Thank you to all of you who joined or PARTNERSINWEALTH for our “Franchising: Could It Be Your Next Big Investment Opportunity?” event this past Thursday, February 6th. We are grateful to Melissa Lewis of FranChoice and Howard Rambin of Moody Rambin for taking the time to educate the group about franchising. We would also like to recognize the great work of our moderator, Austin Tenette .
Judging by the number of questions and feedback from the attendees, most felt that it was time well spent.
We would also like to thank our wonderful sponsors.
For those of you who were not able to attend, below is a quick summary of the program:
As part of our panel discussion, Melissa Lewis and Howard Rambin discussed important considerations and answered questions related to franchising. Melissa, through her work at FranChoice, shared insights on how to match people to franchise opportunities based on their skills, personality and goals. Additionally, she was able to comment on the current landscape and trends in franchising. Howard, as a franchise owner, shared his pros and cons of franchise ownership. He also shared the characteristic that attracted him to the franchise business model.
Below are a few of the questions discussed by Melissa and Howard at the event:
1) What are some of the benefits of being a franchise owner, operator and/or investor?
- One of the most transparent business models available
- Solves a number of start-up problems. Someone can buy the brand, systems, and track record. Plus, receive continual input and improvement through the franchisor and the franchisee community
- Ability to use repetition as one of the most powerful forms of leverage
- Potential attractive investment: non-correlated to standard stock and bond markets; low investment amount; alone or joint venture; current cash flow potential at yields above alternatives
2) What types of people seek to buy a franchise?
Typically, there are three types of people
- Someone who is employed in Corporate America and frustrated, worried about losing their job or thinking of retirement and wants to start a Plan B while they have a steady pay check.
- Successful entrepreneurs who want to diversify into alternate investments, so they don’t have all of their eggs in one basket.
- Professional executives who have done very well in their career but woke up one day, through no fault of their own, without a job. Many say they’re tired of making money for someone else. They want more control over their future, without all of the risk of going out on their own.
3) Are there certain types of people that would not make a good franchisee?
Yes. There are three main traits:
- Too entrepreneurial and don’t like following systems which is the most important aspect of a franchise
- Too risk averse, would prefer day-to-day repetition or uncomfortable making decisions.
4) Are all franchises owner-operated, standing behind a counter, or where someone would have to leave his or her job?
That used to be the most common type of franchise, but not anymore. Many franchises offer a “semi-absentee” or “passive ownership” model where you can keep your job, or focus on other investments, while still monitoring all aspects of the franchise without actually being present in the location day after day.
There are three different levels of franchises in the market. We’ve all heard of the first, most of us have heard of the third, and almost no one has heard of the third.
- Owner operator model: work in the business, enjoy, have control over schedule & income, don’t need to grow to be happy
- Executive/growth: manage the managers, grow into multiples, scalability is important. Biggest fear is to buy one area, grow it and get “landlocked” and unable to grow.
- Master/Area Developer: where long-term wealth is built. Buy a large market then help to develop & support. Almost passive income over time. Need to have ‘coaching’ skills and ability to be without an income immediately.
5) How can someone evaluate if franchising is a good fit for him or her?
You first want to ask yourself a few questions:
- How much time do you have to devote to the business?
- What are your skills?
- What are your goals for the future?
- Do you like to sell?
- Are you comfortable managing employees and how large of a staff?
- What are your weaknesses?
- Are you more or less entrepreneurial?
6) What are some of the potential risks of owing/operating a franchise?
- Need strong business acumen and/or team to execute the field portion of the business
- Having the necessary time to devote to the business (depends on level of involvement)
- It is a non-liquid investment
- There may be control issues depending on the level of involvement & Franchisor’s role
- If there are partners there may be differing styles or vision for the business
7) What should I look out for when buying a franchise?
The first thing to think about is that the business model is more important than the widget. This is the main mistake people make. Just because you like pizza, doesn’t mean that’s the right business for you. Consider margins and spoilage of food, employees, food business experience, late nights/weekends, etc. Start with the end in mind.
Second and just as important, is that you never want to work with a franchise that you feel is “selling you”. There is good, bad, ugly and great out there in the franchise world. Focus on the great. The way to know if they’re a great franchise is how they take you through their research process. You want a company that interviews you, not sells you. Make sure they ask numerous questions and get to know you. Most great franchises are very selective and “award” franchises, not sell them. They shouldn’t award you just because you have the money. You also need to fit the profile of their most successful franchisees.
You should be encouraged to learn as much as possible about the franchise, and get to talk to their franchisees to hear all perspectives on the pros & cons of the franchise.
8) How large is the franchising industry?
There are about 3,000-4,000 franchises to choose from, and 55 different segments. This can cause confusion when trying to find the best fit. Many people get overwhelmed when they look online and try to pick one or two.
9) What types of trends do you foresee in the future?
- People are looking for quicker returns on their investments; they don’t want to wait years for a strong ROI; they want it in months or quarters.
- Franchising is attracting a savvier investor. People are looking to grow through scalability and managing the manager, not standing behind the counter. More of an executive or semi-absentee owner model. Franchises used to be about 80-90% owner-operator. Now 50% owner operator and 50% investor model.
- People are worried about the Affordable Care Act as to how it will affect businesses with 50 employees or more. People want more on an executive type model with a relatively small amount of employees, but still having the ability to grow a sizable business.