start at Business Franchise

The proverb says: “Tell me who your friend is, and I’ll tell you who you are”. I can say: “Tell me who your team members are, and I’ll tell you who you are”.

Think over the following questions:

Who are the team members?

Do you, the project manager, get to pick the team?

Or are you given a list of team members and expected to include them?

The next step in the Project Management process is to identify the people who will participate in the project.

Even if you have a rock-solid goal with clearly defined steps, you have little chance of succeeding without a group of people who possess the ability and perseverance to complete the steps; failure is imminent. Ensure that the project team can work together well and has the necessary skills to get the job done. Here’s a simple analogy to illustrate the point.

Suppose that you want to buy a franchise company that specializes in building bridges in remote locations. On the day of a new site survey for a bridge across a small canyon, every one of your engineers calls in sick. So, in a panic, you call the temp agency and ask to send over six of great engineers — pronto. To your delight, they arrive on time, and you fly them to the first potential site of the new bridge. When you point the engineers to the first possible bridge site, one of them pipes up, “You do realize that we drive trains, don’t you?”

Your company may have many talented people. Your job as a project manager is to identify the people who can finish tasks in the manner required and in the time allotted. Don’t consider including a technical wizard who returns from vacation the day the project is due. Don’t consider any potential team member who does not have the time to devote to the project. A great asset who can’t put the time and focus into a project is really not a great asset at all. Always consider all factors when determining whether a person can contribute to the team.

Ask questions! Remember: you don’t have all the answers. In fact, it’s extremely difficult to even know all the questions. (If you really do have all the answers, please e-mail me. I have some work for you.) Include proposed team member “interviews” as part of the selection process. You don’t have to hold a formal meeting. Sending an e-mail message or talking on the telephone works just as well. You just need to ask a few questions. Here are some questions you need to answer as you talk with prospective team members.

1. Are they available?

No one can do an adequate job if there is no time to work on a task. Overbooked, talented individuals are just as ineffective as available people with no skills. Be sure to explain what you need for your project and what the performance expectations are. Add at least 20 percent to any estimate you give. After setting proper expectations, ask for the person’s interest and availability. Make sure that each prospect’s supervisor agrees with this availability status before you make your final team selections.

2. Are they able?

Because you’ve outlined the whole project and listed all the individual tasks (don’t worry; we’ll go over how to do this later), you have a pretty good idea about what needs to get done. You know what you need from this prospect. Ask this person about her experience with similar tasks. If Stacey’s part of the project requires her to use a Dutch oven, it makes sense to find out if Stacey has ever used a Dutch oven. Ask earnest questions: “Stacey, your part in this project would be working with a Dutch oven. Tell me about your experience with Dutch ovens. What kind of dishes have you prepared with a Dutch oven? What kind of problems have you had cooking with a Dutch oven? If I asked you to cook a peach cobbler in a Dutch oven right now, could you do it? If not, what would you need to get the job done?”

3. Are they willing, eager, and optimistic?

The last thing your project team needs is a naysayer. There’s incredible momentum generated in a project when all the team members have good morale. It’s your job to keep the enthusiasm high. Don’t kill it from the start with a team member who doesn’t want to be on the team. Sometimes, you’re forced to put someone on the team, regardless of qualifications. In those cases, spend a little extra effort encouraging good morale and ensuring that any bad vibes don’t spread to other members. Simple positive reinforcement and recognition go a long way in such cases.

4. Do they have any questions?

Always remember to be quiet and listen at some point. Ask for any questions they have about the project. You can often uncover potentially damaging things you forgot by asking for input from other people. You can also get a good feel for what each team member considers important. Make notes of your conversations. Comments and questions at this phase can be very useful later in the project.

Keep in mind during these initial interviews that your purpose is to evaluate potential team members, not to select the team on the spot. Ask for any referrals and express genuine appreciation for their cooperation. Set a deadline for announcing the team and live up to it. The goal is to form a team for this project and have a pool of resources to draw from for later projects. It’s important to avoid alienating anyone during your team selection.

5. Inheriting a team

You may not have the luxury of selecting your own team. You may have the team member list handed to you. Do not skip the interviews! Even if you inherit a team, you still need to know what each member can do. The questions just covered can give you valuable insight into some cool skills available to you. You may also find that the team is incomplete. Ask to augment the team. Fill in the missing areas. Remember that you’re on the hook. If the project fails, it’s the project manager’s fault. Go in prepared.

If you do add new team members, take the time to make sure that each member feels equally important. You don’t want the original members to feel that you added to the team because you distrusted them. They were on the original team for some reason. Whether a team member made the team due to skill or being a relative of the CEO, use the skills you find.

