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Is Franchising For You?




November 6, 2009
Small Business Impact – U.S.
• Represent 99.7% all employer firms
• Employ ½ of all private sector employees
• Pay 44% of total U.S. Private Payroll
• Generate 64% of net new jobs over past 15 years
• Hire 40% of high tech workers
• Are 52% home-based and 2% franchises

Source: U.S. Dept. of Commerce & U.S. Dept.
of Labor
Small Business
 in Virginia
   Small Businesses constitute
   99% of all Virginia
   businesses.
   Small Businesses create
   over 60-80% of all new
   jobs.
   Small Businesses account
   for half of the
   Commonwealth of Virginia’s
   contribution to the U.S.
   Gross Domestic Product - a
   whopping $160 billion.

Virginia is for Business Lovers
Virginia is for Business Lovers

• Virginia ranked #1 state for business by
  Forbes.com last four years.
• Ranked #1 most business friendly state by
  Pollina Corporate Real Estate, Inc. last two
  years.
• Named #1 best states for business by CNBC.




         Ask VBIC = 866-
         248-8814
How to Start and
                           Franchise
        Operate a Business


            Presented by: Tom Tanner
Roanoke Regional Small Business Development Center
Key to Success in Small Business


GP + D + GM + ECS = $$                             ©




© RRSBDC 2009
Why do I need a Business Plan
 • Forces you to do the necessary
   research

      – On the business idea or concept

      – On the different franchises

 • Serves as Blueprint for future

 • Required for investors or bank


© RRSBDC 2009
What goes into a Business Plan
    • Executive Summary *
    • Description of Business
    • Definition of Products and/or Services
    • Market Analysis and Marketing Plan *
    • Organization and Management Team
    • Operational Plan
    • Financial Statements and Projections *
    • Appendix
    * Most Important

© RRSBDC 2009
Business Research – 9 Step Process
     1. What is the product or service you want to sell?
     2. Is there a demand for this product in this area?
     3. What is the state of the industry? (product life cycle)
     4. Who are your competitors? (do a competitive
        analysis also called SWOT)
     5. Who is your target market? (Demographics &
        Psychographics)
     6. How will you position yourself in the market?
     7. How will you price your product?
     8. Where will you do business?
     9. How will you reach your market? (specific marketing,
        advertising & marketing calendar)
© RRSBDC 2009
Franchisor Research
     1. What franchisors are offering this business
        opportunity?
     2. Do a SWOT of each franchisor.
     3. Do research on internet.
     4. Talk to multiple franchisees.
     5. SBA loans – check to see if listed on
        www.franchiseregistry.com
     6. Evaluate the Franchise Disclosure Document (FDD).
     7. Evaluate the RISK before signing any document.




© RRSBDC 2009
Choosing the Right Legal Entity

       • Affects personal liability

       • Affects taxes – personal & business




© RRSBDC 2009
Choosing the Right Legal Entity

    Four Basic Forms of Organization:
                – Sole Proprietor
                – Partnership
                – Limited Liability Company
                  » Legal entity
                – Corporation
                  » Taxed as “C” or “S”

© RRSBDC 2009
Choosing the Right Legal Entity
    Consider talking to your accountant and attorney
       before deciding which is best for your company.

    Other considerations:
         – Operating Agreement
         – Partnership Agreement
         – Buy/Sell Agreement




© RRSBDC 2009
Choosing the Right Legal Entity

    Maintaining the Entity Integrity
          •     Setup before business starts
          •     Setup separate bank account
          •     Do not mix personal & business funds or bills
          •     Sign all contracts & leases in entity name
          •     Sign everything as owner/president etc.
          •     Put insurance in company name
          •     If corporation have annual meeting and
                maintain minute book


© RRSBDC 2009
Steps to Opening
                 Your Business




© RRSBDC 2009
Steps to Opening a Business
1. Determine legal entity
2. Check name availability with SCC
3. Check to see if a URL is available
   (www.internic.net – click on whois)
4. Register with the SCC your corporation, LLC or/and
   fictitious name (www.scc.virginia.gov)
5. Get your FEIN with the IRS (www.irs.gov)
6. Register with VA Dept of Tax – also covers Virginia
   Employment Commission (www.tax.virginia.gov)


© RRSBDC 2009
Steps to Opening a Business
7. Check with Dept of Professional & Occupational
   Regulation to see if you need any special permits.
   (www.dpor.virginia.gov)
8. Obtain Business License from local Commissioner
   of Revenue
•     Other permits/licenses – ABC, Health Dept,
      Meals/Lodging/Entertainment taxes
•     Local fictitious name registration with courthouse
•     MAKE MONEY!


© RRSBDC 2009
U.S. Small Business Administration
SBA’s Role in providing Financial assistance
  • SBA does NOT provide grants

  • SBA does NOT make DIRECT loans

  • SBA DOES PROVIDE:
     Loan Guaranty on loans made directly by banks
     with the SBA’s backing.


                                                     of 12
Financial Assistance
SBA General Eligibility Criteria
 ♦   Must be for profit
        Not engaged in lending, real-estate development,
        investments or speculation
 ♦   Must have a sound business purpose
 ♦   Good Credit www.annualcreditreport.com
 ♦   REASONABLE Equity Investment


                                                           of 12
U.S. Small Business Administration
    • 7(a) Loan Program
      ♦ Express  Loans – up to $350,000
      ♦ Patriot Express – up to $500,000
      ♦ Term Loans – up to $2,000,000

    • 504 Loan Program
      ♦ Real   Estate and Fixed Assets
    • Micro-Loan Program
      ♦ Up to $35,000
      ♦ Handled locally by Business Seed (TAP)
What is the RRSBDC
 • Roanoke Regional Small Business
   Development Center

 • SBA funded program, 33 centers in
   Virginia, 1000 nationwide.

 • SBDC Mission – Provide no-cost
   professional business counseling,
   training & information resources to
   help start, grow and strengthen
   Virginia Businesses.

 • Staffed by paid full-time Professional
   Counselors


© RRSBDC 2009
How the SBDC can Benefit you
  Through one-on-one Counseling, the SBDC can help
    you with…
  • Development of Business Plan
  • Market Research
  • Development of Marketing Plan
  • Workshops
  • Government Procurement



© RRSBDC 2009
How the SBDC can Benefit you
 Through one-on-one Counseling, the SBDC can help
   you with…
 • Technology
 • Loan Application
 • Source of Business Financing
 • Financial Analysis
 • Permits, Licenses and Taxes
 • Counseling is at No Cost


© RRSBDC 2009
Local SBDC Office
  Roanoke Regional Small
Business Development Center
    210 South Jefferson Street
       Roanoke, VA 24011

       540-983-0717
      www.rrsbdc.org
       www.sba.gov
Business Support
Resources
The Virginia Department
of Business Assistance
VDBA supports economic development in the
  Commonwealth by working with new and existing
  businesses to provide business and economic
  development communities with:


• workforce incentives
• financing
• business information and counseling
• state procurement assistance
• incubator counseling and
• educational opportunities
Formula f o r S ucc e s s
                                     n
                   ation for decisio
- Critical inform
    making
                             ful
 - Well tr ained and plenti
    workforce
                               cture
  - Approp  riate capital stru




                 Ask VBIC = 866-
                 248-8814
Business Information Services

                 To help businesses get started and to grow.

