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Betty Otte, SCORE Counselor

If you are thinking about purchasing a franchise, keep the following 5 tips in mind.

1. You are a customer to the franchisor. Many people believe that going into a franchise is like joining a partnership where you, the franchisee, will be protected from failure. This is not true. While franchisee companies have a much higher success rate than individual start-up companies, up to 20 percent of all franchises do not do well. However, this failure rate is far lower than that of individual start ups.

2. You and the franchisor have different goals. Although both parties; franchisee and franchisor, have the common goal of building the brand, the franchisor’s goal is to sell franchises and the franchisee’s goal is to service the consumer or end user.

3. You may not have an ongoing relationship with the franchisor sales representative. If you are dealing with an independent agent or with one of the brokerage houses which represent franchisors, chances are that although they are knowledgeable about the franchise, you will not see that person after the point of sale. If you are dealing with a sales person salaried by the franchisor, s/he will want to work with you in the future, and that may cause the sales process to take on a different perspective.

4. You have legal rights when dealing with the franchisor. Be careful if the franchisor tells you how much you can earn if you invest in their system. The Federal Trade Commission (FTC) requires that franchisors who make such claims provide you with written substantiation. Be sure to ask for and receive this. If they don’t provide it, consider the claims to be suspect.

5. You are protected by the UFOC. The Uniform Franchise Offering Circular (UFOC) defines what the franchisor will do for you and expects of you. You must carefully review the UFOC before purchasing the franchise. The FTC protects franchisee prospects up until the point of sale, but after this, the UFOC becomes vitally important.

Betty Otte, SCORE Counselor

When most of us think about franchises, we are referring to the business-based franchise like the top 500 franchises published in Entrepreneur magazine each year. Entrepreneur’s 75 different categories range from automotive to services, but they all have one thing in common—a systematic method to deliver services or products.

You, the franchisee, have supported this system with your royalties and initial purchase price and it now will be one of your biggest assets as you decide to grow your business.

Since the systems for the franchise are already in place, your biggest concerns as you grow your business are:

Finances –having sufficient capital and resources

Location – for many businesses, location is critical. More on location.

Employee training

Culture transition

Employee Training and Culture Transition
You have worked the business in the first franchise location, so those employees have translated your style into their work habits. They have seen by example how to handle a customer. To expand, you are required to hire people who will accept your style and be able to train other employees in that culture without your presence. Turnover of employees is expensive and time-consuming. Finding the right managers who can train and translate your wishes should be high on your priority list before taking on that second location.

How will your role change? Will you still manage the first location with a manager in the second or will you try to manage both? Trying to be in two places at once is difficult if not impossible. Will you put a manager in each location and personally tackle marketing and public relations? Can you relinquish control? It may be harder to do than you think.

Due Diligence
Be sure you exercise due diligence and investigate the following before you decide to expand:

1. Figure out why the franchisee is selling. If it’s because the franchise is not successful, you need to figure out why. Lack of motivation or self-discipline, poor territory, inability to keep employees—there could and will be many reasons. You have the advantage of knowing the system so it is easier to differentiate perception from reality.

2. Protect yourself from liabilities. You will want to do a net asset sale to protect yourself from liabilities connected to the present owner with an indemnification clause. Even though s/he may have given you several reasons they want to sell, you may never know the true reason, so make sure to protect yourself from any outstanding legal actions.

3. Check financial statements. It is mandatory to check out the owners financial statements for 5 years or as long as they have been in business. What has the growth pattern been over this time period? Look at the sales tax returns and the income tax returns. It is easier to determine accounts payable, but equally important, in some businesses, is the accounts receivable. Often last minute games are played with receivables.

4. Can you assume an existing lease? It is important to check with the landlord if you are taking on an existing location. Many resources are available online to define due diligence requirements for the purchase of a business. Read one from SCORE.

5. Right of first refusal. In many franchise agreements, the franchisor has the right of first refusal. That means if the existing franchisee has someone who is willing to purchase the business, the franchisor has first right to come in and make the purchase at that price.

