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Human Resources
Jan 2, 2017

So You Want To Buy A Franchise?

Sponsored Content provided by Dave Hoff - Chief Operating Officer and Executive VP of Leadership Development, EASI Consult

Are all franchises the same? What do you need to know before you make that financial and emotional investment?
What kind of financial resources are required? What personal capabilities need to be brought to the deal?  There is a lot of talk about someone needing to be entrepreneurial. Besides being hard to spell, what does that really mean, and what do you need to be able to do?

Truly entrepreneurial people are driven and all around self-starters. They are good at setting and accomplishing goals. They have this reservoir of energy they bring to whatever they are doing, every single day. They are always thinking, how can I improve myself as a person? and how can I improve this thing that I am working on?

They have high standards for themselves and others. They are always looking for feedback on how they can improve. They typically have a long-term career and life plan. If given the choice, they would work with experts over friends.  They may sometimes rub people the wrong way because they are focused on the goal, and therefore can come across as somewhat insensitive to others.

Sound like you? Maybe you do have what it takes. You might ask yourself where does this information on entrepreneurs come from?  I actually worked with Dr. David McClelland for 5 years in Boston.  David founded a consulting firm known as McBer that did a lot of research in the area of motivation.  David was also head of the psychology department at Harvard University.  He wrote books on “The Achievement Motive”( thought to be the basis of entreprenuriasm) and “Motivational Trends in Society”.  I also worked training entrepreneurs on how to increase their achievement thinking and behavior.
 
How does this entrepreneurism translate into the capabilities and competencies needed to run a franchise?
Those include:

  • Being goal-oriented
  • Taking initiative
  • Planning
  • Seeking feedback
  • Taking personal responsibility in situations
 
There are also some leadership capabilities you are going to need to bring to the franchise. These are in addition to the basics of selecting the right people then giving them clear directions and positive and negative feedback, as well as rewarding, punishing and developing employees. 
 
Leadership skills are:
  • Business acumen
  • Team-building and fostering teamwork
  • Influence (up, across with other franchisees, and down)
  • Innovation
  • Development and communication of strategies
 
Still interested? Now you need to go about evaluating the franchisor.  Unless you won the lottery, in most cases the financial resources you are going to need will represent most of your net worth. 

Here is a cheerful statistic from Entrepreneur: Nearly 17 percent of franchise loans made through the Small Business Administration from 1991 to 2010 ended in failure, according to a new report released by the Service Employees International Union.

Even more concerning - the figure is rising. In the most recent five-year period - 2006 to 2010 - the average was 19.3 percent.

So, roughly one in five franchises is not successful. What is it going to cost you to get into this business, and what are you going to get for your investment? 

Questions to ask:
  • How much of your gross revenue goes back to the franchisor each month in the form of fees, cost of goods, etc.?
  • What kind of training (classroom and hands-on) will you receive (initially and ongoing)?
  • How well-documented are their policies, procedures and systems for operating the business and their expectations of you?
  • What marketing support do they provide? What does it cost you and what are you getting for that price?Is there a mechanism in place for joint marketing with your counterparts?
  • What is their three- to five-year plan? How much of their gross profit are they investing in the franchise network?How?And in what?
Considering a franchise starts with you and whether you think this path is right for you. In most cases, it requires you to have an active, hands-on role. Part of the question is temperament. 

A couple of well-known franchisees expect you to have $1 to $2 million in start-up costs. There is a five-figure franchise fee. They want you to have $750,000 in liquid assets and, in one case, a net worth beyond that of $1.5 million.

As an alternative, there is a chicken franchise that has two ways to achieve franchise ownership. One is as an outsider. There is a very rigorous interview. They don’t want passive investors. They do not want people who don’t have a Plan B if obtaining a franchise doesn’t work out. They lease everything to you for a 15 percent fee.  The franchise fee is $10,000 and they want 50 percent of your pre-tax profit. 

The other option is to work at one of their stores as an employee. You must first be recommended by your franchise owner, then go through an extensive interview process and if selected go into their leadership program for one to two years. In the second part of the leadership program, you run a store - one of the stores that was just bought by a franchisee that came to them from the outside. 

You teach him how to run his business for a year. Afterwards, the franchise sets you up in your own franchise for $10,000. They finance your real estate, equipment and other start-up costs. Once debt is paid off, the average franchisee has the potential to earn $250,000 per year. 

A franchise can be a great career option if you have the “right stuff,” you do your homework and pick the right franchise with which to partner.

EASI•Consult® works with Fortune 500 companies, government agencies, and mid-sized corporations to provide customized Talent Management solutions. EASI•Consult’s specialties include leadership assessment, online pre-employment testing, survey research, competency modeling, leadership development, executive coaching, 360-degree feedback, online structured interviews, and EEO hiring compliance. The company is a leader in the field of providing accurate information about people through professional assessment. To learn more about EASI•Consult, visit www.easiconsult.com, email [email protected] or call (800) 922-EASI.
 

 


 

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