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.

Street Corner, the Alternative to 7-Eleven

Convenience stores are popular franchises and I talk to many clients who are interested in a 7-eleven or a similar concept. It is understandable why a potential franchisee would first consider a 7-eleven given their name recognition. However, after further investigation into the costs and franchisee responsibilities, many of my clients choose to pursue other convenience store franchises like Street Corner. I thought it would be interesting to compare some of the key characteristics of Street Corner and 7-eleven in a side-by-side table. All of this information is available on the internet and in books about franchising, but it is consolidated here for your convenience.

Aside from the differences in initial and ongoing costs, there are big lifestyle differences between Street Corner and 7-eleven. Street Corner franchises can be found in any high traffic location like malls, hotels, office buildings, airports, train stations, etc., and they are open during standard business hours. Additionally, Street Corner allows owners to be passive, which means franchisees do not have to be in the store every day (or at all). Comparatively, 7-eleven stores are open 24 hours a day, 365 days a year (with the possible exception of Christmas) and 7-eleven franchisees must be full time employees in their own store.

Which option is right for you? Which franchise best fits ALL of your requirements? Meta-Franchise Consulting can help you sort through all of the data about these and other franchises to help you find the best business given your unique set of requirements.

Lessons from Experienced Entrepreneurs

I recently posted a question on LinkedIn that asked, "What's the one thing you know now that you wish you knew when you started your business." There were several good answers, but my favorite came from Rob Pene, President and CEO of Mission Driven Brand. He said "To create a consistent platform for sharing my thoughts and "advice" information...regardless if no one reads it to start off with...Everyone's got to start from scratch, and having YOUR OWN platform to share YOUR ideas will build YOU as a brand." I love this and want to continue to put this advice into practice with this blog.

Here are some other great answers by experienced entrepreneurs:
Manish Kumar Aggarwal said, "How to reach my potential customer."

Dave Maskin said, "I wish I realized that my talents could be used at trade shows 25 years ago..."

Martha Retallick said, "How to sell!"

Marko Lauhiala said, "That nobody can afford to be a YES man/woman all the time, learn to say NO to things that don't feel 100% right."

Elswine Rietvel said, "All the functions and possibilities on linkedin."

Marvin Russell said, "Sales don't always equal profits. In fact, 20% of your sales are profitable, the other 80% are just headaches."

Inhibitors to Becoming a Franchisee

The following audio file discusses the concept of Franchising, as well as the normal factors that inhibit individuals from pursuing their dream of controlling their own destiny, and owning their own business. There are also discussions about:

1) Fear of Change
2) Fear of Failure
3) Fear of the Unknown
4) It's Not The Right Time
5) Effect of Naysayers and Other Firehosers
6) Financial Constraints

While surveys show that 70% of individuals would like to own a business, only a small portion of those people actually take the bold step to become an entrepreneur.

Check out the podcast, titled Inhibitors to Becoming a Franchisee

It is an interview with Dennis Schooley, founder of Schooley Mitchell Telecom Consultants. For more information about Schooley Mitchell, contact Meta-Franchise Consulting.

Pie-Eyed for zpizza

Check out this great article from the Humane Society of the United States about their new alliance with zpizza. Zpizza is a leader in the gourmet and health-conscious pizza segment. They are a fast casual chain focused on delivering a fresh and unique approach to pizza. The Humane Society of the United States has teamed up with zpizza to expand their meat-free menu options. Customers can even choose non-dairy cheese!

Contact Meta-Franchise Consulting for more information on how you can be part of this exciting brand.

20 Questions for the Franchisor

When you enter into a franchise agreement, you are taking on a business partner for the life of your franchise. The Franchisor will provide the initial training and on going support for everything from technical issues to marketing advice. To make sure you know exactly who you are going into business with, it is import to thoroughly interview the Franchisor. Many clients tell me they know they should be asking a lot of questions, but they don't know exactly what to ask. Here is a list of questions to help you get started. As you hear the answers to these questions, you will probably think of many follow-up questions that will provide you with the information you need to make an informed decision.

