of our clients is a company called Massage Envy. It was one unit therapeutic massage company that had been open for only three months. They were able to sell 190 franchises in the first three years. There's no way that they would have the time to do that or the capital to do that if they were to try to grow organically. They were able to grow that fast because not only did they leverage off the money that was spent by their franchisees, but also they were leveraging off their time. So the franchisees would go off and find the sites. The franchisees would go out and hire the personnel. They would train the personnel. The franchisees would be responsible for building out the locations, for buying all the equipment. And so you’re able to grow much faster in a franchise environment.
With a franchisee, they've invested maybe their life savings in buying that franchise, they're going to be there a long time. And chances are they're a higher caliber person and they certainly can be very highly motivated by the fact that they did put their life savings into that business. And so you find that franchise businesses tend to outperform from a numbers standpoint, from a financial standpoint, they tend to outperform non-franchised businesses.
Jeff: I'll say and that's a great example with Massage Envy. Now you see them all over the place, and I'm sitting in Southern California and they are in practically every shopping center.
Mark: They've got about 1,200 locations now, something like that.
Jeff: Oh my gosh, it's just amazing. The growth has been tremendous. And it just seem like once you saw one it wasn't long before you saw one not two miles away. It's just unbelievable. They're all over the place now. Great example there of what franchising can do for a business. Why is franchising right to help businesses grow? Some businesses grow while at the other end of the spectrum it may not necessarily be right for this group of businesses down here. Does it seem to you that there are certain sectors, industries, or types of businesses that are really better equipped or better suited for franchising as a growth mechanism?
Mark: The first thing that you have to do as a company that is getting into franchising for the first time just to make a determination whether or not you got a business that is actually franchisable. Just because you want to franchise a business it doesn't mean that that business is ready to franchise. And so when we look for a franchisable business model we really look for three big things. On our website we've got a 12-point test of franchisability but it really boils down to three things. The first is can you sell franchises? Not every business is going to be saleable. And for that we look at things like is it unique, does it have a strong value proposition, does it have some brand sizzle associated with it, does it have some credibility? Those are the kinds of things we look at as a starting point. The second thing we look at is can we duplicate the business? Not every business is something that can be duplicated. If the business only works because somebody is spending 70 hours or 80 hours a week in that business, you're going to have a hard time finding other people with that level of commitment in the business that they’re going to spend that same kind of time. If the business only works because of a unique skill set that the owner has, that's not something that's going to work well as a franchise.
If the business only works in a certain type market. If you had a swimsuit shop in Florida, you're going to have a hard time franchising it in Chicago, that kind of thing. So we look for transferability, the teachability of the business, the degree to which it's systemized, and the degree that it will work without a particular person involved. You have to systemize it so that it works without your direct involvement. That's the second piece, the clone-ability of the business. And then the third piece is return on investment. You can have a great business, but after stripping out a royalty from it, it might not provide the kind of return on investment the franchisee would need to make after taking out your royalty as a franchisor. Franchise business has an additional burden of that royalty that it's got to make up for it, so what we look for is the return on investment of the franchisee. So if the franchisee invests $100,000, they're going to want a return on that investment in addition to being able to make a salary if they're actually operating in that business.
So those are the three things we look for. We look for: does it make financial sense on a return on investment standpoint, is it clone-able, and is it saleable. Not every business meets those criteria. At iFranchise Group we get 350 to 450 inquiries every month from companies that are looking to franchise. And by the time that we're done we probably work with maybe three, so it's a pretty narrow funnel.
The first thing that you have to do as a company that is getting into franchising for the first time just to make a determination whether or not you got a business that is actually franchisable. Just because you want to franchise a business it doesn't mean that that business is ready to franchise.
Jeff: Just because you guys are the biggest that doesn't mean that you're biggest because you deal in volume and dealing with as many clients as you can. You have earned the right to turn some businesses away because quite frankly they aren't able to measure up to the standards required in order to make their business franchisable if it's not already. And in order to have a relatively high prospect I guess you might say for succeeding down the line. And you folks have kind of earned that right to be able to be somewhat choosy as to which companies that you work with.
Mark: It's not so much that we earned the right; I think that by being choosy to begin with, that's what's led to our success, is by working with the best companies. I give a lot of the companies that we work with a lot of the credit for being great companies to begin with. I think it's important to work with people and work with companies that are going to be a good fit for you and likely to succeed. That's what's going to make your reputation.
Jeff: Really good points, Mark. Thank you so much. Mark Siebert, CEO of iFranchise Group in Homewood, Illinois. You're listening to Deal Talk. My name is Jeff Allen. Coming up in just a few minutes we're going to talk to Mark a little bit about how to get started. Because you may be kind of advanced with respect to your business acumen and you've been running your own privately held business for some time. You're successful, sales are good, and you're ready to move forward with plans to expand but you're not exactly sure how to go about doing it. Mark is going to have maybe some suggestions here for us. We'll talk a little bit about that in just a minute. But first of all, Mark, before we go out to our break just a question for you, do you think that there is still quite a bit of confusion out there among business owners about the difference between franchising and licensing? And I mean if you can take just a moment to kind of draw a line between those two and what the distinction is.
Mark: Sure, and you're absolutely right, there's a huge amount of confusion on this exact issue. When you look at franchising versus licensing understand that franchising is a legally defined term. FTC Rule 436 sets up the specifications of what qualifies as franchise and what does not. And the legal definition and I'm going to give you the shortcut version. It's about two pages long. The shortcut version is if somebody is using your name, if they are using your system of operation, and they are paying you a fee it’s a franchise. The technical definition is closer to trademark usage, significant operating control of the systems, and the payment of a fee, but I just say same name, system, and fee. If they’ve got those three elements, they are going to be a franchise. If you take away one of those three elements you turn it into something else. If you take away the system element you've got the trademark and you've got the fee, you've got a trademark license. If you take away the trademark license part of it you just take away the trademark and you just have the system of operations and a fee, you've got a business opportunities license. If you take away the fee part of that three-legged definition then either you have a dealership, or a distributorship, or an agency relationship, or perhaps a joint venture.
When I tell people that they should consider franchising or any kind of third party channel distribution, I usually don't say you should be a franchise, what I say is, "Do you want to use my name? Do you want to use a common system of operations and control quality. And is there going to be a payment of a fee?" If the answer to those three questions is yes then it's going to be a franchise. And if the answer to one of them is no then it's going to be something other than a franchise.
Time savings and cost savings are both essential to running a profitable business. The same is true when it comes to actually selling your business. Morgan & Westfield are experts at saving you both time and money. How? By providing a complete valuation report on your business. By providing specialized knowledge and expertise to market, promote and advertise your business for sale. By preparing a detailed selling memorandum to attract buyer interest and inspire action. By carefully screening individuals to identify only serious, well-qualified buyers. To properly identify sources of financing including alternative options best suited for the buyer and escrow support with appropriate legal documentation. And Morgan & Westfield works with specialists and advisors to reduce risk. Selling your company? Contact Morgan & Westfield for a free consultation -- 888-693-7834 -- 888-693-7834 or visit morganandwestfield.com.
Jeff: We're going to go ahead and end things here for the first segment. When we come back what we want to do is I want to talk to Mark just a little bit about how to get started in the process. Calling for example could be iFranchise or any other company in that space to help companies grow their businesses through franchise. How do we get started? We don't know the first thing about which step to take. We're going to ask Mark when we come back. Mark Siebert, CEO of iFranchise Group joins me, Jeff Allen, when Deal Talk continues after this.
Are you thinking about selling your business but you're not quite sure about where to start or who to call first? Then call Morgan & Westfield, experts in business sales and appraisals for small to mid-market companies and all industries nationwide. Whether you're planning to sell a year from now or five years from now, Morgan & Westfield will work within your time frame to help you get your business ready and in front of the right buyers. Our goal is to help you sell your company at a value that's worthy of the time, dedication, and hard work you've put in throughout the years. And we're ready to help as soon as possible. The first step is a free consultation. Simply call Morgan & Westfield at 888-693-7834, that's 888-693-7834, or email us at firstname.lastname@example.org and we'll send you our free guide, How to Sell a Business. You've worked hard to build a successful business, why take a chance when it's time to sell? Call Morgan & Westfield at 888-693-7834, or visit morganandwestfield.com
If you'd like to share your knowledge and expertise on any subject related to selling businesses or helping business owners improve the value of their companies, we'd like to talk with you about joining us as a guest on a future edition of Deal Talk. Interested? Contact our host Jeff Allen directly. Just send a brief email with "I'd like to be a guest" in the subject line. In a brief message include your name, title, area of specialty, and contact information, and send it to email@example.com, that's firstname.lastname@example.org.
Jeff: I'm Jeff Allen with my guest Mark Siebert, CEO of iFranchise Group in Homewood, Illinois. Mark, let's talk about it a little bit. You're meeting someone for the first time and they're really interested in moving forward. Or they've given it a lot of thought and they're saying, "Mark, let's talk a little bit about it. How do we get started?" Maybe we've got a location, maybe we've got two, maybe even more than that but we want to grow our companies through franchising.” What's the first step?
Mark: The first step is to educate yourself on what's involved in franchising. If somebody's looking to start and get educated on franchising there's a number of things that they can use. They go to our website they can get a free 90-minute DVD or video seminar on how to franchise a business. We've got a new book out called How to Franchise Your Business that they can get online. The first step is really educate themselves. Make sure that you’ve got a business that is franchisable. Make sure that franchising is the right business strategy for you. Even if you've got a franchisable business, it doesn't mean that it's necessarily the right strategy for you. But once you've taken those steps what I would say is there are a number of steps that you're going to need to take if you want to be successful as a franchisor.
The first step is developing a good plan. Franchising is like growth on steroids. So it's really important to make sure that when you are setting things like your fees, your royalties, and your territory that you're taking these things into account. Just to give you an example, when you're going through the planning process determine what your royalty's going to be. If I have a small business that is doing $500,000 a year in revenue and I make a one percent mistake on that royalty. So instead of taking a six percent royalty I took a five percent royalty. I'm going to lose $5,000 off the bottom line of my business. I don't have any associated costs with that higher royalty. So I lose $5,000, but a franchise contract could be 20 years in length. It's not $5,000, its $5,000 times 20. It's $100,000. In franchising you're probably not getting into franchising to sell one franchise. You sell 100 franchises so $100,000 times 100, so that's $10 million. That's not even talking about the enterprise value that you've lost from your bottom line when you go to sell the business. It's really important because of the speed of growth and your ability to duplicate mistakes if you haven't thought these things through. It's really important to start with the planning process. We're going to do the financial modeling, you're going to do the competitive analysis, etc.
The next thing you have to do is you have to develop good, solid, legal documents, but that's usually the second step. Usually you'd look for a good franchise attorney after you've gone through that planning process because otherwise you're going to end up paying a lot more than you need to. The third thing, you're going to need to make sure that you get your quality control in place. That's going to be things like operations manuals, and training programs, and training videos, maybe even online learning systems. Most new start-up franchisors will start with an operations manual and then we'll build in these additional tools as they go along. But long-term you want to make sure that your franchisees are operating in accordance with your brand standards. The last thing you have to do is you have to market and sell your franchise. So you have to know where you're going to advertise and how you're going to find these prospective franchisees. You need to run those ads, you need to have a system in place for how to get the franchisee from being a prospect to being a sign on the dotted line franchisee who's given you money and that's opened up their business. Those are the basic things that you need to do.
Franchising is like growth on steroids. So it's really important to make sure that when you are setting things like your fees, your royalties, and your territory that you're taking these things into account.
Jeff: Mark, let me ask you a question. You mentioned Massage Envy earlier in the program is really kind of an ideal example of how rapidly a business can grow. And I think I heard you say something like they opened up or franchised off 190 locations in three years, is that correct?
Mark: Yeah, and that's an unusual circumstance that someone would grow that quickly. You have to …
Jeff: But let me ask you this, just kind of to continue using them as an example because I think it is kind of good, whether or not it's kind of an extreme case, they must have had a pretty large team of people the ownership group did there to help them kind of pull of this off. Who are the kinds of people that we would have to assemble as a team in order to help us really first of all determine whether or not this is the right move for us to make, and in second, if we do determine we'd like to do it and move forward assembling the group of people that we would need to help us market and sell those franchise locations that we want to expand with.
Mark: I think the team that you're going to build can be built in a number of different ways and it's built based on how aggressively you're looking to grow. If one of your listeners is thinking, "I'd like to sell franchise but I don't want to be Massage Envy, I want to sell three, four, five franchises a year. I want to get my feet under me as a franchisor. Maybe I'll sell for the second year, five the third year, but I'm not looking to set the world on fire." That franchisor does not need to have the same kind of team in place that somebody like John Leonesio of Massage Envy needed. Somebody like that might be able to do the franchise sales themselves, they could outsource the development of manuals, and development of strategies, and development of marketing materials and marketing strategies to companies like ours. And they could basically do this without adding staff in the early stages.
You want to sell franchises more aggressively, you want to sell 20, 30 franchises a year? The first person you need to hire is you need to hire somebody who's going to sell franchises for you. There are companies out there that will actually sell franchises on your behalf if you're looking for those. I'm affiliated with the company called Franchise Dynamics for example that does franchise sales on behalf of a number of clients. So you can hire that out or you can outsource it, so you can find somebody. But that's going to be the first thing. Before you do anything in terms of training or operations or support you have to sell that first franchise. Once you start selling franchises, you're going to need people to train and support franchisees. A lot of times that role is combined into one role of training and support initially. And then as the company grows it sort of gets carved up into two roles. One that's the field support team that will go out and visit folks in the field, and the other is the training and headquarters team that is going to help new companies or new people get acclimated to the world of franchising.
The first person you need to hire is you need to hire somebody who's going to sell franchises for you. There are companies out there that will actually sell franchises on your behalf if you're looking for those.
Jeff: Mark, from the corporation’s perspective, the business owner’s perspective, they're doing this, they're moving forward, and they're starting to market their franchise locations, starting to sell those. Where does most of the money go that the franchisor is now spending to grow their company through franchising? Is it mostly just going to pay for the leadership teams, the support teams, and managers who are going to take and train, and work with these people at these new locations? Is most of it going to human capital really?
Mark: It really is. The big expenditures you've got as a franchisor are people, that's number one, and then the marketing for the franchise, that's number two.
Jeff: Very, very good. Mark, we're getting ready to wind things down just a little bit but I was wondering if you could share for just a moment any parting thoughts that you might have for those people who are leaning toward that but wondering about things that they might want to avoid or should avoid. Sometimes you hear scary stories in the news about how things don't always go right despite our best intentions to grow a business. Is there a wrong way that people should avoid attempting to franchise their companies, anything that you've seen or scary stories, things that you've read about as really kind of a leader of the nation's largest franchise business that you can relay to our listeners to help them avoid making some really critical mistakes?
