Turning a company into a franchise requires a simple business concept and good advice from experts
Sacramento Business Journal – August 3, 2007
by Melanie Turner
Experts and local small-business owners who saw franchising as a great way to expand and have gone through the process say it works well — if you’re prepared and willing to pay the price in time and expense.
Some of the keys to conquering the complex and difficult process of franchising, they say, are to hire a good attorney and a quality consultant, and go into it with a strong business background.
Above all else, you need a viable business model that can be documented and duplicated by someone with good business skills, said Greg Roquet, president of The Franchise Network of Northern California and Nevada.
“A lot of people underestimate the complexities and cost of franchising,” he said.
Many types of businesses franchise, from limousine services and law firms to dog-walking services and ice-cream parlors. Generally, though, businesses best suited to franchising are simple.
“There are no nuclear physics franchises,” Roquet said. “These are simple concepts that can be duplicated.”
Big expense upfront
Michael Seid, a West Hartford, Conn., franchising consultant and co-author of “Franchising for Dummies,” said 14 percent of the U.S. work force is involved in franchising. The business expansion method is used by more than 120 industries.
Businesses that are most difficult to franchise are those that rely on people with technical skills or degrees, such as a pharmacy, Seid said.
Just to get into the game costs about $150,000, he said. It costs that much to hire a consultant and lawyer to help develop an operations manual, training program and advertising strategy, and design a Web site, for example.
Franchisors provide franchisees with a ready-made business model and business know-how. In turn, franchisees pay initial fees of between $10,000 and $25,000, ongoing royalties of between 7 percent and 12 percent of profits, and about 3 percent for marketing or advertising, said Mitchell Kassoff, an attorney in South Orange, N.J., who deals exclusively with franchise matters.
Executive Business Maintenance Corp., a 10-year-old business in Carmichael, helps janitorial companies get established, land jobs and expand. The company launched into franchising this year.
Company president Tammi Cataldo said she hired an attorney and consultants to develop an operations manual and other materials. In all, it cost her more than $100,000 to establish the franchise. While it’s expensive, she said it was important to leave “no stone unturned.”
Against the advice of her attorney, Cataldo signed a contract with a sales consultant hoping to get the franchise growing quickly. The consultant predicted she’d open her first franchise within three months, but the consultant hadn’t purchased a single ad in all that time, she said.
“They’re going to tell you how fast you’re going to grow. It’s not true,” she said. “Getting the word out is really difficult.”
Cataldo managed to get out of the contract and is now handling sales in-house. One of the company’s own sales representatives decided to start the first Executive Business Maintenance franchise in Placer County. Her office was set to open this week.
Funtastic Play Centers in El Dorado Hills didn’t have any trouble getting takers. The company sold three franchises on the day it became legally able to do so, last September.
The company has since sold franchises in Natomas, Elk Grove, Los Angeles, Simi Valley, and Detroit. Three others are awaiting approval, and the company has files on 36 other people who have expressed an interest.
Although franchising is complex, Jim Kerr said his company “pretty much nailed it.” Kerr is president of FPC International Inc., the company that sells the Funtastic franchise.
“We already have a vision that this could go international,” said Kerr, who added he’s had inquiries from as far away as Ireland.
Funtastic Play Centers offer drop-in, mostly unstructured play where parents stay on-site. Children, up to age 7, play with soft equipment that is shipped in from the United Kingdom. Customers pay $8 per child per visit for unlimited play time.
Since the concept was unique, Kerr said he and his wife and co-founder, Suzanne, thought about franchising from the day they opened their first play center.
His advice to would-be franchisors is to create a comprehensive operations manual that franchisees can refer to — and get a good franchise attorney.
“That’s critical,” he said.
Business skills required
Even more critical to a franchise startup is a good consultant, Seid said. Lawyers can prepare legal franchise documents, but consultants are best trained to conduct feasibility studies to determine if a business has adequate capital and whether enough franchisees would buy the concept, he said.
Kerr also has a strong business background. He was a senior executive in global sales in the airline industry prior to co-founding Funtastic.
“Being a savvy businessperson is absolutely essential in order to guide (franchisees), to lead them and give them good advice,” he said. “People buy franchises because of the support network around them.”
When a business owner decides to franchise, they no longer have time for the day-to-day activities of their original business. Franchising becomes a full-time job.
A common mistake franchisors make, Roquet said, is taking on a franchise venture without having a broad range of business skills in areas such as budgeting, marketing and human resources.
Kerr turned his early partners into a franchise support team of four. He takes care of selling franchises, and other employees handle advertising and merchandising, equipment and facilities, and problems and issues that arise.
He said he’s been cautioned not to grow too quickly.
“I think eight in our first year is plenty,” he said.