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Managing a Franchise Business With A Spouse

Where the holidays may be a hot spot for family issues, spouses working together in business create opportunities for conflict throughout the entire year.

Marriage vows speak to commitment during “richer or poorer and sickness and in health.” Managing personal finances, sacrificing and nurturing individual needs for the sake of the union, and disagreements about replacing the toilet paper makes building a rewarding marriage – work. Throw in the demands of a competitive high-risk working environment, if not managed right, it can put a strain on marriage like nothing else. The bonds of love, commitment, and understanding are challenged by business demands of leadership, market changes, differing styles of management, employee, vendor and customer expectations, performance, and profit. Just as in marriage, because of the work involved to create a successful multi-unit franchisee business, many find partnerships too difficult, which can be observed in the rates of sales and buyout because it’s not worth the brain damage.

Because of the complex challenges of both marriage and business partnerships, dynamics between a typical married couple working to maintain harmony and drive business performance can easily create excitement, distractions, and often organizational dysfunction. In the initial stages of building the business, leadership issues are simple. Both parties understand if there are serious marital differences of opinion, the business could fail, and everyone loses. However, after the business grows and supports the desired lifestyle, the independent ambitions of marital personalities can begin to create business chaos.

Regardless of the role each individual fills in the organization, due to the dynamic of marriage, their managers, employees, and vendors often distorts the relationship between the operating spouses. Employees and vendors, just like children, can easily identify a marital side of greatest opportunity an attempt to manipulate circumstances through patronizing differences in personality and perspective. The probability of business issues polluting marital harmony or creating mixed messages; means even on a good day business productivity is a toss-up.

If a married couple is committed to maintaining equal/or unequal roles in an organization, for the sake of the managers, employees, and future of the business, the owners should shift from the informalities common of a family business and implement formal governance structures such as:

Developing and integrating a formal organizational structure of business officers such as CEO, president, treasurer, etc.
Establishing “Operating Covenants” between the spouses that are similar to the promises of marital covenants. Operating Covenants can provide a framework for how a married couple respects one another and the chain of command in the workplace, avoids triangulations, empowers managers, and works out differences in private.

Often, at The Rawls Group, we are asked to solve discoloration after the paint is dry. The best way we have found for an owner/business partner(s) to deal with conflict between operating spouses, is to first look in the mirror and ask, “what have I done wrong; what inappropriate marital accommodation have I made that is causing business problems?” Invariably both spouses are part of any marital problem, either as the perpetrator or as the peacekeeper, who did not want to create more family or business issues through confrontation. You must understand your complicit role in the development of this problem before you can initiate any program to change your spouse’s (partner’s) behavior. Otherwise your emotional bravado may be equivalent to volunteering to serve on the bomb squad without training.

Fundamentally you cannot change the dysfunctional behavior of an operating spouse unless you are willing to do what you have previously been avoiding. Your self-assessment may give you the clear pathway to resolving the issues being presented by your spouse. And unfortunately, if you are not willing to make these changes it is unrealistic to anticipate that an outside advisor or family therapist can do it for you.

If you determine that your spouse is acting logical as a spouse but illogically as a business operator, discuss the specific behavior. Conversely, if they are acting logical as a business owner but illogical as a spouse, discuss that behavior as well. Then point out that it is very easy to get wires crossed and point out The Family Business Conundrum: you cannot run a business like a family and you cannot run a family like a business. Express to them that the only way to successfully operate a business is continual rebalancing between family and business priorities. Then endeavor to discuss balancing and make this a frequent topic of your marital and business discussions.

Fitness Franchises Offer Strong Advantages

Industry Facts & Figures
The fitness franchise sector is in a position of strength. Nearly one out of five Americans belongs to a health club. Since 2009, health club membership has grown by 26.3%, and the total number of club-goers has increased by 26.5% according to The International Health, Racquet & Sportsclub Association (IHRSA).

Factors driving the fitness franchise marketplace include federally funded campaigns aimed at fighting obesity, an increasing number of health-conscious individuals incorporating fitness into their daily regimen, and the growing number of adults aged 20 to 64 (the largest gym-going demographic), according to an IBISWorld report on the gym, health, and fitness club industry.

Industry Trends
The fitness franchise sector includes gyms, fitness studios, and group classes that may take place outside or in rented facilities such as community centers or churches. Traditional gyms feature equipment for cardio and weight training, personal training services, and typically offer group classes. Some even have racquetball, basketball, tennis courts, or a pool.

Fitness franchises that focus on a particular style of exercise are popping up as fast as a new exercise approaches are developed. Common areas of focus include interval training, Barre, yoga, Pilates, kickboxing, and spinning. Some hone in on a particular demographic, such as moms and babies, children, or people over 50, while others differentiate themselves from competitors with unique equipment, exercise, or training offerings. For example, one concept features cardio machines that convert human energy into electricity that helps power the building the franchise is in.