Mark: There certainly are. I think that the first key is to make sure that you're educated before you do anything. Go to sites like ifranchisegroup.com and get copies of free videos on the subject. Buy books on the subject. Again, we've got one but I'm sure there's others out there as well. Make sure that you're educated first. Make sure that it's the right step for you. Make sure that you have a business model that works for everybody. If there's one key lesson for franchising is that it has to work for the franchisee as well as the franchisor. It's got to be a win-win scenario. Make sure that you have adequate capital. Franchising is a low cost means of expanding your business but it's not a no-cost means of expanding your business. There's costs associated with the legal documents and developing operations manuals and training programs. You can't just throw something together based on copying what somebody else has done out there and hope to be successful, you have to do it right. Hire professionals. You can't use your real estate attorney to develop your franchise agreement. It's way too complicated for that. In my world I believe strongly in the value that's provided by a good consultant in this area. Someone who can walk you through the process of going through this who's been down these paths before. Make sure that you have as good a management team as you can afford. If you have a concept that's maybe a little bit broken or it needs a little bit of tweaking, good management will fix that. If you are undercapitalized, good management will find a capital. There's no cure for bad management. Ultimately it's about putting good people in place with the adequate capital and a good concept, focusing on the franchisee's success. And then making sure that that focus stays the top priority the organization goes for. Make your franchisee successful and the rest will come.
Franchising is a low cost means of expanding your business but it's not a no-cost means of expanding your business. There's costs associated with the legal documents and developing operations manuals and training programs. You can't just throw something together based on copying what somebody else has done out there and hope to be successful, you have to do it right.
Jeff: I'm certain that there are some people out there who are nodding their heads saying, "Yeah, I like what Mark has to say and I'd like to get in touch with him and his company to talk a little bit about my situation and whether or not I'm making the right decision as far as moving ahead with plans to franchise my business for growth." What should they do, Mark? How can they reach you and your team?
Mark: They can learn more about us at ifranchisegroup.com. It's just a small ifranchisegroup.com, all one word. Or they can call us at 708-957-2300. Either way we're happy to send them a free DVD on how to franchise. It's a 90-minute seminar on how to franchise a business that we use as sort of means of helping companies to educate themselves. We also have recently come out with a book called Franchise Your Business which is available on Amazon, if they'd like to get that or they can go to our website and get it, ifranchisegroup.com and there's a link there for the book.
Jeff: Mark Siebert again, I sure do appreciate all of your time today and this year's second appearance on our program. We appreciate the insight and your thoughts and we hope to have you again back on our team and on our program again before too long to share more of your helpful insights into this idea of growing a business through franchising, and maybe some other advanced discussions along the way. Thank you again so much.
Mark: Thank you Jeff, it's always a pleasure.
Jeff: That's Mark Siebert, CEO of iFranchise Group. He's been our guest today and we hope that you did enjoy this discussion.
Let us know what you thought of it. And while you're at it let us know what we're doing right here on Deal Talk and what you might want us to do a little bit differently to help make this show even better for you, because that is in fact what we do here at Deal Talk. We do this show for you to help you run a business that you can eventually one day sell. If that helps to improve your company's value then we've achieved our objective. The email address to write to by the way is email@example.com. Once again, send your comments to firstname.lastname@example.org, we'd love to hear from you. Deal Talk is presented by Morgan & Westfield, a nationwide leader in business sales and appraisals. Learn more at morganandwestfield.com. My name is Jeff Allen, thanks so much again for listening.
While we take reasonable care to select recognized experts for our podcasts please note that each podcast presents the independent opinions of such experts only and not of Morgan & Westfield. We make no warranty, guarantee, or representation as to the accuracy or sufficiency of the information provided. Any reliance on the podcast information is at your own risk. The podcast is for general information only and cannot be considered professional advice.
Jeff: Patrick, thanks so much. You've got a very, very exciting story to tell and we're going to learn a little bit about Cartridge World kind of sprinkled here and there within our conversation. But first of all I'd like it if you could tell us a little bit about yourself and exactly what you mean by master franchisee.
Patrick: Okay. My background has been in the hi-tech industry for 35-40 years. I worked for Texas Instruments in Europe and then Compaq computer. In 2007 I acquired territory for Cartridge World. And so the term master franchisee refers to the fact that the company in the US is organized with 20 master franchisees that own territories. My territory is Southeast Texas which goes from the Louisiana border to the Rio Grande Valley, and includes the hill country, Houston, Austin, San Antonio, etc. It's a 14 million people territory. And our job is to develop that territory. Some companies call my function area developer, but the difference is that usually area developers are employees of the company. In my case I own the territory so I purchased that territory. Does that make sense?
Jeff: It does make sense. Do you own the entirety of all the shops and the territory, or you own a significant portion of those locations?
Patrick: No, I actually do not own any location. Some masters around the country do. They may own a store or two. In my case I do not. My responsibility is to develop the territory. All the stores are owned by individual owners. And what I get in terms of revenue is royalties from these stores.
Some companies call my function area developer, but the difference is that usually area developers are employees of the company. In my case I own the territory so I purchased that territory. Does that make sense?
Jeff: Okay, very, very good. And we're going to talk about that here in just a second. But first of all just kind of a little information about Cartridge World, there are some areas of the country where maybe you don't necessarily have the penetration and so the brand may not be recognized. But Cartridge World as I understand it, Patrick, is a business that is essentially geared toward those companies and individuals who need to go in and get replacement parts, printer ink, and cartridges, and things like that for their computer printers, is that right?
Patrick: Yes, that is correct. In fact it started as really a manufacturer of ink and printer cartridges in the 80's. It's evolved over the years tremendously. We offer today printing solutions in general that include not only the cartridges but we also sell printers. We provide what we call managed print services like Xerox does, for example. We do printer service and repair, and additional services, copying services, shredding, recycling, etc. So the offering has expanded a lot. And also what's somewhat unique is that we cater both to the retail business as well as B2B. So in other words we've got customers that are individual customers that come for their home needs. And we also have businesses of various sizes where we deliver to them.
Jeff: And these are brick and mortar type shops that are located near shopping retail centers where people can walk up and they can take advantage of your services and products. And so really it's become a full service, a full line dealer of products and services, anything that you can think of that is printer-related, Cartridge World has it. I want to get into a discussion of franchising. You have been at this now for a while. You came over from another industry but certainly involved in franchising now for about almost eight, nine years as of this time.
But what I'd kind of like to find out from you, you come over from another industry, you're now involved in franchise operations. You've talked no doubt to business owners in your normal everyday conversations who own their own privately-held companies. With regard to franchising, however, let's talk about how franchising is different from being a private business owner?
Patrick: Yes. Franchising is actually a way to get your product to the market. So if you're an entrepreneur that has an idea that offers services or products you need to be able to distribute that product, and you can do it by having your own business and developing everything yourself. You can do it by partnering with a big distributor. You can do it by selling through the Internet. Another way to do it is through franchising. Franchising provides a vehicle to the customer. At the end of the day, the only thing that's important is the customer to be satisfied with the product. So franchising is one vehicle to take your product to the end customer. And it is very different from the other possible revenues that I've described in the sense that if you're in franchising then you need to follow the processes and the model of franchising in general.
Yes. Franchising is actually a way to get your product to the market. So if you're an entrepreneur that has an idea that offers services or products you need to be able to distribute that product, and you can do it by having your own business and developing everything yourself.
Jeff: And so you really need to have kind of an open mind. You can't be too close-minded about how you go about your management and your ownership style as far as your business is concerned. Because if you come over from owning your own privately held business, your own company that you raised from the ground up and then you sell that company off and then you go to work owning a franchise location. It's a different animal altogether, as Patrick just mentioned. Let's talk about the costs involved now Patrick in terms of how much money it could cost someone to, for example, work for Cartridge World and take over a location or purchase a location. How different is the cost compared to owning one’s own business that he would have to go to everyday down at the corner shop or something like that. Is there a huge difference in the cost?
Patrick: Yes. The cost in franchising can vary from very low startup investment for businesses that are home-based, etc. where you can get into franchising probably for $40,000-$50,000 up to millions of dollars, people that owned restaurant chains or whatever. So the cost can vary tremendously. In our business to start a Cartridge World store costs between $60,000 to $150,000 for your initial investment. We are looking for people that have a net worth between $200,000 and $400,000 and liquid capital of at least between $50,000 and $100,000.
Jeff: And there are other costs that are involved too that private or independent businesses don't have. I'm talking about royalties and other types of fees. Can you explain what those royalties and fees are?
Patrick: Yes. The notion of royalties and fees is the reason you get into franchising is because you want to get into a system that is already operating, that has all the processes and systems set-up, etc., and that provides assistance to you. And you actually pay for that in two ways. First when you start your store there's a franchise fee, and the franchise fee I would describe it as like if you join a country club it's the membership fee. So it's a one-time fee which in our case is $40,000 to $50,000. And then as you start operating you pay royalties. And your royalties once again can differ between the businesses. There are people that charge maybe five percent of your gross sales up to 10 percent in some systems. I don't encounter businesses where you pay more than 10 percent. Those are the two fees. And the royalties are there to basically what you buy there is the brand and the operating system and the processes. That's what you buy.
Jeff: Okay. How much of what I bring in, my location in terms of revenue goes to the corporation then?
Patrick: For Cartridge World it is six percent of your gross sales.
The notion of royalties and fees is the reason you get into franchising is because you want to get into a system that is already operating, that has all the processes and systems set-up, etc., and that provides assistance to you.
Jeff: Six percent of gross sales, okay. So I would get to keep everything else. And so that actually sounds like it could work out well and particularly if you're in an area, you're working in a location that is established and that has a good reputation in the system for being a productive store you could really do nicely quite frankly. The one thing that I happen to believe that franchisees benefit from is from the marketing expertise and promotions and marketing communications expertise of the corporation and the assistance and the support that it gets from those people up above. Is that correct? Let's talk a little bit about how the company helps its independent franchise owners market their company, market their business there in their local areas?
Patrick: Yes, that is very true. Once again what you get when you get into a franchise business is the operational support, and one of those is marketing. Now, once again the approach differs depending on the franchise companies. In our case we actually collect another percentage from the store owners that goes into a national advertising fund. Currently the store owners pay two percent of their sales, that accumulates at the national level and that money is spent for brand awareness, which of course is national, and can be spend also in regional activities. And thirdly is also spent in reimbursing local marketing activities that the stores do themselves and paying back in general about 50 percent of their marketing. It's money that's collected across the board. Everybody pays two percent, and then that money is spent nationally on behalf of the franchisee.
Jeff: Everybody pitches in for a campaign that is essentially national marketing and promotion of Cartridge World. And then of course you're able to do your own local marketing and advertising as well. And so it makes perfect sense and I think that we've covered that very nicely. Patrick, what I'd like to do is take a small break and then when we come back I'd like to talk to you about maybe some common misconceptions that people have concerning ownership of a franchise. And we'd like to do that with you when we return with Patrick Le Feuvre, he's a master franchisee with Cartridge World in the Houston area of Texas, when Deal Talk continues in a moment.
Experienced. Focused. Trusted. That’s Morgan & Westfield -- specializing in the sale, acquisition and valuation of privately owned businesses generating between one and $50 million in annual revenue. Morgan & Westfield will use its vast network to leverage buyer databases, industry specific knowledge and administrative support of our system. Our multi-disciplinary approach engages financial, legal and regulatory specialists to suit your needs, while maintaining strict professional confidentiality. And while we are highly process-driven, we’re also flexible because no two clients or transactions are exactly alike. You’ll receive uncompromising, world class service dedicated to getting you top dollar for your business. If you’re interested in selling your company or getting your business appraised, contact Morgan & Westfield for a free consultation: 888-693-7834 -- 888-693-7834, or visit morganandwestfield.com.
If you have any questions about any of the topics you've heard us discuss here on Deal Talk all you have to do is ask. Simply call our Ask Deal Talk info line at 888-693-7834 extension 350. Follow the instructions to leave your question and we'll reach out to one of our guest experts so we can feature your question and their response on a future edition of Deal Talk. Ask Deal Talk at 888-693-7834 extension 350. And if you'd like to give us your feedback to let us know how we're doing we'd love to hear from you because you are the reason we do this show after all. Simply shoot us an email to email@example.com. All comments and suggestions are welcome. That's firstname.lastname@example.org.
I'm Jeff Allen with my guest Patrick Le Feuvre, master franchisee with Cartridge World. Patrick, I know that there are a number of things, curiosities that people have about owning a franchise location. And a lot of times, unfortunately, I think franchise business ownerships sometimes gets a bad name only because people tend to associate franchisees with fast food restaurants. And so people are like, "It's not really a business. You're just managing a bunch of kids." But that's not in fact true. Franchise businesses are in a wide variety of industries, and people do very nicely and make a very nice career out of owning a franchise and I know that you can attest to that. What are some of the other things that maybe you've heard people talk about in terms of franchises that are misconceptions? People may have a bad feeling about but maybe these things aren't true at all.
Patrick: First as you mentioned there's a whole bunch of different businesses. The restaurant area is certainly a major player in franchising but it's far from being the only thing, and we are a good example because we certainly have nothing to do with food. Some of the misconception I think about what franchising is about comes partly from the way that people advertise that franchising. Because if you look anywhere it will tell you, be your own boss and have a great lifestyle, etc. This is not franchising. The first notion of being your own boss and being an independent owner is actually very antithetic to franchising because in franchising you are not an independent owner. You are an inter-dependent owner because you are part of a team. You've got peers like with my territory. I've got 20 some franchisees, we've got 500 in the US, and to a certain extent over a thousand across the world. And everything you do affects in a way all your peers. It is absolutely not an independent business, it is inter-dependent.
The first notion of being your own boss and being an independent owner is actually very antithetic to franchising because in franchising you are not an independent owner.
Jeff: I think that's a very, very important distinction, inter-dependent as oppose to independent. And I know that earlier in the program here a few minutes ago I actually did use the word independent when describing an owner. You've kind of corrected me on that, and that's because as you pointed out the owners work so closely with one another, or certainly can do that, and it's all for the benefit of their business really when you give that some thought. So that's a really important distinction to make here I think, Patrick. I've heard people say that when you run a franchise you're in essence a customer of the franchisor or the corporation. Is that true or false?
Patrick: That is false too. I don't know if it's always the exception but it's certainly bad with presentation of the business because there are basically two models in franchising you can have, the home office and then dealing directly with the store owners. Or like us you can have the home office dealing with the master franchisees who are actually the franchisors and store owners. So we have a two-tier business. But in those cases the relationship between the home office, the franchisors and the store owners is collaborative relationships.
Jeff: Got it, okay.
Patrick: The interest of these three groups have to be perfectly aligned and we all are strategic partners. In fact when I talk to my franchisees I don't talk to them as customers or whatever. There is no vendor customer relationship between them and us. We are strategic partners.
Jeff: Okay, that makes perfect sense, and again it's a matter of working together all toward that common goal. You own the business, you're inter-dependent, you all work together, you're not in fact a customer of the franchisor so we've dispelled that myth altogether. Let's talk about the offerings inside the store. If I want to offer a new product or service at my location, what are the keys there in order to be able to do that? If you can tell us a little bit about how the franchisor works with the franchisees at the store level to roll out that new product or service once it's been approved for sale.