1. What are the strengths of your franchise?
2. Where do you see this franchise system in 5 years and what steps are being taken to reach that goal?
3. Who is your competition?
4. How are you viewed in the consumer marketplace?
5. Can you give me a break down of all of the expenses associated with getting started (franchise fee, equipment, product, training, real estate, etc.)?
6. How much additional capital (working capital) will I need after I launch my franchise?
7. Please explain the contractual responsibilities if I join your franchise system (length of agreement, renewals, etc.).
8. What can I expect to earn if I join your franchise system and do you disclose this amount in an Item 19 Earnings Claim?
9. What does your training program look like? What kind of ongoing training do you offer?
10. What goods or services do I have to purchase directly from you or your preferred vendors, and can I competitively shop for a better deal?
11. Is there an advertising fund that I must contribute to and what rights do franchisees have to audit that fund?
12. What is my protected territory and how is it defined?
13. What are your plans to develop additional franchisees in my state and how will that impact my franchise?
14. How many of your franchisees have failed and why?
15. Will you assist me with financing, real estate selection, and construction?
16. Have you been sued or are you currently being sued?
17. How have previous franchisee/franchisor disputes been settled?
18. What happens when I want to retire or sell my business?
19. If I sell my business and leave the franchise system, what am I forbidden to do?
20. What is the biggest complaint from your franchisees?

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Why Do Franchisees Pay a Royalty?

The first point to make about Royalties is that good Franchise systems should look at them not as a payment but rather as a remittance. It is the Franchisor’s share of the income derived from customers or clients. The Franchisee collects that fee along with all other revenues from the customer.

It’s an important concept because it emphasizes that the customer ultimately pays for everything, including the Franchisor’s royalty, the Franchisee’s overhead, all costs of sales, employee’s salaries, and the Franchisee’s profit. Therefore it’s all about the customer – as it should be.

The Franchisee should want the Franchisor to earn a significant amount of royalties because that’s really the oil that makes the engine run. Each Franchisee collects and remits a small portion of that oil to the Franchisor. All elements of the system can continue to improve as long as the royalty stream is strong.

The Franchisor’s royalty will be based on the fact that they have provided a system and strategy that has ultimately served the customer. The Franchisee delivers that system to that customer. The royalty represents the Franchisor’s share based on the various parts of the Franchise system, which has four elements.

The four elements of a Franchise are:

a) Brand
b) Operating System
c) Support System
d) Franchisee

Brand – the name associated with the services delivered in a memorable and satisfying experience to the customer

Operating System – institutionalizes the excellent service delivered in a memorable experience so it can be done over and over again from Franchise to Franchise in a consistent manner

Support System – helps the Franchisee get better and better at delivering the service in a memorable experience – helps a Franchisee improve their performance

Franchisee – the individual motivations or reasons for being in a good system, as well as the talents and experience delivered to the business.

The Operating and Support systems will generally provide access to advice at the level of professional consultants in the fields of marketing, management, advertising, execution of the delivery of the product or service, customer support, etc. The cost of these types of consultants on the open market will often far exceed the value of the royalty fees that are remitted by the Franchisee that participates in a system that delivers these items from a position of experience. In fact, it’s the exact experience the Franchisee requires as opposed to open market advice.

Now here’s the test. If each of the four elements of a Franchise system is evaluated in terms of the percentage of contribution to the overall success of the business, then the royalty can be assessed in a proper light. Many people will say that each of the four elements contributes equally – or 25%, to the overall success. That means that the Brand, Operating System, and Support System provide 75% of the success formula. Therefore, as long as the royalty is less than 75%, it’s a good decision to participate in the system. That’s a little silly, but it emphasizes the point.

Most royalties range from 2% to 10% depending on the type of system, so as long as the Franchisor’s systems contribute 10% or more to the success of the business, it makes sense to participate, and remit the collection of royalties to the system.

http://www.metafranchiseconsulting.com/

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What's in a Name?

Being the left-brained person that I am, the thought of coming up with a name for my new business was very intimidating. We all know the power of names and brands so I knew it was really important to get this right. Therefore I turned to the best, most creative, right-brained person I know. Jester Levity didn't let me down!

Jester, being the smart AND creative person she is, recommended we start with synonyms of a word like "embarking" since I was embarking on a journey. From that list she identified "venture" and we threw "franchise consulting" on the end. Just like you do with baby names, you have to check the initials to make sure nothing weird is going on! "VFC" sounded safe enough.

The next brilliant step was to Google "Venture Franchise Consulting" to see if there was another company using that name. Luck! No issues with that name being taken. Then Jester offered to do some numerology for me. Not really sure what that meant, but as it turns out, it was an unnecessary step.

At the end of the conversation Jester says, "I also LOOOVE Meta Franchise Solutions/ Meta Franchise Consulting." Hmmmm...I've heard of the word "meta" but I don't really know what it means. A quick wikipedia search tells me that meta means, among other things, "about (its own category)". Metadata, a term I know from database work, is data about data. Then I saw a posting for Meta-advertising which means an ad about an ad. Hmmmm...so Meta-Franchise would be a franchise about franchising! Could anything be more perfect?

http://www.metafranchiseconsulting.com/
http://www.utilityplayerscomedy.com/
http://homesliceproductions.com/Homeslice_Productions.html