Notetaking
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Thinking about buying a franchise?

Franchises can be a great way to start your own business. They offer the benefits of being your own boss with the support and resources of a larger organization. But there are some things you need to think about before making the decision to buy a franchise including the financial stability of the franchisor, training and support, brand recognition, and location.

Financial Stability

Financial stability of the franchisor is essential when considering a franchise purchase. Before you sign a franchise agreement, it is important to understand the franchisor’s underlying financial health in order to determine the sustainability of the business model. Knowing whether a franchisor has adequate resources to confront issues and grow over time, as well as their experience in working with franchisees is key. Financial due diligence is invaluable during the selection process and must take into account profitability, cash flow, debt load, liquidity amongst other financial metrics. Purchasing a franchise with an unstable franchisor can lead to difficulties and ultimately negative consequences for your business. Financial stability should remain high on your list of criteria when you are examining prospective franchises to buy.

Training and Support

Training and support from the franchisor is essential in enabling you to succeed as a franchisee. All franchises are not created equal in this regard. You need to find a franchisor who will provide detailed training materials, guidance and resources which allow for an easy transition into running a successful brand. This training does not end after the initial purchase; it often continues with refresher training and other materials for improvement over time. Ultimately, training and support from a franchisor must provide essential advice and direction to ensure that purchasing a franchise is rewarding both financially and professionally.

Brand Recognition

A brand that is recognizable is a key to a successful franchise. Purchasing a brand that has recognition and strength in its marketplace will give you a head start compared to other businesses in the same industry. Consumers are more likely to recognize and purchase from a brand they are familiar with, generating repeat sales and brand loyalty. This is why brand recognition when purchasing a franchise is essential to ensuring your ability to succeed long-term. By investing in franchises with brand recognition, you have a better chance to provide your customers with an experience they already know and love, making it much easier for you to hit your growth targets.

Location

Another key to franchise success is location–not only location within your area, but location within specific regions of the country as well. When selecting a franchise, it is important that research is done in order to determine whether it will be successful in a given area. Understanding the nuances of buying franchises in different regions of the country can make all the difference when it comes to reaping maximum benefits from your investment. A franchise that’s popular in the southern part of the country may not make it in Iowa. Does the franchise have a track record of success in your region or similar markets? And in your local area, your location needs to be visible and accessible to potential customers, taking into account local population trends as well as competition from similar businesses.

Conclusion

You can increase your chances of success by taking the time to thoroughly research a franchisor’s financial stability, training and support, brand recognition and location. A good and well-planned franchise that aligns with these four considerations can be a wise decision for any would-be franchisee. As I always say, every franchise is not built the same. Choose wisely!

If you have a little bit of time left, how about start writing your own bucket list
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If you are a business owner who is looking to sell or transfer your business, then it is important to understand the importance of effective succession planning. Succession planning helps ensure the future of your business is bright and secure, regardless of who owns it. Let’s break down what succession planning entails and how it can help protect both you and your business.
The Benefits of Succession Planning
Succession planning involves preparing for the eventual transfer of ownership of a business from one person to another. It can provide numerous benefits, including ensuring the continuity of the company, preserving its value, and protecting against unexpected changes in leadership. It also prevents disputes between shareholders or members and provides clarity on expectations for employees, customers, and suppliers.

Succession Planning Strategies
When it comes to succession planning strategies, there are several key elements that should be taken into consideration. First and foremost, a comprehensive plan should be in place which outlines all aspects of the transition process. This plan should include goals for both short-term and long-term success; details on ownership structure; plans for financing any necessary purchases; and an exit strategy for those owners who are leaving the organization. Additionally, it is important to create a timeline with specific milestones that need to be achieved in order for the transition process to proceed smoothly.

It is also essential to ensure that all stakeholders involved have a clear understanding of their role in the process as well as their responsibilities after the transition has been completed. This includes not only current owners but future owners as well. A client of mine undergoing the succession planning process is sitting down with his executive team and a facilitator to get honest feedback on who is truly interested in buying the business and leading the company into the future. Not everyone is interested or equipped to lead a company. It is important to identify those people BEFORE an event occurs that may leave your company vulnerable. If the executive team does not wish to take over, he has a strategic buyer in mind. Finally, consider hiring outside advisors such as attorneys or accountants who specialize in helping businesses with their succession planning needs.