Patrick: Yes. There are basically three tests that a new offering has to pass to get offered to the customers. And actually this should true, I don't know if it is, but it should be true of any franchise system. The first one is, is that product or service providing value to the customers, that's the first one because at the end of the day if it does not then it shouldn't be there. The second one is, is it compatible with our brand standards. We're in the imaging business and if we were to sell ice cream tomorrow it might be beneficial to our customers but it doesn't fit into our brand. And the third test is can it be rolled out system-wide. This is very important precisely because we are franchising and franchising is about ensuring that the customer no matter where they go, which store owner they go through that they have a consistent experience. And so therefore we can't let one store owner deciding tomorrow to do this way and then the next guy does it this way. This is part of the franchising business is you have to follow the same processes, the same experience.
And this is why it is not independent business, because if you have your own independent business you can do whatever you want as long you pay your taxes through the IRS and don't do anything illegal, you're your own boss. In franchising you're not. You have to be part of the system. Now we do absolutely encourage creativity. You know McDonald's, the Big Mac was invented by the franchisee. So it's not like everything comes from the top, it goes two ways. But if a franchisee comes up with an idea it has to be vetted and approved, and tested. And once it has then it can be rolled out. But in order to be rolled out it needs to pass those three tests that I mentioned.
This is very important precisely because we are franchising and franchising is about ensuring that the customer no matter where they go, which store owner they go through that they have a consistent experience.
Jeff: Patrick, if you're talking to someone about running their own business and this might be a person of means. This could be an individual perhaps who would qualify to own a Cartridge World or any franchise operation, it doesn't matter what brand it is. What would you tell them that are the greatest advantages to franchise ownership perhaps over ownership of one’s own private business?
Patrick: Well, there's not right and wrong here. I think what really matters is if someone goes into franchising they have to be the right kind of people to get into franchising. I think individual businesses are great for entrepreneurs, for people that really want to try things on their own. Franchising is right for people that want the help and the support of an organization. So it's all a question of what the needs of the owner are. For us, franchising is the way to do but once again it's all a question of what kind of strategy do you want to use to get your product to market.
Jeff: And that could take probably some time really depending on the product or service in question, but again, it all just means a consistent experience for the customer whether you're talking about a service offering or a product for that matter.
Jeff: This is a question specific to Cartridge World. You and I had a chance to chat over the phone before we started the program today a little bit about all of the changes that have been going on at Cartridge World. This is a situation where you've got locations all over the world and I think they total 1,500 locations I think all across the globe or something close to that?
I think what really matters is if someone goes into franchising they have to be the right kind of people to get into franchising. I think individual businesses are great for entrepreneurs, for people that really want to try things on their own.
Jeff: All right. You're talking about a corporation that has had a major change with regard to how it does business, certainly its business model. Talk about where it was and where it is now.
Patrick: It was started in the 80's by two guys that decided to re-manufacture cartridges and that was a brand new concept. Some people said that will never work. They were wrong obviously. And they ended up franchising the business in 1997 in Australia, they came from Australia, and then expanded in Europe, France, and the UK, and came to the US in 2003. In the US we've only been here for a little more than 10 years. The business has had different phases, grew very, very fast at first. And then the original founders of the company sold to a private equity group. We went through a period of much more growth, and recently a few months ago we were actually acquired by a company who is a manufacturer of one of the critical parts in the manufacturing of laser cartridges called the OPC. It stands for organic photo conductor which is the pipe that helps deposit the laser toner into the page when you print. They are actually the number one re-manufacturer of OPCs in the world, and the number two manufacturer at all of that part worldwide behind Canon. And the reason why they acquired Cartridge World is because they were looking at a distribution network for their product. They didn't have any presence outside of China. They're actually located in Zhuhai, China which is today the world's center of the imaging business. And they produced 60 million OPCs a month, so it's very, very big. And they're in the process right now of actually setting up supply chains for our product that will be all assembled in China and checked after it has gone through every phase of quality control, and shipped to the United States and the rest of the world. It's very exciting.
What has happened also over the years is our business that originally started mostly on the consumer side, people will come in to the store and reading the paper while their cartridge was re-manufactured, has tremendously evolved towards the B2B side. We used to be like 20 percent business and 80 percent consumer and this is today probably totally reversed where we do 80 percent business and 20 percent customer. And all the re-manufacturing, etc. of the product that used to be done in the back of the store more and more today we don't do that anymore. We have approved all of these vendors and now we're going to the next stage where we're actually going to have our own supply chain of product. And so therefore the type of operators of our stores has also changed drastically because we used to have people that got into the system because they were the tech people that like to get their hands dirty etc. And now there's a lot less of that and what we need are these people that are a lot more sales oriented, people that can go and acquire customers. Because once you acquire a business customer, if you do your job correctly they will stay with you.
Jeff: I guess the final thing I'd like to do is just offer you a few seconds, if you'd like to go ahead and provide your contact information for anyone who might want more information for example on Cartridge World, or for those people who are maybe new to the idea of franchising and they're making some considerations. They're exactly sure which way to go, whether they hold on to their own privately-held business or maybe they sell it and go into a franchise opportunity and they'd like to reach out to you how can they contact you?
Patrick: My name once again is Patrick Le Feuvre. My phone number is 713-785-4465. And the best way for people looking at franchising is to go to our website which is www.cartridgeworld.com. This is why we have a process that we follow, and it takes up to 90 days to get from the first contact to the award of a franchise.
We have approved all of these vendors and now we're going to the next stage where we're actually going to have our own supply chain of product.
Jeff: Once again, Patrick Le Feuvre I want to thank you so much for joining us today on Deal Talk, a great conversation indeed.
Patrick: Thank you very much.
Jeff: Patrick Le Feuvre, master franchisee with Cartridge World has been my guest.
We hope you enjoyed this discussion and if you consult or work with business owners prior to, during, or after the transaction process and you'd like to join us as a future guest to share your expertise, contact me directly at 888-693-7834 extension 190, or you can email me at email@example.com. Deal Talk is presented by Morgan & Westfield, a nationwide leader in business sales and appraisals. Find out how Morgan & Westfield can help you at morganandwestfield.com. For everyone at Deal Talk I'm Jeff Allen, thanks again for listening. We'll talk again soon.
While we take reasonable care to select recognized experts for our podcasts please note that each podcast presents the independent opinions of such experts only and not of Morgan & Westfield. We make no warranty, guarantee, or representation as to the accuracy or sufficiency of the information provided. Any reliance on the podcast information is at your own risk. The podcast is for general information only and cannot be considered professional advice.
Jeff: Mark, what we're going to try to do I think is to give people a ground floor introduction to franchising today. In a matter of speaking, we may be going over some inter-media topics as well but for the purpose of today's show, what I wanted to start out talking about, Mark, you know you'd been CEO of iFranchise Group. You've got 30 years of experience with helping franchise owners and companies with their franchise organizational needs. Can you tell us what the term franchise consultant means? I mean exactly, what is it that you do?
Mark: Well, it's funny. There are people out there that will call themselves franchise consultants and what they really are is brokers who try to sell companies or sell franchises to people that will want to buy franchises and it's not what we do. We are more of the traditional management consulting firm where what we will do is we will help companies . . . really in two categories. One, companies that are thinking about franchising for the first time. So, you got a small shop. You're thinking about growth.
You think maybe franchising is a great way to grow but you don't know how to go about doing it. And then the other group that we cater to are existing franchisors who maybe hit a problem. Maybe they're not selling franchises as best as they thought they could. Maybe they are having difficulties with franchise regulations or of quality control. What we do with these companies is we'll step in and tell them how to do it better. So eventually, our practice is focused around how to be a good franchise or organization.
There are people out there that will call themselves franchise consultants and what they really are is brokers who try to sell companies or sell franchises to people that will want to buy franchises and it's not what we do.
Jeff: Mark, of those two lines of business - if you want, we'll just call them "lines of business" - but you talked about a couple of functions working with existing franchisors. The second thing you talked about were having some issues. You’re talking about, talking to them about, how to operate better and bring their franchise up the speed, not the standards. Of the two, do you work more with one of those clients than the other or is it evenly split as far as your business is concerned?
Mark: It's fairly evenly split. The services that we provide are actually, in truth, the kind of things we do for franchisors. They really fall under the same categories, whether it's a start-up or the established franchisor. By service line, we do a lot of work in terms of developing strategic plans. We do a lot of work in terms of developing quality control mechanisms like operations manuals and training programs and online learning systems. We do a lot of work when it comes to franchise marketing and lead generation. We will help franchisors, not on the consumer side, but on finding perspective franchisees. And then the last theory of our business is really organizational development and that can be anything from training people how to sell franchises and do it more effectively to actually selling franchises on their behalf to an affiliated company like ours called franchise dynamics, or to training people on just how to interact with franchisees so they can hit better franchise relations or a variety of different subjects, to field support etcetera.
Jeff: What we've done here is we've kind of established, Mark, that there really is no area of the industry that you folks don't cover with respect to the services that you provide and the lines of business that you provide to help people either operate a franchise or find a franchise or find people to buy franchises that your clients are looking to sell. What I'd like to do right now is I'd like to get down to the brass tacks, the needy-goody if you would. Let's pretend that I'm a business owner and I'm very interested in finding out if I can branch out. How do I know if my business is franchise-able?
Mark: We've got a test on our website - which is ifranchisegroup.com - that goes to twelve criteria that we look for. But the short version answer is that there are three things you have to do to be a franchise. One is you have to sell franchises. So, to be a sale-able business opportunity, you want to make sure that you have some credibility, that you've got . . . you positioned the opportunity uniquely, that you have a some kind of a value proposition that will compel people to buy you versus one of the other franchise opportunities that are out there.
Second, what you have to do is you have to be able to duplicate your business. That means you have the able substance to form the operations manuals, the training programs and it's got to be a business model that will work in a variety of different markets. So, if you have a bikini shop in South Beach, it may not work as well in Chicago where I'm located. Those are the kinds of things we that we look at from a --- hone-ability or duplicate-ability standpoint.
But the real acid test is really return on investment. When we talk about return on investment, it's really a function of how much money can you make and how much does it cost a franchisee to get into this business. If I'm a franchisee, I can go out and get a job and make a salary, and I can take the money that's in my savings account or retirement account and I can make a return on that investment. Alternatively, I can buy into a business, I can grow that business and ultimately sell that business. In the meantime, I can make the equivalent of a salary plus the return and the money I've invested in that business. As we really look to see, a great return is a little bit above market, we'd like to see a return on invested capital at above 15 percent if it’s an owner operator, and if you're going to be selling franchises to multi-unit operators who will have their own infrastructure that they need to support, we would typically look at and we try and close at about 20 percent.
Jeff: 20 percent. What are the advantages of franchising versus the disadvantages?
Mark: Well, the primary advantages that I could cite would be time, people, and money. From the standpoint of typically expansion options, franchisors could grow much faster because their leveraging off of the time of your franchisee. They're looking for sites, they're finding a negotiating leases, and they are hiring people and training people, so you don't have to build a big infrastructure around them. The second advantage is you get really highly motivated management. The people who are going to be your franchisees are typically going to be folks who are investing a good portion of their life's savings in making this work. And the third is capital. The franchisee is going to be the one who's going to invest their capital opposed to your capital, so you can grow using other people's money and at the same time without giving up your equity.
Now, for your readers in particular, I think there's a fourth advantage and that is that we have found that franchise businesses sell at a premium to the market. And in studies we've done, we've seen, like for example comparing the standard multiples achieved by publicly traded franchise companies to the multiples achieved by a publicly traded non-franchise companies, I need to just pick up the SMP as a benchmark, we've seen typically a 25 percent premium paid for franchise companies. So, there is certain advantages to franchises from a standpoint of valuation because investors see franchise companies as being faster growth vehicles.
... the primary advantages [of franchising] that I could cite would be time, people, and money.
Jeff: Why do you think that is? Is that mainly because the business model has already been through a test, it's already seen some success or establish a track record of success in a given market?
Mark: That's absolutely a part of it. But the other part is that every time . . . if I've . . . have my own corporate location and I need to expand by opening additional corporate locations, that will cost me a lot of money to do that.
Jeff: Interesting point.
Mark: In the franchise world, I can go out and open up ten more locations and I don't spend anything. The franchisees spend the money. I've got a little bit of money spent on marketing to find those franchisees but I can open a lot more locations a lot more quickly using other people's money and without deluding my equity.
Jeff: Now, Mark, we've talked about some of the advantages and obviously, it’s part of your business to working with your clients to make sure that they make the right decisions and right choices. But are there ever any situations where you're talking with a client and you say, "You know what, maybe this isn't a really good idea for you and your particular business." What are some of the disadvantages of franchising?
Mark: I would say the big disadvantage of franchising is that you're sharing the bottom line profitability with your franchisee. If a franchisee puts up all the money and the franchisee is putting up all the time and in investing this, they're going to expect the lion's share of returns when the business gets up and profitable. So, a franchisor equates the profit by making a royalty, they might make some rebate money, they might make some advertising money. But they are not going to get every dollar that goes to the bottom line.
And from a standpoint of is it right for everybody? Absolutely not! I would say that first of all, you have to make sure that you're business model can withstand that kind of a royalty of still providing a good return because when we talk about returns on investment, that would have to be our definition of the franchise and impose royalty and a return of investment. So you have to adjust those financials to reflect that.
The other thing is, frankly, it's not like for every person just based on what their individual goals are, what their aspirations are. If I have a business that's worth a million dollars and I want to sell it in five years for two million dollars, well, franchising's may not be the best strategy. Maybe I just want to open up one more corporate location. If I'm looking for more aggressive growth, it's very likely franchising is going to be the sum of all of the solution that will get me there faster.
If I have a business that's worth a million dollars and I want to sell it in five years for two million dollars, well, franchising's may not be the best strategy.
Jeff: Have you ever found, Mark, that some people may have made the mistake of setting up and franchising their business because they found out later on down the line that they just didn't have all the control that they wanted to with respect to managing that franchise location that they have bought somebody else on board to take control of. Has that ever been anything that you found in your experience?
Mark: Well, I think that that is something that can absolutely happen in a franchise organization. You don't have the same level of control and that you can't hire and fire employees at will or you could do it to your employees or the employees of your franchisees. That being said, a franchisee is to be highly motivated and just because of the fact that they've got their life's savings on the line, to do things as well as possible. Oftentimes, what we find is that franchisees will outperform the franchisor in terms of average revenue per unit. And that's . . . consumers voting with their dollars saying that they like this location better than the other because of the fact that it's better run. So, generally speaking, franchisees run the locations better. But the way to avoid those control issues which you've mentioned:
Number one, make sure you have very good franchise selection processes in place. You don't want to sell a franchise to anybody just because they can flog a mirror and they have a check. You need to make sure that you want to sell them to the right people who share your belief system and are going to follow the systems.
Number two, make sure you provide good tools, operations manuals, training programs, etc.
Number three, make sure that as a franchisor you're providing good ongoing support and you are visiting with your franchisees at a regular basis and letting them know what kind of things they could be doing to improve their revenue in keeping with your systems.
