With the economy in this condition, people are losing jobs. When folks lose jobs, some percent of them will opt to strike out on their own and start their own business, rather than looking for a job.
Some percentage of those people are going to be drawn to the allure of a franchise. So, I'm going to try and outline a few general principles for people who are considering going down this path. To me, being a franchisee has been a phenomenal experience. I am thankful every day that I was fortunate enough to find my franchise system. I think the support I get from them is great. I think the business model they provide is outstanding. It has improved my life in every conceivable way.
However, that's not the case for everybody. Franchisees go out of business every day. In fact, a few recent studies have indicated that franchise-startups fail at about the same proportion as independent (non-franchise) business start-ups.
If you're like I was, you'll probably take every penny you've ever earned and invest it in your new business. The thought of rebuilding from zero in my 40s wasn't particularly appealing to me. So, I wanted to stack the odds in my favor.
I did this by researching franchises. They're not all good. A rough thumbnail, in my opinion, is that if you took a list of all your available franchises, 95% of them will lead to your bankruptcy. Now, in that list will be a lot of new, smaller, unproven systems. Still, this is just to impress upon you that just because you're buying into a franchise system doesn't mean you won't go broke.
The first step in researching is to find out what your available capital to invest is. How much actual cash (non-borrowed) can you put your hands on. Most franchises have what they call a "liquidity requirement" meaning they won't sell you a franchise if you don't have, say, $100,000 in cash. Different systems require different liquidity and I'm aware of a few that require a seven-figure liquidity number before you can talk to them.
Take this liquidity number seriously. If you ask me, most liquidity numbers are understated. Meaning, if they say you need $100,000, the actual number is probably closer to $150,000. They're literally telling you the DEAD MINIMUM cash you should have on hand before considering what they have to offer. A good franchise system will know what they're talking about on this.
The liquidity requirement will cut down your options substantially. You won't be able to buy into, say, Volvo Rents if you only have $50,000 to invest.
Start with a list of all available franchises and then whittle it down to the ones you qualify for, financially.
Lists are available in a lot of places. The one that was my favorite was the listing on Entrepreneur.com.
After that, look for other qualifications. Many of the better food-service concepts do not want you if you don't have previous multi-unit food service management experience. Others prohibit absentee owners. Don't fudge your qualifications. If you can't do the thing full-time, look for concepts that allow absentee owners. Again, a quality franchise system has good reasons for their requirements.
Now comes the real legwork. Every franchise system in the US is required to have a Uniform Franchise Offerring Circular. Some will require an application fee to see their UFOC. Some will not let you see it until you fill out a detailed application.
However, in some cases, you can get around this by searching for the UFOC on the Caleasi site:
http://134.186.208.228/caleasi/pub/exsearch.htm
Review this document and have some good questions ready.
Next, pick up a telephone and call people who are currently in the system. My advice: don't wait until you're deep in the process to do this. Just do it. There is no law or rule against it. Some folks won't want to talk to you. Some folks will chat your ear off. Just be honest: tell them you're considering investing your life savings into their franchise system and you want to know their experiences as an owner.
Not everybody will be sympathetic enough to cooperate, but some will. Listen to them. They will tell you the good in their system, but they'll tell you the bad, too. I was warned off of many, many bad systems and market segments by owners who took the time to give me the real scoop.
I cannot emphasize enough how these interviews will inform your decision. If you take a UFOC to an attorney, they'll tell you that the franchise agreement is completely biased in favor of the franchisor and you'd be foolish to sign it. From an attorney's perspective, they're right.
From a business perspective, though, they may not be. However, an owner will be more than happy to tell you when they feel their franchise system is screwing them over.
Sometimes, I was able to get hold of somebody who USED to be part of a franchise system, but got out. Not all of them were negative towards their old franchisor, but many were. Mostly, they were very honest and objective because they truly had no reason to flower things up at all.
If you can get somebody to agree to let you visit their facility, that's worth a lot. I would even advise volunterring to WORK for the franchisor for a day or a week or whatever, to get a feel for what life is really like in the franchise system.
Once you've conducted your research, you can submit your application, application fee, and schedule your visits to the franchisor. At that point, you should already have a good idea what you're getting yourself into.
A final note regarding franchises: some folks consider this the minor-leagues of small business. Whereas, more conventional entrepreneurs are the big leagues. I think that's not particularly true. Many franchise concepts allow you to grow into a business with sales of $10 million, and in many cases even more. Franchising is not better than, or worse than other more entrepreneurial business concepts. It's just an option that's available to you.