Formation Assistance
  Virginia Business Information Center (VBIC) 1-866-248-8814
      Bridges the 26 state agencies, over 100 programs and over 300 forms that
     may touch a Virginia business
 Virginia Central Business Portal (www.business.virginia.gov)
      Covers registration, taxation, licensing
 Interactive Business Plan CD
      5 Step process to a business plan
  Entrepreneur Express Events
      100 Events – 5,000 Trained
Virginia’s Business One Stop
                Are you starting a business?
                Virginia’s Business One Stop system can help
Winner of the   you determine your business formation requirements and can
    2009        pre-fill your business registration forms.
 Governor's
 Technology
                    Visit http://www.virginia.gov/bos/index.html to
   Awards
                   access the Business One Stop System.
                    Create a Business One Stop account.
                    Answer a few brief questions about your business.
                    Receive a list of action items and pre-filled business
                   registration forms.

                   Questions? Contact the Virginia Business
                   Information Center
                   1-866-248-8814 (804) 371-0438
                   vbic@vdba.virginia.gov
Ask VBIC = 866-
248-8814
Entrepreneur Workshops
          • Launched October 2006
          • Partnership with Service
            Providers and localities
          • Provide information on
            available resources to
            start and grow a
            business
          • Statewide Program –
            Over 7,500 reached
          • Free – ½ Day Session
          • www.vastartup.org
Growing Your $ales Workshops
Business Sales Growth Program
  Market Research and Expansion
  Financing
  Growth Management

Partnered events for SWAM certification and
eVA registration

Networking of businesses and decision-
makers
Growing Your $ales - State
                      Governor’s Executive
                      Order 33
                      $5 billion market
                         Access to buyers from 171
                         state agencies
                      Additional $5 billion from local
                      governments
                         575 localities using eVA
                         system.
                      Small Business Goal – 40%
                         Over 41,490 registered
                         suppliers
                         Over 13,065 participating
                         buyers
    Ask VBIC = 866-
    248-8814
• Examples of Purchasing:
  – Instant Ice Tea
     • 01/01/2008 – 12/31/2008 = $29,571.24 - 45 PO’s
  – Novelty – Specialty Advertising Products
     • 01/01/2008 – 12/31/2008 = $188,443.27 - 200 PO’s
  – Grounds Maintenance: Mowing, Edging, Plant (Not Tree)
    Trimming, etc.
     • 01/01/2008 – 12/31/2008 = $19,738,138.46 - 1876 PO’s
  – Tires and Tubes, Passenger Vehicles
     • 01/01/2008 – 12/31/2008 = $274,029.01 - 255 PO’s
  – Concessions, Catering, Vending: Mobile and Stationary
     • 01/01/2008 – 12/31/2008 = $6,995,026.76 - 12889 PO’s
  – Building Maintenance
     • 01/01/2008 – 12/31/2008 = $123,372,948 - 8823 PO’s
  – Earth Moving Equipment Rental
     • 01/01/2008 – 12/31/2008 = $21,415,289 -1360 PO’s
One–on-One Counseling
Sessions
• Need Based:

   – Accessing New Markets/Sales Growth

   – Tailored Sales Development Solutions

   – Financing Resources


     To schedule an appointment, contact:



 Sandy Ratliff, Business Services Manager
               276-676-3768
  Email: sandy.ratliff@vdba.virginia.gov
Virginia Jobs
Investment Program
• Workforce recruiting and training
   – Create minimum 25 net new jobs within 12 months and
     capital investment of at least $1,000,000
   – Minimum entry-level wage of $10.00/hr required. Only full-
     time jobs are eligible.

• Small business workforce recruiting and
  training
   – 250 employees or less, hiring at least 5 new full time
     employees within 12 months of operation and capital
     investment of at least $100,000
   – Minimum entry-level wage of $10.00/hr required. Only full-
     time jobs are eligible.

• Retraining
   – Small businesses that are retooling and installing new
     technologies
   – Company must retrain minimum 10 full-time employees.
Financing Programs
• Direct Lending: In partnership with banks
  and other lenders, we provide direct loans in
  economic development transactions. We also
  provide direct loans under specific programs
  designed to promote environmental
  stewardship and assist licensed daycare
  centers and family home providers.
• Indirect Lending: We provide loan
  guarantees or other types of credit
  enhancements to commercial banks in order to
  increase access to capital for businesses.
• Conduit Financing: We are the statewide
  conduit issuer of tax-exempt industrial
  development bonds for manufacturers and
  501c3 organizations.
The VSBFA Does Not Give…

• Grants
• Loans or guaranties of loans without
  collateral
• Loans or guaranties of loans without
  personal guaranties from all significant
  owners
“Counselors to America’s Small Business”

                Live Your Dream. SCORE Can Help.


  SCORE is a national nonprofit association.
  SCORE’s mission is to provide small
  business counseling and training to help
  America’s entrepreneurs succeed.

 Local business workshops and seminars
 Face-to-face counseling in 389 offices
 Online counseling www.score.org
 Free and confidential business advice
 for entrepreneurs
Virginia Business Incubator
– 9 Available in Southwest Virginia
– 30 Within Commonwealth
– Business Incubator Benefits
   • Facility designed to assist businesses to
     become established and sustainable
   • Benefits
      – Shared premises and business
        services
      – Business advice and mentoring
        assistance
– More details - http://www.vbia.org/
Business Incubator




                                               Commercial Kitchen
Light Manufacturing Space

                            Shared Amenities
Virginia Tourism
Corporation
•   More than 55 million annual visitors

•   $18.7 billion in economic impact

•   210,000 employed in tourism businesses

•   $4.3 billion salaries & payroll        Visit www.vatc.org
•   Tax revenue generated from domestic travelers
    reached $2.4 billion
     – $1.2 billion in federal taxes
     – $529.2 million in local taxes
     – $731.6 million in state taxes
•   VTC Tourism Development Division:
     – Marketing Plans
     – Business Plans
     – Research
OTHER AVAILABLE RESOURCES
• Virginia Department of Labor –
  Apprenticeship Program
  – Combination of on-the-job training and
    classroom instruction.
  – Purpose = Company have skilled workforce and
    reduce turnover.
  – http://www.doli.virginia.gov

• Virginia Department of Agriculture &
  Consumer Affairs
  – Virginia’s Finest Trademark = Marketing
    program that promotes foods and foods
    products grown in Virginia.
  – Facilitates expansion of agricultural businesses.
OTHER AVAILABLE RESOURCES
• Virginia Economic Bridge, Inc.
  – Non-profit organization to promote the economic vitality
    of SWVA and the Commonwealth.
  – Virginia’s Business Pipeline – Online
    searchable database of more than 23,000
    Virginia based companies, business to business
    marketing & RFP resource
    www.VirginiaBusiness.org
  – Virginia’s Linked Workforce Showcase –
    Designed to create business partnerships
    yielding contracts between SWVA and Northern
    Virginia by connecting companies in specific
    industry sectors.
     www.LinkedWorkforceShowcase.org
Starting and Growing a Business
• Business Formation Assistance
   – Small Business Development Center Network =
     www.virginiasbdc.org
   – SCORE = www.score.org
   – Virginia Business Information Center = 866-
     248-8814
   – Virginia Central Business Portal =
     www.business.virginia.gov
   – Virginia Business Incubator Association =
     http://www.vbia.org/
Marketing Resources
• SCORE = www.score.org
• Virginia Tourism Corporation = www.vatc.org
• Virginia Economic Bridge, Inc. =
  www.virginiabusiness.org
• Virginia Department of Agriculture – Virginia’s
  Finest Trademark = www.vdacs.virginia.gov
If you always do what you’ve always done,
You will always get what you’ve always got!
Lets CONNECT at:
               Sandy Ratliff
  Virginia Department of Business Assistance
                  276-676-3768
         sandy.ratliff@vdba.virginia.gov

                      Online:
     Twitter: http://twitter.com/sandyratliff
Facebook: http://www.facebook.com/sandy.ratliff
LinkedIn - http://www.linkedin.com/in/sandyratliff
Top Ten Things To Do
Before Approaching
A Lender

