I was recently interviewed on the Entrepreneur Iowa Podcast by Dan Tooker. Dan is with the Des Moines Radio Group and is also the owner of Franchising Done Right. Dan’s franchise related business helps displaced executives and budding entrepreneurs find franchise opportunities. Dan and I discussed franchising, what it takes to be successful in business, business law issues and more!

Take a listen. Hope you find some valuable insights and tips.

I wish you a happy and successful 2021!

 

FRANCHISE Marketing Branding Retail and Business Work Mission Concept

I saw a post from Global Franchising that warranted attention from franchisors as we move into 2021. All too often I have seen franchisors this year bury their heads in the sand and not communicate with franchisors. This article discusses six things franchise executives must do to prepare for 2021.

For me, it’s all about #1 in the article. Franchisors must proactively reach out to franchisees before the end of the year. For many franchisees, it has been a tough year. Taking the time to personally reach out to franchisees will pay off dividends for your business in the long run.

You’ll find that the activity of having your executive management team personally check-in on franchisees between now and through the end-of-the-year won’t take much time and will provide you with the greatest ROI of almost any investment or activity that you can undertake. The insights that you’ll receive are critical for the budgeting process, and a simple call will go a long way in showing your level of commitment and conveying how valued your franchisees are.

I think if there is one thing this year has taught us, it is that personal relationships are most important. Would you believe that I have actually seen franchisors that have not communicated with franchisees during this entire pandemic? By reaching out to them at least franchisees will know you care. The other thing is that you may be able to offer valuable advice that a franchisee can use to improve their business during this difficult time period. But also, YOU will be able to come away as a franchisor with important objectives to meet in 2021 to make your franchise offering even more valuable and successful for franchisees.

The article talks about how you may also be able to use third parties to conduct research on your behalf. While not a bad idea, I would definitely recommend your franchise management team reach out to franchisees rather than a third party. This is not the time to outsource. This is the time to roll up your sleeves and do it yourself. You will not regret it. If you haven’t reached out to your franchisees this year, be sure to do it now. I guarantee (and you typically won’t get guarantees from a lawyer) that it will pay off positive dividends for your business!

There are five other tips worth considering in the article. Be sure to give it a read.

If we can help you out with your franchising needs as you enter 2021, be sure to give us a call.

 

 

Are you interested in starting a new franchise? This blog post will discuss 7 initial steps to franchising your business.

Step 1: Decide if franchising is right for you. Franchising is not something to take lightly. It is a significant commitment, not only in terms of time but also the financial investment required to start a franchise. Some questions to ask yourself before you franchise your business include:

  1. Are you making a good living in your business?
  2. Have you operated multiple locations?
  3. Do you have a proven system of operation?
  4. Are the profit margins large enough for the franchisee to make a good living, support employees and pay you a royalty?
  5. Do you have the time to devote to a franchise operation?
  6. Do you have the skill set to promote a franchise operation?
  7. Do you have start-up and operating capital?
  8. Will franchisees be able to get financing from affordable sources?
  9. Does your business have a unique selling proposition?
  10. Does success of the business depend on skills people have or can quickly acquire?
  11. Is the market stable enough to provide for growth over several years?
  12. Are you able to support franchisees once you get them in business and do you have something to offer them beyond getting them in business?

If the answers to these questions are “Yes” then perhaps you are a candidate to franchise your business and advance to Step 2.

Step 2: Talk with Business Professionals About Starting Your Franchise Business

It is a great idea to talk with various professionals concerning whether to franchise your business. I recommend you speak with a franchise lawyer and your accountant first. It is important to work with a lawyer well-versed in franchise issues. Your typical business attorney may only have limited knowledge about what it takes to franchise your business. Just like you would not want a general surgeon operating on your brain, make sure you get a lawyer who specializes in franchise law to help you out. Also, it is important to get your accountant involved from the start because there are a number of issues that will come up especially if you are growing the franchise including audited financials and other tax considerations. You will probably also want to make sure you talk with your banker, insurance and marketing professionals before you begin your franchise.

