franchising at Business Franchise

I was not writing here for a long time as I was too busy with my new hobby – FOREX trading.

But studying Forex I found that there are not only traders but also special forex franchise companies that try to combine the benefits of both businesses – franchising and currency trading. It’s rather interesting and worth of deeper study as I think

http://de.betheboss.com/franchise.cfm?s_booth=899437 - - the link to the German company that says that they managed to do it!

By the way GLOBAL FOREX TRADING characterizes itself as FOREX franchise. But when I tried to find the word “franchise” using the search option on their site they said “Your search did not return any results.”

FOR IMMEDIATE RELEASE
CONTACT: Erika Sumner, PR by the Book, (281) 895-7190, erika@prbythebook.com 

Is Opening a Franchise for You? Find out with Street Smart Franchising
Franchising represents more than 10% of the private sector economy and 14% of the jobs 

(CONNECTICUT) If you’re looking to have your own fast food franchise, here’s a typical scenario. You will have to have $175,000 that isn’t borrowed, provide 40% of the funds (also not borrowed) it takes to open the restaurant which can range from $400,000 to $750,000, and find a profitable location. Due to the complication of the franchise game, Joe Mathews, Don DeBolt and Deb Percival pulled their expertise in their new book, Street Smart Franchising (Entrepreneur Press, July 2006). It does what other franchising books won’t-it reveals the challenges within the franchise game using rare stories taken straight from the trenches. 

In the U.S. alone, there are an estimated 2000 different franchisors as well as more than 770,000 retail outlets. These retail outlets employ over 8 million people, and account for more than 1 trillion dollars in annual sales. Mathews, DeBolt and Percival offer an in-depth look into what happens during the investigation and ramp up of a franchise business as well as “real world” tactics and strategies for succeeding in franchising. They also demonstrate how humanity impacts franchising. For instance, most entrepreneurs naturally resist external controls and systems, meaning the people most likely to purchase a franchise are least likely to follow the system they just invested in. 

What makes Street Smart Franchising most unique is the fact that it offers “street smarts” as opposed to “book smarts.” Mathews and DeBolt realize that what’s taught in the classroom doesn’t always work in real life. Case studies can’t help a franchisee when they awaken at 1 o’clock in the morning for the third sleepless night in a row because they are consumed by the stress of a start up business. However, a franchisee can pick up Street Smart Franchising and discover high stress and loss of sleep is normal and temporary in the start up stage of the life cycle of their business as well as find successful strategies for managing stress during this critical stage and how to successfully navigate towards the next stage. 

Joe Mathews has worked as a franchising manager for Subway, Blimpie, Motophoto, and Entrepreneur Source. In 2002, Mathews founded the Franchise Performance Group and became a consultant, helping franchise companies excel in the business of franchising. Mathews resides in Connecticut with his wife and three children. He graduated with a Bachelor of Science in Marketing from the University of Connecticut. 

Don DeBolt is former president of the International Franchise Association (IFA), one of the world’s oldest and largest trade associations representing the franchise community. He has served as a member of the Committee of 100 and the Public Affairs Committee of the U.S. Chamber of Commerce; a member of the Department of Commerce’s Industry Sector Advisory Committee on Wholesaling and Retailing for Trade Policy Matters; sat on the board of directors of the Small Business Legislative Council and the National Cooperative Bank’s Retail Finance Corporation; and was a member of the National Congress for Community Economic Development Advisory Council. 

Deb Percival works in franchise development and has an extensive background in writing. Before joining the world of franchising she worked in marketing for 20 years, owning her own public relations firm for 12 of those years. Her clients have included national and international corporations and her writing has received numerous awards for content, clarity and originality.
For more information, check out www.FranchisePerformanceGroup.com. 

While searching the Internet for interesting information about franchising to share with the readers of my blog I found an outstanding idea that had been realized by the company called Entrepreneur’s Source. They managed to create their franchise business helping others to start-up and operate franchise businesses. I understood that I had to write about it.

