Franchise Management for Dummies

Learn what it takes to find, buy, and run a franchise -- and enjoy the rewards of being your own boss

If you've ever visited a chain restaurant and thought, "I'd like to run one of these," you're among countless would-be entrepreneurs eager to be their own boss. Franchise Management For Dummies is a hands-on guide that provides clear and concise information on the issues involved in finding, buying, operating, and ultimately growing a successful franchise business. Geared toward both novices and experts in franchising, it's an essential guide to help prospective franchisees know what to look for in a great franchisor, and to show existing franchisees what great franchisors are providing their franchisees.

Both emerging and experienced franchisors will gain an understanding about the proper methods of structuring, managing, and expanding their franchise systems. Social impact investors, donors, and NGOs can learn how franchising techniques can transform how they look at providing products and services at the base of the pyramid.

Inside you'll discover:

• How to find a franchise that's right for you and the ideal location for it
• Where to find quality franchisors and understand the qualities franchisors look for
• How to gather information from franchisees
• A franchisor's mandatory legal obligations to prospective franchisees, the franchise disclosure document (FDD), and working with franchise professionals
• How to take a realistic look at your finances and what capital you'll need to buy and launch a franchise
• Develop strategic advertising and marketing plans
• How to find, hire, and train talented employees who will help make your franchise a success
• How to make sure your franchise makes money
• How to grow your business with multiple franchises
• And more!

Additionally, Franchise Management For Dummies includes a glossary of common franchise-related terms, ten keys to franchisee success, and the questions to ask before becoming a franchisor. Get a copy today and find out if owning and operating a franchise is the right business move for you.

Michael H. Seid is the founder and Managing Director of MSA Worldwide, the leading strategic and tactical advisory firm in franchising. Joyce Mazero is a partner and Co-Chair of Gardere's Global Supply Network Industry Practice, internationally recognized and trusted legal advisors dedicated to excellence in franchising.

Find handy resources—including sample forms, checklists, and straightforward advice at www.dummies.com/go/franchisemanagementfd

