It’s important as a business owner to hire and maintain a team of people who are enthusiastic and motivated to help make the business a success. In the franchising world, the same is true, but it all starts with the need for the franchisor to choose the best owners for the various locations. So how do you determine which candidates are best suited to own and operate your stores? What are the key factors and traits? How important is personal character? Should they have previous business ownership experience? There are many things to consider as Ron Bender, Chief Franchise Executive at Future Focus Franchise Advisors, will tell you on this edition of Deal Talk.
But without knowing what their long range goals are we certainly can't guide them to the appropriate franchise.
- Ron Bender
Jeff: Good. Ron, let's start though by talking a little bit about each one of the businesses that you lead there. Tell us about Future Focus Franchise Advisors and Big Frog Franchise Group. What you guys do?
Ron: Well, with Future Focus Franchise Advisors, myself and my partner, we actually work straight with franchise companies, different brands around the country. And we help them develop a system so that they can find the best candidates to match their specific franchise opportunity. And then at Big Frog Franchise Group we run the Big Frog custom t-shirts franchise. So I work with candidates, again, trying to find the right candidates, the best candidates who match the culture and the vision of the brand. And who will be not only successful but also very happy as franchise operators for Big Frog.
Jeff: Let's talk about it a little bit there. It's a good place to start, talking about candidates. What makes a person a great candidate for franchise ownership, Ron? Is it necessary that a potential owner at least have some experience working as a manager for a franchise of some kind? Or can he just have any kind of ownership experience or maybe even none at all for that matter?
Ron: A lot of people who come to me think that they have to have experience in the industry to be successful, or they are laboring under a misconception that they have to have experience in the industry to qualify for financing. Neither of those are true. Although it's wonderful to find candidates who have some related experience in the industry in which they're looking at a franchise, it is by no means a necessity. And part of the reason why people look to franchises as opposed to opening their own independent businesses is because the franchise can provide the system instead of them bringing in the experience and the expertise already.
Jeff: And so really, there's kind of the advantage right there, isn't there, Ron? Of starting out in franchise ownership as opposed to having your own business where you're kind of starting from scratch and you're not really sure how things are going to go even though you got a business plan in place. It's kind of fly by the seat of your pants until you've been at it for a while.
Ron: That's correct. We find that many candidates come and they say, "Gee, it's going to cost me X to open and build this franchise opportunity. But gosh, I think I could open it and build it for much less as an independent because I wouldn't have to pay the fees." Although that may very well be true in some cases, often they're not realizing the cost in their time, and in their money, and in their blood and sweat for the things that they might try that didn't work out that the franchise has already figured out, and they would be much, much more efficient running with a franchise and maybe wouldn't spend as much money in the long term.
The normal person who's interested in opening their own business really is not an expert necessarily in marketing.
Jeff: One of those big things that most people I think have a hard time with is really in their marketing and promotion of their business because often times you'll have a business owner who's so doggone hands-on and he's just concentrating on the day-to-day operations. Maybe it's a business that he's taken over or she's taken over, whatever the case may be, but sales and marketing always seems to fall down on the list of priorities when really it needs to be up there toward the top. And it seems to me, Ron, just from my limited experience talking with franchise owners in the past that that is one area where a franchisor can really be a big time help to his independent business owners there along the franchise line.
Ron: I certainly agree with you, Jeff, that the normal person who's interested in opening their own business really is not an expert necessarily in marketing. Having a franchise behind you with the strength of research, with the strength of six, or 20, or 200, or 5,000 other franchisees that are out there building the brand with you that are coming up with the marketing messages and the advertising media that actually work, that's a huge benefit. But as you say, Jeff, there are a lot of people who don't put their attention onto marketing. And if they don't have a franchise brand, or if they don't hire someone to handle it they might indeed get too caught up in daily business to even pay attention on bringing those next week’s and next month’s customers in.
Jeff: This is one of those devil's advocate types of questions Ron. Have you ever been in a situation where you've seen or heard of - maybe a situation where a franchisee who comes from an independent ownership background just can't seem to make that transition to franchise ownership because maybe that person has issues or differences with his corporate franchisor compared to his past experience when they didn't have to have really answer to anyone, they were able to call all the shots?
Ron: Absolutely. Although I wouldn't say that it's limited to just people who have run their own business before. There are people who just are not suited to franchise ownership because they want to make every decision and they want to run the whole show, and that's fine. But as a franchisor I want to make sure that I find those people and counsel them so that they don't become a franchise owner, not necessarily just of my brand but of any franchise, because they won't be happy. Often, we'll ask the question, “Are you coachable?” and people of course say, "What do you mean by coachable?" The answer is if you can have someone give you advice, you can seriously consider it, perhaps ask questions to clarify, and then actually take much or most of that advice, then I believe you're coachable. On the other hand, if you sit back in a meeting with your arms crossed thinking to yourself, "Nope, that's not the way I would do it" every time the franchisor tries to teach you something then you absolutely should not purchase any franchise, you should just operate your own business and call every shot.