The success of the project reflects directly upon you, the project manager, so make every effort to assemble the best team you can.

After you’ve outlined the process and set your team, you’re ready to draw the 20,000-foot view.

Don’t overlook the importance of personality to team composition. You may be spending lots of time together. Build the team with interesting and stimulating folks (as long as they fit your selection criteria) and you’ll be more productive - and have lots more fun!

I’ll speak about this using the equipment purchasing project. The company buys equipment at the beginning and to substitute the old one. So, the first thing you have to do is to determine your goals.

You could state the project goal as “Goal: To Buy a New Equipment.” That is way too general, though. Don’t stop with that. You haven’t set a deadline for buying the new equipment, you have no criteria for the productivity or capacity, and there is no mention of cost.

Hint: You need to examine the process involved in equipment buying to understand all the decisions you have to make to meet the goal.

One of the most common mistakes that can doom a project from the start is to state the goal in terms that are too general. By working through the equipment -buying process, you begin to see what you need to know before you can start to plan the project. It often helps to get some help from experts. In the equipment -buying example, there are at least two distinct steps of the process:

1. Select item for purchase.
2. Purchase equipment.

You can break each of these steps into multiple subcategories. For example, some subcategories for Step 1 might include the following:

• Identify desired productivity.
• Identify the other desired parameters.
• Identify budget constraints.
• Determine whether identified productivity and other desired parameters meet budget parameters.

After you outline your subcategories, proceed to purchase if you find equipment that meets your criteria. If not, select alternate equipment.

Subcategories for Step 2 might include the following:

• Determine payment method: pay cash or borrow money.
• If paying cash, complete purchase; if borrowing money, evaluate financing alternatives.

And the subcategory borrow money has its own subcategories:

• Find lending company.
• Think about leasing
• Borrow money from friends or family.

Your outline, or map, of the process can quickly expand to many levels. That’s okay. This process is called process mapping. You can see from this example that before you can plan the equipment -buying project, you need answers to the following questions:

• What characteristics do I want the equipment to have?
• How much am I willing to spend on the equipment?
• How will I pay for the equipment?
• By what date do I want to have a new equipment?

After you have answers to these (and perhaps more) questions, you can develop an outcome statement that clearly states the project goal. For example:

“My goal is to buy a new equipment with the productivity …., capacity …, size…, at a cost of $XXX,XXX or less, using an 80 % borrowed money by October 31, 2006.”

Businessmen write business plans for different purposes. I want to turn attention of my beloved readers that the size, structure and contents of the document can differ in compliance with the purposes. So, why do people write business plans?

-to evaluate the effectiveness of their prospective business or project;

-for potential investors and partners;

-to apply for a loan;

-to apply for a government preferences;

- they need to have a business plan according to the legislation of the country.

Let me characterize every purpose by turn.

It’s a very good idea to do some calculations and evaluations before you start a business or a project. Sometimes people underestimate the necessity of business plan “for myself”. They say: I’ll do it later, after my business reaches its capacity. Or: I don’t want to waste time for papers; I’ll better start making money. Or even: I’ve planned everything in my mind; why should I spend time for paper work. But it’s a big mistake when new business or project starts without preliminary planning. Why? Because when you do the calculations you summarize all the facts and can see the whole picture. You’ll better see all the threats and opportunities. You will see the prospective profit: maybe it’s too small for you? You will get not approximate (like $10,000-$20,000) but real amount of initial and current investment.

But the main reason why new business or project has to start with a completed business plan is hidden in the following: after you start a company you will be able to catch the moment when things go not as you plan. If you get less you’ll see it before it turns to real trouble. If the things go better you can instantly start thinking about other project and earn more money with your extra profit!

When you write a business plan for your potential investors and partners you need to take into consideration the main statement: THEY CAN’T READ YOUR THOUGHTS! What does it mean? If you want to prevent problems and misunderstanding in future present as many aspects of your business as possible in the business plan. Remember: things that are completely clear for you are not the same for all the people on the Earth. Write about conditions and terms of supply, methods of salary calculation, way you choose the materials and equipment. Spending time this way can help to avoid many problems with investors and partners in future.

Also you need to remember that the main purpose of investor is profit. Unlike creditors investors are not seriously interested in collateral and payback period. They want you to show so-called ROI (return on investment) – in rate they’ll get on their investment per months or per other period of time.

