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Understanding the Item Six

Item Six requires franchisees to disclose “recurring or occasional fees associated with operating a franchise” (section 436.5). This is any ongoing money you pay to the franchisor or an affiliate thereof. If you are considering buying a franchise, this is one of the most important items. Item 6 in an FDD may seem very straight-forward, but it requires significant study and investigation to fully understand how it may impact your business. Though the $200/month technology fee may seem like nothing compared to a $25,000 franchise fee, that tech fee can cost you basically the same ($24,000) over the course of a 10 year franchise agreement.

Some franchisors have a 4-5 line item Item 6, whereas others may take up 3 or 4 pages or more. It is imperative that you understand EVERY fee on Item 6, its likelihood of affecting you, and also make sure that it is in your business plan. Here are some things you should consider as you try to understand the Item Six of the FDD:

Royalty

The royalty is pretty basic, but you need to check in the remarks/notes section, the footnotes, and the agreement itself to see when/if it can change. For a business that does $500,000 a year, a change of just 1% can make a difference of $50,000 over a ten-year term, so understanding under what circumstances that this can change is very important.  This, in addition to franchise fees, is the primary way your franchisor is able to pay their bills and staff the corporate office.

National Marketing

Most franchisors either have a National Marketing fund or have one reserved in the agreement, whereby they can instate one, either when the brand reaches a certain strength or when they decide, […]

Outsourcing Franchise Development

 

Part of knowing how to franchise a business is knowing how you are going to sell your franchise. The concept of outsourcing the franchise development function of a franchisor’s business is nothing new.  Historically many startup concepts, which often lack the necessary capital and infrastructure required to generate unit growth, reached out to franchise consultants to provide a professional level of franchise sales services.  Today, franchisors of all sizes often look outside to handle some or all aspects of their franchise sales process.  This has proven to be an attractive alternative because it frees up a franchisor’s time and resources to focus on the success of their franchisees.

 

Why Franchisors are Outsourcing Their Sales

To understand why outsourcing has become such a popular option, franchisors need only look internally at their current sales efforts.   Answer these questions, honestly and objectively:

Is your sales team effective at generating sales? Have they historically met goals and forecasts?
Internally, who will manage the franchise sales consultants?
Do you understand the current cost associated with the sales department? (Salaries, overtime, bonuses, office expense, travel and entertainment etc.)
Do you understand the complete costs of a franchise consultant? (Commissions, management fees, software fees, minimum add spends)

 

 

Recruiting a Franchise Sales Professional

Over the last seven years the number of franchisors entering the market has more than doubled.  This has created a buyer’s market for quality franchise development personnel.  Startup franchisors often find it difficult to compete for the few seasoned franchise executives available in the market place.

The challenge to attract the right person is twofold;

Expense:  The cost associated with recruiting and potentially relocating a sales executive can be significant – even one with modest franchise experience can easily command a six-figure compensation package.  And the initial […]

Validation, the key to successful franchisee recruitment

Franchisee Recruitment
Validation is something you should be thinking about even if you are just now considering how to franchise a business. You might think that you are responsible for selling your franchise, or that you employ the people responsible for selling your franchise, but that is simply not true. The people that impact your franchisee recruitment the most are not your salespeople, they are your existing franchisees.  They are your salespeople.  If they are happy, you will sell franchises, and if they aren’t, you won’t.

Sure, there will always be one or two people out there who you can “talk into” buying a franchise, because the concept you have happens to be what they have dreamed about their whole life, but most people make their investment decision based largely on what they hear from the franchise network.

Validation is even more important to a start-up franchise than it is to a mature franchise. When you have 100-200 locations or more open, and 2-3 franchisees that are unhappy, the impact is not nearly as damaging as if you only had 5-10 franchises open with 2-3 that were not happy with the system.  Furthermore, a start-up typically will not have any name recognition to lend it credibility; the only credibility is what comes from the franchise network.

Of course, most franchisors know that validation is important; they just don’t know what to do about it or even if they have great or poor validation. There are a few key steps a franchisor can take, however, to measure validation, find out what is helping and hindering it, and quickly improve their system-wide validation with minimal investment.

Please note that there is one killer for validation that we cannot help; an unprofitable […]

Why Franchising Your Business Makes Sense

If you are wondering what the benefits of franchising your business are, here are just a few:

Less Capital Requirements
Fuel the growth of your business through the capital invested by each individual franchisee.
Add Additional Revenue Streams to Your Business
Franchise Fees
Royalty Fees
Advertising and Marketing Fees
Sales of Company Branded Products
Sales of Supplies
Training Fees
Sales of Promotional Products
The Ability to Expand Rapidly
Opening multiple locations at the same time allows you to obtain a large footprint quickly while putting your company a step ahead of the competition.
Gain Quality Management in Additional Units and Maximize Unit Revenue
Having an owner running the business usually insures that there will be a level of service and dedication that typically can’t be found in an employee. Franchisees have a vested interest in the success of their business and with their investment at risk, franchisees should be much more motivated than an employee.
Larger Advertising and Marketing Budget
Many franchisors institute a national advertising fund. This requires the franchisees to contribute a percentage of their gross sales to a fund used to increase advertising, name recognition, and the overall value of the business.
Branding
Opening units throughout the country will increase Brand awareness adding value to the company and its franchisees.
If you want to learn about how to franchise a business, please contact us.

 

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Why become a franchisee?

This article was featured at Franchising.com. Check it out here: http://www.franchising.com/articles/why_become_a_franchisee.html

Why become a franchisee? Well, if you are looking to start your own business, an excellent way to minimize risk, while increasing the odds of succeeding is to consider opening a franchise. There are many options available, such as; retail chains, fitness gyms and even pet franchises. Whatever your passion is, there is likely a franchise business that will allow you to do something you love, while still making a profit!

When you are researching what type of business you would like to own, it is important to evaluate all of your options and consider the advantage of launching a franchise. Listed below are some of the many advantages to owning a franchise business.

 

Spend less time getting started. The difference between starting a franchise business compared to starting a business on your own is, the franchisor steps in to help you expedite the start-up phase by providing you with a plan and helping you make crucial decisions such as site location, hiring new staff members and promoting the grand opening. The franchisor has an invested interest in seeing your business succeed, and will draw upon past experiences in starting other operations to help get your business off the ground.
Benefit from national brand recognition. Some of the most significant benefits of owning a franchise business are brand awareness and national advertising power. By joining a franchise that is already well-known and respected, you don’t have to spend as much time educating your target market on what your company is all about. In addition to launching national advertising campaigns, franchisors help you establish an effective marketing plan and provide advertising materials to help make your company a […]