Step 3: Work with the Franchise Lawyer to Develop Your Franchise Disclosure Document

So you have decided to move forward with the franchise. The next step is to work with your franchise lawyer to prepare and issue a franchise disclosure document (FDD) that complies with federal and state laws. This is an important process that involves a number of other steps, including writing the franchise agreement that franchisees will sign. The FDD requires you to provide certain information to prospective franchisees in 23 disclosure sections. It is is a detailed process that should be planned carefully in a way that connects with how you intend to run your business. You will not only be preparing documentation that will work in your exiting state, but also in other regions of the country in which you decide to franchise. Sometimes this may include selling your franchise in what are known as registration states. In registration states, regulators will closely examine your FDD offering to make sure it complies with their state laws and requirements. Often, there are special restrictions placed on new franchises in registration states. It is helpful to have a lawyer that has experience in working with franchise regulators to navigate the numerous issues that may come your way when you start selling franchises.

Step 4:  Develop a Franchise Operations Manual and the “System”

The backbone of any successful franchise company is systems. You will need to create and completely document the systems of your franchise with an operations manual that a franchisee will use to run their business successfully. You will need to create a training program that will teach a new franchisee what they need to know to become successful. You will also need to develop marketing plans that a new franchisee will use to obtain customers. And since you will now be in the “business of franchising” as opposed to your “former business”, you will also need to have systems that you can use to recruit new franchisees into your franchise company. There is a TON of work to do. You may be able to hire outside consultants to assist with all this work, but if you do, you are definitely going to pay significant dollars for that assistance.

Step 5: Take the Steps to Protect Your Intellectual Property

You will need to establish and register your trademarks and logos. It is important to register your trademarks (both the words and design of
your logo) with the United States Patent and Trademark Office (USPTO). This is not a step to take lightly. Do not have this work done on the cheap. Be sure to work with an attorney who specializes in trademark registrations. That may, or may not be, the same attorney as your franchise attorney. Not all franchise attorneys file trademark registrations although most franchise attorneys will have a trademark specialist in their law firm. The trademark is absolutely critical to the success of your franchise because this is the main intellectual property you are licensing to franchisees.

Step 6:  Establish Your Franchise Business Entity

You are rounding into the home stretch in the start up of your franchise business. You need to decide what type of entity you will use to operate your franchise business. There are a number of factors to consider before you choose your corporate entity. Many people these days tend to automatically lean toward the LLC. But the LLC is not right for everyone. One major consideration is whether you plan to take investment from outside sources. Many investors do not like LLCs and will not invest unless the entity is a C corporation because of the tax rules. Investors typically do not want to pay taxes unless monies are actually distributed. Unlike LLCs, C corporation shareholders are not taxed unless profits are distributed. Be sure to seek tax advice from your accountant when you are choosing the type of entity.

Step 7:  Create Your ‘Go To Market’ Strategy

Once all the legal documents are completed you are really just starting. Mapping out and planning your initial franchise marketing and sales strategy is critical. Where will you start your franchise? It is usually best to grow at a slower pace in the beginning to get your “franchise legs” underneath you. While everyone dreams of explosive growth, growing too fast can cause a host of problems for new franchisors who do not have experience including franchisee, supplier and business systems issues. Also, do you intend for your franchise to be a national brand? Or perhaps is it better off staying in a regional area? Will you be registering in franchise registration states? If so, you will need to make sure you are actually registered (or filed in certain other states) before you sell locations in those states. You will need to develop a business plan to effectively carry out your franchise goals.

Franchising is a long-term business strategy. It is not generally a get rich quick approach. It requires systematic processes and lots of patience in growing your business and dealing with franchisees. It can be very rewarding financially if carried out successfully. But just know, once you are up and running as a franchise, you have just begun to be in business. Let us know if we can help you to start and grow your franchise.

 

 

 

[Announcing]: A long awaited Steak-N-Shake is anticipated to open in West Des Moines this coming January 2021. A couple of years ago in a Des Moines Register poll, Steak-N-Shake was one of the most desired businesses for the Des Moines area.

Delayed for more than a year, West Des Moines Steak-N-Shake to Open Next Month –  Des Moines Register

Although Steak ‘n Shake traditionally has offered table service, the new location will rely on counter service, a drive-thru and carhop curbside service. Delivery also will be available through third-party services such as GrubHub and Doordash.

