Franchising Your Buisness

[ak22801]

Hey guys. Ive looked all over the internet for a good Franchise forum, but found none. Most of the threads on those forums were old, and the last reply's were over a year ago. So I thought I would try my luck here. If anyone has any advice, or can point me in the right direction, I would greatly appreciate it!

I own and operate a tire store/shop. We specialize in regular tire sales, and light mechanical work like oil changes, brake pads, etc. We are a fairly new business, but are performing rather well. The idea of possibly franchising my business out in the next 3-5 years has got my quit interested. I want to know, as a growing business, what kind of things/details should I be looking out for and making sure I have ready when the time comes, to make my business franchisable? Most of the online help you get is really just common sense like "1: Make sure you know your business well. 2: Make sure you have an operating plan.." things like that. I need specific details as to if I wanted to franchise today, what would be my next step? Getting in touch with a company that franchises business like Francorp? Like I said, any advice would help. Thanks!

[dave@businessecon.org]

Franchising is a partnership relationship. In effect two parties get together, one provides a name and a history of quality product/service. The other is a newby and wants that same level of certification. So for you to consider franchising is great. However, I will tell you that you need to have around 15 to 20 shops with the same name and same level of service before you can begin to franchise out this service. So you are really more like 10 years out. STEP 1: Get a second shop going with the same name and service. Have it running for a couple of years before you get #'s 3-6 going. Then it's time to talk about franchising.

Good luck and keep me posted.
Dave

[huggytree]

before you franchise something dont you need to own multiple locations and prove the business can be extremely successful

owning 1 location(i am assuming) and being new in business doesnt = a franchise type of business

i dont know anything about franchising, but it seems like your moving 10 years too fast to me

[ak22801]

Thanks for the reply guys. I dont necessarily agree that you need too many locations before you can choose franchising, as long as you have 2-3, and they are doing great, I think there is no reason to not try and franchise out. You personally are not taking a huge risk because if that location goes under its that locations owner who takes the heat (which I would hope, and would do everything in my power to prevent), and at that point your company is not nationally known so you dont loose too much credibility either. This is why I dont see a massive risk in trying to franchise. You dont have to allow anyone who wants to buy in to go ahead and do it. If you choose to franchise, you can start off by allowing only a few franchise locations to run. From what I have read franchising is one of the best ways to grow/get your business's name out there. It would take forever to open 10-15 locations by yourself, and it would cost millions of dollars, especially in my industry as 1 tire cost anywhere from $100+. Its a lot faster, and more efficient to just franchise out. Thats how I understand it anyway.

Also I think it depends on what kind of business it is. If I run a candy story called Sugar Bear and it does great in my city and I think it would be great to franchise, then yea there is no guarantee for something like that to work. But if you are selling a service or a product that people simply cannot do without (tires) then there is no reason for a honest, hard working business with competitive prices to succeed. Let me know your thoughts.

[dave@businessecon.org]

Why franchise then? Seriously, the reason folks franchise is to provide a recognized name, (which by the way if the guy fails, it will by your name that fails, not his) and guidance for the new guy. In exchange you receive a fee. If you don't have a highly recognized name, nobody in the right mind would franchise from you. What's the value? You are basically taking and not providing anything. Once an attorney or an accountant (like me) gets a hold of something like this, once I got done laughing I would politely tell the franchisee (my client) that it would be cheaper in the long run and in the short run to just open your own name store. Most franchises don't even consider this option without 20 - 40 stores in operation already. You see it as a no risk adventure, well the risk is still your name! I guarantee you that your attorney will tell you that if there is a perception that this is you, it will be believed and you are going to get sued too. In addition you could be held liable for the debt of this potential guy. I'm not talking just about the regular tire suppliers, I'm talking the state, the IRS, the local government for revenue tax etc. etc. etc.

I have a client that is a Subway Franchisee. She has to comply with not only monthly site inspections from the franchisor but there is a food quality issue she has to meet. furthermore, the Franchisor requires annual financial statements, her personal financial statements and a lot of reporting of daily sales etc in order to be in compliance and be allowed to have the name. So don't take this lightly, this is serious stuff and honestly you are wasting your time finding folks to open stores. Again, you are not going to create something new here in the auto repair industry, what you are saying has been tried and failed. I wish you the best.