Best of luck if you chose to go this route, but chose carefully. It has the potential to be either the best or worst decision you've ever made.
Showing posts with label franchising. Show all posts
Showing posts with label franchising. Show all posts
Thursday, September 10, 2009
Monday, September 7, 2009
September Perspective on Small Business
We just finished up one of our worst months in ages. Not that surprising, really. We're at ground-zero of the current economic fiasco. At least we have the werewithall to ride the storm a little longer. We also got some work last week that should keep us busy for a while. All in all, things are not where I'd like them to be, but we should be able to limp along until our busy season hits. (Usually in the December time-frame.)
I am 2 months shy of renewing my franchise license. I opened my doors on the last day of January 2005, but I actually purchased my license in October 2004.
5 years of self-employment has been an adventure. I have only one regret about going into business for myself: I should have done it years earlier. I am better off in every conceivable way now that I am self-employed. (Granted, you might want to ask me my opinion a year from now if the busy season doesn't deliver.)
Even though things have been slow, I haven't laid anybody off, yet. We've had to fire people for reasons unrelated to the economy. (Both of them simply stopped showing up for work.) We went through a few weeks were there was, literally, no work for anybody to do.
I treated it as business as usual. I have expectations of my employees: that they'll show up on time and they will work once they're here. However, I feel I have obligations to them in return. For instance, that I won't send them home early (and thus cut their weekly pay for a few hours) just because we're slow.
We made work for them to do in the warehouse. We had them finish the upstairs offices that have been in-progress for more than a year, now. We had them organize the equipment and implement a few visual management systems I've wanted for a while, now.
We also sent people off for some much-needed out of town training and certifications. I'll probably send off a few more folks in the coming months.
Now, we're busy, thank goodness. I can't say that I will never lay off a worker. Who knows what the future brings. We went 2 weeks without any work, which is one thing. I can dip into my personal savings to keep the place afloat. However, there are limits to my resources. If the slowdown had lasted 3 months, I would have had little choice but to let people go.
That is a last resort for me, though. To me, that's a complete game-changer. From that point forward, how can I blame an employee who feels that my company has shown no loyalty to them? How can I take the moral high ground when an employee slacks?
I also feel that I have an obligation during this economic downturn. Even if I didn't make a penny, I want to employ people. The jobs I have may offer modest pay, but for the workers who take them, that pay is the difference between a dignified, modest standard of living, and poverty. These people worked for me when times were good for me. I want to do all I can to make sure they keep their jobs when times are bad for me.
Underneath it all, I'm optimistic. I'm doing all I can to expand our marketing reach. I'm ready to commit full-force to some initiatives my franchisor is launching that should allow us to continue to grow despite the economic conditions in our corner of the world.
We've grown every year during our 5 years in business. I don't see why this year can't be the same. We took a hard shot by crappy August results, but we still stand an outside shot at a million in sales this calendar year.
The biggest challenge facing us is that we're transitioning from being a smallish business to having to implement the same systems and controls that large businesses do.
In the past, we could get away with relying on the fact that either I, or my operations manager, Mike, knew what to do in a given situation. That works when you have 2 trucks and 4 employees.
Right now, we have 5 production trucks and enough people to staff all of them. I can't be 5 places at once, and neither can Mike. Which means adding some supervisory capacity, but also means training the people all the more thoroughly so they can operate with minimal supervision.
Training and the HR function are becoming more and more critical to our success. There's just no way you can run a $5 million dollar business with the same management structure that worked as a $500,000 business. So, our days without an HR and Training administrator of some sort are severely numbered.
The one thing that I wasn't ready for with small business is how much the business environment changes every year. The restoration industry has changed dramatically even since I first got in to it. We constantly have to change and improve our way of doing things in order to stay one step ahead of the competition.
Every company has the same thing to deal with: improve or die, but the pace of change in small business is staggerring. Entire markets disappear virtually overnight.
5 years ago, a printing business was a viable business opportunity. However, in the past 5 years, half the printers I used to know are out of business. Half of the remaining ones are trying to sell.
I try to remind myself whenever I get frustrated that we have to implement a new system or procedure or respond to a new market challenge, that the alternative is to have a business that essentially remains unchanged from year to year: like printing.
The keys to small business, or to business in general, never really change from year to year. Treat employees well. Treat customers well. Provide quality goods and services at prices customers are willing to pay. Respond to market changes. Look for opportunties to grow.