When you create a business plan to get an external financing in the form of a loan or credit you need to show that your business will be enough successful cover both interest and loan itself. Creditors are not interested about the life and results of your business after the payback period but they will be very happy to see a good collateral.

If your business plan is presented to government authorities while you are trying to get some guarantees or preferences you need not only to show the financial results of the business. Tell them about the additional taxes they’ll receive, about new jobs created, about any other positive influence your company will have on the community. And don’t forget to write about the ecological site of your business (it’s an advantage when you business improves the ecological situation in the region in any way).

Before you start your business (either franchise or not) you need to lay the foundation. I’ve found rather interesting material about project management and business planning and want to share it with my readers with my comments. The material covers impressive project management feats — including some tactics that will dazzle coworkers, whether above or below you on the corporate ladder, helps to understand your project objectives and actually know how to meet each one and many other things.
Conventional project management states that you have three general variables in a project: schedule, budget, and quality. Pick the two you like best and let the others slide. In other words, most project managers and businessmen start their projects with the goal of being only mostly successful. What if you could get things done ahead of time (not just on time) and under budget (not just on budget)? What if you accomplished these feats while maintaining the desired quality? You would be a super project manager. To achieve this you need to know that organization is the key to successful project management and business.
You need to learn how to set goals and then reach them. You need to understand how meet your goals through well-timed and well-executed communication and decision making. As a result you will have the added benefit of being able to eliminate do-nothing meetings and time-wasting distractions ! Learning these skills will help you manage yourself, your team, and your business. Using these skills will ensure that your company’s effectiveness is recognized and rewarded. And this recognition is not only words but money, real money!

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. 

The answer is NO. I spent a lot of time reading different articles about how to write a business plan and other forms of planning. I found that many authors present the information such way that new businessmen would come to a conclusion that business plan is the only important thing for their business success. But it is not so!

Business plan is not a goal but only an instrument. This instrument helps to summarize the business, marketing, technological and financial information. It is a document. Or better to say it’s only a REPORT! Yes, a report!

What do I mean? Before starting your new business (doesn’t matter franchise or not) you have to carry out some preliminary studies. At first you check the idea itself. I wrote about evaluating the business idea in my previous posts:
Even in franchise business you HAVE to think over the idea
Declining an idea
Declining a business idea: last three reasons
Are you ready?..

If you come to conclusion that idea is good it doesn’t mean that you can start immediately. Certainly, you can but it can lead to big problems in future and even to failure of the prospective company. What you need to do is to continue to study the internal and external factors that will influence your business in future. These factors usually include marketing, production, and organizational, legal and financial spheres. And after you finish with the study you a ready to create a document that contains all your conclusions. This document is called… yes, you a write, a BUSINESS PLAN!

So, the goal is not to write a large business plan with colorful graphs and long tables. The goal is to collect the correct information about you prospective business and to make correct decisions based on this information.

I’m going to write more about different surveys that you prospective businessmen need to carry out and about how to choose the best strategy. Also I plan to show the examples of good and bad business plans and to explain the mistakes. Come back to my blog .

Franchise is evil.
At least officials of Village Board of New Paltz are thinking so. They decided to announce their village a franchise-free zone.
“We need to level the playing field,” Mayor Jason West said.
“We need to give those who do want to open local businesses some kind of a leg up,” he said. “It seems a simple way to do that is within the 1.7 square miles of the village (is to know) you’re not going to have to compete with that franchise that is doing bulk buying.”
So they are going to examine carefully all the cases of new business registrations in order to be sure that it’s not a franchise start-up. They are using a kind of formula to do this. A new business should not possess a “standardized menu or standardized array of merchandise with 50 percent or more of in-stock merchandise from a single distributor bearing uniform markings.” Other business features would include use of architecture, facade, or signage considered to be part of a “format which causes it to be substantially identical” to other businesses.
Anyway they think that a franchise business disturbs their local enterprises so they are not going to allow this happen.
Certainly they have to permit some franchises even to that area as there are businesses that couldn’t be performed locally. But the main rule applies:

NO MORE FRANCHISES.

By the way have you ever thought about franchise impact on your life? I’ve just copied the industries that possesses franchises from www.franchiseopportunities.com
You could fill these industries by franchises you know at your area.