Number four, if they are not following your brand's standards, that may not be as simple as someone who maybe an actual termination of a franchisee, but if they're not following your brand's standards, you absolutely have the right to terminate that franchisee.
... a franchisee is to be highly motivated and just because of the fact that they've got their life's savings on the line, to do things as well as possible.
Jeff: We're talking franchising on this edition of the Morgan & Westfield podcast with Mark Siebert. He's a CEO and Senior Franchising Consultant at iFranchise.
Mark, what are some of the legal requirements for franchising?
Mark: In the United States, franchising is governed under FTC Rule 446, which basically says that if you're going to offer franchises for sale, you need to provide a disclosure document to a prospective franchisee 14 calendar days in advance of them signing or of them providing you with money. Eventually, under the federal rule, you have to provide some information about you, your background, the franchise, how it works, what the fee structures are with the prescribed cooling off period so that . . . and it has to be done in a very specific format. It’s got to follow the format dictated in the rule.
Aside from the federal rule, there are 14 different states that regulate franchising and not only do they require that you provide that disclosure document but they also require that you register at the state level. So, finding a good franchise attorney is something that's going to be a part of your process as a franchisor. The classification is relatively easy to develop and relatively inexpensive to develop but you need to find a specialist. We don't do the franchise legal documents, by the way. My team may provide referrals to people to lawyers in franchising. There are a relatively small number of lawyers out there who do this. You don't want to go to your real estate lawyer or your divorce attorney and ask them to put together these documents. You need to find a specialist. If you do that, it's very easy to comply with.
Jeff: Tell us about some of the costs that are involved here, Mark, in terms of franchising a business from the time that folks may come and see you, maybe to the time that the deal's consummated and closed.
Mark: I think it really is dependent on how aggressively you're looking to grow. So, as an example, if you are looking to grow relatively unaggressively, maybe you just want to sell a franchise to your brother-in-law or one or two of your employees, all you really need is you're going to need the legal documents and you're going to need an operations manual so you can control quality. Your cost will almost certainly be under $50,000. It could be, depending on what you've done internally and which lawyer you choose to work with, it could be $40,000 or $35,000. So, you can get into it relatively inexpensively.
If, on the other hand, you are looking to grow more aggressively, you start talking about the development of some of these other services that I mentioned earlier that we do - things like business plans, financial models, competitive analysis, training programs, training videos, online learning management systems, you start talking about more in the way of marketing so, brochures and marketing plans and websites and videos and other things from a promotional standpoint, then, you're going to have a much greater franchise marketing budget. Franchisees don't just come to you by accident. You have to go out there and attract them. Just go out there and attract them. So, finding those franchisees is going to cost you as well.
Depending on how aggressively you're looking to grow, I see a moderate franchise program, you might be spending $100,000 or on an aggressive franchise program, it's $200,000 and up. It really depends on how aggressively you're looking to sell in the marketplace.
Jeff: And that begs the question --- what types of businesses are best suited for franchising and many of us are familiar with some of the big names. Of course, McDonalds comes to mind and there are other fast food outlets, companies that also offer franchises as well and there are dry cleaners and so forth. What are some of the more common businesses that are best suited for franchising and maybe, you might even think of an industry that we're not familiar with or we don't realize, Mark; that right now we're seeing a lot of franchise activity with.
Mark: One of the things that people don't realize, frankly, is how ubiquitous franchising really is. Pretty much every industry you can think of has franchises. The biggest companies in lawn care are all franchised. The biggest companies in janitorial services are all franchised. The biggest companies in hotels, all the big hotel companies are franchised. The biggest companies in automotive aftermarket are all franchised. In many of the industries that are out there. The biggest companies are already a franchise. There are very few industries that don't have franchising, frankly.
One of the things that people don't realize, frankly, is how ubiquitous franchising really is.
Jeff: That's really interesting because we sometimes really don't give it very much thought. Whenever we walk in to a business, we just go in, we buy what were there to buy and we don't give any consideration to how the business is run, who's running it - corporation versus small business owner - and right there, that kind of clarifies for us that this is indeed a very, very popular form of business ownership. We understand that we're talking franchises off and we're talking about multiple locations out there with each location being owned by a different owner. Some owners own several different locations. Is it possible to actually have only one location of a business and that location is essentially a franchise?
Mark: If you only have one location, that would be something that you would own so, that would not be a franchise. But I think that it is possible to start a franchise program with just one location in existence. I'll give you an example on that. About 8-10 years ago, a gentleman called John Leonesio came up to me and said, "I've got a therapeutic massage business that I'd like to franchise.
I only have one location. It's only been open three months." I started talking to him about his business and as I started to hear more and more about the business, the more excited I got about it. Well it turned out the business model was a company called Massage Envy. Today, Massage Envy has well over a thousand locations - 1200 locations - around the US and it is, by far and away, I mean the biggest therapeutic massage company in the world, probably the biggest … certainly the biggest in the world I would think …
Jeff: And they're popping up all over the place.
Mark: And they're popping up all over the place. They basically created a new industry. They took something that was a very fragmented market beforehand where there was not a lot of franchising in that market and they converted that market in over the course of less than a decade. I think that if you had a good business model and, especially if you have good strong value proposition, just having one location could be enough to get you from where you're at to to quite a substantial gain.
Jeff: And Massage Envy does have a very unique business model and anyone who's interested in looking into that should go and check them out on their website. Very, very unique indeed.
The man you're listening to on the other end there is Mark Siebert. He is the CEO and Senior Franchise Consultant with iFranchise Group. My name is Jeff Allen. You're listening to the Morgan & Westfield podcast series. Today we're talking about franchising.
What is the time frame for putting something together, putting a deal together? I'm interested in owning a business and becoming a franchisee. Mark, how long do I have to wait from the time that I contact the company I'm interested in running one of their businesses to the time I actually get the keys and open up?
Mark: On the franchisee's side, you have to wait 14 days. I mean that's spelled in the law under the FTC Rule. From a franchisor's standpoint, it takes longer than that to put something together.
Mark: If you came to me and said, "I'd like to become a franchisor", you probably looking at about four months in a non-registration state and it could be a little bit longer in some registration states because there's a lot of prep work done in becoming a franchisor. And as far as how long it will take you as a franchisee to open the doors. It really varies by business. Some businesses are very quick to open. Some take months and months to open. So, if you want to open up a child care facility, it could take a year or more and if you want to open up a jazzercise business, you could open your doors in a week, now once the contracts are signed. So it can take considerable time on the franchisor's side ---from four to six months to get yourself ready for franchising.
I think that if you had a good business model and, especially if you have good strong value proposition, just having one location could be enough to get you from where you're at to quite a substantial gain.
Jeff: I know that there are probably one or two of our audience members out there that are looking to dip their toe in the water so to speak, Mark, and looking to buy an existing business perhaps franchise it in the future. Do you have any advice for people out there you'd be willing to share?
Mark: If they're looking to buy a business and then franchise it, I think that number one, they have to look at that asset test that we talked about earlier. They can get it on my website for more details but eventually, looking at the ability of the franchisee to make money after deducting any kind of royalties or any kinds of mark-ups because there are lots of business models out there that work great for an individual owner-operator but once you strip out the royalty, whether you give them income or mark-ups on the product that you're going to be selling, they no longer provide mandatory terms for the franchisee. So, number one is going to be return for the franchisee after deducting that royalty. Develop some financial models around that.
I think number two is going to be look for a business model that is revenue replicate-able. Again, going back to the subject criteria for franchise-ability, there are companies out there that are franchise medical practices so we worked with a company called Doctors Express that is franchising urgent care. The reason why their business model is replicate-able is because Doctors Express is not trying to teach its franchisees to practice medicine, they are teaching franchisees how to run a medical clinic and call on the doctors to practice medicine.
So, when we talk about replicate-ability, I think the key is --- is there a way to grow this business and it may be that you have to hire people that have certain skill sets or you have to target them. Is there a way to grow this business in multiple locations or is it something that works primarily because of a particular location it's in or the particular team that's been driving it.
Jeff: Mark, we are kind of running short of time here and I wish that we had more time to talk to you at greater length about some of these items that really pertain to franchise ownership. I'd like to end by getting your vision going forward over the next several years. What do you see in terms of trends in franchising based on what you're looking at right now in the industry, and the news that you're following?
Mark: The kinds of things that I'm seeing right now in the industry, I would say, senior care is very hot market right now because of the aging of the population. Health care and medical franchise are very hot right now. Fitness server is very hot right now. And the food front, I would say, Asian, Mediterranean and these new fast pizza places where you could go in and get a custom pizza made, those are all very hot right now. Home improvement is very hot right now. But frankly, from our perspective, the ones that are going to be the home runs in franchising might not be on that list at all. It might be something where . . . something that has just a great business model.
So, if you are doing better than your peers are doing in the same industry, that could be the key to being able to say, "this is going to be the next new thing". My crystal ball is maybe only slightly better than the next guys, I never would have predicted Massage Envy would happen to be as successful as it has. It's really all about having a better model and doing something that’s different, doing something that's unique.
Jeff: Well, there you have it. Mark, if someone is interested in talking to you or talking to one of your associates about franchising, where can they reach you? What numbers, websites . . . where can they find you?
Mark: Our website is www.ifranchisegroup.com. It's all one word, i-f-r-a-n-c-h-i-s-e-g-r-o-u-p.com. And our phone number is 708-957-2300. If any of your listeners would be interested, we do have a 90-minute DVD on how to franchise a business that we have in a variety of video formats. I'm happy to send out to your listeners with our compliments so they can make a better determination if franchising is right for them.
Jeff: One more time on that phone number, Mark, if you would.
Jeff: Mark Siebert, CEO and Senior Franchise Consultant at iFranchise Group. Thanks once again for joining us today. It's been a pleasure. We hope that we can have you back on again soon.
Mark: Thank you very much, Jeff. It's a pleasure talking to you.
Jeff: That's Mark Siebert, CEO of iFranchise Group talking about franchising today on the Morgan & Westfield podcast presented by Morgan & Westfield, a nationwide leader in business sales and appraisals.
If you'd like more information about buying or selling a business, call Morgan & Westfield at 888-693-7834 or visit morganandwestfield.com. And that, coincidentally, is also where you can find all of the podcast in the Morgan & Westfield podcast series. Until next time. My name is Jeff Allen. We'll see you again.
Jeff: Welcome to Deal Talk brought to you by Morgan & Westfield, I'm Jeff Allen. And if you're looking to sell your company now or at some point in the future it's our mission to provide information and advice from our growing list of trusted experts that you and all small business owners can use to help you build your bottom line and improve your company's value.
And part of improving your company's value means expanding, maybe expanding into other markets, opening new locations, and for many young business owners or first time business owners who really have found some success with their companies the prospect of growing your company may seem somewhat daunting. But have you considered expanding through franchising your business or through franchise locations? Joining me for a return visit on the Morgan & Westfield guest line is Ms. Julie Lusthaus, an attorney specializing in franchise business law. She's a partner at the firm Einbinder and Dunn LLP in New York. Julie Lusthaus, it's nice to have you back on again. Thank you and welcome back to Deal Talk.
Julie: Thanks Jeff, it's great to be back.
Jeff: Why do you believe that some businesses seem to be more right than others for expanding through franchising?
Julie: The benefit to franchising a business is that enables others to operate the business basically by a turnkey business and start operating. And so a business that will be successful with franchising is one that can be replicated. So it should be a business where the franchisor can teach the franchisee relatively quickly how to operate the business.
Jeff: Are there any milestones Julie or specific financial data that you need to look for to determine a company's readiness for expanding into franchise locations?
Julie: Well, you certainly want to have a business that's profitable, successful, and growing. It's important to think about the fact that if a franchisee is going to be operating a location they're going to be paying additional fees to the franchisor that the company store is not paying. And you want to make sure that the business will be profitable for your franchisee. So it has to be generating sufficient revenues to cover the costs that would be incurred by a franchisee. And you also want to have a company that's established well enough to support the requirements for providing training and meeting other obligations to the franchisees.
Well, you certainly want to have a business that's profitable, successful, and growing.
Jeff: That right there, you just talked about providing training and you might also suggest I suppose marketing support. And there are a lot of details that business owners really need to consider moving forward because they want to have I would think Julie, and you can chime in anywhere here, that they want to have some kind of uniform standard for operations and quality assurance for their customers and for their stores in order to help them operate successfully.
Julie: I think that's exactly right. The idea of franchising is that you could have 50 locations open and any of those locations I, the customer, am going to go in and have the same experience. So you want to make sure that the businesses are operating according to systems standard that you protect the brand and that present the brand in the way that the brand should be presented. And one of the ways that franchisors share their requirements with franchisees is go through the franchise agreement that will be executed, but also through operations manuals and other information that the franchisor will need to put together to teach their franchisees how to operate in accordance with their requirements.
Jeff: What are some long term advantages Julia Lusthaus to franchising of a business or expanding through franchises as oppose to simply adding locations and maintaining company owned and operated stores?
Julie: It's a great opportunity to expand the brand where the franchisee is going to invest the cost for opening and developing the unit as well as the time and effort in operating the unit. So it can be a much more efficient way to expand the brand and develop additional locations throughout different geographic areas, whether it's locally around with a franchisor initial stores are operating which is typically where franchisors will start, but certainly throughout the United States and internationally. Having the franchisee incur the cost and expend the time in developing the unit can enable units to be open much more quickly.
It's a great opportunity to expand the brand where the franchisee is going to invest the cost for opening and developing the unit as well as the time and effort in operating the unit.
Jeff: We're talking with Julia Lusthaus. She's an attorney specializing in franchise business law at the law firm of Einbinder and Dunn LLP in New York. And you might remember if you've listened to Deal Talk in the past, we've had Julie on before talking about franchise related issues, franchise law issues, and today we're talking about things that you really need to be mindful of if you have it in mind to expand your business and you're thinking about doing it by opening franchise locations in your market or expanding outside your market. Should those people who own a business and they may be interested in expanding later on, and maybe franchising their locations or expanding through franchise, that's a goal that they have. Should they have that somewhere in their original business plan? Is this something that they really need to have in their plan at the very beginning, Julie, so that they can kind of prepare themselves and talk to all the people necessary in order to get all the answers that they need moving forward?
Julie: I don't think that's necessary Jeff. I think that it's helpful because if you know that you're going to take that approach then you can from the beginning sort of start thinking about what is required to operate and start creating an operations manual that somebody else can use to develop a location. But you certainly want to get operating first and ensure that your business is successful, and that it's really right for franchising. And that you may not know until you've already started operating.
Jeff: Julie, Ray Croc is looked at as kind of the original pioneer and McDonald's is the gold standard for franchise independently owned and operated business all over the country and has been around for many years as you know. And then we've seen many others kind of follow. But a lot of people think of a franchise business opportunity as only being kind of in the small retail and the fast food, quick service food space. But there are other businesses out there in other industries that really are perfectly, ideally suited to this. Just based on your experience in dealing with all the clients that you do, can you talk to us a little bit about some of those other opportunities that are out there, industries where this kind of thing is normal now and where we've seen a lot of success?