The business system created by Entrepreneur’s Source can be divided into 2 parts (as I understood from the information in their web site). On the one hand they work with the companies that already have their business systems. The company offers its clients to expand their operations through creating a franchise system for their business. I really liked the way they present the idea. They explain that they are not consultants but coachers for their clients. They say that every person tries to decrease or avoid risk. It’s natural. And they promise their clients to help to decrease a business risk. Based on their experience the Entrepreneur’s Source is going to train their customers how to swim in a seethed and sudden water of business-sea. They use the idea of coaching comparing their service with the process of teaching to read. On their web site they ask a question: Did You Teach Yourself to Read?
As a sports coach develops an individual training program for each sportsman, Entrepreneur’s Source develop a franchise program for the clients taking into consideration all individual peculiarities. Their package of services includes:
1. Feasibility assessment. Analytics of Entrepreneur’s Source determine if business is franchisable in general.
2. Business plan. They create a document answering marketing, production, and organizational and financial questions concerning prospective franchise business.
3. Raising capital. They help in creation documents and calculations necessary to obtain an external financing.
4. Regulatory compliance. They check if the franchise system and all documents (including disclosure and agreements) meet all the legislative requirements.
5. Marketing & advertising. Well-developed promotion program is a key feature of any franchise system.
6. Lead generation and candidate qualification.
7. Expansion plans
8. And much more …

On the other hand Entrepreneur’s Source deals with those thinking to start-up their business. And they attract prospective franchisees not only for the franchisors mentioned above but also for themselves. Yes, before they decided to earn money while helping others to start-up franchise business (as franchisor or franchisee) they created such system for their own company. And it gave them the experience on how to qualify candidates in order to choose appropriate ones. Now they use the following scheme: they don’t use contract employees to run their satellite offices, but open each new office as a franchised business. The royalty payment is 25%, and Entrepreneur’s Source franchisees pay it from every placement fee – the money received from franchisor when the company places a candidate.

As for me I really liked this idea. The only negative thing in this business is concerned the money that prospective or existing franchisor has to pay to this consulting company. I haven’t found the exact information on the company’s web site, but the other sources say that your franchisor pays them a commission, typically 30% to 75% of the franchise fee. Certainly it is a trade-off. You can set-up your business system yourself or turn to professionals. In the latter case it will cost you and your potential franchisees, as you’ll have to increase the initial fee to cover the consulting costs.

Some economists have noticed the following trend: there is a negative relation between development of the economy of the country in general and development of franchising (as a system) in the same country. They even paid attention that it is a worldwide tendency. When economy faces its peak and there is almost full employment, salary and wages are enough high and interest rates also. Most of people are satisfied with their jobs and are not thinking about business in general and franchise business particularly. But when economy slows down, stock-market return ratios are low, franchising increases its popularity.
 

You may say that this theoretical information is not useful for ordinary franchisors and franchisees. Maybe it’s so but it can be very useful for those just thinking about starting their franchise business.
 

While buying your franchise business you may get additional information from general economic overview. I suggest taking into consideration the following:
1. When economy grows or reaches its peak the situation is close to full employment. It means for you that you can face difficulties trying to hire good specialists for not very high salary. To get the people you want you need to offer them big money (to make them to throw over their current jobs). Are you ready for such an increase of your costs? Or are you ready to give up the qualified employees and substitute them with less qualified stuff? In this situation I can offer to think about the franchise business that requires less personnel in general and less high-qualified personnel particularly.
2. When economy grows interest rates are high. Can you afford an expensive credit? Maybe it is better to think over other sources of financing.
3. When economy grows people buy more, the total demand in the economy is rather high. It means that if you start quickly (before this growth ends) you can get the benefit from this. And franchise business in this case is better than standard one (as I think). When you sign a franchise agreement you get almost a complete set of answers to possible questions in all spheres of your prospective business. You can start almost immediately. But when you start yourself you will need some time to find those answers.
 

When economy faces a recession the things go just the opposite. I hope my thoughts will help you in decision-making.

Welcome to Wonderland! It can absolutely change your point of view and I hope make world better
OK, let’s imagine ourselves in Australia. Koala bears, platypuses and local circumstances cohabit with the lifestyle of United Kingdom and United States… And in 1946 two guys have decided to start a business there. They were going to produce and sell rubber strip matting and mats from transmission belt edges sourced from Dunlop Salvage. Nice idea, don’t you think so?
Anyway they did it and they called their company Clark Matting & Rubber.
They had been working for about 40 years. Nothing special… They earned some money I think.
But the business wasn’t too profitable as in 1982 the company was sold to The Adsteam Group.
The Adsteam Group tried to change the business but failed. So in 1990 they faced more difficulties and they decided to close the Clark Rubber retail operation.
Look, they couldn’t even find a buyer for that business. It was so nice business niche!
 