Advertising
Direct Mail Advertising
Internet
Mobile Motion Advertising

Auto Products/Services
Detailing
Muffler and Brake Repair
Oil Change
Paint and Body Repair
Parts
Products
Radiator Service
Services
Transmission
Windshield Replacement/Repair

Beauty
Cosmetics
Hair
Tanning/Spas

Bridal
Accessories
Full Service

Business Opportunities
Dollar Stores
Home-Based
Internet
Publishing
Security
Tanning Beds/Pools/Spas
Vending

Business Services
Advertising Franchises
Brokers/Consultants
Business Consultant
Check Cashing
Collections
Commercial Cleaning
Direct Mail Advertising
Document Shredding
Embroidery
Employment/Staffing
Entertainment
Expense Reduction
Financial
Income Tax/Accounting
Insurance
Limo Services
Mail/Shipping/Packaging
Medical Billing
Mobile
Printing/Copying
Promotional Items
Publishing
Real Estate
Restoration
Sales/Marketing
Senior Care
Shipping/Transportation
Signs
Telecommunications
Training/Development

Child Related
Child Fitness Center
Child Party Franchises
Children’s Services
Children’s Clothing
Education

Cleaning/Maintenance
Automotive Services
Blind and Window
Carpet Cleaning
Commercial Cleaning
Drapery/upholstery cleaning
Food Service
Maid Services
Sanitation

Computer and Internet
Computer Internet
Computer Products
Computer Services
Computer Training
Internet Advertising
Internet Consulting/Training
Internet Service Providers
Mobile/Onsite
Website Design
 Financial Services

Check cashing
Pay day loans
Tax Preparation

Foods
Baked Goods
Bar Grill and Pubs
Cafe
Candy/Snacks
Chicken
Coffee/Espresso
Cookie
Energy Drinks
Fast Food/Take-Out
Foods Restaurants
Full Service Restaurants
Hamburger
Hot Dogs and Sausage
Ice Cream/Yogurt/Frozen
Italian
Juice Bar
Mexican
Pizza/Pasta
Sandwich/Delis
Seafood
Smoothies
Soups and Salads
Speciality Foods
Taco
Wings
Wraps

Health/Fitness
Hair/Beauty
Health/Diet/Fitness
Lady Fitness
Medical/Dental/Optical
Nutrition
Tanning
Weight Loss

Home/Mobile Services
Advertising Services
Air Purification
Appliance Repair
Automotive Services
Business services
Cabinet Refinishing
Carpet Cleaning
Closet Organization
Debt Consolidation
Decoration/Remodel
Delivery Services
Drapery/upholstery cleaning
Environmental
Food delivery
Garage
Glass/window replacement
Handyman
Pets
Home based
Home Improvement
Home Inspection
HVAC
Lawn/Landscape
Maid Service
Moving/Storage
Outdoor Lighting
Painting
Pest Control
Photography/Video
Plumbing Services
Propane
Real Estate
Sanitation
Security Systems/Alarms
Senior Care
Sports & Recreation
Storage/moving
Surface Restoration
Tools and Equipments
Water Treatment

Lodging
Hotels/Motels

Manufacturing
Home Furnishings
Homes
Manufacturing
Mattresses
Signs

Pet Related
Kennel
Pets Training
Retail

Photography/Video
Products
Services

Real Estate
Agencies
By Owner

 Restoration
Fire/Smoke Damage
Floor
Surface

Retail
Arts/Crafts/Framing
Auto/Truck/Trailer Rental
Automotive Services
Beauty
Blind and Shutter
Business Services
Cellular Phone
Clothing/Apparel
Convenience Stores
Dollar Store
eBay drop off stores
Embroidery
Flooring
Flowers
Furniture/Furnishings
Gifts/Collectibles
Hair and Beauty Salon
Lawn/Garden/Home
Manufacturing
Party
Pets/Animal Supplies/Services
Photography/Video
Printing/Copying
Recreational/Sports
shipping/packaging
Signs
Specialty
Tanning
Tools/Hardware/Equipment
Travel Services
Video/Audio/Electronics
Window Treatment

Seasonal
Amateur Sports Events
Landscaping

Securities
Investigations
Securities

Security/Investigations
Document Shredding
Systems/Alarms

Senior Care Services
In-Home Care
Senior Health Centers

Sports/Recreation
Amateur Sports Events
Fitness Centers
Golf Franchises
Photography/Video
Recruiting
Sporting Goods
Sports Bar

Travel
Agency
Cruise
Lodging

Vending
Vending Machines

Wholesale/Distribution
Associations
Brokers
Distributors
Wholesalers

Today’s franchises are much alike to set a code of conduct. Whereas ages ago there were knights’ code, chevaliers’ code, mason code or just gentlemen code it has transformed for today.
It’s the franchisor who dictates the franchisee all the way he should perform the business.
Is it good or bad? Does he have the rights to do so or is it humans’ rights violation.
I think neither. Just the same as knights from Middle Ages you have the right to choose the franchise you like most. You could start your business with your confederates – the guy thinking just the same way you do. And nobody forces you to do the things you don’t like. You just have to choose properly…

By the way I wanted to write a message concerning smoking. I’ve found the information that last month Marriott International Inc., the large U.S. franchise hotel chain, is banning smoking in all its U.S. and Canadian facilities. The new policy includes all guest rooms, restaurants, lounges, meeting rooms, public space and employee work areas. Currently more than 90 percent of Marriott guest rooms are non-smoking. The information seemed interesting to me and I decided to make a little research of franchises that are prohibiting smoking.