Julie: Sure. And I think Jeff you make a great point. Most people when they think of franchise, think burgers and fries, and think about the fast food concept. There are service industries, professional industries, there's home health care, and child care, and entertainment. Cleaning services, car services, there's so many different industries where franchising has really enabled brands to successfully expand. And what's really neat is that some of these industries provide kind of alternative sources of opportunities, so there may be a franchise system that provides for semi-absentee ownership by franchisees. Or franchise systems where franchisees are able to work from their home. There can be something for everybody in franchising. And successful business owners, whatever their concept, may really have an opportunity to think about expansion through franchising even if their business is not a traditional brick and mortar retail location.
And successful business owners, whatever their concept, may really have an opportunity to think about expansion through franchising even if their business is not a traditional brick and mortar retail location.
Jeff: Julie, real quick before we go to a break. I wanted to ask you about benefits. Is it customary for the corporate parent to provide benefits for the employees, or make those available for employees down the line, or is that typically something that the independent owner-operator of a franchise location does?
Julie: If you're speaking about the employees of the franchisees, Jeff, those are going to be employees strictly of the franchisee. The franchisor is going to be interested in ensuring that a franchisee complies with system standards, uses the trademarks in a way that’s provided for by the franchisor and operates the business in accordance with the franchisor's requirements in order to protect the brand and to present the brand in the way that the franchisor wants it to be presented. But otherwise the franchisee as an independent business owner, they have control over their employees. They make choices about the hiring and firing, and scheduling of their employees. And it's very much an independent business although using the intellectual property of the franchisor to operate.
Jeff: Got it. That clears that up, very good. What we're going to do when we come back, we're going to talk more to Julie Lusthaus, and we're going to talk about regulations and legislations specific to franchise businesses. Also too, we're going to talk a little bit about first steps, what you really need to do in order to get started on your way to finding out really if it's right for you. But also really, the first real steps to growth of your business through setting up franchise locations. Julie Lusthaus, she is our guest and attorney, and she's with Einbinder and Dunn LLP in New York specializing in franchise law. My name is Jeff Allen and we'll be back when Deal Talk resumes after this.
Time savings and cost savings are both essential to running a profitable business. The same is true when it comes to actually selling your business. Morgan & Westfield are experts at saving you both time and money. How? By providing a complete valuation report on your business. By providing specialized knowledge and expertise to market, promote and advertise your business for sale. By preparing a detailed selling memorandum to attract buyer interest and inspire action. By carefully screening individuals to identify only serious, well-qualified buyers. To properly identifying sources of financing including alternative options best suited for the buyer and escrow support with appropriate legal documentation. And Morgan & Westfield works with specialists and advisors to reduce risk. Selling your company? Contact Morgan & Westfield for a free consultation -- 888-693-7834 -- 888-693-7834 -- or visit morganandwestfield.com.
Jeff: Welcome back to Deal Talk, I'm Jeff Allen with my guest Julie Lusthaus, attorney and partner at Einbinder and Dunn LLP in New York and we're talking about how to expand your business, or not necessarily how to but giving you maybe some things to think about if you're considering expanding your business by opening up franchise locations and making your business available to those who are interested in owning their own business, whether it be in your neighborhood, or whether it be outside is other markets depending on what your growth mode is looking like. Julie, what I wanted to kind of try to find out from you is whether there are any really important laws that you can just kind of touch on that are really specific to franchising, some things they really have to be mindful of and they have to consider first and foremost before they get started.
Julie: Sure Jeff. The Federal Trade Commission requires that franchisors prepare certain documents before they start offering franchises for sale, it’s... to franchise disclosure documents. And it contains information about the franchise, the franchisor, the system, and it will also contain certain agreements that franchisees will be asked to execute. And several states, about 13 of them plus some others, have some similar requirements, require that the franchisor register the disclosure document with the state before it sells franchises in that state. And it's really important that a franchisor complies with these requirements before it starts selling or offering to sell franchises to ensure that the system is really set up strong and correctly from the beginning. Failing to do so can result in litigation and problems within the system, and problems with selling additional franchises. A franchisor would really be smart to reach out to a franchise attorney and ensure that they are going to comply with all the pre-sale requirements of offering a franchise before they start talking to people about franchising their business.
The franchisor is going to be interested in ensuring that a franchisee complies with system standards, uses the trademarks in a way that’s provided for by the franchisor and operates the business in accordance with the franchisor's requirements.
Jeff: There's going to be a lot of little steps that business owner's going to take or a franchisor is going to take along the way. What is the first step, Julie, that you believe that a franchisor or future franchisor - we'll go ahead and we'll call them that - needs to take in order to kind of get the ball rolling at least?
Julie: Certainly speaking with professionals, both consultants and franchise lawyers, to help them prepare the business for franchising. In addition, one of the benefits to operating a franchise is using a brand name or a trademark that is protected and that becomes known so that you have the benefit of a known brand that you're operating. And so a franchisor should certainly take steps to protect the trademark and its intellectual property before it starts franchising.
Jeff: Once the process gets started and you've had a chance to maybe meet with a business owner, franchisor, and the documentation is in process so they start getting that to the states or to the municipalities, the local governments where they're going to be going into and expanding, and opening new locations. How long does the process take before they can actually offer these locations for sale to independent owner operators?
Julie: That's a great question, Jeff, and some of that's going to depend on obviously how quickly the franchisor can get its information together and make decisions about the system. You know, it's not something to be done lightly or quickly. We work with clients from the beginning of the decision to start franchising. It could take a couple of months before the franchisor is in a position to actually file its documents with the state. And then once the state has the documents if that's necessary then that process could take another few weeks. So it's definitely not something that's done overnight and it's more important to really set up the system properly and appropriately for that particular franchisor client and not just jump right in, and not move so quickly that that system isn't created from the beginning in the way that makes sense for the franchisor. You really want to make sure that the franchisor thinks through the different issues that will come up in the course of the relationship with the franchisees. There's certainly a lot of detail to figure out in terms of how the franchisees will be operating and what their requirements will be. It's certainly more important I think to spend the time, the effort, and the resources frankly in setting up a system the right way from the beginning, rather than rushing to try to start franchising and sell franchises, and find yourself in a situation with a franchisee that the franchise agreement doesn't really address the issues that are going to come up during the course of the relationship. The one thing that people need to think about is when you're selling franchise is typically you're giving franchisees the opportunity to operate the business for a certain period of time which could be as much as 10 or 20 years. So there's a lot involved in trying to think about what might come up in the future and how the business may need to develop in the future and you want to make sure that the franchisor has the opportunity to enable the brand to grow within the confines of the obligations of the franchisees and the franchise agreements. There's some time involved.
And so a franchisor should certainly take steps to protect the trademark and its intellectual property before it starts franchising.
Jeff: And by the way too, before you even get to that point I think that someone who owns a business who is very, very close to what it is that they do and who has a certain way of doing things, this goes back to the top of the program really. You may not be cut out for expanding into franchise locations as a business owner if you need to have your clutches on everything that it is that you do and you're not one who's able to delegate, or let go of things and trust other people to run your business without having to constantly feel like you need to look over their shoulder at all times. This is probably not for you anyway, but it's something that I think that really, really does take careful consideration at the very start to make sure that you're comfortable with the idea of doing this. We're talking about your company's growth, and it can be kind of a personal thing to consider at the very start, and something that you need to think about. Are there certain specific issues that come to mind, Julie, that your firm encounters frequently with clients who come to you with problems? These are problems that potentially can involve some litigation down the line. But anything that's unique that you have seen in your area of specialty which is franchise law that are common occurrences among franchise businesses that really, if not for one or two things, could probably have been avoided, issues that you've faced or that you've seen your clients face?
Julie: I'd just like to touch on the point that you made before we get to this, and I think that it was a terrific point about the fact that some business owners are not going to be comfortable with allowing others to operate under their marks, their trademarks, and their brand name. And we've had experiences with clients who it became clear as we went through the process that they weren't going to be comfortable with the idea of letting others operate stores using their trade names. The other point to make about this is that we have successful business owners who have built a brand, who are successful in operating their business and then want to expand through franchising but they need to understand that becoming a franchisor is a very different business than operating the business of the company. And so for clients who just absolutely love what they’re doing in their day-to-day operation of their location or of their business, franchising may not be what they’re looking for because becoming a franchisor is so different than from the day-to-day operations of it. I think that's another factor along with the idea that they have to be willing to let others operate under their brand name when thinking about whether to franchise a business.
Jeff: Very good, I appreciate that follow-up because it really is an important thing that people need to think about. After all businesses can be kind of an extension really of our family when you think about it because we're so close to those ideas, the concepts, and our business in general. I'm going to go ahead and I'm going to pick it up. Let me ask you the other question again. I'll just kind of re-ask. Julie Lusthaus, your firm deals with franchise business clients I'm sure on a very regular basis. You yourself specialize in franchise law. Are there some common areas of concern or common issues that you have seen come up time and again with franchisors who come to you that face potential litigation? Whether this is something that involves customer service practices, or this is something that involves anything that may come up between them and their franchisees, anything that you're willing to share that these are the types of things that could probably be easily avoided if people were just able to get in touch with their attorney to kind of get out in front of some of these issues first?
Julie: Sure. Initially the biggest area of concern is when franchisors or wannabe franchisors delve into franchising before they're legally permitted to do so. And we've seen certainly situations where the business owner will want to sell, or he'll have a customer, or a family member, or somebody say, "Wow, this is such a great business, I want to operate one." And they sort of work out an agreement between themselves that's not intended to be a franchise. But under the laws of the FTC rule and under the laws of many states, whether you call it a license agreement, or some sort of joint venture agreement, if it's a franchise under the definition of franchise, it's a franchise. And it's very important that business owners don't start dabbling in expansion with third parties without ensuring that they're complying with the laws regarding franchising before they do that. So that's sort of when you're getting started. It's certainly important to make sure that they're legal to sell franchises. Once the relationship has developed then one of the things that we see is situations where a franchisee may not be complying with the system standards. And it's important for franchisors to really take action to protect their brand. If a franchisee is going to leave the system or is not operating in accordance with its franchise agreement, the franchisor really needs to take steps to ensure that that franchisee is no longer operating using the brand name. And these are the things that if the franchisor waits too long to take steps to protect their intellectual property or the trademark they could run into trouble later on with claims that they didn't do what they were supposed to do to protect their brand. It's very important for franchisors to stay on top of what their franchisees are doing and ensure that they're complying with their agreements. And if there is an issue, to reach out to counsel and have help trying to resolve that issue before it turns into litigation.
The other point to make about this is that we have successful business owners who have built a brand, who are successful in operating their business and then want to expand through franchising but they need to understand that becoming a franchisor is a very different business than operating the business of the company.
Jeff: Julie, Einbinder and Dunn, your firm, are they serving clients just in the metropolitan New York area or do you have clients across the country?
Julie: We certainly have clients, our friends have clients who are developing franchises and expanding in all parts of the country. And the nice thing is that we're able to work where necessary with local counsel to provide the services to our clients whether they're operating in New York or in other locations.
Jeff: If someone has some questions, they have had a chance to listen to you a couple of times on our program now and they would like to chat with you. Maybe they've got some concerns, they're just interested in getting started, or they are actually interested in a sit-down to kind of determine ways forward. What should they do? Can they reach you directly?
Julie: They can reach us directly by phone at 212-391-9500. Our website is ed-lawfirm.com, and they can certainly get more information actually about franchising and our services on our website, or reach me via email at firstname.lastname@example.org.
Jeff: Can you give us that phone number one more time?
Julie: Sure. It's 212-391-9500.
And the nice thing is that we're able to work where necessary with local counsel to provide the services to our clients whether they're operating in New York or in other locations.
Jeff: Julia Lusthaus, once again, we thank you so much for taking time out of your schedule today and chatting with us a little bit about some things that people need to be mindful of, those business owners who may be interested in expanding their companies and offering locations as franchise locations to independent owner operators. Once again, we appreciate your time. Hopefully we can talk to you again soon.
Julie: Thanks, Jeff. It's a pleasure being here.
Jeff: Julie Lusthaus, attorney specializing in franchise law and partner at Einbinder and Dunn LLP in New York.
Deal Talk has been presented by Morgan & Westfield, a nationwide leader in business sales and appraisals. If you're thinking about selling a business or buying one call Morgan & Westfield at 888-693-7834 or visit morganandwestfield.com. And for more valuable information and insight from our growing list of small business experts like Julie Lusthaus make sure to join us again here on Deal Talk. I'm Jeff Allen, thanks again for listening. We'll talk to you again soon.
Emery: We're off to a great start. Beth, I know that you mentioned this to me before that you sold your Money Mailer business last year, I believe you said in June. What are you doing right now for Money Mailer?
Beth: Currently I'm the Director of Franchise Development for Money Mailer Corporate. My husband has worked with me in the business and had a very successful 27-year run. My husband is a bit less driven than I am and his dream was to golf every day, and he was ready to retire. And so we listed our business and successfully sold it. I worked with the new owner to transition successfully. Honestly, I didn't know what I was going to do. I love Money Mailer. It’s one of the best small business opportunities in the country. And when Corporate approached me and said, "Hey, how about coming aboard and helping other people have the same opportunity you had?" At first I really wasn't sure, but then they shared with me the new two-year GPS launch package that we have in place for new franchisees. And when I looked at the training, and the support, and the financial incentives I just couldn't resist. I thought, what a great second career. We've got a clear path to success now and I can help other people to have the same success that I enjoyed.
We've got a clear path to success now and I can help other people to have the same success that I enjoyed.
Emery: Great. That's what I wanted to talk about this afternoon Beth, is that new GPS program. But before we get into that I just wanted to ask you a question. What do you think are the advantages to operating a home-based business like Money Mailer?
Beth: There's a ton of advantages. Obviously, it makes Money Mailer a much more affordable business to get into because you don't have to take expensive leads, there's no inventory, there's no equipment, there's no build out, there's no employees that you have to hire. It's designed for a single owner operator to run very, very successfully. And I really like that. It also gives you advantage of additional time flexibility. When my kids were young I could make sure they got on the school bus. I didn't have to worry about a commute, and I could still be out in my territory working at 9 o'clock and be able to get the job done. Without having store hours where your store has to be open from 10 a.m. to 10 p.m., and if an employee doesn't show up you're tied to it, I had a lot more flexibility. There was a class trip coming up and I wanted to shop around. I simply scheduled myself a day off, and ... I might have made up some of that time for half a day on Saturday but at least I had the option. The big myth is that in order to make a lot of money in business you have to spend a lot of money to get into business, and with Money Mailer it's not true at all. Our average franchisees have six-figure earnings. Our top 25 percent earners are well into the six figures and yet they don't have the overhead and the expense that a lot of other franchise businesses do.
Emery: Tons of benefits in your opinion to operating a home based business. I agree, Beth, with everything you've said. I think if you find the right home based business it's golden. Let's shift the conversation to GPS. First of all what is GPS stand for?