How to Grow the Franchise
There are two basic ways to grow your franchise:

Purchasing another territory. One way to expand is to purchase a territory from another franchisee. The same due diligence must take place here, however, as with the purchase of any business.

Purchase more territory or locations directly. Exercising this option means you will adhere to the same requirements published in the Uniform Franchise Offering Circular (UFOC) for the given year. UFOCs need to be renewed each year within the state of the sale. California and New York are the two states with the strictest requirements. More on UFOCs.

In many ways, growing a franchise is easier than growing an independent business. Take advantage of the network of other franchisees in the system. You all share a common goal and work within a given framework. Call them for marketing, PR and management tips.

Betty Otte, SCORE Counselor

In previous article, you checked out your franchise options and decided to purchase a franchise. You have decided which one of the 75 franchising industries is right for you and have narrowed it down to maybe three or four different companies. The big decision now is to select the one franchise that is right for you.

Business demands that we think with our head and our heart, but when doing research, the head must take the lead. You are risking your money, your time and your career, so the choice you make must be congruent with your lifestyle and needs. Researching each option is the key. Here are five simple steps to help you.

1. Contact the franchisor directly and fill out a preliminary application form.
This tells the franchisor you are serious and a viable customer for his franchise. You will likely have a series of interviews with the franchisor.

2. Receive and review the company’s Uniform Franchise Offering Circular (UFOC). Once the franchisor believes you are serious, he will send you a copy of the UFOC which contains 23 important parts to review. The UFOC very clearly defines what the franchisor will do for you and what s/he expects of you. You will probably want to have an attorney review the UFOC; however, it is crucial that you understand every statement in each of the 23 parts.

The Federal Trade Commission (FTC) protects franchisee prospects up until the point of sale, but once the franchise is purchased, the FTC looks upon the business as any other start up, so the UFOC becomes vitally important. More on the UFOC.

3. Visit locations and talk to existing franchisees. This vital step will help you to determine the level of satisfaction of other franchisees in the system. You need to know if the franchisor delivers his promises and research is the best possible way to find that out. In addition, it gives you a chance to get an inside look at the business to figure out if you can see yourself in the franchise.

4. Find answers to important questions. What is the initial purchase price? What are the royalty fees? What kind of training and ongoing support is provided? You will most likely be expected to participate in a national marketing budget. What percent of gross is expected? How often do you get new marketing materials? Do you have sufficient funding for ramping up and maintaining until profits begin?

5. Research the brand and operating system. Will customers gravitate towards your product or service because they know the brand? Has the franchisor provided an operating system which has been proven successful and is easy to learn and use? Will being part of the franchise system help in competing in the market place? Will you be a part of a growth industry?

Betty Otte, SCORE Counselor

When most of us think about franchises, we are referring to the business-based franchise like the top 500 franchises published in Entrepreneur magazine each year. Entrepreneur’s 75 different categories range from automotive to services, but they all have one thing in common—a systematic method to deliver services or products.

Franchising is not for everyone, but for an individual who has limited business experience or someone who enjoys working within an established system, franchising can be the best possible path.

Franchising is simply a method of distributing products or services, with at least two levels of people involved. The first is the franchisor, who lends his trademark or trade name and a business system. The other is the franchisee, who pays a royalty and often an initial fee for the right to do business under the franchisor’s name and system. The contract binding the two parties is the “franchise,” but that term is often used to mean the actual business that the franchisee operates.

Do You Have What It Takes?
Before you go into any business, franchise or not, it is important to first ask yourself these important questions:

Do you have strong motivation and drive to achieve success?

Do you have confidence and enthusiasm for the product or service you will be representing?

Are you able to motivate yourself and others and train employees?

Do you have experience in the industry?

Are you willing to promote your business and the brand?

The Franchise Lifestyle
Figure out if a franchise lifestyle fits into your own lifestyle. Do you have the necessary support system to open this franchise? Does your family support this decision? Do you have an accountant, banker and attorney who will assist you in your start up and growth phases?

The Importance of the Brand
In the franchise world, belonging to a system gives you, the franchisee, a competitive edge, which partially compensates for the cost of being in the system. The main value in franchising is the identity related to the brand. McDonald’s is the largest franchisor in the world with over 31,000 units. Due to consistency of product delivery and global advertising, McDonald’s has a major advantage over, say, Joe’s Diner.