Franchising on the Precipice: Unknowns in Transition – Natalma McKnew of Fox Rothschild LLP via JD Supra

Over the last 8 years or so, the ever-changing landscape of employment laws has arguably posed an existential threat to franchising. The franchise business model may not make sense if franchisors are legally defined as the employers of their franchisees or joint employers of their franchisees’ employees. But what is an “employee” and who is a “joint employer?”

With Biden becoming President are there more challenging times ahead for the franchise industry?

Hooters to Expand its Fast Casual Chain through Franchising – Restaurantdive.com

Hoots Wings offers a wings-focused menu with breaded bone-in, naked bone-in, boneless, smoked and roasted wings and over a dozen sauce and rub options. A handful of full-service chains, including Bloomin’ Brands and Cracker Barrel have looked toward their fast casual brands to expand, but HOA is among the first to do so through franchising the concept. Hoots anticipates opening 17 locations in 2021, 35 locations in 2022 and 50 locations in 2023, with key expansion in 2021 focused on the Southeast, Midwest and Northeast.

Hooters closed its only metro Des Moines location back in 2013. We’ll see if a franchisee brings the new fast-casual concept back to the area.

Planet Fitness Franchisee CEO Pushes for Larger Gyms to Stay Open – Spectrum Local News – New York State

Candidly the whole reason we exist is to help people be healthy, and there are millions of New Yorkers that struggle with the consequences of being overweight, diabetes, heart attack, stroke,” he said. “People can get out, get exercise, and boost their immune system. That’s what people need to be doing. It’s the worst possible time to shut down gyms in that respect.

Covid has caused many challenges for the fitness and gym industry. In Iowa the group fitness ban has been lifted but participants still must maintain a 6-foot social distance requirement.

 

Whether your are a prospective franchisee yourself, or a franchisor searching for the right franchisees, it is important to know what makes a franchisee successful. Because in actuality there are always top, average and poor performers in EVERY franchise. Franchisors will see a wide-spectrum of results. This blog post examines 5 traits I have noticed about successful franchisees.

  1. If it is to be, it is up to me. If you read my blog posts on franchising with any regularity you will see many references to this mantra. Unfortunately, all too often I see franchisees who expect they will be successful JUST BECAUSE they bought a franchise. This is sometimes the case even when the franchise has no name recognition in the particular city or state where the franchisee is opening the location. The reality is success is up to the franchisee. There is no guarantee that a franchisor has a great marketing plan. The notion that a franchise is less likely to fail than a non-franchised business is absolutely false. So be sure to learn about your customers. Make sure your customers have great experiences and that your employees deliver superior customer service. Your operations will likely make a bigger difference than the brand recognition of the franchise, or your location. In fact, if you don’t deliver the experience franchise customers have come to expect from other locations, your location is very likely to suffer.
  2. Work ON your business, not IN your business. I am a big fan of Michael Gerber who wrote the E-Myth Revisited which I reference in one of my pillar franchise posts. Top performers  develop leaders, and put the necessary infrastructure in place to ensure they don’t have to do it all themselves. A franchisee who owns 70 locations has no more hours in the day than someone with just one. If you can get the right people in place, and train them with excellent systems, your work yields more results. This is one of the great attributes of a franchise. It allows you to use the franchisor systems instead of coming up with new systems of your own.
  3. Stick to the System. Lots of franchisees think they are smarter than the franchisor. One of the more significant franchise failures I have seen involved a very experienced, and intelligent business person. But unfortunately this person thought they knew it all. They ignored the franchisor’s advice. Don’t be one of those people. Another highly successful franchisee I know with over 50 locations believes he is successful because of his willingness to follow the franchise systems. His theory is that if he can follow the system to build one location, he can continue to replicate it to build multiple locations and grow beyond what he could do on his own. If you find the right franchise model you will want to trust the system in order to be successful.
  4. Be willing to learn. Believe it or not, many of the most successful franchisees often have no business experience in the industry they select. But what these people do possess is a willingness to learn. Education is also not necessarily a predictor of success. I have seen highly educated individuals who failed. And of course there are legendary stories such as Dave Thomas who developed the Wendy’s franchise without being college educated, and did not even get his GED until age 61! Learning on the job is critical for success as a franchise owner.
  5. Be passionate about the work, not necessarily the product. Many people become interested in a franchise because they love the product. For example, maybe you have eaten at franchise restaurant out of the state and think to yourself, “I should bring this franchise to my area!” This happens frequently. But eating and loving the food at a franchise restaurant is much different than actually owning one. I don’t care if the food is great, you won’t be successful unless you are willing to do what it takes to be successful in the restaurant industry.  Running a franchise is tough. You will need to be passionate about the work and the steps that will help you build your business.