Harold McLeod
Roanoke President
DEFINITION OF INSANITY




Expecting different results while continuing to do
    the same things……….. the same way
1. Be Prepared to Tell Your Story


Why is your Business successful and what will
sustain it’s success.
Have a ‘Business Plan’.
Know how you compare to industry / peer
groups and be able to articulate this and any
significant deviations.
2. Introduce Your Management Team


Who is the management team, and what are
their roles?
Who makes the business decisions, and how are
they made?
Do you have a management succession plan?
Who will manage the banking relationship?
3. Know How Much You Need
To Borrow and Why


What is truly driving the need to borrow?
What is your source of repayment, and what
collateral is available if needed?
Know the limitations of your capacity to borrow.
  Debt Service Coverage
  Leverage
  Collateral
4. Get Your Financial House in Order


Obtain the assistance of a reputable CPA, if one
is not already in place and/or hire a dedicated
bookkeeper or CFO, if warranted.
Internal Accounting Systems (general ledger,
A/R and A/P agings, inventory tracking,
contracts-in-progress report, etc).
Clear Credit Bureaus.
5. Understand Your Internal / External Historical
Cash Flow Sources


Understand your company’s historical Cash
Flow.
Prepare a projected 12-month cash flow
statement using “most likely” and “worst case”
scenarios.
Does your company / stockholders have
alternative sources of funds that are available,
should the need arise?
6. Prepare A Capital Expenditure Budget


Prepare a capital expenditure budget for at least
the next 12 months.
Identify your ongoing equipment needs, the
anticipated timing, and how you plan to pay for
the purchases.
You should also indicate if this is routine
replacement or planned expansion.
7. Know What You Owe


Know what sums you presently owe other
institutions and what approximate levels of
operating deposits you maintain.
Be prepared to discuss the terms and conditions
of your other borrowing arrangements, to include
interest rates, scheduled payments, collateral,
and personal guarantees.
8. Expect to Provide the Following as
Part of your Credit Request Package


Completed loan Application and Cover Letter
addressing the need for bank financing and
sources of repayment.
3 years business and personal financial
statements and tax returns.
Listing of terms, commitments, and outstandings
on existing loans and lines of credit.
There’s more….….

Recent Interim Financial Statement – especially if 6
months from FYE.
Projected Cash Flow Statement covering the next
12 months.
Accounts Receivable and Accounts Payable
Agings.
For Contractors, a work-in-progress report.
Brief History of the Company.
Resumes on all key Management.
9. The Unmentionables


If you’ve ever filed personal or business
bankruptcy, had unsatisfactory personal credit
reports, or incurred any company operating loss
during the last 3 years, be prepared to explain in
detail and offer mitigating arguments.
Also be prepared to discuss if you are a party to
any lawsuits (as plaintiff or defendant).
10. Be Prepared For The Meeting


The meeting with the banker should include your
Senior Management Team, your CPA, and be
conducted at your place of business.
Allocate sufficient time to discuss your business
plan, credit request, and conduct a plant tour
(a picture is worth a thousand words).
1.    Be Prepared to Tell Your Story
2.    An Introduction to Your Management Team
3.    Know How Much You Need To Borrow and
      Why
4.    Get Your Financial House In Order
5.    Understand Your Internal/External
      Historical Cash Flow Sources
6.    Prepare A Capital Expenditure Budget
7.    Know What You Owe
8.    Complete Credit Request Package
9.    The Unmentionables
10.   Be Prepared For The Meeting
Roanoke Entrepreneur Express   Franchising Workshop, November 6, 2009
Is Franchising For You?
      Michael E. Lind
Michael E. Lind

• More than 20 years in corporate 
  world with Fortune 500 company and 
  spinoff from same firm
• Joined FranNet in 2009 after 
  evaluating other franchise 
  opportunities
• MBA, Averett University
• BS, Virginia Commonwealth University
• Member:
   –   Business Network International
   –   Greater Richmond Chamber
   –   MENSA
   –   The Venture Forum
   –   The Virginia Career Network
Who is FranNet?
• International Franchise Consulting 
  Firm in business over 20 years
• 70 Offices in North America, 
  Europe, Asia
• Worked with the SBA since 1987
• We match folks who want to be in 
  business with a franchise that 
  meets their needs.
• Clients pay no fee for our services
Before We Begin…

• Why business ownership?
• Ask Yourself…
• Business ownership options
• Why buy a franchise?
Why Business Ownership?


                                  SUCCESS



          Fulfillment            Flexibility         Independence



Control            Financial Security      No More Layoffs          Money



                    What is it for you?
Ask Yourself…

• Are you self‐disciplined?
• Are you self‐motivated?
• Do you have a strong desire to succeed?
• Does your family support your decision?
• Are there financial resources to cover living 
  expenses while the business is starting up?
• How do you handle adversity?
Business Ownership Options

 1. Create a start‐up business
 2. Buy an existing business
 3. Buy a franchise


 Is this a make or buy decision?
Create a Start‐Up
      Advantages                  Disadvantages

•   Total control             •   Must create systems
•   Make all decisions        •   No training or support
•   Keep all profits          •   Fewer financing options
•   Biggest upside            •   Time to breakeven
                              •   Highest failure rate
Buy an Existing Business

      Advantages                  Disadvantages
• Cash flow & good will       • What is the actual cash 
• Actual historical results     flow?
• Attractive to lenders       • What is the good will?
• Established location &      • Hidden seller motives
  customer base               • Employee defection
• Employees in place          • Higher Debt Service
• Systems may be in place
                              • Training and support?
• Owner financing
Buy A Franchise
      Advantages                  Disadvantages

•   Systems provided           • Forfeit some control
•   Training and support       • Revenue is shared
•   Record of success
•   Faster start‐up time
•   Growth path
•   Reduce risk
Why Own a Franchise?


• Over $1.0  Trillion Dollar Business
• Only 12% of units are franchised
• Franchised units get 43% of the $$
Business Success Survey
Beware of Statistics

• Big franchisors skewed the percentages 
  because they had few failures 
• Not all units are still run by the founder
• There are no average franchises
• You should only care about your success
• Make sure the franchise is a great fit for 
  you and your business and personal goals
About Franchising

• Understanding Basic Franchise Terminology
   – What is a franchise?
   – What is a franchise disclosure document (FDD)?
• Evaluating Franchise Opportunities
   – What is your reality?
   – What is the best franchise opportunity?
• Avoiding Pitfalls
   – Planning
   – Due diligence
What is a franchise?

• A right granted (by contract) to use:
     • Name and trademarks
     • Products
     • Business systems
• In exchange for:
     • An initial franchise fee
     • Ongoing royalties
     • Other fees
What is a franchise?

• A franchisor is a company that grants 
  (sells) the right to use its name and 
  trademarks, offer its product or service 
  and use its business system
• A franchisee is a businessperson who 
  buys the right to use a name and 
  trademarks, offer products and services 
  and use a business system
What is the FDD?

• The Franchise Disclosure Document 
  (FDD) is an extensive document a 
  franchisor must present to any 
  prospective franchisee disclosing certain 
  information in compliance with the 
  Federal Trade Commission’s standards
• The source of information for the FDD is 
  the franchisor
What is the FDD?