Investment
The price point of fitness franchise opportunities ranges from as low as $17,000 to more than $1 million. The average investment is $247,917 to $628,917, according to Franchise Grade. The wide range in the cost of a fitness franchise is influenced by a variety of factors, including the equipment and type of space required, as well as by the atmosphere, which can be spa-like or bare-boned. While some require the rental or purchase of a location and equipment, others need almost no equipment (or none, in some cases) and can be run outdoors or from a low-rent space such as a church. After you pay the initial franchise fee, you’ll likely pay ongoing costs including royalty fees and marketing fees to the franchiso, as well as rent or mortgage payments, payroll, and utilities.

Opportunity
The Centers for Disease Control and Prevention (CDC) reported that 37.9 percent of U.S. adults age 20 and over, and 38 percent of children and adolescents aged 6 to 19 are classified as obese. The clear benefits of exercise – the likelihood of a longer life, lower medical expenses, and better mental health – encourage people to view investing in their fitness, which some may have previously perceived as a luxury. Rising per capita income and declining unemployment rates are also contributing to people feeling more comfortable with investing in their health, according to IBISWorld.

Market demand for fitness services is poised for continued growth. The U.S. gym and fitness franchise industry generated $3 billion annually, according to a 2015 IBISWorld report. The report stated that U.S. gym and fitness franchises are likely to increase at an annualized rate of 5.1 percent between 2010 and 2020 – a faster rate than predicted for the overall U.S. economy (GDP).

Is Fitness Franchising a Healthy Choice for You?
When it comes to themselves and helping others to become healthy, most fitness franchise owners are passionate about fitness. In some franchise business models, owners manage the business and teach students or trainers, initially or on an ongoing basis. In other business models, owners may manage the business and outsource all the training.

As a franchisee, you’ll benefit from your franchisor’s proven business model, expert advice from both your franchisor and fellow franchisees, and from having a recognized brand. In addition, when it comes to marketing, technology, training, and more, your franchisor will provide ongoing, additional support and coaching. Also, the turnover rate for fitness franchises is 4.3%, half of the industry average according to Franchise Grade. This means fewer fitness franchise brands close each year than in other industry categories.

Fitness franchise owners typically enjoy a consistent source of income – even when clients don’t show up. A “membership model” means that members pay automatically each month by credit card or automatic bank transfers. On average, fitness club members who initially maintain their membership for at least a year visit their club 102 days per year and stay with their club for an average of 4.9 years, according to 2014 IHRSA data.

Finding success with a fitness franchise means identifying a brand that will meet your personal and financial objectives. Not all are created equal, so it is crucial to do some heavy lifting when it comes to due diligence before investing in one. Be sure to carefully read a brand’s Franchise Disclosure Document (FDD), speak with at least half a dozen franchisees, and request a franchisee satisfaction survey report.

Finding a Good Franchise Location

Location. Other than choosing a good franchise concept, it’s one of the most important factors in being successful as a franchisee. And honestly, location factors into whether a franchise concept is a good fit for you as well. Does the area you want to open a franchise within actually need (or can it support) that product or service?

But before getting to the where of location, you have to figure out the which – as in which kind.

Many franchise concepts come in different sizes, meaning there are different places a unit can fit. The two most popular franchise location setups are traditional and non-traditional.

Traditional locations are typically free-standing units, meaning the building the franchise is housed in only is used for the purposes of the franchise. These locations typically have their own dedicated parking lots.

Non-traditional locations, also called satellite locations by some franchisors, typically aren’t the main attraction of where they are located. These franchise locations operate in a smaller footprint, typically as part of a mall, retail store, strip center, airport, university, hospital, gas station, etc. Non-traditional locations can include kiosks and carts too.

Once you figure out which kind of location you’re going to open, then you can figure out where.

The overall goal of a franchise, or any business venture for that matter, is to be profitable – preferably as quick as possible. And in order to be profitable, you must be visible to your potential customer.

However, visibility when it comes to a location typically isn’t cheap. If not balanced properly with the other factors of franchise ownership, a visible location won’t always translate into profitability.

For example, a franchise unit that has great visibility might do a massive volume of sales. But if the lease (and other overhead costs) are much more than the franchise is bringing in, the franchise will fail. Conversely, a franchise unit with not as much visibility comparatively might not do as much volume as the other location but, with presumably lower lease costs, it can bring in a better profit than its more visible counterpart.

“Where franchisees put their new location matters – a lot! In the grand scheme of things, a franchisee can do every other thing ‘right’ but if the location is wrong, they can still fail. With so much on the line, finding the right location is one of the most important decisions of any new business owner, whether franchise or independent.”
~ Carolyn Miller, author and founder of the National Franchise Institute
So how do you go about finding a good location?