I’ve found a lot of companies (mostly hotels and restaurants) that are struggling against smoking.

McDonalds has adopted a non-smoking policy for all modern restaurants in 1993. This existing non-smoking policy was adopted by most of its franchises.

The Spudulike Group has had a no smoking policy in all its managed stand alone restaurant units.  This policy is directly linked to the fresh and healthy nature of the core baked potato products.

The Hard Rock Café in the US has a no smoking policy as it’s the law. Whatever the law is for that particular country Hard Rock goes with that.

The Wagamama chain is smoke free throughout its 21 UK restaurants.

Kentucky Fried Chicken and Pizza Hut, has announced that all of their restaurants will be smoke-free by the 17th of August. The company operates 1,200 KFC and 1,675 Pizza Hut restaurants across the country. They are also encouraging their franchise owners to adopt the same policy for the nearly 4,200 franchised restaurants.

Hmm… I wonder if they are doing so just because they really think that way… Or they are moved to that by franchisors.

Anyway as I’m no-smoking-supporter I like they way the franchise system changes the world.

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.

Starting your business while singing a franchise agreement has many advantages over starting a company yourself. It is easier, it takes less time and you can get help and support from more experienced partner (the main company). But not so many people decide to buy a franchise license. I think that one of the main reasons for this is initial fee that a potential franchisee needs to pay to franchisor.
Today I want to say a few words expressing my opinion regarding why the franchise fee is so high. My observations are based on the following statistics given by the leaders of some franchises:
“Ron Eriksen, the vice president of market development for the Baby’s Room USA Inc., Elmhurst, Ill., provides the following facts: last year the company sends out 775 four-color brochures by Priority Mail costs $14. Only 6 percent of those recipients sent back a preliminary application form; 1.8 percent of the 775 became new Baby’s Room franchisees”.
My calculations and comments:
It means that the company spent $10,850 only for colorful brochures and received only 14 new franchisees (775 requests multiplied by 1.8 percent). So only to get the money back the Baby’s Room USA Inc. has to increase the franchise fee by $775. Is it fair? Maybe franchisee will say no because nobody wants to pay for the others who decided not to become franchisees of that company. But it’s absolutely fair from franchisors point of view.

“Steven Romaniello, president and chief operating officer of US Franchise Systems Inc., in Atlanta, says that his hotel company spends $50,000 on promotion and recruitment efforts for each franchisee who eventually buys a Days Inn, Microtel or Hawthorn Suites franchise”.
No comments needed. Even if franchisor decides to cover a part of this sum himself (let’s say 50 percent) the other part has to be included into the initial fee. The other part will be received by franchisor later in the form of royalty payments. By the way this can explain why sometimes royalty is greater than the cost of current support provided to franchisee: franchisor tries to cover some earlier expenditures.
Greg Longe, president of the Molly Maid and Mr. Handyman franchise systems in Ann Arbor, Mich., says, “Our Internet leads are way up this year, but all that means is that we have to do a lot more work to generate a solid candidate. Most of the people we’re hearing from aren’t qualified to run our concept.”
My comments:
When he says “a lot more work to generate a solid candidate” he speaks about people who will do this work. Company needs to hire qualified manager (or even managers) to deal to convert at least some of the leads to new franchisees. Company bears the costs of salary, Internet and phone communications, and many others dedicated to manager’s work. And as every cost it will increase the final price. In our case it will increase the initial fee in the start-up period or royalty during the operational period.

And initial fee includes not only advertising and recruitment costs. In most cases the main company provides training for the chief manager or key personnel of new franchisee. To do this they need to pay to trainers, to buy some stuff (like materials, paper and so on)…
Thinking about all that things I came to the conclusion that low initial franchise fee can be a bad sign (not “is” but “can be”). Certainly it depends on business sphere and region or country. But at least it’s a point to think over one more time whether to sing a franchise agreement with a company that sells its idea for the price that doesn’t cover the costs. It may seem strange…

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