The FDD covers 23 areas including:
 • Franchisor information      • Business restrictions
 • Business experience         • Franchisee’s obligations
 • Litigation history          • Franchisor’s obligations
 • Bankruptcy                  • List of franchisees
 • Initial franchise fee       • Territory
 • Other fees                  • Earnings claims
 • Initial investment          • Renewal/Termination
 • Term                        • Dispute resolution
Other Terms

• The franchise fee is the non‐refundable 
  purchase of the right to use the franchisor’s 
  name and trademarks, offer its product or 
  service and use its business system
• A royalty is a percentage of your revenue paid 
  to the franchisor for the duration of your 
  business relationship
Other Terms

• Other fees may include a percentage of your 
  revenue paid to the franchisor for:
  – Advertising/Marketing
  – Technology
• A renewal fee is the fee paid at the end of the 
  term of the franchise agreement to sign a new 
  agreement
Other Terms

• A territory is the area where you will conduct 
  your business.
• An exclusive territory is the area where you, 
  and only you, will have the right to represent 
  your franchise concept.
• Typically territories are defined geographically 
  (zip codes) using various demographics 
  (population, businesses)
What is your reality?

• What are your skills, experience and training?
• What financial resources are available to start 
  a business?
• What are your business goals?
• What are your personal goals?
• Are you willing to be coached and trained?
• Can you follow a system?
• Are you a team player?
The Question



   What is the best 
franchise opportunity?
The Answer

• The one that:
   – Fits the role you want to have in a business
   – Requires the resources you have to invest
   – Fills the demand for a “need” and not a “want”
   – Meets your business goals
   – Meets your personal goals
• There is neither a “one size fits all” nor a 
  perfect, risk‐free franchise opportunity
Franchising Myths 
Franchising Myth #1:



“Only fast food and retail”
Franchising Fact #1:


• Over 3,100 different 
  franchise companies 
• In more than 80 
  industries 
• With over 900,000 
  operating units
Franchising Myth #2:



“Franchises succeed because of the 
      quality of the product”
Franchising Fact #2:

Can you make a 
hamburger?

Is your hamburger better 
than McDonald’s?


    If it is not the product then what is it?
Franchising Fact #2:
It is about the Business System: 
•     Marketing 
•     Sales 
•     Operations
•     Accounting
Franchising Myth #3:


“Successful franchises emerge in a 
    new industry with no new 
           competitors”
Franchising Fact #3:

Successful franchises 
emerge from well 
established industries by 
creating consolidation.
Franchising Fact #3:

It’s The System
• McDonald’s started when there was a burger 
 joint on every corner. 
• More recent examples are in Consumer and 
 Business services
Franchising Myth #4:



“Franchises are expensive”
Franchising Fact #4:

        Total Investment                       Percent
                                                         Under $100k     $100 ‐ 250k
                                                         $250k ‐ $500k   Over 500k
                Under $100k                     52.5%              6%

                                                                9%
             $100 to $250k                      32.7%
             $250 to $500k                       9.2%        33%           52%


                   Over $500k                    5.6%

Franchise Times Magazine Survey, 
        Franchising is All Right, Thank You
Franchising Myth #5:


“High return requires a high 
        investment”
Franchising Fact #5:


There is no automatic 
correlation between the 
cost of the franchise and 
the potential return.
Franchising Myth #6:



“Industry experience is required”
Franchising Fact #6:


Only 25% of franchisees are in 
the same industry as they 
were employed.
Avoiding Pitfalls

• Planning
  – Know what you have
     • Skills, experience, training
     • Financial resources
  – Know what you want
     • Separate the function of the business from the function of the 
       business owner
     • Create a model of the business you want
  – Know your strategies
     • Short term
     • Long term
     • Exit
Avoiding Pitfalls

• Due Diligence
   – Talk with franchisors
   – Review the FDD
   – Validate with franchisees
   – Visit the franchisors
   – Consult with professional advisors
      • Accountant
      • Franchise attorney
Franchise Selection

Business 
 Model                Do not rush through the discovery and
                      due diligence tasks as these are crucial
    Due                 to finding the concept right for you.
 Diligence

Discovery
             No



                                    Financing
             Great 
              fit?
                         Yes                        Launch
                                    Planning
Questions?
Remember, if you don’t have a dream, the 
  person you work for probably does...
How To Own A Franchise
      Michael E. Lind
How To Own A Franchise

• Know what you want in a franchise
  – Your business model
  – Your strategies
• Read the Franchise Agreement and 
  Franchise Disclosure Document
• Identify your risks and rewards
• Simplify your search
What Do You Want?


                                  SUCCESS



          Fulfillment            Flexibility         Independence



Control            Financial Security      No More Layoffs          Money
How Do You Find  
Franchises 
That Are a Great Fit?

Separate the function of 
the business from the 
function of the business 
owner!
Franchises Are Not
                   All the Same

• Many Units versus Fewer Units

• Older, well established versus Newer

• Structured versus Flexible Systems
• Expensive versus Inexpensive
Define Your Unique 
     Business Model

Identify your:
• Business preferences
• Business goals
• Personal goals
• Core competencies
DefineYour Business 
        Model

Business Preferences
  • Employees
  • Budget 
  • Business environment
  • Full or Part‐time & Hours
  • Number of units
  • Type of customers
Define Your Business Model


What are your business and personal goals?
 • Challenge, recognition, prestige
 • Build equity for retirement
 • Time for family and interests
 • Independence and control
 • Financial security
Define Your Business 
         Model

Core Competencies
  • Sales? 
  • Management? 
  • Customer Service?
  • Transferrable skills?
What does a great fit look like?


Something stable
Something safe
Something affordable
Something I can grow
Something I can rely on
Something where my Job won’t disappear simply 
because of a corporate makeover
Most Importantly: Something I Know I Can Do 
and Do Well!
What else should be on that List?
What does a great fit look like?
What does a great fit look like?


      Does it have room for growth?
      Can I develop a strategic market advantage?
      Is it in a stable, not fad driven industry?
      Can it meet my financial and personal goals?
      Do I have the support of my family?

NEVER settle for something that does not fit your business model!
Finding a Great Fit

Match your business model 
with franchisors who are 
looking for people with your 
characteristics, attributes, 
business and personal goals 
and business preferences.
Finding a Great Fit


• Interview at least 15 to 20 franchisees, 
  the ones who are doing well and the 
  failures.

• How are you the same or different? 
Plan Your Strategy

When you are thinking about 
being a business owner, you 
should develop a:
• Short‐term strategy
• Long‐term strategy
• Exit (Destination) strategy
Short Term Strategy

Find a business you can get
into where you will not fail

The more research you do
the more you improve the
odds of success
Long Term Strategy

The business must give you 
the lifestyle you want and 
allow you to meet your goals
Freedom, Recognition, Achievement, 
Control, Money, etc. (the things that 
YOU value the most)
Exit Strategy
Your goal is to create a valuable asset 
that meets your goals:
• Sell the business
• Run business past retirement
• Keep the business but back away from 
  the day‐to‐day
      • Pass it down to the kids
      • Bring in a manager
Read!

• Read the Franchise Agreement
  – Understand how the agreement impacts your 
    business model
  – Understand negotiation is very unlikely
• Read the Franchise Disclosure Document
  – Use as a starting point for a business plan
  – Understand clearly any earnings claims
  – Validate with franchisees
Lower Your Risks

Concerned about starting a business during poor 
               economic times? 

 Lower the risk by looking for businesses with 
        specific market characteristics.

       Many businesses thrive in all 
          economic conditions
Things to consider
• Professionals still need training
• People still want quality education for their 
  kids
• Homeowners still prefer to fix their homes 
  rather than move
• Businesses still need there offices maintained
• Employers outsource and use personnel 
  companies rather than committing to new 
  hires
What About The Economy?

Growing markets driven by demographics
   • Residential Repairs & Cleaning
   • Senior Care
Essential services
   • Automotive
   • Hair Care
   • Damage Restoration
Business that help other small businesses thrive
   • Business Coaching
   • Expense Analysis
   • Sales Training
Finding A Great Fit


• Interview at least 15 to 20 franchisees, the 
  ones who are doing well and the failures.