Conclusion

Succession planning is an essential part of any business owner’s operations—regardless of whether they are looking to sell or transfer their business down through family generations. By investing time into creating a comprehensive plan with clear goals and timelines, businesses can protect their value now and into the future while avoiding potential conflict between stakeholders during ownership transitions. With careful thought put into these processes beforehand, businesses can ensure that they remain successful no matter who owns them down the line!

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I saw a great post from divorce attorney Eliana Baer about her answer when a client asked her whether she believes in settlement or litigate, litigate, litigate. Her post is a fun one but the answer is an important one for clients (and often lawyers) to understand.

I am a believer in settlement under the right circumstances and when it is in the client’s best interests. If you can settle your dispute reasonably it is a big benefit to you. You can save on attorneys’ fees, but maybe even more importantly, you take control of your case to determine the outcome on your own. In those circumstances your case will not be determined by a judge, jury, or arbitrator all of whom may give a wholly unpredictable and surprising result. Sometimes that result is good and you’re happy you took it all the way to trial or hearing. But other times the result is disappointing and then you surely wish you would have settled.

The timing of serious settlement discussions is important. In my experience it is hard to settle reasonably if the timing is too early. If the lawyers do not have all the facts, an understanding of the law or comprehend the possible downside of their case, it is incredibly hard to settle reasonably.

In order to position the case for settlement it is important the other party understand the upside of my client’s case and the downside of their own case if a settlement is to occur. But keep in mind this process is going both ways. Our client also needs to assess the risks of proceeding to trial as well. For business cases like we handle, it is usually important for our client to also consider “business factors” because we are generally talking about money at issue. Business factors may include the time it will take you away from your work to continue with the case, whether you can collect from the other party, or whether the monetary expenses of proceeding to trial or hearing justify the possible recovery.

It is rare but sometimes I’ll hear from the client that it is about the principle of the matter. Trust me, it is rarely about the principle of the matter in the end. A client usually cares about the costs dearly. I can only remember a couple of rare instances where a client said it was about the principle of the matter and actually meant it.

Abraham Lincoln once said:

“Discourage litigation. Persuade your neighbours to compromise when you can. Point out to them how the nominal winner is often a real loser – in fees, and expenses, and waste of time. As a peace maker, the lawyer has a superior opportunity of being a good man. There will still be business enough. Never stir up litigation. A worse man can scarcely be found than one who does this.”

While I understand the wisdom in Lincoln’s quote, it seems Baer’s answer to her client’s question about whether she believes in settlement hits the mark directly and it’s one I wholeheartedly follow when she says,

Yes, but only at the right time and under the right circumstances, provided it is in my client’s best interests.

Just a sudden attempt to express the concept of crime.
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Big news this past week in business/employment law. The FTC is proposing legislation banning noncompete clauses. The agency estimates this could increase workers’ salaries by nearly $300 billion per year.

I’ve never been a fan of noncompete clauses for lower paid workers. But I’ve always believed there is some validity to a business protecting their customer base. There should be a balance between restricting someone’s ability to earn a living v. allowing someone to raid their employer’s customers when they leave employment.

The proposed legislation would generally prohibit employers from using noncompete clauses. Specifically, it would be illegal for an employer:

  • enter into or attempt to enter into a noncompete with a worker;
  • maintain a noncompete with a worker; or
  • represent to a worker, under certain circumstances, that the worker is subject to a noncompete.

The proposed rule would also apply to independent contractors and anyone who works for an employer, whether paid or unpaid. It would also require employers to rescind existing noncompete clauses and actively inform workers that they are no longer in effect.

The proposed rule would generally not apply to other types of employment restrictions, like non-disclosure agreements. However, other types of employment restrictions could be subject to the rule if they are so broad in scope that they function as noncompete clauses.

The FTC is asking for comments so the proposed legislation could change from the proposal. However, one thing is clear – noncompete clauses are heading to extinction. The trend has been heading in this direction and this proposal could accelerate that trend even faster.

It will also be interesting to see whether this proposal has an impact in franchisor-franchisee situations. It seems franchises will need to be ready to deal with the fact that noncompete clauses could go away. Time will tell.