First, tap into your own knowledge of the area. You probably know more than you think. Consider the site you’re thinking about for your potential franchise unit. How much traffic goes by on a typical weekday? On the weekends? Is it near a potential source of customers like an office park or a hospital? Are the neighboring businesses competitive or complimentary? Have you ever been to shop in that area? Is it easy or difficult to get in and out of?

Also, talk to local real estate agents that specialize in commercial real estate. It’s their job to know about vacancy patterns as well as the general landscape of business in their area. Not to mention, working with a real estate agent gives you access to the contacts they have built over the years.

But most of all, don’t forget about the franchisor. Many franchisors provide guidance to their incoming franchisees in regards to location selection and, sometimes, lease negotiations as well. This help can be a big boost to finding an optimal site. Furthermore, most franchisors reserve the right to approve the location franchisees choose before finalizing the franchise agreement, so you’ll know if you’re on the right track.

“The franchise development team will help you identify the best place to put a practice based on demographic studies,” says Sharmi Cattani, the Franchise Development VP for Physical Therapy NOW. “We assist franchisees with site selection based on demographic studies of referral sources, population density, cost of living, quality of life and future livability.”

Often times, the study franchisors do involving location planning involves specialized software, which assists them in modeling the future performance of franchise units with respect to their specific concept.

For example, programs from providers such as SitesUSA and SiteZeus allow franchisors to drill down into the demographics of an area, even allowing for the mapping of competitors or businesses that will complement a franchise. Other programs allow for the building of “heat maps” based off of a certain number of characteristics that have been found to frequently engage with the franchise system. Those heat maps can then help franchisors and their prospective franchisees locate potential market areas.

Finding a good location shouldn’t be rushed. Franchise agreements can last up to 20 years (even longer for a select few). Taking time to find the right location is crucial to making a franchise venture as successful as possible.

3 Reasons Why You Shouldn’t Start a Franchise

We all know that starting a business isn’t a one-size-fits-all sort of thing. What works for one person will not for someone else, and that’s a good thing. If there were only one solution, then everyone’s business would look the same.

We embrace that variable experience at Entrepreneur. It’s why, in addition to general guides on starting a business, we offer insight from experts in their respective fields, along with inspirational advice. We know you’re going to need a lot of resources to make your business successful.

So, while we take a lot of pride in putting together our Franchise 500 list, we also recognize that it isn’t the right path for everyone.

Here are three reasons why a franchise may not be for you.

1. The cost to start a franchise
Not everyone has seven figures to spend on our No. 1 franchise, McDonald’s, which costs anywhere between $1,008,000 and $2,214,080 as an initial investment. But, for many of us, even paying the $2,095 for our cheapest Franchise 500 entry, Cruise Planners (No. 60) can seem overwhelming.

Most franchises offer help with financing (especially if you are a veteran of the military), but they also tend to have a minimum net-worth requirement. You can get estimates of both of these numbers on each Franchise 500 franchise page, but you can get a better sense of what you’ll need by directly contacting the franchise you are interested in.

Even if you have the liquid assets to get a franchise up and running, it doesn’t mean you are good to go. You also need to think about royalty fees and, depending on the franchise, employee salaries and maintenance costs. You can see that starting a franchise isn’t just something you do on a whim; it takes consideration, certainty and financial security.

What you can do instead: If you’re low on funds, you might consider starting out as a solopreneur, using your time as a substitute for money. This is actually an important step for many business leaders, because it forces them to learn about every role within your business.

When you’re finally ready to hire employees, you’ll know what traits and skills are most valuable and make better hiring decisions as a result.

2. The lack of independence as a franchisee
Running a franchise definitely comes with some independence. You will need to make plenty of important decisions, which can shape the culture and success of your business.

But the same things that are great about a franchise — the amount of support, experience and branding you receive for investing — also limit your options to a certain degree. If you run a McDonald’s franchise, it’s not like you are going to change the logo or decide on company colors or slogans: You’re going to sell Coca-Cola products and Big Macs.

These brands have become successful because people know what to expect from them. You can’t buy a longstanding franchise unit and expect to revolutionize everything. If you have the desire to make something totally new, then, franchising might not be for you.

What you can do instead: If you can see a problem within an industry and know how to fix it, see if you can monetize it. Many entrepreneurs work with what they know: solving problems they’ve come across in their daily lives. Maybe one day McDonald’s will end up paying to use your solution.

3. The passion you need to run a franchise
One of the most common attributes among successful entrepreneurs is focus. When they have a big idea or dream, they don’t let themselves get distracted with things that will not help them move forward. They perfect that idea and everything around it — from the product to the sales pitch and branding.