• How is their business doing?
• What worked?
• What did not work?
Due Diligence

• Ask the hard questions
• Current and past franchisees 
  will let you know the success 
  or failure rate.

• May not be true with an 
  independent business 
  owner. 
Professional Advisors

Additional Resources You Should Use
   Accountant          Franchise Attorney
Why Franchising Works
Proven, systematic approach to 
 starting and staying in business
  – Experience
  – Simplicity
  – Initial Training and Ongoing 
    Support
  – Name Recognition
  – Sales, Marketing & 
    Operational Systems
  – Culture of Teamwork
Why Franchising Works
You’re in business:
  • For yourself
  • Not by yourself

 Franchises are a hybrid of
 a corporate executive and
 an entrepreneur
Questions?
Remember, if you don’t have a dream, the 
  person you work for probably does...
Michael Lind | Franchise Consultant 
FranNet of Richmond | P. O. Box 74241 | Richmond, 
                    VA 23236
    Phone: 804‐363‐3217 | Fax: 804‐363‐3217
               mlind@frannet.com | 
       www.linkedin.com/in/michaelelind | 
                www.frannet.com
Entrepreneurial Panel Discussion
• Chris Head (Home Instead Senior Care) = 540-537-1277
  chris.head@homeinstead.com

• Scott Fleming (CertaPro Painters) = 540-819-6473
  scottfle@gmail.com

• Jamie Davis (Donatos Pizza) = 614-416-7772
  davis@donatos.com

• Mike Pietrzyk (Firehouse Subs) = 540-890-8962
  mpietrzyk@firehousesubs.com
Survey Completions
                          Please take a moment to complete our survey!




Ask VBIC = 866-248-8814
CONTACTS
• Sandy Ratliff, Virginia Department of Business Assistance
  = 276-676-3768 or VBIC = 866-248-8814
• Tom Tanner, Roanoke SBDC = 540-983-0217

• Randy Rose, Virginia Tourism Corporation = 276-988-
  6067
• Jill Loope, County of Roanoke = 540-772-2124

• Lindsay Hurt, City of Roanoke = 540-853-5405

• Harold McLeod, Wachovia = 540-563-7675
• Michael Lind, FranNet = 804-363-3217

• John Hunter, SCORE = 540-857-2834

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Roanoke Entrepreneur Express Franchising Workshop, November 6, 2009