Most of all: when you're no longer up to the challenge of doing those things, it's time to get out.
I don't feel like it's time for me to get out, just yet. We're still growing, which means I'm still excited and engaged. The past 5 years were everything I had hoped they would be and more. I hope to make the next 5 years even better.
I am 2 months shy of renewing my franchise license. I opened my doors on the last day of January 2005, but I actually purchased my license in October 2004.
5 years of self-employment has been an adventure. I have only one regret about going into business for myself: I should have done it years earlier. I am better off in every conceivable way now that I am self-employed. (Granted, you might want to ask me my opinion a year from now if the busy season doesn't deliver.)
Even though things have been slow, I haven't laid anybody off, yet. We've had to fire people for reasons unrelated to the economy. (Both of them simply stopped showing up for work.) We went through a few weeks were there was, literally, no work for anybody to do.
I treated it as business as usual. I have expectations of my employees: that they'll show up on time and they will work once they're here. However, I feel I have obligations to them in return. For instance, that I won't send them home early (and thus cut their weekly pay for a few hours) just because we're slow.
We made work for them to do in the warehouse. We had them finish the upstairs offices that have been in-progress for more than a year, now. We had them organize the equipment and implement a few visual management systems I've wanted for a while, now.
We also sent people off for some much-needed out of town training and certifications. I'll probably send off a few more folks in the coming months.
Now, we're busy, thank goodness. I can't say that I will never lay off a worker. Who knows what the future brings. We went 2 weeks without any work, which is one thing. I can dip into my personal savings to keep the place afloat. However, there are limits to my resources. If the slowdown had lasted 3 months, I would have had little choice but to let people go.
That is a last resort for me, though. To me, that's a complete game-changer. From that point forward, how can I blame an employee who feels that my company has shown no loyalty to them? How can I take the moral high ground when an employee slacks?
I also feel that I have an obligation during this economic downturn. Even if I didn't make a penny, I want to employ people. The jobs I have may offer modest pay, but for the workers who take them, that pay is the difference between a dignified, modest standard of living, and poverty. These people worked for me when times were good for me. I want to do all I can to make sure they keep their jobs when times are bad for me.
Underneath it all, I'm optimistic. I'm doing all I can to expand our marketing reach. I'm ready to commit full-force to some initiatives my franchisor is launching that should allow us to continue to grow despite the economic conditions in our corner of the world.
We've grown every year during our 5 years in business. I don't see why this year can't be the same. We took a hard shot by crappy August results, but we still stand an outside shot at a million in sales this calendar year.
The biggest challenge facing us is that we're transitioning from being a smallish business to having to implement the same systems and controls that large businesses do.
In the past, we could get away with relying on the fact that either I, or my operations manager, Mike, knew what to do in a given situation. That works when you have 2 trucks and 4 employees.
Right now, we have 5 production trucks and enough people to staff all of them. I can't be 5 places at once, and neither can Mike. Which means adding some supervisory capacity, but also means training the people all the more thoroughly so they can operate with minimal supervision.
Training and the HR function are becoming more and more critical to our success. There's just no way you can run a $5 million dollar business with the same management structure that worked as a $500,000 business. So, our days without an HR and Training administrator of some sort are severely numbered.
The one thing that I wasn't ready for with small business is how much the business environment changes every year. The restoration industry has changed dramatically even since I first got in to it. We constantly have to change and improve our way of doing things in order to stay one step ahead of the competition.
Every company has the same thing to deal with: improve or die, but the pace of change in small business is staggerring. Entire markets disappear virtually overnight.
5 years ago, a printing business was a viable business opportunity. However, in the past 5 years, half the printers I used to know are out of business. Half of the remaining ones are trying to sell.
I try to remind myself whenever I get frustrated that we have to implement a new system or procedure or respond to a new market challenge, that the alternative is to have a business that essentially remains unchanged from year to year: like printing.
The keys to small business, or to business in general, never really change from year to year. Treat employees well. Treat customers well. Provide quality goods and services at prices customers are willing to pay. Respond to market changes. Look for opportunties to grow.
Most of all: when you're no longer up to the challenge of doing those things, it's time to get out.
I don't feel like it's time for me to get out, just yet. We're still growing, which means I'm still excited and engaged. The past 5 years were everything I had hoped they would be and more. I hope to make the next 5 years even better.
Subscribe to:
Posts (Atom)