Jeff: Ron Bender is chief franchise executive at Future Focus Franchise Advisors and you're listening to Deal Talk. My name is Jeff Allen. Good to have you with us. Let's say someone comes into your office, Ron, and they look like they're a pretty good candidate and they're interested in franchise ownership and maybe this might be their first or second time owning and operating a business, ever. Maybe it's their first, let's just say it's their first time. And they really want to make a go at this. They're in it for the long haul. What is one of the first things that you advise them to do in the process of setting up or thinking about setting up their business?
Ron: One of the first questions that we ask, and I know that this will sound counter-intuitive, but one of the first questions is thinking about your exit strategy, how would you like to get out of the business? And people react, "Wait a minute, I haven't even started yet. How should I know how I'm going to get out of it?” But what we're looking for there is to determine what their long-range goals are so that we can make sure that the franchise they're looking at, or the franchise that we try to guide them into, is going to be the right vehicle. For example someone might want to leave a legacy to their children, which means it's going to be a very long-term business. Others might just want to work it for three or five or 10 years and then sell it and cash out, maybe for retirement or to get into some different type of a business. And other people might want to build an empire: five, six, 10 different units of a brand so that they can really have the satisfaction of growing and building a larger business. But without knowing what their long range goals are we certainly can't guide them to the appropriate franchise. And if they haven't thought about their long range goals how could they make the best decision as to what franchise would be the best for them?
But what we're looking for there is to determine what their long-range goals are so that we can make sure that the franchise they're looking at, or the franchise that we try to guide them into, is going to be the right vehicle.
Jeff: That long-term goal, that time horizon that you're looking at, very, very critical and particularly getting out, what is your game plan? When do you want to get out, how do you want to get out? What do you want to do after you're done? Very important and that makes perfect sense to me, Ron, really when you get right down to it. But staying at the beginning, what about those who don't know what they really want to do in terms of the kind of business they want to run? They know that they want to have their own franchise because they like the idea of a corporation or a company overhead that's going to offer them the support that we talked about earlier. How do you help people figure out what direction to go in, what kind of business that they need to be in?
Ron: That's a good question too. We often ask what types of things they're passionate about. Not that people necessarily need to work in something that they're already passionate about. But as we learn more about the candidate we find out what types of things will bring out their passion. And if you're going to invest often your life savings and work often much more than you have in the past for a specific amount of time to build that business of your own, if you're going to do it every day for quite a while, it must be something that you can be passionate about. We want people that are going to want to get up and be excited about going to their business every day. So we ask them about what they want as their lifestyle because the lifestyle can help us determine what franchise concepts or what industries might be appropriate. For example, the difference between operating a restaurant business and operating a service business. Generally, restaurants are seven days a week and they might have pretty long hours. They might also have quite a few employees as opposed to a service business which might normally be business hours, Monday through Friday, perhaps some Saturday hours, but probably not as much nights and weekends. Then we try to find out what they want as far as do they want to travel, do they want to be working from home, do they want to go to a specific location, do they want to call on customers? There a lot of questions about people's background and about their strengths and weaknesses that will easily help us determine what brands are not suitable or what industry sectors are not suitable. And then we explore the rest of them deeper to determine what would be the most suitable.
Jeff: Ron, you're out there on the front end of this stuff with your businesses. Tell me, what are some of the trendy, fashionable areas of business, lines of business to get into if you're a franchisee, and you are really interested in what's going on now, the hot stuff you think that people are into?
Ron: Wow, great question. I just actually attended a few weeks ago the International Franchise Expo in New York City. I love going to those every year because you absolutely see exactly the answer to that question, you see what businesses are trending. For example, this year I saw a business, oh my gosh this is amazing. It was called Goose Chasers. Actually a business to keep geese out of the consumer's backyard, and there's a franchise in that. Well, having seen one company doing that this year, it's very possible that next year there will be two or three. That's the way it works, then maybe in three or five years they won't be any, but it is kind of a cycle. So right now we're probably coming to the end of the frozen yogurt cycle of... That's something that definitely comes up every couple of years and it goes around and around. But there's also, this year, it's big, actually: macaroon bakeries. Bakeries for macaroons, just that one little industry sector. Kind of interesting.