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BoliviaInteligente, Unsplash

Last week I wrote about how the franchise industry has it wrong. But don’t misunderstand me, that doesn’t mean the future of franchising isn’t bright. In fact, the breadth of the franchising industry is pretty staggering.

Red Boswell writes on the FranchiseWire blog that the 2023 will be the best year ever in franchising. He says there are 12 reasons why the future looks bright for franchising. I go through his points below adding some of my own comments. Make sure to read his article. I did find his perspective interesting.

  1. Franchise Brands are joining forces. Boswell says there are strength in numbers. With brands joining forces the organizations are becoming more professional with stronger systems and support for franchises.
  2. Franchising is attracting more professionals. I have been noticing this for many years. Former corporate managers and executives are turning to franchising as the alternative to start their own businesses.
  3. Franchise consultants are going mainstream. Here’s one to be careful on though. All franchise consultants are not the same. Find a consultant that is independent and not beholden to any particular franchise brand(s). Joel Libava has an entire guide on how to hire a franchise consultant.
  4. Private equity loves franchising. In my experience that is a positive but at times is also a negative for franchisees. Private equity loves franchising, but mostly private equity loves making money. So often the founder driven franchise changes when private equity takes over, sometimes for the better and other times not so much. But I agree that private equity allows for more sustainable growth.
  5. There are more ways to get together. There are many conferences and events to connect and learn about franchising.
  6. Innovations are making franchises better. Many franchises are leveraging technology to improve their brands.
  7. Franchise education is growing. Colleges and universities are introducing franchise and entrepreneurship majors bring more educated and qualified people to the industry.
  8. The industry is prioritizing inclusion. There is always work to be done in this regard but I agree the franchise industry is working on becoming more diverse.
  9. There are more franchise opportunities in more sectors. Franchising is not just fast food. One of the largest growing segments is the home services industry where I have had several clients buy franchises over the past couple of years with success.
  10. There is a wealth of information about franchise opportunities. There are so many sites out there about franchising you could drown. Find reputable sites that provide independent information. (I’ll write a blog post on some of my favorite reliable sites soon).
  11. Financial Disclosure. Item 19 of the FDD allows franchisors to disclose their financial performance representations. More and more franchisors are taken advantage of the opportunity to inform prospective franchisees of their finances. Always be sure to investigate these financial performance representations carefully.
  12. Franchising Support. Boswell points out the the International Franchise Association (IFA) is always advocating for the industry. This is true. As a prospective franchisee though, always try to find independent sources. As an example the IFA loves to tout that franchising gives you a better chance to be successful than independent businesses. The truth and the reality is that franchise businesses fail at roughly the same rate as independent businesses.

What do you think? Do you see a bright future for franchising?

Rise And Grind
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You may want to own your own business but you also don’t want to quit your day job. Is it possible to find the elusive extra income to add to your bottom line and possibly even give you the freedom to quit your job in the future?

Kimberly Crossland has a great post on the Franchise Direct blog discussing just how you might be able to start your own franchise side hustle.

Is it easy?

Of course not.

But she discusses some basic elements you should look for when trying to find a franchise side hustle. Those elements include:

BACK OFFICE SUPPORT

If you are going to have a side hustle, back office support is essential. Things to look for include call centers to help with marketing, accounting support, billing, and appointment booking.

TURNKEY OPERATIONS AND PROCESSES

The benefits of owning a franchise in theory are the turnkey operations and processes. But in my experience, all franchises are not created equal in this regard. Really examine this factor hard and put the franchise to the test. Talk with several franchisees to determine if the franchisor’s processes are effective and beneficial.

RECURRING REVENUE MODELS

A recurring revenue model is ideal. It is tough to chase customers all the time. And if this is a side hustle, you want to avoid that. Find a business where customers need to use your service over and over again.

FEWER SALES; MORE SERVICE BASED

Again, a side hustle is tough if you are constantly selling. Service based models enable you to manage operations and grow while not going all-in with the business from the beginning.

The place where I am seeing the biggest opportunity in franchise side hustles is the home services industry. Many of home services franchises meet the elements discussed above. Right now though keep in mind that hiring employees is one of the most significant challenges faced in starting a side hustle. One franchisee I represented recently told me his business was really taking off, but the only problem was finding enough employees to grow. No matter what count on it being work. There is no such thing as an easy side hustle.