  • 1. Is Franchising For You? November 6, 2009
  • 2. Small Business Impact – U.S. • Represent 99.7% all employer firms • Employ ½ of all private sector employees • Pay 44% of total U.S. Private Payroll • Generate 64% of net new jobs over past 15 years • Hire 40% of high tech workers • Are 52% home-based and 2% franchises Source: U.S. Dept. of Commerce & U.S. Dept. of Labor
  • 3. Small Business in Virginia Small Businesses constitute 99% of all Virginia businesses. Small Businesses create over 60-80% of all new jobs. Small Businesses account for half of the Commonwealth of Virginia’s contribution to the U.S. Gross Domestic Product - a whopping $160 billion. Virginia is for Business Lovers
  • 4. Virginia is for Business Lovers • Virginia ranked #1 state for business by Forbes.com last four years. • Ranked #1 most business friendly state by Pollina Corporate Real Estate, Inc. last two years. • Named #1 best states for business by CNBC. Ask VBIC = 866- 248-8814
  • 5. How to Start and Franchise Operate a Business Presented by: Tom Tanner Roanoke Regional Small Business Development Center
  • 6. Key to Success in Small Business GP + D + GM + ECS = $$ © © RRSBDC 2009
  • 7. Why do I need a Business Plan • Forces you to do the necessary research – On the business idea or concept – On the different franchises • Serves as Blueprint for future • Required for investors or bank © RRSBDC 2009
  • 8. What goes into a Business Plan • Executive Summary * • Description of Business • Definition of Products and/or Services • Market Analysis and Marketing Plan * • Organization and Management Team • Operational Plan • Financial Statements and Projections * • Appendix * Most Important © RRSBDC 2009
  • 9. Business Research – 9 Step Process 1. What is the product or service you want to sell? 2. Is there a demand for this product in this area? 3. What is the state of the industry? (product life cycle) 4. Who are your competitors? (do a competitive analysis also called SWOT) 5. Who is your target market? (Demographics & Psychographics) 6. How will you position yourself in the market? 7. How will you price your product? 8. Where will you do business? 9. How will you reach your market? (specific marketing, advertising & marketing calendar) © RRSBDC 2009
  • 10. Franchisor Research 1. What franchisors are offering this business opportunity? 2. Do a SWOT of each franchisor. 3. Do research on internet. 4. Talk to multiple franchisees. 5. SBA loans – check to see if listed on www.franchiseregistry.com 6. Evaluate the Franchise Disclosure Document (FDD). 7. Evaluate the RISK before signing any document. © RRSBDC 2009
  • 11. Choosing the Right Legal Entity • Affects personal liability • Affects taxes – personal & business © RRSBDC 2009
  • 12. Choosing the Right Legal Entity Four Basic Forms of Organization: – Sole Proprietor – Partnership – Limited Liability Company » Legal entity – Corporation » Taxed as “C” or “S” © RRSBDC 2009
  • 13. Choosing the Right Legal Entity Consider talking to your accountant and attorney before deciding which is best for your company. Other considerations: – Operating Agreement – Partnership Agreement – Buy/Sell Agreement © RRSBDC 2009
  • 14. Choosing the Right Legal Entity Maintaining the Entity Integrity • Setup before business starts • Setup separate bank account • Do not mix personal & business funds or bills • Sign all contracts & leases in entity name • Sign everything as owner/president etc. • Put insurance in company name • If corporation have annual meeting and maintain minute book © RRSBDC 2009
  • 15. Steps to Opening Your Business © RRSBDC 2009
  • 16. Steps to Opening a Business 1. Determine legal entity 2. Check name availability with SCC 3. Check to see if a URL is available (www.internic.net – click on whois) 4. Register with the SCC your corporation, LLC or/and fictitious name (www.scc.virginia.gov) 5. Get your FEIN with the IRS (www.irs.gov) 6. Register with VA Dept of Tax – also covers Virginia Employment Commission (www.tax.virginia.gov) © RRSBDC 2009
  • 17. Steps to Opening a Business 7. Check with Dept of Professional & Occupational Regulation to see if you need any special permits. (www.dpor.virginia.gov) 8. Obtain Business License from local Commissioner of Revenue • Other permits/licenses – ABC, Health Dept, Meals/Lodging/Entertainment taxes • Local fictitious name registration with courthouse • MAKE MONEY! © RRSBDC 2009
  • 18. U.S. Small Business Administration SBA’s Role in providing Financial assistance • SBA does NOT provide grants • SBA does NOT make DIRECT loans • SBA DOES PROVIDE: Loan Guaranty on loans made directly by banks with the SBA’s backing. of 12
  • 19. Financial Assistance SBA General Eligibility Criteria ♦ Must be for profit Not engaged in lending, real-estate development, investments or speculation ♦ Must have a sound business purpose ♦ Good Credit www.annualcreditreport.com ♦ REASONABLE Equity Investment of 12
  • 20. U.S. Small Business Administration • 7(a) Loan Program ♦ Express Loans – up to $350,000 ♦ Patriot Express – up to $500,000 ♦ Term Loans – up to $2,000,000 • 504 Loan Program ♦ Real Estate and Fixed Assets • Micro-Loan Program ♦ Up to $35,000 ♦ Handled locally by Business Seed (TAP)
  • 21. What is the RRSBDC • Roanoke Regional Small Business Development Center • SBA funded program, 33 centers in Virginia, 1000 nationwide. • SBDC Mission – Provide no-cost professional business counseling, training & information resources to help start, grow and strengthen Virginia Businesses. • Staffed by paid full-time Professional Counselors © RRSBDC 2009
  • 22. How the SBDC can Benefit you Through one-on-one Counseling, the SBDC can help you with… • Development of Business Plan • Market Research • Development of Marketing Plan • Workshops • Government Procurement © RRSBDC 2009
  • 23. How the SBDC can Benefit you Through one-on-one Counseling, the SBDC can help you with… • Technology • Loan Application • Source of Business Financing • Financial Analysis • Permits, Licenses and Taxes • Counseling is at No Cost © RRSBDC 2009
  • 24. Local SBDC Office Roanoke Regional Small Business Development Center 210 South Jefferson Street Roanoke, VA 24011 540-983-0717 www.rrsbdc.org www.sba.gov
  • 26. The Virginia Department of Business Assistance VDBA supports economic development in the Commonwealth by working with new and existing businesses to provide business and economic development communities with: • workforce incentives • financing • business information and counseling • state procurement assistance • incubator counseling and • educational opportunities
  • 27. Formula f o r S ucc e s s n ation for decisio - Critical inform making ful - Well tr ained and plenti workforce cture - Approp riate capital stru Ask VBIC = 866- 248-8814
  • 28. Business Information Services To help businesses get started and to grow. Formation Assistance Virginia Business Information Center (VBIC) 1-866-248-8814 Bridges the 26 state agencies, over 100 programs and over 300 forms that may touch a Virginia business Virginia Central Business Portal (www.business.virginia.gov) Covers registration, taxation, licensing Interactive Business Plan CD 5 Step process to a business plan Entrepreneur Express Events 100 Events – 5,000 Trained
  • 29. Virginia’s Business One Stop Are you starting a business? Virginia’s Business One Stop system can help Winner of the you determine your business formation requirements and can 2009 pre-fill your business registration forms. Governor's Technology Visit http://www.virginia.gov/bos/index.html to Awards access the Business One Stop System. Create a Business One Stop account. Answer a few brief questions about your business. Receive a list of action items and pre-filled business registration forms. Questions? Contact the Virginia Business Information Center 1-866-248-8814 (804) 371-0438 vbic@vdba.virginia.gov
  • 30. Ask VBIC = 866- 248-8814
  • 31. Entrepreneur Workshops • Launched October 2006 • Partnership with Service Providers and localities • Provide information on available resources to start and grow a business • Statewide Program – Over 7,500 reached • Free – ½ Day Session • www.vastartup.org
  • 32. Growing Your $ales Workshops Business Sales Growth Program Market Research and Expansion Financing Growth Management Partnered events for SWAM certification and eVA registration Networking of businesses and decision- makers
  • 33. Growing Your $ales - State Governor’s Executive Order 33 $5 billion market Access to buyers from 171 state agencies Additional $5 billion from local governments 575 localities using eVA system. Small Business Goal – 40% Over 41,490 registered suppliers Over 13,065 participating buyers Ask VBIC = 866- 248-8814
  • 34. • Examples of Purchasing: – Instant Ice Tea • 01/01/2008 – 12/31/2008 = $29,571.24 - 45 PO’s – Novelty – Specialty Advertising Products • 01/01/2008 – 12/31/2008 = $188,443.27 - 200 PO’s – Grounds Maintenance: Mowing, Edging, Plant (Not Tree) Trimming, etc. • 01/01/2008 – 12/31/2008 = $19,738,138.46 - 1876 PO’s – Tires and Tubes, Passenger Vehicles • 01/01/2008 – 12/31/2008 = $274,029.01 - 255 PO’s – Concessions, Catering, Vending: Mobile and Stationary • 01/01/2008 – 12/31/2008 = $6,995,026.76 - 12889 PO’s – Building Maintenance • 01/01/2008 – 12/31/2008 = $123,372,948 - 8823 PO’s – Earth Moving Equipment Rental • 01/01/2008 – 12/31/2008 = $21,415,289 -1360 PO’s
  • 35. One–on-One Counseling Sessions • Need Based: – Accessing New Markets/Sales Growth – Tailored Sales Development Solutions – Financing Resources To schedule an appointment, contact: Sandy Ratliff, Business Services Manager 276-676-3768 Email: sandy.ratliff@vdba.virginia.gov
  • 36. Virginia Jobs Investment Program • Workforce recruiting and training – Create minimum 25 net new jobs within 12 months and capital investment of at least $1,000,000 – Minimum entry-level wage of $10.00/hr required. Only full- time jobs are eligible. • Small business workforce recruiting and training – 250 employees or less, hiring at least 5 new full time employees within 12 months of operation and capital investment of at least $100,000 – Minimum entry-level wage of $10.00/hr required. Only full- time jobs are eligible. • Retraining – Small businesses that are retooling and installing new technologies – Company must retrain minimum 10 full-time employees.