And now welcome to Wonderland.
In 1994 Chris Malcolm had taken a license of the Clark Rubber brands and decided to try franchise model to this business. The franchise system has absolutely changed the long-winded history of the company. No more time to think over. The pace of company development has increased drastically. In just 1 year there were 25 franchised stores. Five years later, Chris Malcolm purchased the Clark Rubber brands from its owner.
Let’s evaluate the achievements of the company highlighted at their internet site:
1998
Clark Rubber Franchising opens its 50th franchised store
1999
Winner of the Franchise Council of Australia’s Franchise System of the Year Award, Category Entry Capital over $200,000
2002
Highly Commended - ACA Australian Catalogue Award, Home Repairs and Outdoor Catalogue
2003
Chris Malcolm became one of the inaugural inductees in the FCA Hall of Fame
2003
Finalist in the FCA Franchisor Retail and Business Category. (21 - 100 Outlets)
2003
Certificate of Merit - Australian Catalogue Award, Amazing Christmas Catalogue
 

Today, Clark Rubber Franchising has 70 stores throughout Australia and is growing. Retail sales growth percentages have surpassed national averages year after year. Our high quality support services from our Franchise Support Office are constantly being refined and improved, with an intranet system making access to up to date information a breeze.
Clark Rubber recognizes that the success of any franchise system very much depends on the success of its franchisees and is full of praise for the enthusiasm, commitment and contribution made by the Clark Rubber Franchisees that have helped make this great Australian brand the success that it is.
 

Is there anybody going to argue my idea that franchise system could resurrect dead business?

When I started my blog more than two months ago I wanted to discuss a franchise as one of the most developed form of business in the United States. But I never knew that it is SO DEVELOPED!
I found an interesting statistics that proves this.

• A new Franchised Business opens somewhere in the United States every 8 minutes.
  
• 75 industries use franchising to distribute goods and services to consumers.
  
• Franchised Businesses provide goods and services worth $624.6 billion per year in the United States (2001)
  
• There are 767,483 franchised business establishments in the United States (2001).
  
• Franchised Businesses provide over 18,000,000 jobs in the United States (2004 estimate)
  
• In the United States more than 40% of all retail sales come through franchising.
  

After realizing that facts I’m even more surprised thinking about countries (many of less developed countries and former Soviet Union republics) that even have no franchise legislation and that don’t develop that business… I have no idea why this can happen…

I hope to finish commenting franchise survey carried out by Franchise Recruiters Ltd. (FRL) today. If you read till the end you’ll know if I manage to do it. Check my previous article to know the beginning.
 
The next idea expressed by top franchise leaders was dedicated to old and branded franchise systems. In order to remain in a good position they have to prove that they are worth of it. Nothing can guarantee them a success in today’s fast-changing world. To hold their loyal customers they need to revamp, rehabilitate and regenerate their business systems. The respondents pay attention to the fact that most of the franchisors are concentrated on their first ideas rather than looking ahead an opening new products and technologies. It’s clear that they will face a rigorous competition.
As it’s mentioned it’s very important to adopt franchise business to demographic trends. Changes in today’s lifestyle and demographics help the development of the following business spheres:
-adult and senior day care,
-health care,
-home care,
-beauty, skin, aging treatments, and spas,
-different forms of entertainment.
 
My comments:
The survey shows the contradiction between main strategies of consumers’ behavior. These strategies are widely used in marketing while speaking about market segmentation. It’s evident that there are different types of people buying the same product. Each group of buyers has different reasons for purchase. The ones are driven by fad, fashion, and mood. They usually want to try something new. The others are very traditional and don’t change their tastes so fast. So if franchisor wants to develop his business he needs either choose the one group or to satisfy both.
The industries mentioned by respondents are rather predictable. There can be a lot of reasons why people become more self-oriented (exactly “self” not family- or community-oriented). Maybe this happens because of decreased role of Christianity and other constructive religions in the society in general. The advertising also influences the modern mentality saying that YOU are worth of this or that. Anyway the picture is very clear. People don’t want to take care of their parents and children themselves. Career plays the biggest role in dreams and aspirations. So the winning strategy is to provide people with more free time and with additional career opportunities (like better education on the one hand and better appearance on the other).
 
All the previous statements were dedicated to franchisors. But what about franchisees? The survey respondents decided not to avoid them. In the answers they pay attention to the fact that today prospective franchisees are “better capitalized, have better management experience, better education, and are increasingly diverse investors”. Also it was noticed that more and more seniors are coming into franchise business. They do not want rely only on government and social security. But most of them are not so aware in their talents to invent good and enough modern business idea themselves. The survey provides the following statistical information about older Americans: “the number of workers age 55 and above rose to nearly 24 million in 2004, up from 22 million in 2003, and from 20.7 million the year before. At the same time, the government is forecasting a significant labor shortage nearing the end of this decade. Franchisors tell us they want and need seniors as a reliable work force for years to come”.
 