 

Recently I had a conversation with a very successful small business owner I have known for a long time that really shook me. I learned his sales are now down 80% during the latest surge of the pandemic . He said,

The virus is killing us. People are scared.

Meanwhile, Amazon’s sales increased 40 percent in the second quarter alone, while their stock price increased 97 percent. Apple hit a $2 trillion market cap, the first publicly traded company to do so, and reported nearly $60 billion in revenue. Since the pandemic began, Facebook’s stock rocketed up 85 percent, Google’s by 50 percent, Netflix by 63 percent, and Microsoft by 57 percent. All saw their revenues greatly increase compared to last year’s numbers as well. [Source: How Big Government Stacked the Deck Against Small Business}. And of course the stock market has reached all-time highs.

Small businesses though are struggling around the country. Nearly 1/3 of all small businesses have closed in New York and New Jersey in 2020. And the national average for small business closures this year is nearing 30% according to a Harvard run database, TracktheRecovery.org. The database shows that the number of small businesses open in Iowa are down 29.3% as of November 25, 2020, and we are unfortunately trending in the wrong direction at this time.

Iowa and other parts of the country did see an uptick in small businesses open after the stimulus checks started in April earlier this year. But with our government bogged down will help be on the horizon as the down-turn continues? To be candid, large corporations are not the actual culprit for small business problems. It is our government. Government has stacked the deck against our small businesses. Our government arbitrarily determines which businesses are essential, and which businesses must close. In one video I saw on Twitter, a small business owner in California was forced to close her bar and outdoor patio, while a large movie company directly across the parking lot was permitted to operate with numerous tents and chairs that were exactly like the set-up of the bar owner’s outdoor patio! Iowa’s government has engaged in similar decision-making. There is often no rhyme or reason for why a business may stay open and why a business must close. But what we do know, is that our government has not forced our large businesses to shut down.

Another problem is our federal government continues to favor big business over small business even when it tries to provide relief to ordinary folks. Our federal government provided incentives, handouts, and other pork in the CARES Act that continued to favor big business. Twenty-five percent of the initial $2 trillion (remember, those are your tax dollars) went to big business, with $58 billion going to the airlines alone and another $17 billion to the military-industrial complex giant, Boeing. Only $350 billion was earmarked for small businesses, and of that, $243 million “accidentally” went to large companies instead – leading some companies to return the money over the ensuing outrage. And recently we learned that businesses owned by President Trump and the Kushner family received $3.65 million in PPP loans intended for small business. All in all, only 5 percent of the first round of PPP loans reached small businesses.

What can we do? We must demand and advocate that our federal and state governments take care or our small businesses and ordinary Americans. Email and call your government leaders and representatives. They must act now. Before it is too late.

 

 

READ: 5 RECENT posts to check out ON franchising.

The Complete Introduction to Franchising and Franchise Ownership [With Updates] – Joel Libava, The Franchise King

Because if you’re going to invest in a franchise, it’s crucial for you to get a complete understanding of the business of franchising. You need to understand how the franchise business model works. Plus, you need to find out if franchise ownership is right for you.

Is Atlanta the U.S.’s new franchising Mecca? – Kieran McLoone, Deputy Editor Global Franchise

…not only is Atlanta now rife with franchise success stories and motivated entrepreneurs, but the capital city is home to some of the restaurant industry’s biggest brands’ headquarters and is frequently the location of choice for domestic expansion amidst all facets of U.S. franchising.