It is important to remember that since the brand’s value is more important than anything else, including the service or the product, the customer’s loyalty is to the brand, NOT the individual franchisee. No consumer walks into a Dunkin Donuts franchise because they know the owner. They know Dunkin Donuts. What this means is that within a franchise system, you have to play by their rules. You couldn’t open a McDonald’s and sell pizza, for example.

Your success as a franchisee is based on your willingness to work with in a pre-existing system, and help to build the value inherent in the brand. This kind of a business is not for everyone, so you have to be honest with your ego on this one.

Choosing a Franchise
So let’s say you are willing to work within a system promoting their brand or service and you are not concerned that customer loyalty is not directed to you personally. Now what? What kind of business should you think about?

The choices can be overwhelming. Approximately 45% of all retail sales are franchise driven—everything from tires to laser hair removal. One out of every 12 businesses is a franchise, with a new outlet opening every 8 minutes. In addition, there are over 75 industries to choose from, with many of those industries having dozens and dozens of options. How do you decide?

Go back to your personal likes and dislikes. Don’t gravitate to fast foods just because you already know how to make a sandwich. Some top industry categories include auto, children, cleaning, exercise and chicken. Find an industry that you wouldn’t mind doing and thinking about 24/7. Then research all the different options within that industry. Some good resources include Entrepreneur Magazine’s annual top 500 franchises list, the International Franchise Association, franmarket.com or even Google.

Taking the Next Step
You have decided that you don’t mind building the brand and you confess that you will most likely have a higher success rate within a franchise than on your own. You also want to be a part of the annual $1.55 trillion dollar franchising revenue and you have selected your industry. Now what?

Thousands of individuals decide to start a home-based business each year. Many succeed. About 70 percent of all home based businesses are in operation after two years. Before entering this venture, entrepreneurs should consider several key questions:

Can you operate the business alone with little help?

Do you have contact with buyers or your services?

Is the location such that distributors, sales staff, clients and others can reach it without difficulty?

Is start-up and operations capital available for the first year?

Can the business really be operated from the home?

Do you have separate spaces for storage, records, isolation, parking, etc.?

Can a business in the home compete with similar businesses?

As in most businesses, there are advantages and disadvantages to the home-based business. A business in the home permits flexibility of working hours, lower start-up costs and allows family affairs to continue during business hours. There are also disadvantages—zoning restrictions may prohibit business, the IRS may raise tax questions, it may be difficult to get materials and customers to the location and financing the business could be challenging.

The IRS specifies that a home-based business must have its own location away from the family living space that is devoted exclusively to the business. The business must be in regular operation, profits must exceed expenses in order to claim deductions, the business must be conducted almost exclusively in the home and the motive must be profit.

A major challenge in operating a home-based business is isolation from distributors, merchants, clients and interested parties. Modern communications help to alleviate the problem—a computer is a necessity. A fax machine and Internet access are almost certainly necessary for communications within the business community. In addition, separate telephone phone lines must be installed for telephone, fax and Internet access and the business phone needs some type of answering service.

In summary, the business must be run as a business not as an extension of the home. It is essential that the prospective business owner have a good business and financial plan, separate from the family finances, that clearly spells out the present and future of the business.

Be aware that many neighborhoods have deed restrictions forbidding the operation of a business. Some require extra off street parking, others forbid deliveries and signs, etc. It is wise to check with your Home Owners Association and with your local government for a complete survey of your city or county regulations.

It may be difficult to raise capital. The average home-based business requires about $10,000 in start-up costs. Although this may be much less than opening a business outside the home, both the start-up and operating funds should be in hand before beginning the business operation.

Create a brand. Spend a little money to create a professional logo, business card and stationery. Present a professional image.

Ramp up Online. Make creating a Web site a top priority. A Web site is today’s calling card. You really shouldn’t do without one. Give people a place to go to learn about your business.

Make Your First Sale. This is key. Get that first sale even if it’s friends or family at a discounted rate. This counts as getting started, so go for it.