We wanted to display the concept of a person thinking. We entered a dark room, spent a long time adjusting the light, and came up with this image.
Ben Sweet, Unsplash

I have reviewed hundreds of franchise disclosure documents (FDDs) and franchise agreements at this point in my career. And mostly, my review always solicits one question in my mind:

Do franchisors need these overwhelmingly restrictive franchise agreements?

Most FDDs and franchise agreements disclaim just about any real obligation to do anything on behalf of franchisees. Don’t believe me? Read them yourself. Show me where I am wrong.

Don’t franchisors have some obligation to support their franchisees and help them be successful financially? And while that seems like a simple thought most franchisors should have, I can tell you from experience it is not a common mindset. Many franchisors, from what I can tell, do not really care all that much about franchisees. What they care most about is receiving fees. They care about protecting themselves against defaulting franchisees. And they care about their own interests often to the detriment of franchisees.

What I am NOT suggesting is that franchisors should put franchisees first. Of course franchisors need to protect their businesses and systems. Of course franchisors should be concerned about their own profitability. What I am suggesting is that franchisors take a franchisee-centered approach. What does a franchisee-centered approach entail? To me, it means having empathy for franchisees. It means practicing attentiveness to franchisees’ questions and issues. It means communicating regularly with franchisees (which remarkably does not occur with many franchisors). It means developing effortless experiences with franchisees in terms of ease of doing business, training, and helping franchisees innovate their businesses. And finally, it means adding value for franchisees so the franchisor has created franchisees for life.

For many franchisors this may require a shift in mindset. A mindset that is not so rigid like your typical franchise agreement along with system rules, but instead that is more of a growth mindset where there is an emphasis on learning what works and does not work. And this mindset may require franchisors to listen much more to franchisees in order to improve in the future. And in the end, it is my strong belief that Franchisors who can take this franchisee-centered approach will set themselves apart to dominate the competition. If you find a franchise-centered franchise, be sure to reach out to me and let me know about it. I’d love to see some great examples.

Silhouette of a man holding a trophy at sunset
Silhouette of a man holding a trophy at sunset. Success concept

Are you thinking about starting a new business in Iowa? Here are 10 tips to get you on your way.

  1. Save up as much money as possible before starting.
  2. Start on a shoestring. Don’t get the fanciest office or hire lots of employees.
  3. Protect your personal assets. Form a corporation or limited liability company (LLC).
  4. Understand how–and if–you will make a profit.
  5. Make a business plan, no matter how short.
  6. Get and keep a competitive edge.
  7. Put all agreements in writing.
  8. Hire and keep good people.
  9. Pay attention to the legal status of your workers.
  10. Pay your bills early and your taxes on time. 

The best business people I know are generally quite conservative when it comes to spending money, especially in the beginning. Make sure not only to pay income taxes but also payroll, sales and use taxes. The failure to pay those taxes can be costly with interest and possible fines. It is also important to know that a corporation or LLC will not keep you from personal liability if you fail to pay those taxes.

Really interesting article in this weekend’s Wall St. Journal on how private equity firms are buying up car washes and turning them into regional chains. There is a trend in private equity to buy up small businesses is to bundle the businesses in order to “roll-up” those businesses and find new ways for them to make money. The goal is to create more valuable companies that can be sold for multiples of what the private equity investors paid.

This is happening in all kinds of businesses such as dentist offices, auto-repair shops and dry cleaners. It is happening in the franchise industry as well. It is a trend that seems to have some legs and something to keep watching.

I made this observation on Twitter recently. Franchisors should stand by their trademarks.

What? Why would you say this? Doesn’t every franchisor stand by their trademarks?

No. No they don’t.

If you look closely at your franchise agreement, it is very likely the franchisor will not indemnify its franchisees against trademark infringement by third parties. This means the franchisor isn’t willing to protect its franchisees from challenges to the name of the franchise and its brand. Franchisees are really buying two main things from a franchisor. One is the system. And the other is the license to the name or brand.

If your franchise won’t indemnify, defend and hold you harmless from trademark infringement, you should negotiate to have such a clause inserted into your franchise agreement. And if your proposed franchisor won’t agree to it, then perhaps you should think twice about whether this is a franchise for you.