Foreword xv

Introduction 1

About This Book 1

Foolish Assumptions 2

Icons Used in This Book 3

Beyond the Book 4

Where to Go from Here 4

Part 1: Wrapping Your Brain Around Franchising 5

Chapter 1: The Power of the Brand 7

Tracing the History of Franchising 7

What Is a Franchise, Anyway? 9

The effects of franchising on modern business 9

The success of franchising for business owners 10

What’s the Big Deal with Brands? 11

Franchise Siblings: Three Types of Franchising 12

Traditional franchising 12

Business-format franchising 12

Social franchising 14

The Roles and Goals of Franchisors and Franchisees 15

Looking at the world through franchisor lenses 15

The franchisee’s end of the bargain 16

Nuances of the Franchisor/Franchisee Relationship 18

Chapter 2: Franchises Come in Different Sizes 21

Getting Started with a Single Franchise 22

Where to start: It’s two in the morning and you can’t sleep 22

Sifting through the options 23

Paying attention to what’s hot 25

Adding Franchises, One at a Time 27

Flying solo: Single-unit franchises 27

Growing a family one franchise at a time 28

Developing a Territory on Your Own 29

Becoming a Master Franchisee 32

The Area Rep: Master Franchise Lite 34

Sharing Risks and Rewards in a Joint Venture 35

Councils, Associations, Cooperatives, and Buying Groups 36

Buying Franchisor-Owned Locations 37

Chapter 3: Mirror, Mirror, on the Wall 41

Starting Your Own or Joining a Team 42

Consider the Pros and Cons 43

Advantages of making a franchise investment 43

Disadvantages of making a franchise investment 45

Being Realistic about Being a Franchisee 48

Looking in the Mirror: A Self-Evaluation 49

Are you willing and able to learn new skills? 49

Would you rather give or take orders? 50

Can you say goodbye to corporate perks? 51

How is your health? 51

Do you like people? 52

How much can you dish out and take on? 53

Consider your family and friends 53

Chapter 4: The Legal Issues 55

Franchise Regulation: A Little History 56

The State Regulatory Landscape 57

The Franchise Disclosure Document 58

What you will find in the FDD 58

The waiting period 59

The FDD, Item by Item 60

Calling out a few key items 71

How much can I make? 73

Additional information available when an FPR is provided 74

Understanding a franchise agreement 75

The franchisor’s verbal promises 75

Finding professional advisors 75

Negotiating with a Franchisor 77

Part 2: Buying a Franchise 79

Chapter 5: Researching Franchise Opportunities 81

Digging Up the Good Information 82

The Internet is the place to start 83

Print directories 84

Publications to understand franchising 84

Attending trade shows and expositions 85

Hot and trendy, but does it have any legs? 86

The Role, Risk, and Benefits of Brokers 87

Do brokers work for you or the franchisor? 87

Deciding Whether to Buy Old or New 88

Sizing up an existing franchise 89

Investigating new franchise opportunities 91

Benchmarking Franchise Offerings 92

Going Back Home and Eyeing Locations 96

Chapter 6: Raising Capital: Wowing, Wrangling, and Winning 97

Examining Your Current Finances 98

Ask yourself some probing questions 98

Seeing what you can afford 99

Consider a “used” franchise 99

Determining Franchise Investment 100

What your startup costs may look like 101

Initial expenses to set up shop 102

Do Your Homework before Holding Out Your Cup 105

Creating a business plan 105

The SBA: What they want to see 109

Projecting income and cash flow 112

Raising Capital 114

Avoiding debt 114

Visiting the bank 115

Finding an angel investor 116

Seeking other financing strategies 117

Social Franchising and Funding 117

Part 3: Operating Like a Well-Oiled Machine 121

Chapter 7: Choosing a Location 123

Selecting a Site 124

Considering common site options 124

Working a franchise from home 126

Opting for alternate or off-street sites 127

Dual branding: Sharing your space 127

Finding Your Franchise’s Habitat 128

Finding out what constitutes a good site 129

Using the franchisor as your compass 130

Using data to evaluate a site on your own 132

Protected and Exclusive Areas 132

Encroachment Policies 134

Signing the Lease 135

Meeting Your Franchise’s Requirements 136

Implementing a franchisor’s designs 136

Getting approvals, permits, and licenses 137

Beginning construction 137

Getting help with the opening 138

Chapter 8: Getting the Goods 139

The Basic Requirements 140

Meeting Approved Standards and Specifications 141

Making mandatory purchases 141

The Role of Buying Groups and Purchasing Cooperatives 146

Receiving merchandise 147

Receiving deliveries 147

Checking the goods after they are in your location 148

Verifying invoices 149

Maintaining Inventory 149

Back of the house 149

Front of the house 152

Chapter 9: Training and Hiring 153

Getting Good Training for Yourself and Your Management 154

Getting good initial training 154

Receiving effective ongoing training 156

Understanding Joint Employment and Why It Spooks Franchisors 157

Who is the employer anyway? 157

The role of the franchisor in human resources policies 158

Training Your Staff 160

Taking responsibility for getting your gang in gear 161

When English isn’t an employee’s first language 162

Finding a method to the madness 163

Building and Leading Your Team Effectively 164

Recruiting the right team and rewarding them in the right ways 166

Following equal opportunity guidelines 168

Conducting Interviews 169

Asking the right questions 171

Continuing an interview 173

Doing background checks and other post-interview diligence 173

Retaining Good Employees with a Good Work Environment 174

Fostering a good work environment 175

Hiring good managers 176

Thinning the herd: When terminations need to be done 176

Ensuring workplace safety 177

Chapter 10: Working with Franchisors and Fellow Franchisees 179

Playing by the Rules 179

Meeting franchise system standards 180

Supporting and watching the system 182

Attempting to change the system 184

Building a Relationship with Your Franchisor 185

Being a team player 186

Getting what you need from the relationship 187

Dealing with Change 191

When the franchise system changes 191

When conflicts occur 192

Reaching Out to Your Fellow Franchisees 194

Joining advisory councils and associations 195

Being number one in a class of one 197

Chapter 11: Attracting and Keeping Customers 199