Starting a franchise can be a valuable investment, but it is an investment. It takes time, it takes money, it takes energy. Unless you already have experience running a franchise, you might not have time to focus on anything else. And that’s okay. But don’t simply assume you’ll still be able to pursue your dream project in your spare time. You might not have any spare time, and even if you do, you’ll be distracted.

What you can do instead: Try partnering with local businesses, who can sell or promote your product or service. That way, you can still enjoy the sort of branding and support you wanted from a franchise while building your big idea. It’s the best of both worlds.

While these are a just a few things to consider before you start a franchise, there are also plenty of reasons why joining a franchise is a great opportunity, including working with an established brand and the support you receive.

Whatever the case, you’re going to need hard work to see success, so make sure you pick a path you believe in and go at it with everything you have.

Franchise royalty payments – the basics

The Federal Trade Commission (FTC), in Section 436.1(h) of the Franchise Rule, explains that a business qualifies as a “Franchise” (and is therefore subject to the specific regulations imposed on franchises) where three conditions are met:

The business grants a licensee the right to use its marks and other proprietary assets,
The business establishes and enforces brand standards that that licensee must uphold in order to be allowed to continue to use such proprietary assets, and

There is a financial relationship between the business and the licensee.
In most franchise systems, the “financial relationship” element is usually met in two ways: a one-time upfront payment (known as the “Initial Franchise Fee”), and an ongoing payment (known as the “Royalty Payment”). The Royalty Payment is normally paid monthly or quarterly and can be calculated in a few different ways.

WHY CHARGE ROYALTY FEES?
The typical financial relationship between a franchisee and a franchisor can be looked at similarly to that of a country club. While the Initial Franchise Fee can be seen as the upfront cost to join as a “member” of the franchise system, the Royalty Payments can be seen as the ongoing “membership fees” required to remain that membership. These payments are collected by the franchisor to fund the franchisor entity’s actions, which include both corporate and franchise-related expenses.

In many of the most successful franchise systems, the amount paid by the franchisee as the Initial Franchise Fee will typically be enough to cover the franchisor’s expenses that are related to getting that franchisee up and running as a working, successful business. These expenses include training, advertising, and any costs related to securing or approving the location for that franchisee’s business, among other things.

Therefore, the Initial Fee is not where the franchisor is making their revenue. Instead, the ongoing Royalty Payments are how the franchisor makes its money, which it uses to support its franchisees and further build the business.

Generally, franchisees see their ongoing Royalty Payments as tied directly to the ongoing support that the franchisor is obligated to provide them. Though this may not always be contractually the case, it is essentially how most franchise systems work. Generally, all the support provided by the franchisor through its field consultants, marketing plans, business strategies, etc., are funded through the Royalty Payments provided by the franchisees. Additionally, all the administrative costs of running the franchisor’s headquarters and staff are funded from the royalty payments. Lastly, the franchisor’s efforts to further expand and develop the brand through recruiting and bringing in new franchisees to the system is funded by royalties.

HOW MUCH SHOULD A FRANCHISEE EXPECT TO PAY IN ROYALTY FEES?
There are a number of ways that franchisors establish what their ongoing royalty fee will be.

The most common is a percentage of the Gross Sales that the franchisee earns. Typically this ranges from between five and nine percent. So, essentially, the franchisee is taking in 91-95% of their gross sales with the rest going to the franchisor. Gross Sales is the amount of revenues from the sale of services, goods, and any other products or merchandise by the franchisee, and is not reduced by any discounts given to employees or family members, taxes, or returns/credits/allowances/adjustments.

In most franchise systems this percentage is fixed, but it can be also be an increasing or decreasing percentage depending on the level of sales. Some franchisors require a minimum royalty payment for each period, whether by a percentage or by a set dollar amount. There are also franchisors that determine the royalty amount as a set dollar amount based on different sales thresholds. Further, some franchisors don’t require any ongoing royalty payment at all.

The most successful franchisors will take great care in determining what their required royalty payments will be, whereas some franchisors will just use whatever their competitors are requiring, or just pick a number with little to no basis for it. Ideally, the franchisor will set the royalty amount at a level that will allow the franchisee to take home a healthy enough profit, after all expenses, such that the business will be able to succeed both initially and ongoing.

The best franchisors will look into the unit economics that they expect from a franchisee’s business, including labor costs, product costs, rent, etc., and find a level that allows both the franchisee and the franchisor to make money. Many franchisees expect that their profit margin for their location will be equal to or more than what the franchisor is making off that location, but this is not always the case, particularly in poorly run franchise systems. In situations where it has been determined that operating a single location is simply not going to produce enough revenue for either the franchisee or franchisor (or both) to make a profit, some franchisors will require franchisees to purchase multiple locations, where the revenue pool can get large enough for the margins can become profitable.

Different industries and revenue models lead those industries to specific strategies for setting royalty amounts. There is no one way that is required, so franchisors can get as creative as they’d like.