  • 37. Financing Programs • Direct Lending: In partnership with banks and other lenders, we provide direct loans in economic development transactions. We also provide direct loans under specific programs designed to promote environmental stewardship and assist licensed daycare centers and family home providers. • Indirect Lending: We provide loan guarantees or other types of credit enhancements to commercial banks in order to increase access to capital for businesses. • Conduit Financing: We are the statewide conduit issuer of tax-exempt industrial development bonds for manufacturers and 501c3 organizations.
  • 38. The VSBFA Does Not Give… • Grants • Loans or guaranties of loans without collateral • Loans or guaranties of loans without personal guaranties from all significant owners
  • 39. “Counselors to America’s Small Business” Live Your Dream. SCORE Can Help. SCORE is a national nonprofit association. SCORE’s mission is to provide small business counseling and training to help America’s entrepreneurs succeed. Local business workshops and seminars Face-to-face counseling in 389 offices Online counseling www.score.org Free and confidential business advice for entrepreneurs
  • 40. Virginia Business Incubator – 9 Available in Southwest Virginia – 30 Within Commonwealth – Business Incubator Benefits • Facility designed to assist businesses to become established and sustainable • Benefits – Shared premises and business services – Business advice and mentoring assistance – More details - http://www.vbia.org/
  • 41. Business Incubator Commercial Kitchen Light Manufacturing Space Shared Amenities
  • 42. Virginia Tourism Corporation • More than 55 million annual visitors • $18.7 billion in economic impact • 210,000 employed in tourism businesses • $4.3 billion salaries & payroll Visit www.vatc.org • Tax revenue generated from domestic travelers reached $2.4 billion – $1.2 billion in federal taxes – $529.2 million in local taxes – $731.6 million in state taxes • VTC Tourism Development Division: – Marketing Plans – Business Plans – Research
  • 43. OTHER AVAILABLE RESOURCES • Virginia Department of Labor – Apprenticeship Program – Combination of on-the-job training and classroom instruction. – Purpose = Company have skilled workforce and reduce turnover. – http://www.doli.virginia.gov • Virginia Department of Agriculture & Consumer Affairs – Virginia’s Finest Trademark = Marketing program that promotes foods and foods products grown in Virginia. – Facilitates expansion of agricultural businesses.
  • 44. OTHER AVAILABLE RESOURCES • Virginia Economic Bridge, Inc. – Non-profit organization to promote the economic vitality of SWVA and the Commonwealth. – Virginia’s Business Pipeline – Online searchable database of more than 23,000 Virginia based companies, business to business marketing & RFP resource www.VirginiaBusiness.org – Virginia’s Linked Workforce Showcase – Designed to create business partnerships yielding contracts between SWVA and Northern Virginia by connecting companies in specific industry sectors. www.LinkedWorkforceShowcase.org
  • 45. Starting and Growing a Business • Business Formation Assistance – Small Business Development Center Network = www.virginiasbdc.org – SCORE = www.score.org – Virginia Business Information Center = 866- 248-8814 – Virginia Central Business Portal = www.business.virginia.gov – Virginia Business Incubator Association = http://www.vbia.org/
  • 46. Marketing Resources • SCORE = www.score.org • Virginia Tourism Corporation = www.vatc.org • Virginia Economic Bridge, Inc. = www.virginiabusiness.org • Virginia Department of Agriculture – Virginia’s Finest Trademark = www.vdacs.virginia.gov
  • 47. If you always do what you’ve always done, You will always get what you’ve always got!
  • 48. Lets CONNECT at: Sandy Ratliff Virginia Department of Business Assistance 276-676-3768 sandy.ratliff@vdba.virginia.gov Online: Twitter: http://twitter.com/sandyratliff Facebook: http://www.facebook.com/sandy.ratliff LinkedIn - http://www.linkedin.com/in/sandyratliff
  • 49. Top Ten Things To Do Before Approaching A Lender Harold McLeod Roanoke President
  • 50. DEFINITION OF INSANITY Expecting different results while continuing to do the same things……….. the same way
  • 51. 1. Be Prepared to Tell Your Story Why is your Business successful and what will sustain it’s success. Have a ‘Business Plan’. Know how you compare to industry / peer groups and be able to articulate this and any significant deviations.
  • 52. 2. Introduce Your Management Team Who is the management team, and what are their roles? Who makes the business decisions, and how are they made? Do you have a management succession plan? Who will manage the banking relationship?
  • 53. 3. Know How Much You Need To Borrow and Why What is truly driving the need to borrow? What is your source of repayment, and what collateral is available if needed? Know the limitations of your capacity to borrow. Debt Service Coverage Leverage Collateral
  • 54. 4. Get Your Financial House in Order Obtain the assistance of a reputable CPA, if one is not already in place and/or hire a dedicated bookkeeper or CFO, if warranted. Internal Accounting Systems (general ledger, A/R and A/P agings, inventory tracking, contracts-in-progress report, etc). Clear Credit Bureaus.
  • 55. 5. Understand Your Internal / External Historical Cash Flow Sources Understand your company’s historical Cash Flow. Prepare a projected 12-month cash flow statement using “most likely” and “worst case” scenarios. Does your company / stockholders have alternative sources of funds that are available, should the need arise?
  • 56. 6. Prepare A Capital Expenditure Budget Prepare a capital expenditure budget for at least the next 12 months. Identify your ongoing equipment needs, the anticipated timing, and how you plan to pay for the purchases. You should also indicate if this is routine replacement or planned expansion.
  • 57. 7. Know What You Owe Know what sums you presently owe other institutions and what approximate levels of operating deposits you maintain. Be prepared to discuss the terms and conditions of your other borrowing arrangements, to include interest rates, scheduled payments, collateral, and personal guarantees.
  • 58. 8. Expect to Provide the Following as Part of your Credit Request Package Completed loan Application and Cover Letter addressing the need for bank financing and sources of repayment. 3 years business and personal financial statements and tax returns. Listing of terms, commitments, and outstandings on existing loans and lines of credit.
  • 59. There’s more….…. Recent Interim Financial Statement – especially if 6 months from FYE. Projected Cash Flow Statement covering the next 12 months. Accounts Receivable and Accounts Payable Agings. For Contractors, a work-in-progress report. Brief History of the Company. Resumes on all key Management.
  • 60. 9. The Unmentionables If you’ve ever filed personal or business bankruptcy, had unsatisfactory personal credit reports, or incurred any company operating loss during the last 3 years, be prepared to explain in detail and offer mitigating arguments. Also be prepared to discuss if you are a party to any lawsuits (as plaintiff or defendant).
  • 61. 10. Be Prepared For The Meeting The meeting with the banker should include your Senior Management Team, your CPA, and be conducted at your place of business. Allocate sufficient time to discuss your business plan, credit request, and conduct a plant tour (a picture is worth a thousand words).
  • 62. 1. Be Prepared to Tell Your Story 2. An Introduction to Your Management Team 3. Know How Much You Need To Borrow and Why 4. Get Your Financial House In Order 5. Understand Your Internal/External Historical Cash Flow Sources 6. Prepare A Capital Expenditure Budget 7. Know What You Owe 8. Complete Credit Request Package 9. The Unmentionables 10. Be Prepared For The Meeting
  • 64. Is Franchising For You? Michael E. Lind
  • 65. Michael E. Lind • More than 20 years in corporate  world with Fortune 500 company and  spinoff from same firm • Joined FranNet in 2009 after  evaluating other franchise  opportunities • MBA, Averett University • BS, Virginia Commonwealth University • Member: – Business Network International – Greater Richmond Chamber – MENSA – The Venture Forum – The Virginia Career Network
  • 66. Who is FranNet? • International Franchise Consulting  Firm in business over 20 years • 70 Offices in North America,  Europe, Asia • Worked with the SBA since 1987 • We match folks who want to be in  business with a franchise that  meets their needs. • Clients pay no fee for our services
  • 67. Before We Begin… • Why business ownership? • Ask Yourself… • Business ownership options • Why buy a franchise?
  • 68. Why Business Ownership? SUCCESS Fulfillment Flexibility Independence Control Financial Security No More Layoffs Money What is it for you?
  • 69. Ask Yourself… • Are you self‐disciplined? • Are you self‐motivated? • Do you have a strong desire to succeed? • Does your family support your decision? • Are there financial resources to cover living  expenses while the business is starting up? • How do you handle adversity?
  • 70. Business Ownership Options 1. Create a start‐up business 2. Buy an existing business 3. Buy a franchise Is this a make or buy decision?
  • 71. Create a Start‐Up Advantages Disadvantages • Total control • Must create systems • Make all decisions • No training or support • Keep all profits • Fewer financing options • Biggest upside • Time to breakeven • Highest failure rate
  • 72. Buy an Existing Business Advantages Disadvantages • Cash flow & good will • What is the actual cash  • Actual historical results flow? • Attractive to lenders • What is the good will? • Established location &  • Hidden seller motives customer base • Employee defection • Employees in place • Higher Debt Service • Systems may be in place • Training and support? • Owner financing