Creating an Effective Marketing Plan 200

Evaluating National and Local Advertising Strategies 204

The franchise system ad campaign: Collective marketing dollars at work 204

Local marketing options 206

All Hail Customer Service 210

Knowing your customers 210

Showing honesty and integrity 212

Making sure customer experiences are positive (and fixing ones that aren’t) 213

Looking beyond your cash register 215

Part 4: Expanding or Cashing Out 217

Chapter 12: Acquiring Other Franchises 219

Assessing the Advantages and Disadvantages of Multi-Unit Operation 220

The advantages 220

The disadvantages 221

Checking Your Franchise Agreement: Can You Buy Another Franchise? 222

Reviewing Your Resources 223

Be honest: Are you really ready? 223

Look at your business and finances 224

Understanding Your Purchase Options 227

Starting from scratch 227

Investing in multiple units 228

Buying a franchise from another franchisee in the system 229

Measuring proximity to yours 230

Retrofranchising: Buying a company-owned location 231

Converting a competitor’s location 231

Acquiring an area 232

Chapter 13: When the End Is Nigh 235

Decisions, Decisions 236

Going for Round Two (or Three or Four): The Successor Franchise 238

Paying the successor fee (if there is one) 238

The successor franchise agreement 239

Changes that have sparked controversy 240

Bowing Out at the Right Time 244

Getting personal 244

Examining your world 245

Leaving It to Your Children 246

Selling Out 247

Sprucing up the joint: Getting the most return on your investment 248

Figuring out how much it’s worth 250

Playing by the franchisor’s rules 251

Selecting a sales method 253

Now That the Party’s Over 254

Reflecting on the experience 254

Making the next move 255

Part 5: Building Your Own Franchise 257

Chapter 14: From Small Business Owner to Franchisor 259

Turning Your Small Business into a Bigger Chain 260

Deciding whether your business should be franchised 261

Putting the preliminary legal requirements in context 261

Criteria for Becoming a Franchisor 262

Do you have an operating business? 265

Will consumers need or want your products and services tomorrow? 265

Are you committed to franchising? 266

Do you have enough potential franchisees and do you know who they are? 268

Do you have a system? 270

Can you teach others how to operate your system? 271

Are your products and services any good? 272

Will the economics of the business support a franchise expansion strategy? 273

Beginning Your Franchise Program: Who Should Take the Reins? 275

Doing it yourself: Success or sure failure? 276

Watching out for “franchise packagers,” wolves in pros’ clothing 277

Finding professional advisors to guide your way 280

Passing Go with Your Franchise Idea 282

Brainstorming a strategic plan 283

Fleshing out your strategies 284

Creating a plan for action 284

Developing the legal documents 285

Chapter 15: Recruiting Franchisees 287

The Essence of the Ideal Franchisee 287

Focusing Your Market Strategy 289

Reeling In Great Franchisees 291

Defining the franchisee profile 291

Doing it yourself or through third-parties 293

Reaching out through the right media 294

Developing the Recruitment Organization 301

Contact management software 303

Finding the right franchise recruiting professional 304

Staffing your recruitment organization 304

Ten Steps to Franchise Recruitment 308

Steps 1–4: The introductory phase 309

Step 5: Discovery Day 311

Step 6: Follow up after Discovery Day 311

Step 7: Follow up again 312

Step 8: Make a decision 312

Step 9: Close the deal 312

Step 10: Complete the process 313

Working the Validation Process 313

The Franchise Sales Presentation 315

Finalizing the Selection Process 318

Chapter 16: Expanding Abroad: International Franchising 319

Taking Your Franchise Abroad: Know What You’re Getting Into 320

Investing capital 325

Working with third-party intermediaries 326

Budgeting for capital investment 328

Understanding the necessity of hiring an experienced attorney 331

Considering the implications of language and culture 334

Getting your money out 336

Product sourcing 337

Protecting trademarks, trade secrets, and other valuable brand assets 337

Decisions, Decisions: Whether to Make the Leap 338

If You Decide to Cross the Border 341

Finding the right franchisee 341

Entering a foreign market 342

Negotiating the deal 344

Bringing Foreign Franchises to the United States 346

Chapter 17: A World of Good with Social Franchising 349

BOP: The Base of the Pyramid 352

The Challenges for Social Franchising 355

CFWshops: An Example of a Social Franchise System 356

How CFWshops got started 356

Using the hub-and-spoke and other variations of commercial franchising 358

Who Are the Franchisor and Franchisee in a Social Franchise? 360

Financing and Developmental Benchmarks for Social Franchises 362

Stage one: Developing and proving the concept 362

Stage two: Proving the replicability of the concept 363

Stage three: Developing the franchise system 364

Stage four: Expanding locally and nationally 365

Stage five: Expanding globally 365

Delivering on the Brand Promise 366

Resources for Social Franchising 367

Government funding agencies for global development 367

Private philanthropic foundations 368

Corporate philanthropists 369

Impact investors 370

Part 6: The Part of Tens 373

Chapter 18: Ten Keys to Franchisee Success 375

Make Sure You Have Enough Money 375

Follow the System 376

Don’t Neglect Your Loved Ones 376

Be Enthusiastic 377

Recruit the Best Talent and Treat Them with Respect 377

Train Your Employees 378

Give Customers Great Service 378

Get Involved with the Community 378

Stay in Touch with Your Franchisor and Fellow Franchisees 379

Pay Attention to the Details 380

Chapter 19: Ten Questions to Ask before Becoming a Franchisor 381

How Good Is Your Product/Service? 382

Can You Manage the System? 382

Do You Have the Commitment? 383

Can You Systemize Your Business? 383

Can You Train Your Franchisees? 383

Can You Localize if Needed? 384

Do You Have the Necessary Capital? 384

Are Enough Franchisees Out There? 385

Do You Understand Franchising? 386

Are You Willing to Hire Proper Franchise Professionals? 386

Appendix: Glossary of Common Franchising Terms 389

Index 397

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