[Steve B]

Somone buying your franchise is going to want to buy instant name recognition- otherwise what's the point. The other value they want when they buy a franchise is a proven formula for a successful business. Nobody will want to be your first buyer. You will need to have multiple locations to prove that you have a repeatable formula for success. I don't think the number is nearly as high as others have said, but I would think at least 3 or 4. Finally, you will need to provide training on both the operations of the business and the business side of the business. If you were successful in selling a franchise - you would have to have a totally different attitude about whose fault it is for failure. If your first one fails, you will never sell a second one because you won't be able to hide the failure of the first one. Every franchise buyer is going to ask for a list of others who have purchased a franchise from you and they will want to talk to a few of them. Finally, you will want to be extremely particular that they are following all of your rules (and you should have a lot of them) to be sure customers get the same experience regardless of which store they walk in. I think you are at least ten years away from even thinking about being a franchise. Especially, since you are in a such a common business that really would have trouble providing any unique value. If you came up with a unique business - it could be done more quickly than a tire store.

[ak22801]

Thanks for the replies guys. To the question that people keep asking "if your name is not yet recognizable then what is the point of buying into the franchise? Might as well open your own company..." The answer to that is very simple. You get more than just a "name" when you are buying into a franchise. You get training and basically all the secrets to running that particular business and how to profit, along with 24/7 assistance and guidance until the business picks up. If I was looking to buy into a franchise, all I would care about is how much money did the other location bring in, and how easy is it to operate. How many locations they have across America wouldnt be my main concern. You know why? Cause if there are a million Subways, and anyone can do it, chances are there is a lot less money to be made, just like anything else in life. An average Joe with 150k to invest can not possibly know everything about every business, he just wants to open a business so from his side THATS why he would want to franchise, because someone would come in and basically spoon feed him everything until he would get up and running. If someone came up you and said "Hey look, you have two franchise options. The first is a fairly new business, its in a specific field (automotive) and they have a total of 5 locations. Now I know they are new but their numbers are great. Each store profits at the end of the year X amount, and you would get great assistance with startup help, this could be a great opportunity. And your second option is Subway." which would you choose? I would personally take the first one.

When Im making my arguments Im looking at it from the side of the potential franchisor, not myself. Again like I said, if I was looking to buy a franchise all I would really care about is the numbers of how much money another location brought in, and how much assistance would I be getting from the company to help me start up.

[ak22801]

Just got off the phone with the franchising company that help launch Jimmy Johns (Francorp). Jimmy franchised that business when he only had one location. Over 1,200 locations right now across America. Just proves the point you don't need 20 locations before you can franchise.

[Steve B]

Honestly, I would go with the Subway. Proven track record over time and in many different locations and different owners.

Although I agree you don't need to have 10 or 20 locations first, I believe you are really describing more of a "business opportunity" than a franchise. With a franchise the standards and name recognition are way more vital than you are describing. You also have to meet a lot of financial reporting and legal hurdles before you can offer a "franchise". With a business opportunity - you might help someone get started - but, let them name it and run it the way they want. I'm in the process of selling my first "business opportunity" and, at least, that's the way I'm choosing to do it. Regardless, no buyer wants to be your first. In my case, my first was really a friend that I helped get set up and didn't charge him anything. At least now, the first paying customer has someone else to ask about how it worked for him.

[dave@businessecon.org]

To me, you've already convinced yourself you are going to do this. OK, so your next step is to read the Federal Law involved and your state laws. You'll need to hire a really good attorney to draft the documents to be in compliance with federal law and then with your state. You may be too young to have seen the show called 'Lost in Space' but I always like to use the visual example of that robot that would extend his arms out horizontally and then yell loudly to the boy " WARNING WILL ROBINSON, WARNING" with his flailing around; because you are going to get sticker shock from the $275 hour attorney that is qualified to do this type of work. Before you know it, you'll have $40,000 in legal fees just to get the ball rolling. This is just another reason you need 20 shops running in order to afford the setup costs to start franchising. But what do I know, I only had 9 years of graduate studies and 17 years of accounting experience and have dealt with over a dozen franchise deals.

It will be cheaper and faster to arrange some partnership style set-ups for some new shops, its kinda of a stepping stone to franchising. As for the Jimmy John's story, if I were you I read the history. He actually had several stores running over a period of 10 years before he franchised his operation. What's more is that he owns over 90% of the franchises; in effect he has a little over 100 franchisees out of his 1200 stores. Not what I would call a great track record. Subway is the other way around. That is why they have more locations than McDonalds! There is a right way to do this. Good luck to you.

Dave