  • 73. Buy A Franchise Advantages Disadvantages • Systems provided • Forfeit some control • Training and support • Revenue is shared • Record of success • Faster start‐up time • Growth path • Reduce risk
  • 74. Why Own a Franchise? • Over $1.0  Trillion Dollar Business • Only 12% of units are franchised • Franchised units get 43% of the $$
  • 76. Beware of Statistics • Big franchisors skewed the percentages  because they had few failures  • Not all units are still run by the founder • There are no average franchises • You should only care about your success • Make sure the franchise is a great fit for  you and your business and personal goals
  • 77. About Franchising • Understanding Basic Franchise Terminology – What is a franchise? – What is a franchise disclosure document (FDD)? • Evaluating Franchise Opportunities – What is your reality? – What is the best franchise opportunity? • Avoiding Pitfalls – Planning – Due diligence
  • 78. What is a franchise? • A right granted (by contract) to use: • Name and trademarks • Products • Business systems • In exchange for: • An initial franchise fee • Ongoing royalties • Other fees
  • 79. What is a franchise? • A franchisor is a company that grants  (sells) the right to use its name and  trademarks, offer its product or service  and use its business system • A franchisee is a businessperson who  buys the right to use a name and  trademarks, offer products and services  and use a business system
  • 80. What is the FDD? • The Franchise Disclosure Document  (FDD) is an extensive document a  franchisor must present to any  prospective franchisee disclosing certain  information in compliance with the  Federal Trade Commission’s standards • The source of information for the FDD is  the franchisor
  • 81. What is the FDD? The FDD covers 23 areas including: • Franchisor information • Business restrictions • Business experience • Franchisee’s obligations • Litigation history • Franchisor’s obligations • Bankruptcy • List of franchisees • Initial franchise fee • Territory • Other fees • Earnings claims • Initial investment • Renewal/Termination • Term • Dispute resolution
  • 82. Other Terms • The franchise fee is the non‐refundable  purchase of the right to use the franchisor’s  name and trademarks, offer its product or  service and use its business system • A royalty is a percentage of your revenue paid  to the franchisor for the duration of your  business relationship
  • 83. Other Terms • Other fees may include a percentage of your  revenue paid to the franchisor for: – Advertising/Marketing – Technology • A renewal fee is the fee paid at the end of the  term of the franchise agreement to sign a new  agreement
  • 84. Other Terms • A territory is the area where you will conduct  your business. • An exclusive territory is the area where you,  and only you, will have the right to represent  your franchise concept. • Typically territories are defined geographically  (zip codes) using various demographics  (population, businesses)
  • 85. What is your reality? • What are your skills, experience and training? • What financial resources are available to start  a business? • What are your business goals? • What are your personal goals? • Are you willing to be coached and trained? • Can you follow a system? • Are you a team player?
  • 86. The Question What is the best  franchise opportunity?
  • 87. The Answer • The one that: – Fits the role you want to have in a business – Requires the resources you have to invest – Fills the demand for a “need” and not a “want” – Meets your business goals – Meets your personal goals • There is neither a “one size fits all” nor a  perfect, risk‐free franchise opportunity
  • 90. Franchising Fact #1: • Over 3,100 different  franchise companies  • In more than 80  industries  • With over 900,000  operating units
  • 93. Franchising Fact #2: It is about the Business System:  • Marketing  • Sales  • Operations • Accounting
  • 94. Franchising Myth #3: “Successful franchises emerge in a  new industry with no new  competitors”
  • 98. Franchising Fact #4: Total Investment Percent Under $100k $100 ‐ 250k $250k ‐ $500k Over 500k Under $100k 52.5% 6% 9% $100 to $250k 32.7% $250 to $500k 9.2% 33% 52% Over $500k 5.6% Franchise Times Magazine Survey,  Franchising is All Right, Thank You
  • 103. Avoiding Pitfalls • Planning – Know what you have • Skills, experience, training • Financial resources – Know what you want • Separate the function of the business from the function of the  business owner • Create a model of the business you want – Know your strategies • Short term • Long term • Exit
  • 104. Avoiding Pitfalls • Due Diligence – Talk with franchisors – Review the FDD – Validate with franchisees – Visit the franchisors – Consult with professional advisors • Accountant • Franchise attorney
  • 105. Franchise Selection Business  Model Do not rush through the discovery and due diligence tasks as these are crucial Due  to finding the concept right for you. Diligence Discovery No Financing Great  fit? Yes Launch Planning
  • 107. How To Own A Franchise Michael E. Lind
  • 108. How To Own A Franchise • Know what you want in a franchise – Your business model – Your strategies • Read the Franchise Agreement and  Franchise Disclosure Document • Identify your risks and rewards • Simplify your search
  • 109. What Do You Want? SUCCESS Fulfillment Flexibility Independence Control Financial Security No More Layoffs Money
  • 111. Franchises Are Not All the Same • Many Units versus Fewer Units • Older, well established versus Newer • Structured versus Flexible Systems • Expensive versus Inexpensive
  • 112. Define Your Unique  Business Model Identify your: • Business preferences • Business goals • Personal goals • Core competencies
  • 113. DefineYour Business  Model Business Preferences • Employees • Budget  • Business environment • Full or Part‐time & Hours • Number of units • Type of customers
  • 114. Define Your Business Model What are your business and personal goals? • Challenge, recognition, prestige • Build equity for retirement • Time for family and interests • Independence and control • Financial security
  • 115. Define Your Business  Model Core Competencies • Sales?  • Management?  • Customer Service? • Transferrable skills?
  • 118. What does a great fit look like? Does it have room for growth? Can I develop a strategic market advantage? Is it in a stable, not fad driven industry? Can it meet my financial and personal goals? Do I have the support of my family? NEVER settle for something that does not fit your business model!
  • 120. Finding a Great Fit • Interview at least 15 to 20 franchisees,  the ones who are doing well and the  failures. • How are you the same or different? 
  • 122. Short Term Strategy Find a business you can get into where you will not fail The more research you do the more you improve the odds of success
  • 124. Exit Strategy Your goal is to create a valuable asset  that meets your goals: • Sell the business • Run business past retirement • Keep the business but back away from  the day‐to‐day • Pass it down to the kids • Bring in a manager
  • 125. Read! • Read the Franchise Agreement – Understand how the agreement impacts your  business model – Understand negotiation is very unlikely • Read the Franchise Disclosure Document – Use as a starting point for a business plan – Understand clearly any earnings claims – Validate with franchisees
  • 126. Lower Your Risks Concerned about starting a business during poor  economic times?  Lower the risk by looking for businesses with  specific market characteristics. Many businesses thrive in all  economic conditions
  • 127. Things to consider • Professionals still need training • People still want quality education for their  kids • Homeowners still prefer to fix their homes  rather than move • Businesses still need there offices maintained • Employers outsource and use personnel  companies rather than committing to new  hires
  • 128. What About The Economy? Growing markets driven by demographics • Residential Repairs & Cleaning • Senior Care Essential services • Automotive • Hair Care • Damage Restoration Business that help other small businesses thrive • Business Coaching • Expense Analysis • Sales Training
  • 129. Finding A Great Fit • Interview at least 15 to 20 franchisees, the  ones who are doing well and the failures. • How is their business doing? • What worked? • What did not work?
  • 130. Due Diligence • Ask the hard questions • Current and past franchisees  will let you know the success  or failure rate. • May not be true with an  independent business  owner. 
  • 132. Why Franchising Works Proven, systematic approach to  starting and staying in business – Experience – Simplicity – Initial Training and Ongoing  Support – Name Recognition – Sales, Marketing &  Operational Systems – Culture of Teamwork
  • 133. Why Franchising Works You’re in business: • For yourself • Not by yourself Franchises are a hybrid of a corporate executive and an entrepreneur
  • 135. Michael Lind | Franchise Consultant  FranNet of Richmond | P. O. Box 74241 | Richmond,  VA 23236 Phone: 804‐363‐3217 | Fax: 804‐363‐3217 mlind@frannet.com |  www.linkedin.com/in/michaelelind |  www.frannet.com
  • 136. Entrepreneurial Panel Discussion • Chris Head (Home Instead Senior Care) = 540-537-1277 chris.head@homeinstead.com • Scott Fleming (CertaPro Painters) = 540-819-6473 scottfle@gmail.com • Jamie Davis (Donatos Pizza) = 614-416-7772 davis@donatos.com • Mike Pietrzyk (Firehouse Subs) = 540-890-8962 mpietrzyk@firehousesubs.com
  • 137. Survey Completions Please take a moment to complete our survey! Ask VBIC = 866-248-8814
  • 138. CONTACTS • Sandy Ratliff, Virginia Department of Business Assistance = 276-676-3768 or VBIC = 866-248-8814 • Tom Tanner, Roanoke SBDC = 540-983-0217 • Randy Rose, Virginia Tourism Corporation = 276-988- 6067 • Jill Loope, County of Roanoke = 540-772-2124 • Lindsay Hurt, City of Roanoke = 540-853-5405 • Harold McLeod, Wachovia = 540-563-7675 • Michael Lind, FranNet = 804-363-3217 • John Hunter, SCORE = 540-857-2834