In the same survey we found interesting information about so-called third party, not a franchisor and not a franchisee… For example, respondents notice that investors are considering franchise sphere to become rather interesting deal. They even called this a “new golden goose”. Why? Because of very short start-up period in many spheres. Think of it! Franchisor provides with a training program that lasts for 2 weeks. During the same time it’s possible for a franchisee to make all other necessary arrangements and he is ready to start! The only thing that can slow him down is money. So for both of them – investor and prospective franchisee – the goals are coinciding. They can start earning money very soon. TIME! It explains the investors’ interest toward franchise sphere, as I think.
 
Another third party is employees. Both franchisors and franchisees understand that employees contribute the biggest part to the company’s costs (directly and indirectly) and as a result to the company’s profit. When I say direct impact I certainly mean salary and corresponding expenses. As an example of indirect impact I will mention training expenses for every new employee.
At the same time for many businesses employees’ productivity influences the results most of all. That is why survey respondents expressed the opinion that franchisors of the next years will pay a lot of attention to different forms of health care insurance to their chain’s hourly employees. Also they will help to establish relations with banks opening accounts and contacting with financial institutions.
 
My comments:
I like this. When I’ve read this information I was thinking about inventing a high school program (or even senior school) to help franchisors and franchises to provide teenagers with the necessary information and to prepare them to their future jobs in that sphere… It can be based on “learning by doing” ideas and include a lot of practice…
 
And finally the last tendency was related to management. The top US franchise leaders believe that the previous years’ tendency will continue and more managers will be motivated not by strict annual bonus payments but by some reward programs depending on the results. As I understand that tendency is not a franchising innovation but overall trend in business.
 
Ok… I’m done with this survey. Will I get any comments on my comments?..

Every year Franchise Recruiters Ltd. (FRL) conducts a study and analysis of the tendencies of franchise business. Unfortunately I managed to get access only to the materials for the year 2005 but I hope they will allow making some interesting conclusions. As I think the main tendencies and relations remained the same for thus year too.
 
The procedure of survey was rather usual. The main data were collected while asking questions about the current situation and business forecast. But unlike International Franchise Association FRL interviewed 100 of the top U.S. franchise executives. On the one hand it increases the statistical error of the survey as they asked only leaders. But on the other hand I think the information can be useful at least because the leaders understand the market and the business, they have enough experience to predict what factors will benefit or hurt them. Why? Because they are the leaders…
 
So the first thing to say about concerns general growth. Top U.S. franchise executives predict 6% growth in net new unit development. What do they mean by “net”? They subtract closing companies from new ones. It means that number of new franchisees will grow even more than by 6%. If to compare this to the growth of GDP as the main economic indicator the interesting thoughts come to my mind. The U.S. gross domestic product growth was projected to be 3.3% in 2005; it’s two times lower than franchise number growth and also lower than the same indicator in 2004. My comments:
- growth in number of franchises is not caused by high revenue expectations of prospective franchisees; maybe they think franchise way of starting a business to be more attractive or easier in comparison with the standard one; it becomes more evident against a background of slowing of the economy in general;
- growth in number of franchises will increase the level of competition, especially in such traditional franchise industries as food and retail sales. As a result the market can see the decrease of prices (better variant for consumers) or decrease in quality (in order to provide at least any profit to companies). Anyway I think that at least in traditional franchise industries new companies can get much less profit than they assume.
 
The respondents also mentioned some other negative factors that can influence business development:
-slower overall economic retail expansion;
-relatively high energy prices;
-real estate tribulations;
-shipping cost surcharges
-and rising interest rates.
Also they mentioned prices as a very important factor. People are already hurt by increased oil prices and are not ready to inflation in any other industry.
My comments:
Franchisors (based on franchisees requirements and their own researches) have to think a lot about the ways to decrease the other costs and to increase the productivity. Maybe they need to examine the following variants:
-introduce new technologies (better equipment, informational and electronic systems, new materials, etc.);
-look for new suppliers of equipment and materials (check the opportunities provided by countries with cheaper labor force);
-outsource the less competitive parts of their business and so on.
At the same time they really need to shift the main accent toward attracting consumers. As I see it would be very difficult to hold the winning position without interesting advertising campaigns, better package, additional services, and improving public position and company reputation. It is the responsibility of almost every franchisor: the time will never forgive that delay, and another franchisor in the same industry will get the benefits of 6% growth I wrote about in the beginning of that post…
 
I’m going to continue commenting that survey later as it contains many other interesting facts and forecasts. But for this moment I wish to make a short conclusion. The situation in a franchise sphere is very controversial. On the one hand we see that more people believe in franchising as a way to start their business. On the other hand we understand that they will face an extraordinary competition supported by other negative factors. I suppose that in a short period of time it will result in a greater differentiation among franchisors. Those using new methods in business will take a bigger part of the pie. The others who rely only on traditional instruments and approaches will loose their positions.