Issues in Franchising that affect Franchisees – Feldman & Feldman, P.C.

Purchasing a franchise has become one of the more popular business models in the United States – as well as globally – in recent years. According to research from Statista, in 2019 alone, the economic output of franchise establishments within the U.S. totaled roughly 787.5 billion dollars. With this in mind, it’s no wonder franchising is so popular; however, there are many caveats to becoming a franchisee that are often overlooked. Knowing how these drawbacks can affect unsuspecting franchisees can help them be better informed before entering into the franchise landscape.

Business Ownership: Deciding if Franchising is the Best Route for You – Seth Lederman, Forbes Councils Member

An entrepreneurial outlook doesn’t necessarily mean that you like to walk on the wild side; buck the system and be a trailblazer to go where no one has ever gone before. If you are a bit more reserved, want to own a business and maintain control, yet consider having your branding and marketing pre-established, a franchise might be the best course for your business-owning aspirations. You just have to maintain the course, engage with customers and reevaluate as things arise to be a successful franchise owner.

5 Reasons a Franchise Business is Even More Important Today – Jeff Bevis, Contributor to Forbes

Even in hard times, name brands have the upper hand when it comes to attracting customers. Franchise brands are known for consistency and quality, and that results in both national and local confidence in the product or service.

Successful franchisees know that while they have the support of a national brand, owning a business is hard work and demands a determined entrepreneurial spirit. Each franchise brand has different requirements but in general, to run a successful franchise you need strong organizational and communications skills, plus a willingness to learn the business. It’s also important to believe in and value the benefits of following a proven model and to embrace the existing system to guarantee the highest potential for success.

Stay Informed! Be sure to subscribe to this blog. We have exciting new resources planned for 2021!

Learn more about our franchise related legal services.

You have built a successful business and perhaps even have multiple business locations that are thriving. Out of the blue someone says, “You should franchise!” And the wheels start turning from there. You learn about the expected investment, hire a franchise attorney and complete your Franchise Disclosure Document (an over simplification for the purposes of this particular blog post ,but let’s go with it). Now you are ready to franchise. Even the most inexperienced franchisors know the success of a franchise depends upon the success of your franchisees. Of course it is tempting to take the first franchisee that comes along. After all, you have made a substantial investment and all of us would love to start with an easy sale.  Before you deposit that first check, however, keep in mind the advice the Grail Knight gave to Indiana Jones in the Last Crusade,

 Choose wisely, for while the true Grail will bring you life, the false Grail will take it from you.

Nothing could be closer to the truth when it comes to franchisors choosing franchisees. Underperforming franchisees require more support than strong franchisees. They also tend to complain and blame you for their ineffectiveness even when franchisees are responsible for their own failures. Sometimes they will even initiate litigation against you, or perhaps not pay their royalties and other fees. It may even result in a diminished reputation of your franchise when customers complain of poor service and other issues. These problems can definitely take the life out of a franchise business very quickly.

So how does a franchisor choose the right franchisee? Start off by considering these main points:

  • Can the franchisee afford the start=up expense?  Franchises can be expensive. Does the franchisee have sufficient capital not only to start the franchise, but also withstand the often difficult early months of the business.
  • Is the franchisee someone that needs to be in control? If so, franchising is probably NOT for that person. You definitely want franchisees who are willing to operate within the franchise system. Franchisees who want to operate outside of the norms of the franchise system will eventually hurt your system because they will not provide the consistent product or service your customers expect.
  • How does the franchisee feel about the ongoing costs?  Franchisees will generally pay fees totaling 5-10% of their monthly gross revenues in a franchise business. Have frank conversations with the prospective franchisee about why these fees are paid. If you sense they neither understand, nor value the reasons for such fees, you should pass on them as a franchisee.
  • Is the franchisee talking about doing it on their own? If a prospect is talking about doing the business on their own, then perhaps it is just best to wish them good luck and run from that person early on. In my experience, the business relationship with such prospects is rarely solid and usually does not stand the test of time.

I know it is tough to walk away from a sale, especially when you have invested a considerable sum invested in a franchise. But the early choices you make when selecting franchisees can often make or break a franchise.  Choose wisely to become successful.