Promote Testimonials. Get testimonials from your first sales. Start building credibility for your business from day one.

Build Buzz. Be creative. Look for a special promotion, big event, email campaign or something out of the norm for your business to get people talking about you, your product or service.

By Juanita Weaver, creativity consultant, juanita@juanitaweaver.com

Creativity has always been an important business skill, but in this turbulent economy it is essential. The rules of the game change constantly now. The pundits can’t decide whether to celebrate or begin mourning our economic future. We are on new and shifting ground with no clear path and no one to show us the way. The current economic realities have placed us all beyond what is known. The only way to meet this challenge of operating in this unknown terrain is to make it up as we go. It follows then, that building a creatively agile company will not only help you survive but give you a powerful competitive advantage.

Creativity is not just the domain of a talented few. We are all creative. It is highly likely that your creativity has been diminished by social norms and life experience, but it can be fostered and revived. You may not even think you are creative, but that is not true. Creativity is our birth right, it is part of what makes us human.

Like any new skill you want to learn, becoming more creative takes time and effort. If you want to become more creative and establish a creative business culture, you will need to become familiar with the business literature about creativity, learn about the creative process, maybe hire some consultants, look at other companies and their experiences and, of course, make it up as you go. The payoff is a company that is vibrant, easier with the constancy of change, has the commitment of an energized workforce and a greater chance of being successful.

The following techniques are offered to get you started by experiencing first hand the power of consciously evoking your creativity. However, building a creative business takes more than using some techniques now and then. Creativity must become part of your culture, how you interact with and see the world and how you relate to each other.

When you’re having trouble coming up with a fresh approach or need some new ideas, the following two very simple exercises may intrigue you enough to explore creativity further.

When using techniques, let your mind free associate and don’t bring in judgment until you are finished generating ideas. Judgment is reactive to what exists and is a very different process from generating ideas. Judging too soon is one of the most common ways to shut down your creativity.

Use a Metaphor
Metaphors, comparing your situation to something else, is one of the easiest techniques to get ideas flowing.

Let’s say you want to increase sales and are having trouble coming up with any good strategies. If you choose to use the metaphor technique you might ask how is selling my product or service like doing stand up comedy or baking a cake. You will be amazed how quickly you arrive at some innovative solutions.

Choose an object or an action. Metaphors depicting an action are usually more evocative and activities you have some emotional relation to, whether it’s good or bad, are even more powerful. If you have a hard time coming up with an idea for a metaphor, try one of the following examples: going on a diet, doing stand-up comedy, running for political office, riding a bike, running a day-care center, courting a woman, disciplining a child. But remember anything will do, don’t get hung up on trying to get the best metaphor.

Having done this exercise many times, I am always impressed with its power. Give your self or your team a few minutes to look through magazines and tear out images that speak to you. You could pose a question first or after you have made the collage. Create a collage of your images. You can paste them to a background or just arrange them on the surface in front of you. Go around and share your thoughts and associations as they pertain to the issue at hand. This doesn’t have to take a long time. Allowing 10-15 minutes for this can produce many new possibilities.

Books
The following are some books I go back to again and again.

DeBono, Edward, Serious Creativity, Using the Power of Lateral thinking to Create New Ideas, Harper Business, New York, 1992.
This book will give you a good foundation from one of the creativity pioneers.

Hall, Doug, Jump Start Your Brain, Warner Books, New York, 1995.
A book of creativity-sparking techniques.

Kao, John, Jamming, The Art and Discipline of Business Creativity, Harper Business, New York, 1996.
Includes information about a creativity audit.

Michalko, Michael, Thinkertoys, A Handbook of Business Creativity for the 90s, 10 Speed Press, Berkeley, 1991.
Another book full of techniques.

Ray, Michael and Myers, Rochelle, Creativity in Business, Doubleday, New York, 1989.
One of my favorite creativity books, by the Stanford Business School professor.

Remember, creativity is a skill that can be evoked and practiced. Your goal is to build a creative culture that has systems in place for encouraging creative actions. It is much more than a few techniques—is it a stance, a way of being.