But there are some other very, very hot industries. Definitely things with the ecology, things that will help people with either pest control, or mosquito control, or mold remediation, when they are ecologically safe and environmentally friendly, those are very, very hot now. I know there's companies out there that are looking to help people with energy savings by analyzing their home usage or their business usage and replacing light fixtures and windows and so forth. There are a lot of good things out there now.
Jeff: We're going to talk more to Ron when we come back in just a few minutes. What I want to do, Ron, when we come back is I want to be able to pick up the discussion of financing a franchise, how you go about it, what seems to work right now, what is the most popular method that business owners are using to go and pick up the financing that they need to open their franchise location. We're going to do that when we come back and talk more with Ron Bender. He is with Future Focus Franchise Advisors. My name is Jeff Allen and you're listening to Deal Talk. We'll be back after this.
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Jeff: Welcome back to Deal Talk, I'm Jeff Allen with my guest Ron Bender of Future Focus Franchise Advisors and also Big Frog Franchise Group where he's director of franchise development. Ron, I appreciate having you today. Thank you so much for staying through the break. When it comes to financing a business, we've heard about all the various ways to do that, but financing a franchise business, how does that work? Is it any different from financing an independent, wholly owned business that someone will own completely, entirely on their own? What's the best way to go? Are we seeing some methods of obtaining financing that seem to be particularly popular and may not have all the qualification criteria that some of the other large banks may?
Ron: Absolutely, Jeff. There are lots and lots of questions out there. I think a lot of our candidates, or people who would be candidates if they only felt more confident in the financing process, have a lot of questions about this. And there are many, many ways that people can franchise finance. The first way of course is if you happen to have enough cash, if you have home equity or stocks and so forth that you could cash in and pay for the entire investment, that would certainly be fine. It would be the least expensive route, not necessarily the best one for you, and I do encourage you speaking with your own accountant who knows your particular financial situation to give you the best advice. But the popular items nowadays are the retirement fund rollovers, since the government allows people to take funds out of their qualifying retirement plans without tax penalties if they're investing in their own new business. Certainly specifically franchises, and there are companies out there that do a great job of helping you make sure that you do all the correct paperwork and don't have any tax penalties.
But the SBA loan is of course another of the most popular routes. With a franchise, as opposed to an independent business, the benefit of doing an SBA loan is that most franchises are on the franchise registry which is a streamlining process, almost a pre-approval process by the SBA. So the applications and the approvals are much easier and much faster for the borrower. And then of course some people take family money. They might have Uncle Joe kick in 10,000 and Aunt Mildred kick in 15,000, and whatever. Or they'll take on a partner to defray some of the costs of the investment. But the differences in financing between a franchise and just a straight, independent business: you're really going to be put under the microscope with your business plan on an independent business because there's no track record, there's no prior knowledge or prior experience of the people running the business. With a franchise company, then a general lender will look at the performance of the prior franchise units to make sure that they believe that they will indeed get repaid, which is of course their primary criteria in making an approval.
Certainly specifically franchises, and there are companies out there that do a great job of helping you make sure that you do all the correct paperwork and don't have any tax penalties.
Jeff: And the fact too that they have the fast track program with the SBA where they're on the list of approved franchises. That also too, and a big advantage too, the way that I look at it, Ron. Let's take a couple of steps forward. So you've stepped in, you've purchased a franchise location, you've been operating the business at a profit, generating revenue, fantastic sales are on the climb, you're doing everything right. Are there other ways that we can, Ron, increase the value perhaps of our business, if not necessarily in the short term, certainly over time, in addition to all the other things that we might be doing to increase the revenue in our business?
Ron: Of course. Regardless of whether it's a franchise or just an independent business, the same types of strategies work well. The first thing that you need to do is you need to make the business able to run without you. If you, the franchise owner, are required to make the business successful then it raises questions in a potential buyer as to whether they might be able to do that as well. So if your business can run successfully with employees, that would be absolutely the first step to make sure that you have an opportunity to sell at a good profit.
The second thing you have to do is you have to make sure that your books are accurate and that they reflect the profitability of the actual business. And that's critical because for a bank to make a loan for someone to purchase your business they need to see the profitability, and they also need to see that tax laws are being followed. And that might sound a little strange but there are people who have very creative accountants and those folks might be able to justify a delivery boat, for example, or many, many other great business deductions. Unfortunately, a bank will not consider that amount of revenue when they're coming up with evaluation or an appraisal of the business for how much they might loan on it. So definitely make sure that your accounting is accurate and that it shows the appropriate profit levels. Other things of course that you do, you continue to do your advertising and marketing, make sure that the business continues to run and build, and keep up with the technology in your industry, whatever it might be. Because if you allow your business to become outdated or outmoded, a buyer will probably not want to purchase that business.