Beth: GPS stands for Goals, Processes, and Systems. You have to keep in mind, Emery, that Money Mailer is a 35-year established company. We've got proven processes and systems in place. We know what works and what doesn't. Rather than becoming old and tired we actually, with the addition to our direct mail program of online and mobile app, are very cutting edge. And we have just enjoyed two of our most profitable years for our franchisee’s and our customers' history. So the company's extremely strong, and what we decided to do was looking at future growth, we were going to come up with a way to cut out lots of pitfalls that people experience when they go into business. We've got a complete two-year support program. It's starts with the training, a five-week intensive training with additional two weeks of field training so that when our franchisees go out to start their businesses they know exactly what they're doing and they can be successful from day one. And married with that we are providing them with instant income. There are a lot of talented people out there, Emery, working in the corporate arena. They may be tired of travelling, they may have hit the glass ceiling, they may have been downsized, and the only thing that's holding them back from getting into business is that they need to replace that paycheck. They probably have a 401(k) or certain assets that they can use to get into business, but they don't have the working capital they need to support their family while they're getting that business up and running.
We've got proven processes and systems in place. We know what works and what doesn't.
Emery: Yeah, living expenses, yeah.
Beth: They do. So our GPS program takes that into account. And we not only provide them with checks from their very first month in business to help them cover their living expenses, but we also cover 100 percent of their overhead during their first six critical months when they're building their business. And believe it or not we have a documented spreadsheet that shows that the minimum first year earnings for our franchisees getting into this business working the GPS plan is about $60,000 to $75,000. So we can now not only give them the training and support they need to run their business successfully, but we can help them guarantee that they're going to be able to provide for their family while they're doing that.
Emery: Tons of benefits, I just want to jump in here, Beth, with the questions. So the GPS program only applies to new startup territories not resales, correct?
Beth: That's true to a point. We do have some territories that we call company-owned resales. And they’re markets where in order to support the franchisees in the area we have kept territory open and running. Because this business is also a very unique concept in that our franchisees work together as a system. So they not only have their own territories that they own and operate email customer base in but when they have a client who wants to mail outside of their territory they're able to leverage the system and place their client at anywhere in the country that client feels they need to mail. In order to expand that distribution network for the franchisees to leverage, we find ourselves sometimes keeping territory open and running so that they can have that benefit. Ideally we'd like to put a franchise owner in there so that they can build the market in addition to what the other franchisees are doing. And since we own and operate those company on resale we're actually offering them at the same undeveloped territory price and those new owners not only get the benefit of existing revenue that's coming into the franchise but they also get a complete two-year GPS launch program.
In order to expand that distribution network for the franchisees to leverage, we find ourselves sometimes keeping territory open and running so that they can have that benefit.
Emery: You mentioned instant income. So guaranteed income for how long?
Beth: For a new franchise territory we guaranteed our income for the first 13 months in business. We cover all of their overhead for their first six mailing cycles. We provide them with a bonus equal to 20 percent of their total sales in their first year in business so they're earning even more money. They get a team of people working with us, Emery, and this is pretty unique. We want to make sure that training is ongoing, so they've got a field trainer that works for them on a daily and weekly basis for the length of their franchise agreement. We give them a customer care expert who does all of the back end of their business. We don't want them to get caught up in learning software programs and systems. We want them building their business. So we actually provide them with a Money Mailer staff person to do all of their back end, and we got a graphic art coordinator who manages all of their art flow for them. So they'd be free of their time, we train them properly, we make sure they've got income coming in from month one, and it allows them to go out and successfully build their business. Our goal is that by the end of year two in business we want them on page for that six-figure income.
Emery: Beth, I work with a lot of franchises across the country, a lot of franchisors and I've never seen a program like this. So I have to ask, why is Money Mailer doing this? Why are they offering such great incentives?
Beth: I think the main reason, Emery, is that for Money Mailer the franchise fee and the royalties are not a profit center, at its very core we're the supplier. When franchisees are placing their mailing orders, that's our profit center, the production side of it. So certainly, it has quite a bit of self-interest on our part that we want our franchisees to get up and running and placing more print orders faster so that we can be profitable. And it's also the in the franchisees best interest to be more successful more quickly as well. Also, those most people don't have $10 million in the bank and they can't ...
We give them a customer care expert who does all of the back end of their business.
Emery: Me included...
Beth: And so they’re coming to the side of Corporate and I talked a little bit about this earlier, they usually can scrape up the franchise fee but the living expenses are beyond our means. We want to tap into that pool of talented people. It's only going to make our system stronger and we can afford to do it. Money Mailer has always been an innovative company. A lot of people don't know this. Back in 1995 Money Mailer had the first coupon website ever. And to put that in perspective, I was a franchisee at that time. When they rolled out this new concept, this online click on website, they encouraged us all to buy laptop computers. And do you know that laptop computer in 1995 cost $5,000?
Emery: I know, I remember them well.
Beth: It's not an unusual thing for Money Mailer to think outside the box, to take their years of experience and look at what's necessary, and put a strong commitment behind their franchisee success. Honestly, at the end of the day the reason that I'm selling parts of Money Mailer and so proud to continue to be a part of it is they're always looking out for their franchisees best interest. And when you work with a lot of franchise systems and you know just how unusual it is that someone like myself who was on the other side as a franchise owner would be so eager to come work for the corporate office. It almost never happens.
We want to tap into that pool of talented people. It's only going to make our system stronger and we can afford to do it.
Emery: It almost never happens. I agree. Beth, I just want to ask you, just highlight if you could please. We have a few minutes left in our program. Just highlight the advantages of the GPS program and being involved with a company like Money Mailer if you would, please?
Beth: Sure. Money Mailer is a marketing consulting business where local owners go out and talk with other local business owners and build relations. They help the business owners understand our marketing strategy and platform. And the business owners, they're working with see real, concrete results so the franchisees build a strong, repeat customer base. And to help them get started we have an extensive seven-week training and support program. We give them a team that will continue to support them through their first two years and beyond. So you have a field trainer, a customer care expert to do their back end and an art center coordinator to coordinate their mailing system. And we provide them with instant income in the form of rebate checks that they get every single month including the month they conclude their training. We cover 100 percent of their overhead from their first ad cycle to give the franchisees time to go out and build customer base, so that when they are taking over their cost and we do reduce the cost from their seventh mailing right to the end of year two to make them even more profitable. And they receive additional incentives equal to the 20 percent of their total sales during their first year in business. If we've got someone who is motivated, upbeat, likes people, and can actually walk out their front door and go to run their business every day, we've got a program to guarantee their success.
Emery: I'm impressed. I've been working with another gentleman at Money Mailer, Dennis Jenkins, great guy. We've been working together for a couple of years now. When he told me about GPS initially I thought this is too good to be true. It doesn't sound like any other program I've ever heard from any franchisor. But it's great. I love it.
Beth: I will just say that here's my projection for the future. Within 24 months other franchise systems are probably going to be taking notice. And I think we will be leading the way perhaps into a new way to support people into business.
Money Mailer is a marketing consulting business where local owners go out and talk with other local business owners and build relations.
Emery: You guys have been leading the way for 35 years, and like you mentioned earlier Beth, last year was your best year in history.
Beth: I know, isn't it great?
Emery: You guys are on the cutting edge. Beth, it was great having you on the show this afternoon. If any of you folks out there listening want to know more about this great GPS program call me, Emery Orosz at Morgan & Westfield and I can tell you a little bit about it, and then let you talk to Beth and she can fill you in on all the details. Again, Beth, great having you on the show. I appreciate it. We will do this again maybe on a different topic, is that okay?
Beth: Oh my gosh, that would be wonderful. I have had a great time today, Emery, and I just want to encourage anybody who's thinking that business ownership might be right for them, Emery Orosz, Morgan & Westfield, reach out and at least start a conversation.
Emery: Thank you Beth, and we will talk to you again soon. You take care.
Beth: Likewise. Thanks, Emery.
You've been listening to Franchise Talk with Emery Orosz brought to you by Morgan & Westfield, a nationwide leader in business sales and appraisals. For a comprehensive valuation of your company or if you're ready to sell, contact Morgan & Westfield at 888-693-7834, or visit morganandwestfield.com.
Have you been considering your next business move? If you're a business owner and entrepreneur just starting out, or if you work for someone else and have thought about owning your own franchise business, there's a company that can help you take the first and next steps, Morgan & Westfield. We know there are hundreds of exciting franchise opportunities out there. Our mission at Morgan & Westfield is to find the one that is right for you, so our process is focused on you, your business objectives, experience, financial goals, lifestyle and interests. We then work with you to evaluate available pre-screened opportunities in your desired area so that you can find the perfect franchise to match your needs. Morgan & Westfield has the knowledge, experience, and resources to help you make your dream of owning your own franchise a reality. Why wish for a chance at the American dream when you can live it. Our franchise consulting services are free, so call us at Morgan & Westfield, 888-693-7834. 888-693-7834. Or visit morganandwestfield.com.
If you would like additional information on Money Mailer, please call Emery Orosz at 928-793-3000.
Jeff: Julie I'm someone who doesn't own a franchise. I happen to own my own business, I have for about seven years now. I know that there are thousands of business lawyers in the United States. They're all over the place in every state. Are the laws and regulations that pertain to owning a franchise business so unique and varied that the owner of a franchise simply can't call up one of these thousands of business attorneys and do business with them and retain them as opposed to a franchise attorney, someone like yourself for example?
Julie: I think that's right, Jeff. There's certain issues that arise when one is selling their business and that is going to be true whether you're selling an independently owned business or a franchise business. But if you add to it the layer of franchise law and regulations that affect the sale of a franchise business then really it's sort of a one stop shop if you work with a franchise lawyer who can help you sell your business and deal with the franchise aspects as well. It's certainly possible to work with a business lawyer and bring a franchise lawyer in for that part of it. But it tends to be a little bit more efficient if you go straight to the franchise lawyer.
Jeff: I think that's a really important point that you've mentioned because people are inclined to believe, and certainly those who don't really have a legal background like yours truly, are inclined to believe that we contact attorneys whenever there's a problem. But what I want to get into and maybe we can talk about this in just a few minutes, Julie, is the idea that attorneys and particularly those who are business attorneys and those like yourself who specialize in franchise law are not there just to be there to answer questions in times of crisis or when there are problems but you're there really to kind of help prevent problems and prevent maybe some risk that someone does not necessarily have to expose them to and we're going to get into that in just a little bit. But first I want to bring things back to really the center of premise of this program is to help preserve value and improve the value of their businesses. People are ultimately really, really concerned about that. With that in mind I'd like to get your thoughts on how much might the name of a company or a corporation, and the global reputation that that corporation has alone impact the valuation of my franchise location?
Julie: I think that's a great point, Jeff. Certainly a strong franchise brand is going to be a business that's going to be more easy to sell, and is going to sell for a higher price. I think that people understand the concept of a franchise and part of what they're buying into is not only the brand but the training they'll receive, whether they're buying an existing unit or they're buying and building it themselves. But even if they're buying a business that a franchisee is selling they're still going to receive certain training from the franchisor. So they're going to have the benefit of both the brand name and the value that brings as well as the training and support that the franchisor will provide.
But even if they're buying a business that a franchisee is selling they're still going to receive certain training from the franchisor
Jeff: Really, really important to know that, just because you have a strong brand behind you doesn't mean that there isn't hard work involved because you have to uphold your end of the bargain, not only to continue to help that brand maintain its standing but also too you have your own customers, you have your own clients, your own business there, and your own neighborhood that you need to serve. And so you obviously want to put your best foot forward, get the best value that you possibly can later on, and that comes through your efforts. Now we're going to go ahead and get to what we wanted to talk about and I touched on just a second ago. Can you talk to us a little bit, Julie, from your own perspective how working with an attorney prior to the sale of my franchise actually can help me to either preserve or potentially approve the value of my business, from your perspective?
Julie: I think you make an interesting point about people thinking of attorneys as advisors they come to only at a time of need. And in fact if business owners think of their attorney and the cost of their attorney as an investment as opposed to an expenseI think they will come to understand that there's true value in talking to your attorney first before you engage in extendednegotiations of the sale of your business, and get thelawyer involved early on so that they cannot only advise you on some of the business issues but even more importantly some of the legal issues and negotiations that a seller may not be thinking of at the time that they're just looking to negotiate based on a price of the business. Particularly in franchising the seller is not always able to sell what they have. The franchisor typically is going to want a buyer to sign a new form of franchise agreement. And as a result of that the seller needs to understand a little bit more about what they're selling outside the context of their everyday operation of their business. And the soonerthat they get their attorney involved they'll understand that perspectiveof it and have their attorney there to assist them in negotiating the best price for their business.
Jeff: Julie Lusthaus is an attorney specializing in franchise business law. She's a partner at the law firm of Einbinder and Dunn LLP in New York and you're listening to Deal Talk. My name is Jeff Allen. Julie, when it comes time to sell my franchise, should I consult my own attorney or am I better off contacting an attorney recommended by the franchisor, or maybe a fellow franchisee in the same system?
Julie: I think that's a very interesting question. On the one hand there's certainly going to be a benefit to possibly working with an attorney who's familiar with the franchise system and therefore an attorney recommended by a franchisor, or another franchisee who's used that attorney. That attorney may come to the process with a little bit more background about how the franchisor is going to participate in the sale process. Butthat being said as with selling any business, independent or franchise, there's going to be local issues involved. And it's very important to use an attorney who is local to the market and who knows the specifics of the geographic area in which you're looking to sell your business. So I think that you certainly want to have an attorney who has some franchise experience and knowledge. If you can find one who's worked in the system and who's local, that's fantastic. But ultimately I think that you want a business lawyer who understands your particular market.
Particularly in franchising the seller is not always able to sell what they have
Jeff: Okay. Let's say I know that I want to sell my business and I'd like to work with you. Whenshould I contact you and how involved are you throughout the process? I'd consider attorneys as kind of glue really. They don't just solve problems but they help to prevent them and they help to make sure that you have everything that you need and everything islined up. Do you communicate with the franchisor at all at any point, any of the other parties that are really necessary to allow that sale to go through and go through the way that ultimately the seller would like it to?
Julie: That's exactly right. The franchisor is going to need to be contacted and is likely going to need to approve the sale. The question of when to approach the franchisor is dependent on the particular circumstances of the situation of the system of the sale. And that's something that an attorney can help the seller work through so that they're contacting the franchisor at the right time. The sooner that you get the attorney involved the sooner that you'll be able to address the issues relating to the franchisor, possibly disclosure issues, whether the franchisee has to give certain information to the buyer. So you really want to get your attorney involved pretty quickly once you decided to go ahead and put your business up for sale.
Jeff: We're on Deal Talk with Julie Lusthaus. She's an attorney. She specializes in franchise business law. She's in New York working for a firm that she is also a partner with and Einbinder and Dunn LLP. And we've got more on Deal Talk coming up in just a matter of moments. Stay tuned.