How do you invest in a franchise successfully? The Franchise King, Joel Libava, has an excellent post with a Powerful 10-Step Checklist to Use Before you Buy the Franchise of Your Dreams. I love posts like the one Joel has written. His post has honest, straight-forward advice every person investing in a franchise should follow. The problem? So many investing in a franchise fail to do it.

The biggest piece of advice Joel touches on is “you have got to do the work.” Not only up front in your research but also as you move forward in the business. You would not believe how many times I have talked with people that essentially believe the franchise is going to do it all for you. Just know when you are investing in a franchise, the success of the operation falls squarely on your individual shoulders. No franchise can do it all for you. If it is to be, it is definitely up to you!

Another suggestion from Joel is to have 6 to 12 months of capital built up to survive during the start-up and lean times. You will have considerable expense in starting your franchise. But you need more than just the initial investment in order to be successful. The number one reason I see business people fail with franchises is that they are undercapitalized. The person may have just enough money to get in business, but do not have the funds for the long haul. Don’t be one of those people. Make sure you have enough capital to last through an initial ramp up period of several months.

Finally, Joel suggests seeing a franchise attorney. He suggests this EVEN IF there is no possibility the franchisor will negotiate the franchise agreement. Why?

So you have a complete understanding of the terms of the agreement, including what the franchisor is responsible for and what you are-as a franchisee. Plus, do you really want to pour over pages and pages of legal terms, some of which only a lawyer can understand?

In practice I have found that even those clients who could not negotiate their franchise agreement benefited from a review. It gave them a far better understanding of the business issues, and potential pain points. It also opened their minds to aspects of the business they had not considered previously. Plus, you are able to establish a relationship with an advisor who can likely help you on other aspects of the business such as forming a corporation or LLC, reviewing your lease, and help you draft employment policies and procedures.

Joel is one of the best in the franchise business. I highly recommend reading his post and reviewing his site. He has lots of good franchise investment advice and helpful tips.

2020 has been tough. And with the pandemic continuing, unfortunately it does not appear the challenges will end for franchise businesses any time soon. Governors around the country, including Iowa, are issuing new shutdown orders. What are key considerations for franchises as 2020 closes and we head into the new year:

  • Leadership. A couple of blog posts ago I talked about a franchisor that actually told its franchises that they were “on their own.” Franchisors need to show empathetic and encouraging leadership in the face of challenging times. A failure to exercise effective leadership will result in more franchisee closings, lost earnings, and upset franchisees. Franchisors and franchisees should continue to discuss best practices in order to improve and keep business profitable.
  • Keep Franchises Financially Viable. We know shutdowns mean decreased revenues for many franchises. Franchises must adapt in order for the business to remain viable as the rules change. As an example a primarily sit-down franchise restaurant may begin to emphasize take-out and delivery. Perhaps even a drive-thru, if possible, is now necessary to maintain a viable business. A business that routinely relies upon face-to-face meetings with clients and customers may need to find new ways to attract these customers to Zoom meetings or other methods.
  • Provide Relief to Franchisees. Franchisors may need to consider reduced ongoing fees and royalties in the short term in order to maintain the franchise long term. This may be difficult for franchises without significant cash reserves but giving some relief could go a long way toward keeping franchisees happy and operating.
  • Communication. Franchisors and franchisees need to improve communication during this tough period. Would you believe I have represented franchisees whose franchisors have not spoken to them once during the pandemic? Not a single email, phone call, or text. This is unacceptable. A lack of guidance and assurance from the franchisor will only give rise to feelings of isolation from and discontent toward a franchisor. Franchisors should have a carefully crafted plan to communicate with its franchisees during this difficult time period.
  • Messaging to Customers. Customers want to feel safe during the pandemic. There should be clear messaging that the franchise is operating within the health guidelines. This messaging requires coordination between the franchisor and franchisee. Effective messaging is critical to maintaining customer relationships that will not only survive the pandemic, but continue for years to come .

Set yourself up for better success during the pandemic by following these key considerations. If you need assistance during this difficult time period, whether you are a franchisor or franchisee, please take the initiative to contact us.