Jeff: I'm still thinking about the delivery boat, or delivery yacht that you brought to mind. It certainly would raise a few eyebrows in my neighborhood but I'd love to see that before I die at some point. Ron Bender, I have a couple more questions for you as we get ready to kind of wind down our program for this particular edition of Deal Talk. Let's jump ahead again and I could kind of see the end is in sight. I think I'm ready to go ahead and put my franchise business on the market. I'm ready to go retire and play golf for the rest of my life in Monte Carlo, or Ireland, or Scotland, or wherever they play golf in, and it's a cool place to live. What percentage of the proceeds will the franchisor claim from the sale, or how much of that will I get actually to take with me?
Ron: In general, the franchisor does not get a piece of the sale of a franchise.
Jeff: You said in general.
Ron: In general, I mean, there may be some franchises out there that have a very, very high fee that they might charge when a buyer picks up the new or the existing franchise, but that is not at all the norm. Usually, whatever the value of that franchise is that you, the franchise seller, can sell it for, that's all yours. There's a small or relatively small fee called a franchise transfer fee that's charged. But in the normal circumstances that fee is paid by the buyer and it gives them the business model training and all the support of the franchisor to do the business transition. That fee might run anywhere from $5,000 to maybe $25,000 depending on how much training and how much support the franchisor would provide.
Jeff: How would I determine the valuation or the value of my company that I'm getting ready to sell? Would I call a regular business appraiser as I normally would if I had an independent company that I wholly owned, Ron? Or how do I go about that?
Ron: Your first call should be to your franchisor because their staff should have a process in place to assist you in evaluating your business and putting it on the market. They may handle it all for you. They may on the other hand just give you a process in place that you could then step into and follow like a cookbook. But without a doubt, having an independent accountant, or a business broker, or a business appraiser come in and get you evaluation would absolutely be the most accurate and the best way to determine what a good selling price would be.
But without a doubt, having an independent accountant, or a business broker, or a business appraiser come in and get you evaluation would absolutely be the most accurate and the best way to determine what a good selling price would be.
Jeff: We have a couple of minutes left for you, Ron, to just kind of expand maybe on some things or maybe start afresh. Let's say that you had a group, you had a couple of minutes to tell them the things that you really wanted them to know. Some key take-away items from either this conversation today or some other pieces of advice that you provide your clients about franchise ownership, getting involved. What would you tell someone who is interested in running their own business why they should look into franchise ownership as opposed to maybe doing something on their own, and any kind of other advice or advantages that you could pass along would be really appreciated now.
Ron: This is a question I'm very passionate about. I love talking about this so thanks for the set-up. Without a doubt, the benefits of joining a franchise can be huge. Not necessarily are they critical for every single person. One of the questions that I like to ask potential interested parties is what is it that you're very, very strong at, what do you do best? Then let's find different business types that you would use those strengths in. But let's also look at your weaknesses, what things that you might not be comfortable or confident doing on your own without advice. Then let's look for a brand that either minimizes the necessity for those skills or provides you with the support that makes those weaknesses much, much stronger.
I also counsel people to consider the culture of the company or the industry that they're getting into. Because there are huge differences not only between franchises in a given industry but between industries in general. When you're talking about looking into franchises and determining what franchise would be the best for an individual, definitely look at the vision of the franchisor to make sure that it matches your vision. And make sure that you consider what lifestyle you'd be able to enjoy while operating the business. After all, changing your lifestyle and building your income are probably the two most important reasons people want to own their own business. And then speak with as many franchisees of that system as possible because those are the people who are living the dream or maybe living the nightmare, and it would be best to determine before you sign up and invest whether it's a dream or a nightmare.
I also counsel people to consider the culture of the company or the industry that they're getting into. Because there are huge differences not only between franchises in a given industry but between industries in general.
Jeff: That's right. Just like knowing your own strengths and weaknesses, you want to determine if this is something that really is right for you, way out in front, and make sure you have that information ahead of time. Ron, I know that you work with both franchisees, those aspiring franchisees, franchisors also, and business owners of all stripes. If people have any questions, they'd like to get in touch with you, how can they reach you?
Ron: Definitely by phone or by email. My email address firstname.lastname@example.org. My mobile phone is 941-465-1944, and I’m thrilled to speak with people at any time.
Jeff: Ron, we sure do appreciate all the time that you've given us today out of your busy schedule. Hopefully we can have you back on again in the future.
Ron: Thanks very much, Jeff.
Jeff: Ron Bender, CFE of Future Focus Franchise Advisors.
Deal Talk is 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 make it a point to check back in with us again soon for valuable information and insight from our growing list of small business experts on Deal Talk. My name is Jeff Allen. I hope you enjoyed the show. We'll talk to you again soon.