At Morgan & Westfield, we believe in simplicity. That’s why we have one simple goal: to help you sell your business. To do that, we use a proven, simplified process that allows you to save up to 90percentoff standard broker fees. The Morgan & Westfield team can help you put together a package to present your business to buyers, advertise your business for sale, screen buyers, prepare an offer on your business, manage the due diligence process, and close the transaction. You’ll have access to the same resources and methods that brokers use for their large market clients, and all this without a long term contract, so you can even bring your own buyers without paying a commission. A complicated process that is simplified and executed well gets results. If you’re interested in selling your company or having it appraised, contact Morgan & Westfield for a free consultation--888-693-7834. 888-693-7834. Or visit morganandwestfield.com.
Jeff: Welcome back to Deal Talk, I'm Jeff Allen, with my guest Julie Lusthaus, attorney and partner at Einbinder and Dunn LLP in New York. We're talking about how a franchise attorney can help franchise business owners prepare their business for sale but also to deal with certain issues that come up along the way. Julie, thanks so much once again for staying through the break and for being with us today. It's a real pleasure having you here. Let me start by asking if you would recommend that a prospectivebuyer of a franchise business seek the services of someone in your field,a franchise attorney, before they buy a franchise business because of the things that you may know that are kind of subtle curiosities orunique to franchise businesses as opposed to seek the council or advice of a business consultant, or a business attorneywho doesn't have any franchise knowledge.
Julie: That's a great question Jeff, thank you. I think that it's very important for a prospective buyer to speak with a franchise attorney before they sign the franchise agreement or buy an existing business. It's very important for them to understand the details of the deal and what they're getting themselves into. It's also important that they have help with negotiating any of the terms of the agreement that they may want to negotiate. And a lot of times it can be very helpful for franchise attorneys to explain to the buyer particular issues that might be unique to that franchise system, whereas some of the provisions in their franchise agreement may be pretty standard. And it can be helpful for a prospectivebuyer to understand that a term in their franchise agreement is typical. This is common for franchising and so therefore it may not be as much of a concern whereas if there's a particular term in their agreement, perhaps a veryhigh royalty rate or some other issue that stands out to the franchise attorney, it’s helpful for the buyer to understand particularly when there are competitive businesses in the same industry. And I think that only a franchise attorney can really have the sense of what's standard in franchising and what is going to look a little bit red flag. What's going to cause the red flag to go up. I think it's very important both to help the buyer get the best deal they can but also to educate them and make sure they really understand the details of what they're getting into since the franchise relationship is a long-term relationship.
It's very important for them to understand the details of the deal and what they're getting themselves into. It's also important that they have help with negotiating any of the terms of the agreement that they may want to negotiate
Jeff: Julie, let me ask you a little bit about the process itself. In terms of due diligence and that's really what we're talking about here, a buyer's going to want to do that obviously because they're making an investment, an investment of a lifetime when you get right down to it. In terms of the process itself, how long might the process take? What's involved for you from an attorney's perspective as far as getting everything you need and getting it in a timely fashion over to the buyer. Is this something that can take weeks, or months, or typically what's involved?
Julie: It typically can move quickly if all parties involved wantitto. Once a buyer has decided on a franchise system that they're thinking about buying into they're likely to have had some discussions with the franchisor. Perhaps participated in what's called adiscovery day where they learn more about the system. And at that point the franchisor is going to provide to the buyer a franchise disclosuredocument which is going to contain a lot of information about the franchise, the franchisor, and the system. Once the buyer has that information it's time to reach out to an attorney. I always encourage my clients to read the disclosure document, but I will tell you that it's hundreds of pages long. And while some try really hard to get through it, it can be a little detailed and that's really another reason why you want to have your franchise lawyer involved, because we actually do read the document and we can discuss it with the buyer. The franchisor actually has to wait a certain amount of time from when they give the disclosure document to the prospective buye rbefore the buyer's permitted to sign the franchise agreement. But it's a 14day period generally and the work that the attorney needs to do can be done within that time frame as long as they have the disclosure document and can start work on reviewing it.
Jeff: You mentioned that things can move as quickly as everybody wants them to provided everybody's prepared, you get all the documentation that you need and so forth. As far as the sale process itself is concerned with respect to franchise businesses, do they tend to move any faster or slower than the sale process, the whole escrow process, than an independently owned business would require?
Julie: That depends a little bit on the franchisor. They certainly can move quickly and more efficiently if the franchisor has a lot of resales in their system. That can speed the process along. But that being said, a lot of it is going to come down to the parties agreeing on the terms and I don't mean just the business terms. And it sort of brings us back to why it's so important to get an attorney involved as soon as possible. Because generally what happens is the seller and buyer will agree on some big terms. What's the price and how's it going to be paid, what is the buyer buying, and that's it. There can be a little bit more involved, and the sooner you get the attorneys involved they can discuss that part and get it hashed out, terms that are not the business terms that the clients have worked out or the brokers have assisted with, but the terms that need to be hashed out in order for the contract to be written. The seller has got a buyer and they're pretty close to terms, they should be getting their attorneys involved sooner rather than later to get the contract strong enough the way they need them to be, and they can decide and the deal can close. It's a problem when they go back and forth and don't get the attorney involved until the last minute and then say, "Okay, this is our deal so now do whatever you got to do and let's close" because the attorneys really do need to work some other issues out that the parties just don't think about.
It's a problem when they go back and forth and don't get the attorney involved until the last minute
Jeff: Just a question out of personal interest, I know that sometimes a seller will be asked to stay on board in an advisory capacity or they'll be asked to have maybe some limited involvement in a business that he sells to a new buyer because there's a transition period. But when you've got a franchise business and a franchisor to provide support to all of the franchisees from a marketing and operations perspective, have you been involved in a situation where you have heard a new buyer come in and actually ask the seller of the business to stay on for any period of time to help in that transition process? Or in the world of franchise business is that something that just doesn't happen very often?
Julie: Typically it doesn't happen very often. However, that being said there may be reasons why the seller's involvement is required. If it's particular industry that has licensing requirements and the seller needs to stay involved for some reason then they might. But generally when the seller is not required to be involved for some regulatory reason the buyer can come in and take over from the start, and as you say will get training and support from the franchisor.
Jeff: Very good. And I kind of felt like that's the direction you were going to go with your answer, but I wanted to have an understanding to be sure. Having said all of that as we kind of continue with the discussion regarding due diligence on the part of a buyer, if I'm interested in a franchise business maybe for the first time what are some of the distinguishing characteristics that I might notice, or some of the data perhaps that might indicate to me that one franchise system is stronger than another? Is there anything you can share there from your years of experience that can help us to understand what you see from an attorney's perspective that lends you to believe that this company is very, very strong and this is a great choice for a business relationship?
Julie: I think certainly one of the things to look at is how long the franchise has been in operation and how many units there are, and where they are located. And also to look at how fast the franchise is growing. If a franchisor is growing very rapidly that might cause some concern because operating the business of the sort that is being offered as a franchise is one kind of business, operating as a franchisor is a different business. And as the franchisor grows they need to have the resources to provide the support and the training for their franchisees. Unfortunately, some systems grow so rapidly that they simply can't keep up, and it almost seems as though they're in the business of selling franchises rather than supporting their brand. So you really want to make sure that there's a stable, solid franchisor with experience who can provide the support that's needed. One of the ways to find the information like that out is to look at the franchise disclosure documents that we spoke about before. And one of the required items in the FDD includes contact information about existing franchisees, and that's really going to be the best source of information about the franchise and the franchisor, and prospective franchisees are encouraged to reach out to as many of those franchisees as possible. And ask them the questions they may have about the system.
prospective franchisees are encouraged to reach out to as many of those franchisees as possible. And ask them the questions they may have about the system.
Jeff: I think that's really important, and you don't want to get into a situation where you're in a franchise operation, you've just bought this business, and people in the corporate office aren't returning your phone calls, or they're slow in returning your phone calls and the emails. You haven't seen your area rep in God knows how long. You don't want to get to that point.
We're talking with Ms. Julie Lusthaus. She's an attorney specializing in franchise business law and a partner in the law firm of Einbinder and Dunn LLP in New York, you're listening to Deal Talk. My name is Jeff Allen. I appreciate the fact that you're listening today and you're getting a lot out of it. And just a real brief programming note here, we've kind of touched on franchisor... What we want to do is we're going to have Julie back on with us again in the very near future on another segment where we're going to delve a little bit more deeply into the subject of how you can franchise your own business and the role of the attorney in how they can help you move toward taking the business that you own, and actually taking and branching out, and opening new locations. We're going to do that on a show coming up in the future so we hope you'll stay tuned to Deal Talk for more information on that. Julie, what I'd like to ask you though, we can wrap up the show a little bit, the content portion of our program with this. I'd like to put us in the position now, we bought our franchise business, we're really excited about it, whether or not we've owned a business before it doesn't really make any difference. But I think there might be kind of an interesting conversation here Julie about the types of unique situations or concerns that new franchise business owners may face that maybe they didn't realize or didn't expect to face when they came in and took over a business. Can you touch on some of those that you faced or that you helped a franchise business owner work through?
Julie: Franchising can be wonderful for the business owner who wants a little bit more support. On the other hand you have the sort who’s quite entrepreneurial, who has wonderful ideas and who wants to run their own business, may not be a good fit for franchising. And that's sort of where some of the difficulties arise. When you're operating your own business and you're independent you can make decisions about what investment clause you might want to make in your business. But if you're a franchisee you're going to also have to follow the requirements of the franchisor. For instance if you think about a franchise system that may have operated using a particular trademark, if you're familiar with some of the shipping companies they were operating under a particular name and the franchisor decided to change the trademark. Which meant that the franchisees all had to change all their signs, change the way their location looked, change their uniforms, and then there's costs involved with that that any particular franchisee may not be prepared to incur at that moment. But if the franchisor requires system-wide changes then the franchisee has to comply. And that can be a realproblem for new business owners who have now invested a certain amount of money in their business, and who don’t want to invest in that moment in time, that's a real issue. I think also when a franchisee wants to sell their business they can run into some difficulties with selling the business to the value that it is worth to them as we discussed earlier. A franchisee is not necessarily able to sell exactly what they have because they were operating with a franchise agreement and there's a certain term on that franchise agreement, and the buyer may not be getting the same amount of time, or may have different terms in its franchise agreement. So I think it can be difficult for a business owner who's thinking that they're going to get into a business, buy a franchise, and sell it within a certain amount of time at a certain increasedvalue. It can be difficult as a franchise owner because you're restricted by some of the requirements of the franchisor. Those are some of the issues that we have faced with franchisee clients who are operating systems and have to accept the fact that they're in a franchise system and not completely independent business owners.
Franchising can be wonderful for the business owner who wants a little bit more support. On the other hand you have the sort who’s quite entrepreneurial, who has wonderful ideas and who wants to run their own business
Jeff: Julie Lusthaus we are running out of time so what we need to do now is end it here but not before we give people your contact information. For those who are listening today, maybe these are people who are either interested in purchasing a franchise or they're currently franchisee or franchisor who have questions and might need your services, how can they reach you?
Julie: Well, as you indicated Julie Lusthaus from Einbinder and Dunn, email... Sorry.
Jeff: That's okay. You can pick it up anywhere you want.
Julie: Excellent. Our website is ed-lawfirm.com. I can be reached by email at email@example.com and our phone number's 212-391-9500
Jeff: That's Julie Lusthaus. Julie, we're going to have you back on in the future to talk about franchise businesses and basically how to take an independent business that anyone might own. They're interested in expanding, and how they can turn that into a franchise based organization. And we're looking forward to that. I want to thank you so much for being with us on Deal Talk today.
Julie: Thank you Jeff.
Jeff: That's Julie Lusthaus, attorney specializing in franchise law and partner at Einbinder and Dunn LLP in New York.
Deal Talk has been presented by Morgan & Westfield, the nationwide leader in business sales and appraisals. If you're thinking about selling a business or buying one call Morgan & Westfield at 888-693-7834 or visit morganandwestfield.com. And for more valuable information and insight from our growing list of small business experts like Julie Lusthaus, make sure to join us again here on Deal Talk. My name is Jeff Allen. Thanks again for listening. We're going to talk to you again soon.
Jeff: Tell us a little bit about Always Best Care Senior Services for those people who may be hearing about your company for the first time.
Ruben: Absolutely. Always Best Care Senior Services, we've been in the business of providing home care and assisted living referral services to folks since 1996. That's when the founder Michael Newman started the business. And since that time, 2007, began franchising the concept. We're up to about 189 locations last time I checked and 115 franchisees throughout the US and Canada.
Jeff: Okay. So your company is up and coming and it's really been built on really a platform,apillar of success. Your company is thriving right now. Let me know a little bit though about you Ruben, your position as an area rep. Tell us a little bit about what an area rep does and what you do in particular.
Ruben: What I do Jeff is go out and look for prospects. What I as an area rep have done is purchase the rights to develop the area, made of an investment with the franchisor, always Best Care, that allows me to go out and find candidates who want to have a successful business providing home care aid in people's homes and also finding the right assisted living facility for people. What I do is find those candidates, bring them in and if they pass our criteria and they actually awarded a franchise -- we typically don't use the term selling franchises although that's what most people think of. We award it because if someone isn't willing to follow the process, the model, the operations manual, and do things the way we expect it to be done in order to provide strong, quality service to our clients then we don't award that franchise, that particular territory to them. So a lot of my time is recruiting and finding those candidates. And once they come into the business I train, coach, support, and mentor them. I am their local support for whatever their business needs are, and to a lesser extent, but sometimes I get dragged into it, I become their sounding board for personal issues. Because when you become a business owner, Jeff, you know it's not easy to separate your personal life from your business life so you need help at every turn. And here I'm not a counselor but I end up helping people with whatever they need to make their franchise successful.
I'm not a counselor but I end up helping people with whatever they need to make their franchise successful.
Jeff: And this is really a different kind of business. It's not your typical franchise, auto parts, fastfood, and things like this, this is the kind of business where character truly counts. So your first job is really to kind of vet those individuals before bringing them on board to make sure that they really measure up to the high standards of Always Best Care. That's kind of your first job. And then of course you talk about once they're on board you really are kind of their support mechanism as much as you are their coach. And being able to provide them with I think you said, kind of that sounding board that they need to help them be successful and kind of meet their objectives and their goals.
Talk a little bit more about that relationship that you have. You're kind of that guy that corporate really relies on not just to get people trained up but also to the franchisees, the people who own those businesses, and many times go into those homes, the guy that they rely on to help them kind of moving forward. That's a heavy responsibility to be able to answer to both sides like that isn't it?
Ruben: Yes. Sometimes I'm squeezed between the franchisor and the franchisees, and that's okay. That's what I signed up for. My customer primarily though, he's the franchise owner who’s out there rolling up their sleeves and getting dirty. They're working. They're the ones that are up before dawn. They're staying out late. They're working a lot of hours, depending on the way they structure their agency. But in the beginning with any new venture, any new business you're going to put those hours in and I'm here to support, coach them, “What do you need help with?”They're my customers so I want to hear what they need help with. Because I can't know everything about everything, I will find the resources that they need to be successful. It just gives the function of what they need and you're going out and locating that resource for them. And that resource can come from any field. It might be something in the deep IT. I have an IT background. I can help people with technology to an extent. It might be in the area of accounting. My wife's a CPA. I have a background in auditing but I don't know everything about everything. So being on site with them, this is the biggest advantage that they have with an area rep. They have someone here that can get in a car and be in their agency within 45 minutes. That's an advantage of me having the territory I have, Northern New Jersey. I can be in anyone's agency within 45 minutes. Some are even closer. That's the beauty of the system and the setup we have here.
