Franchising Economic Outlook for 2011

Meta-Franchise Consulting's January newsletter is now available! Check out the information on the franchising economic outlook for 2011 and the spotlight franchise this month, Stratus Building Solutions.

SBA Loans and Franchising

It is a common misconception that the U.S. Small Business Administration (SBA) loans money to potential franchisees. Instead of loaning the money, the SBA provides a loan guarantee. If your loan application looks too risky to a bank for a traditional loan, you may apply for an SBA loan through an SBA approved lender. The SBA has approved these lenders and loans made by these lenders will be guaranteed (up to 80%) so your loan application looks less risky to the lending institution.

There are many benefits to an SBA guaranteed loan. Those benefits include:

• Lower capital requirements
• No points or balloon payments
• Longer amortization periods
• Increased loan-to-value financing

Just like banks are pre-approved to be SBA lenders, franchises can be registered with the SBA. The registry is not an endorsement of a franchise by the SBA. Additionally, a franchise not listed on the registry can still be eligible for an SBA guaranteed loan. To be listed on the registry, a franchise must provide the SBA with a copy of the franchise agreement which the SBA will review. Once approved and listed on the registry, the turnaround time and paperwork required are reduced for a potential franchisee.

Need more information on the SBA loan process? Contact Meta-Franchise Consulting.

Tax Franchises: Winners and Losers

Potential franchisees love tax franchises because the initial investment is reasonable, the income potential is great, and they are recession resistant business...death and taxes...right?

UnhappyFranchisee.com just wrote an article about the tax winners and losers of 2010. At Meta-Franchise Consulting I have always felt strongly that I work with the best franchises in the tax industry, and this article helps validate that belief.

The two largest tax franchises (as measured by number of franchisees) are Liberty Tax and H&R Block. I work with Liberty Tax which grew by over 700 units from 2008-2010 while H&R Block lost 261 units.

Tax Centers of America and Roni Deutch also realized great growth in their franchise systems.

Maui Wowi Hawaiian Franchisee Is Blending Up Success

Maui Wowi Hawaiian Franchisee Is Blending Up Success

Maui Wowi continues to be one of my favorite franchises for four reasons.

1. Maui Wowi offers multiple business models to give franchisees flexibility in both where they locate their business as well as varying investment levels.
2. Maui Wowi offers multiple revenue streams with coffee, smoothies, and other Hawaiian products.
3. Maui Wowi does NOT charge a franchise fee!
4. Maui Wowi offers a joint partnership with Doc Popcorn to give franchisees a second franchise and another revenue stream for a small additional fee (significantly less than the cost of two separate franchises).

What are your experiences as a Maui Wowi customer at any of their 550+ franchised locations? Do you want to own your own Maui Wowi Coffee & Smoothie franchise?

CNBC Cancels Reruns of Franchise Documentary

On December 19th I wrote a blog about CNBC's Untold Story of Franchising documentary. In that blog I talked about what I thought the story got right and what the story missed for the franchising industry and the franchises they highlighted. Apparently I neglected to highlight a major criticism of the show!

I did not spend a lot of time talking about negative spotlight that was shining brightly on Cold Stone Creamery, primarily because I have not worked with them and don't have enough information to have an informed opinion. However, those closest to the details found many flaws with the Cold Stone Creamery segment and hired the top franchise attorney in the country to represent the franchisees and a separate law firm to represent the franchisor. Robert Zarco, the new franchisee attorney, said in a letter that CNBC acted "irresponsibly, wrongfully and with malicious intent, negligently, and with reckless disregard for the interests of the franchisor, the franchisor’s employees, the franchisees’ employees, and consumers." Now CNBC has "temporarily" cancelled planned reruns of the documentary to investigate the facts as presented in the original airing.

This was not the first piece of controversy about CNBC's "The Untold Story of Franchising." After the original airing, CNBC posted a clarification that the CEO in charge of P&G's franchise subsidiary said that Mr. Clean and Tide franchise royalties were based on net sales instead of gross sales, which would be a good deal for franchisees. It turns out that what P&G calls net sales is what other companies call gross sales. As if current and potential franchisees need something else to be confused about.

Top 10 Franchising Trends for 2011 and Meta-Franchise News

The December newsletter is now available! Check out the hot industry news this month and the spotlight franchise for December, Tutor Doctor.

CNBC's The Untold Story of Franchising

Last week CNBC aired a story called "Behind the Counter: The Untold Story of Franchising." The report looked at five brands including Five Guys, Camp Bow Wow, Tide Dry Cleaners, Mr. Clean Car Wash, and Cold Stone Creamery. CNBC's story included some useful information, but I don't think anyone who has been looking at franchising will find any of the information "untold." Here is what the story got right and what it may have missed.

What It Got Right

• Franchising is big business! 1 out of 10 business owners become their own boss through franchising and franchising is a trillion dollar industry
• When doing your due diligence, you should talk to franchisees that have been open for less than 1 year as well as franchisees who have been in business for a while to get a variety of perspectives
• Franchisors are not required to make an earnings claim (Item 19)
• The FDD is a big document (Cold Stone Creamery's was 700 pages!) and it is important to have the document reviewed by lawyers and accountants so you are aware of all of the fees (one time and on-going) associated with buying a particular franchise
• Not all franchisees will be successful. All businesses have risk, but a good franchise system can significantly reduce your risk

What It Missed

• The story looked at Camp Bow Wow and seemed to say that because they have high initial costs, it is not a good franchise to buy. I don't work with Camp Bow Wow, but I do work with many franchises that have costs equal to or greater than Camp Bow Wow's. The costs to start a franchise are primarily driven by the cost of real estate and the costs to outfit (equipment and supplies) the business, and do not correlate to the chances of success for the franchisees in the system
• Since 2008 the United States has been in a credit crisis, making financing very challenging for potential and existing franchisees. While doing your due diligence, you should be careful about drawing conclusions from what Don Sniegowski of Blue MauMau called SNO (sold but not open). There are lots of reasons (like access to credit) that might leave a franchisee stuck in SNO that say nothing about the quality and profitability of a franchise system

Contact Meta-Franchise Consulting today for more information about how to find the franchise that is the best fit for your requirements.