Franchising was developing rather fast during the last decades. Why does this happen? As most tendencies in the global economy this one is not exclusion: somebody gets benefits from it. Today I decided to write a shot summary of benefits and potential losses faced by franchisor, franchisee and their clients.
 

Benefits for a franchisor:
1. Opportunity of fast expansion of target market, growth of sales;
2. Entering new territories and regions (or even countries);
3.  Opportunity to decrease or even eliminate some types of costs: costs for vertical administration, hidden costs caused by difficulties in large company management;
4. Lower capital investment;
5. Government control over the franchise agreement;
6. Promotion of a company itself, its trademark and brand; growth of company’s recognizability among clients; increase of confidence in company’s quality and range of goods and services;
7. Getting money from selling licenses and receiving royalties;
8. Profit from leasing real estate and equipment to franchisee;
9. Profit from giving credits to franchisee;
10. Decreasing costs while operating on whole-sale basis and decreasing turnover period.
 

Potential loses of a franchisor:
1. Getting less profit from franchisee’s enterprise in comparison with own enterprise;
2. Franchisee can influence the franchisor’s reputation. This is a risk factor;
3. In many cases it’s difficult to control the accuracy and reliability of financial reports of franchisee;
4. It’s difficult to find a reliable franchisee with good business and financial background;
5. While providing training for the franchisee, franchisor creates a potential competitor for himself.
 

Benefits for a franchisee:
1. Opportunity to start his own business with the minimum initial capital and with the professional support from an experienced franchisor;
2. According to franchisor’s program franchisee can have access to credit resources;
3.  Getting all possible benefits from franchisor’s brand, trademark and reputation; the same about marketing campaigns and PR activity (it’s very important that you get these benefits immediately after sighing the franchise agreement);
4. Opportunity to get access to the results of different surveys, research and development activity of franchisor for a minimum fee;
5. Opportunity to start business without any professional background because of well-prepared and already tested training program provided by franchisor (but it’s rather risky as such franchisee can loose in competition with more qualified businessman);
6. Guarantee of stable relations with suppliers;
7. Opportunity to purchase some equipment from franchisor on a leasing basis or for a depreciated cost.
 

Potential loses of a franchisee:
1. Franchisee has less independence; he can’t be “his own boss” as franchisor controls many spheres of the business;
2. Franchisee depends on the reputation of franchisor; problems in the main company will influence the whole chain;
3. As franchisee pays royalty and other fees to franchisor the costs increase and franchisee can become uncompetitive in comparison to independent small and medium-size companies;
4.  Franchisor can sell his business and a new owner can be less professional, the total policy of the company may change and so on; it’s a risk factor;
5. Franchisor can miss some essential changes and improvements in technique, market conditions and others factors that influence general activity of the company; it will influence the whole chain: every franchisee can loose his competitiveness.
 

Benefits for a consumer:
1. In most cases goods and services sold by every company in a franchise chain have the same quality and provide the same infrastructure; it’s rather convenient (especially when you need to travel a lot) as you don’t need to adopt your life style to new city or even country;
2. If the particular franchisee closes his business consumer can easily turn to the main company; franchisor usually provides the list of the other closest offices;
3. The franchisee’s quality is usually higher comparing to independent companies; this happens because of strict control from the franchisor’s side.
 

Potential loses of a consumer:
1. Franchising in general can decrease the competition in the market; this leads to higher prices and lower range of goods or services;
2. The professional education and experience of the particular franchisee can be less than necessary but it’s impossible to know this as every company in the chain uses the same trademark, marketing strategy and etc.  

Yesterday I wrote an article about sources of financing for a franchisee. And an interesting thought came to my mind. I was thinking about some associations and unions and their role in economic development.
 

Just think about it a bit. Small business companies have very little power to influence the legislation of the US or any other country. Even when they understand the necessity of some changes or improvements they are too small, too busy and don’t have enough money to protect their rights. As a result, 2-5 big companies have all the possibilities to lobby legislation favorable for them. They can put into operation new tariff or promote necessary educational program.
 

The only way out for small and medium-size companies is to become organized. And we can see this in almost every country in the world. The activity of different Small Business Associations and Unions of Entrepreneurs is a great power that can be one of the guarantees that protect competition.
 

But what about franchising? Yesterday I realized that franchisee can get the benefit of lobby twice! On the one hand as a representative of small business, and on the other as a representative of Franchise Association.
 

It seems for me that I found an additional benefit of franchising!

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