Jeff: And with all that of course you've got your two decades in experience in business, so you have really a depth of experience that your people can take advantage of and help them prosper. Why would a franchisor, Ruben, choose to have area reps? You've talked a little bit about what you do and what an area rep is but why is that advantageous do you think to Always Best Care to have that kind of model in place where an area rep is really instrumental in helping them grow?
Ruben: Deciding if there will be area rep model is a very strategic decision that the franchisor needs to make, and they're willing to really trade off future royalties because the way that I'm compensated is that 50 percent of the royalty stream that comes in comes to me. The advantage to the franchisor in the beginning is that they're going to be collecting hundreds of thousands or millions of dollars from each area representative in order to buy the rights to develop an area. So that's the advantage to the franchisor right up front. With all of that operating capital early on as you know Jeff for start-ups, typically getting that money, they're cash poor in the beginning so this gives that infusion of capital and they can ramp up quicker than competitors.
They're cash poor in the beginning so this gives that infusion of capital and they can ramp up quicker than competitors.
Jeff: Go ahead Ruben. If you have another thought go ahead.
Ruben: Yeah. In addition to that typically they can run with a leaner staff in the corporate office. So they don't necessarily have to have as many folks there because the inside trainers that -- if you were administering or trying to support an entire franchise system out of one location you would need quite a few inside trainers to coach and mentor the franchisees. Here with the area reps, and there are 22 of us right now, that allows them to have leaner staffs in the corporate office.
Jeff: I see, very, very good. Is there a difference between a master franchisor and an AR in your opinion Ruben from what you've seen in your decades of experience?
Ruben: Yeah. From what I've seen typically you're going to see the master franchisor. You can have them Stateside but for international launches, as a matter of fact Always Best Care has a master franchisor arrangement to go to Chile, to go to I think Brazil, Germany. That's where the difference, and I've always sort of started with that first step is that they contract with the master franchisor. Whereas with me with the area rep they still contract with the franchisor, not with me. So I'm technically a franchisee that has contracted as well with the franchisor. It's a minor difference, it's a technical difference there but we basically do the same thing, the master franchisor or the area rep.
Jeff: Now, let's go ahead and let's shift to maybe a day in the life of Ruben Trevino. Maybe you have someone that you've brought on board. A brand new franchisee, and this is someone who is really, really interested in putting their best foot forward and really making a great go of this business. They want to be profitable, they want to grow their business quickly, and yet at the same time they want to provide the best care. What are some of the things that you suggest, or the things that you talk about with your franchisees, with the people that you bring on board about ways that they can truly affect their business in a positive manner from the beginning to help kind of build their business up and really build value in that business from day one.
Ruben: Why don't I start from the beginning, initially working with a candidate. At that point, remember I said franchises are awarded not sold. I'm vetting that candidate to understand whether they have the right make-up to be an Always Best Care franchise owner. And I’m going to ask questions about what it is that you want out of this business? What are you trying to accomplish? And I'll tell you right now Jeff, in this business if all they want to talk about is dollars and cents, all they want to talk about is profitability, all they want to talk about is how much money they can make, they are not typically a good Always Best Care candidate and a franchise owner. Don't get me wrong. I'm not saying we don't have people who are making money and I understand we're in business to make a profit. However, as you mentioned earlier that selling chicken or these types of transactional businesses, we're not that. I need to understand what it is they want from this business. And also what is it they're willing to put into this business to make it successful. So if you come to me and you tell me, "I kind of think I might want to perhaps do this business ",no, that's not going to be a good fit. I have to know that you have a passion for this business, that you're going to get up in the morning early to start planning for your business success, that you want to do this business. And if you don't then this is not a good fit for you. There are a lot of other franchise businesses out there, I’m not knocking them. I'm not saying that selling ice cream is not a good business. All I'm getting at is this particular business, the owners that are successful in this business have the passion, the drive, the fire, the love of the business. They really want to help seniors. They really want to do something in the community. It is a business that they want to talk to their families and their friends about. It is just that thing that you feel when you're talking to that person on the other side of the table, and by the way, I meet with them in person before they come on board. And it's not just a discovery day kind of thing where they fly out to the corporate office and meet with the corporate staff. No. They meet with me and as a matter of fact they meet with my owners. They talk to them in person and determine whether or not this is a business for them. And once we've got an agreement that this makes sense for them and it makes sense for Always Best Care, then we bring them in. Then all of these other things we were talking about, a day in the life of that owner. So we've already kind of determined what it is they want out of this business. So when they start building their business plans I'm there helping them to put together their plan that is unique and customized to what their vision is for their business. Because as a franchisee you are an independent business owner, you own your own business and you run it as you see fit as long as you're within the boundaries and the guidelines of the operations manual and you're following those types of general guidelines that you need to follow. I'll take a pause there to see if there's something else that I can add later.
I have to know that you have a passion for this business, that you're going to get up in the morning early to start planning for your business success, that you want to do this business. And if you don't then this is not a good fit for you
Jeff: We are going to have to, as a matter of fact we're going to have to take a pause right now Ruben. We need to take a quick break. We're going to come back. We're going to talk to you a little bit more. I think the point here is that not all franchise businesses are alike. However, in any case, when you are a franchise business owner it is important to know that there are people behind you that you can use to your best advantage, to help you along the way. Ruben Trevino is one of them for the company that he works for, Always Best Care Senior Services, Northern New Jersey. My name is Jeff Allen. Deal Talk is coming right back so stay there.
At Morgan & Westfield, we believe in simplicity. That’s why we have one simple goal: to help you sell your business. To do that, we use a proven, simplified process that allows you to save up to 90percent off standard broker fees. The Morgan & Westfield team can help you put together a package to present your business to buyers; advertise your business for sale; screen buyers; prepare an offer on your business; manage the due diligence process, and close the transaction. You’ll have access to the same resources and methods that brokers use for their large market clients, and all this without a long term contract, so you can even bring your own buyers without paying a commission. A complicated process that is simplified and executed well gets results. If you’re interested in selling your company or having it appraised, contact Morgan & Westfield for a free consultation--888-693-7834. 888-693-7834. Or visit morganandwestfield.com.
Jeff: Welcome back to Deal Talk, I'm Jeff Allen with Ruben Trevino, area representative from Always Best Care Senior Services in Northern New Jersey. Ruben, again, it's good to have you on the program on this edition of Deal Talk. You are not just someone who helps people get started with their business, but also to your someone who with Always Best Care stands by people, stands by your franchisees at all levels, at all stages through their ownership and their operational process, running their business. And that means you also get involved in other ways, and that includes helping them prepare for the eventuality that they may sell their business down the line. And so many of us are interested in ultimately doing that and doing so at a nice profit at some point down the line. Tell me a little bit how you're involved with your franchisees and how you help them to do that.
Ruben: That's a really important topic you just brought up, because succession planning, not everyone wants to be in business doing the same thing forever. Things change in their life too where they may have a situation that requires they maybe have to relocate or maybe after they do this business for a while they finally want to do something else. And that's okay. Nothing wrong with that. I've helped three of my owners transition out. And they sold their business to some of them outside third parties and some of them internally to other franchise owners. And what I tell them is the same thing that when I bought my first home, Jeff, many years ago I remember the real estate agent telling me a lesson there which is the best time to think about selling your home is when you're buying a home. And so what I tell my owners is the best time to think about the value of your business and how much it's going to be worth – because it's not just the cash flows that come in today but also disposition, when it's time to hand it over to someone else, what is that business worth. And that value is going to be determined in how you’ve set that business up. So abusiness,what I'm getting at here Jeff, is a business where the owner wears all the hats. The owner is for example doing the payroll, recruiting the caregivers, they're training the caregivers, they're doing the marketing, they’re wearing all the hats. That business is not as attractive even with a certain cash flow asit would be for someone who has a turnkey operation where they have personnel and staff that are trained, they have processes in place that are well-documented and they're trained on. That is of greater value at the time of disposition. I also find it's lower stress to the owner. They have much less stress when they have people and processes in place that can run that business and put it on autopilot should they have to sell, it's much more attractive for someone looking at that business a day down the road.
Because succession planning, not everyone wants to be in business doing the same thing forever.
Jeff: It's all about preparation and a lot of that is mental preparation. And when you have that mental preparation in place like you talked about, there seems to be less stress, less anxiety. Have you found when you talk to people about that for the first time and you approach them about that that there is kind of maybe a lack of familiarity, or a lack of readiness, or maybe a lack of knowledge for that matter Ruben about what it is that they want to do. Or they perhaps haven't even given it any thought up to the time that you start to speak with them about this. I guess I'll put it another way. Do they typically come to you to ask you about this before you approach them about their future plans to hold on or eventually pass that business along?
Ruben: That's very interesting because in the beginning, when I first got involved in franchising I thought just like when you get married, this is going to last forever and no one will ever want out. Now I've been married now 16 years with the same wonderful woman and it's still my first marriage. But the reality is that sometimes things change, right? And so in business -- I got caught kind off off-guard the first time this happened to me. And so I built that in to the award and betting process to make sure that we're having these discussions early on so that they can start putting together a business that is attractive, so if their needs, or wants and desires, or their family circumstances just change dramatically where they are putting that business up for sale down the road. I start having that conversation early with my owners and it's part of what I’ve now been doing now for the last three or four years to have to make sure that they're not caught surprised as you just mentioned. I think surprise is for disposition of the business not good. I want them to have a plan and it's part of the valuation. When we look annually what your business is worth, it's not just the net present value of your cash flow but also what is this series of cash flow in this business worth to someone down the road. So we look at the whole picture.
Jeff: Ruben Trevino is an area representative with Always Best Care Senior Services. Ruben as we get into the home stretch of the program, I'd like to kind of back away just a little bit from talk of maybe specifically you’re working with Always Best Care and with your people. Now I'd like to appeal to the business coach and that mentor with the two decades of business experience that you have, having worked for franchise business-oriented companies. What recommendations do you have for a business owner who's considering buying a franchise business for the first time? Maybe they're already currently a business owner. They own their own independent business, wholly owned, or maybe they're considering getting away from corporate America and buying their own business, and they want it to be a franchise business. Any thoughts, recommendations, input that you might have?
Ruben: Yeah. For people that are looking to buy a franchise what I tell them is find a concept. I've got friends and family who are looking to go to into business for themselves. One of the things that I do recommend is that they look, especially if they have a corporate history, their history is in corporate America, they say that corporate America is entrepreneurial, and I used to say the same thing, Jeff, but boy, when you are an independent business owner, then you find out with being on your own and being an entrepreneur...
For people that are looking to buy a franchise what I tell them is find a concept
Jeff: Where the rubber hits the road as they used to say.
Ruben: Absolutely. And so what I tell people is first, at least look into maybe a franchise operation especially if it's something that you want to do that isn’t invent a new app or some business like that. Finding that aligns with your value system. What is your personal value system? What is it that makes you tic? Again, what is it that makes you proud, something, a business that you'd be proud to tell your friends and family about. Probably the biggest advice I could give someone is speak to current franchise owners. You're about to plunk down tens or hundreds of thousands of dollars into a franchise system, into a business, speak to them. And if you can speak to them in person even better than just on the phone. And if you can shadow the min the field or in their place of business do that, and really get to understand what it is that this business involves.
Jeff: Ruben, let me ask you, in your travels and the circles that you have been involved in and all the work that you've done with Always Best Care, and we can go beyond that of course. Are there any hurdles or any challenges that are specific to a franchise business that people should probably know about going in. This is something you're going to run into from time to time, or you could run into it, not necessarily everybody does. But is there anything that you remember from your past history working franchise business that you'd like to go ahead and share with people and kind of let them know, "Look, this is what I learned and this is something you could probably learn from."
Ruben: Yeah. I would say that the biggest things I think for franchisees is when you first get on board you want to follow the model. You want to follow the model of the franchisor before you start collecting and fixing because this thing is proven. And it may not make sense to you right out of the gate. You maybe sitting and scratching your head and wondering why am I doing this. In the beginning you have to have some faith that the model is going to work for you. And the challenge to me is I've got people reengineering the model before they even try it. For example I've had people telling me, "I can do this entire business on the web. I can set-up a digital marketing campaign, SEO campaigns, you name it, I can do that. And I can do it all behind the beauty of my walnut conference table or desk." And it's not so. That's not this business. That can be a bit frustrating sometimes. You just have to in still a faith that these guys are going to guide me in the right direction.
You want to follow the model of the franchisor before you start collecting and fixing because this thing is proven. And it may not make sense to you right out of the gate
Jeff: Ruben, I know that you're obviously a very busy guy and I want you to get back to your family and also your business there. I appreciate you taking the time out. One thing that we need to point out about Ruben Trevino, this guy is the real deal. A Lean Six Sigma Black Belt Project Management Professional, experienced, spends both US domestic and international venues. You can read more about Ruben Trevino at franchise with alwaysbestcare.com and you can find him there. Ruben, if by chance someone has some general questions for you and they're interested in reaching you just to kind of ask you a question about operating a franchise business. They might have some questions about Always Best Care. How can they reach you specifically to talk to you about their particular question?
Ruben: Yeah. They can call me, 877-667-8990. That would be a start, and additionally they could just email me at firstname.lastname@example.org. And in addition to being an Always Best Care Senior services area rep I'm also a mentor with SCORE. SCORE, it's free small business advice that...
Jeff: Fantastic too.
Ruben: Yeah. You're familiar with it?
Jeff: I'm familiar with it. I was just going to say I'm a business owner myself and I've had achance to talk with people from SCORE when I was starting out, and it's really just an invaluable free service in most communities across the country and the fact Ruben that you're involved in that, that is just fantastic.
Ruben: Yeah. And I just thought to mention that because, yeah, call me. I can maybe help you if you've got ideas for the business, you need somebody to help you out with your business or something like that. Or as Jeff just mentioned SCORE's also an extremely valuable asset that's probably available to you and your community.
SCORE's also an extremely valuable asset that's probably available to you and your community.
Jeff: Very, very good. Ruben Trevino, it's been a pleasure. I sure do appreciate all the time that you've given us today. Thank you for being a guest here on Deal talk. And maybe we can have you back on again another time?
Ruben: I'd love that. Thank you Jeff.
Jeff: Ruben Trevino, business coach, mentor, and area representative for Always Best Care Senior Services has been my guest today.
Deal Talk is presented by Morgan & Westfield, a nationwide leader in business sales and appraisals. If you're thinking about selling a business or buying one call Morgan & Westfield today at 888-693-7834 or visit morganandwestfield.com. And for more valuable information and insight from our growing list of small business experts make sure to join us again here on Deal Talk. I'm Jeff Allen. Thanks again for listening. We'll talk to you again soon.