SBA Franchise Program for Buying a Franchise

Buy a Franchise

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Franchising Overview

Buying a Franchise

An important step in the small business startup process is deciding whether or not to go into business at all. Each year, thousands of potential entrepreneurs are faced with this difficult decision; because of the risk and work involved in starting a new business, many new entrepreneurs choose franchising as an alternative to starting a new, independent business from scratch.

One of the biggest mistakes you can make is to hurry into business, so it's important to understand your reasons for going into business, and determine if owning a business is right for you.

If you are concerned about the risk involved in a new independent business venture, then franchising may be the best business option for you. But remember that hard work, dedication, and sacrifice are essential to the success of any business venture, including franchising.

What is Franchising?

A franchise is a legal and commercial relationship between the owner of a trademark, service mark, trade name, or advertising symbol and an individual or group wishing to use that identification in a business. The franchise governs the method of conducting business between the two parties. Generally, a franchisee sells goods or services supplied by the franchiser or that meet the franchiser's quality standards.

Franchising is based on mutual trust between the franchiser and franchisee. The franchiser provides the business expertise (marketing plans, management guidance, financing assistance, site location, training, etc.) that otherwise would not be available to the franchisee. The franchisee brings the

entrepreneurial spirit and drive necessary to make the franchise a success.

There are primarily two forms of franchising:

Product/trade name franchising and
Business format franchising.
In the simplest form, a franchiser owns the right to the name or trademark and sells that right to a franchisee. This is known as product/trade name franchising. The more complex form, business format franchising, involves a broader ongoing relationship between the two parties. Business format franchises often provide a full range of services, including site selection, training, product supply, marketing plans, and even assistance in obtaining financing.

To learn more about:

The advantages and disadvantages of franchising
The franchiser's responsibilities
What is contained in a franchise packet
Understanding the franchise contract
Read:

SBA's "Is Franchising for Me?" Workbook (.pdf file)
Franchise Registry
Franchise Directories & Evaluation
For additional information

Consumer Guide to Buying a Franchise

How to Succeed As a Franchisee

How to Succeed As a Franchisee
How-To

Pick a franchisee that matches your interests and abilities.Make sure you have enough money to operate without profits for the first few years.Research the opportunity carefully before committing.Related How-TosHow to Finance a Franchise PurchaseHow to Select a FranchiseFeedbackSend Feedback on this How-To Guide » While franchising’s prevalence in the U.S. economy indicates that franchisees can succeed, hundreds of franchisees fail each year. The most frequent causes: lack of funds, poor people skills, reluctance to follow the formula, a mismatch between franchisee and the business, and poor management. Often, it’s the small stuff that separates winners from losers.

A critical initial decision is picking a product you care about. Consider hiring a consultant to analyze whether you are a good fit with the business opportunity you are thinking about buying into. You also have to couple passion with discipline, avoiding too-fast growth at the expense of high-quality expansion.

Among the most common mistakes new franchisees make is signing on before adequately researching the business. Study what it will take to run the business successfully. And be realistic. Owning a franchise is rarely a get-rich-quick scheme.

Contact current and former franchisees to get their feedback, using names from the franchise circular from the franchisers. Never make a commitment based solely on information provided on the Internet or over the phone.

Sometimes, franchisers are to blame. Franchisers may be inexperienced themselves, a situation often found in very small systems. Or they may expand too aggressively, rendering them unable to service franchisees. Brokers or consultants selling concepts may be more interested in a sales commission than in making a good match between business and franchisee.

Another pivotal decision early-on is location. Think twice before locating a franchise using only your intuition. A location on the outskirts of town might be more affordable but may be too remote for customers to reach conveniently. Other factors may be at play. For example, one franchisee thought his spot on a college campus was perfect for his fast-food franchise. Students were a built-in source of employees and customers. And they were — when they were around. But they disappeared for football games and vacations. At the end of each semester, they had little spending money left for take-out or delivery. The location had no parking and so had no other customers. It eventually moved to a freestanding building with a big parking lot. It still delivers to campus, but now also serves families, whose average order is much higher than a typical student’s tab.

To find potentially successful locations, national chains use what’s called geographic-information-systems software that layers census and consumer-trend data upon every street and byway in the country. These tools can cost thousands of dollars. For a few hundred dollars, you can buy demographics reports for any ZIP Code in the country that will analyze population characteristics, income levels, lifestyle trends and even traffic patterns within about a mile of potential sites. You might want to pinpoint, for example, a high-traffic area with at least 40,000 cars a day, 50,000 people living within a two-mile radius, and retail locations nearby. Also consider whether adequate parking is available.

Another key to a franchise’s success is good customer service. That may include making additional investments to improve customer experiences, working overtime to satisfy customer time demands, and putting out extra effort to ensure products and services are done right.

While franchise systems offer pre-set business formats, flexibility and versatility help a lot. That’s especially true when it comes to marketing and promotion. To bring customers in the door, successful franchisees report using tactics such as discount coupons, free samples, direct-mail ads and fax blasts. No marketing job is too small or difficult for a franchisee determined to succeed. Many have success with community-based marketing initiatives, such as those involving schools.

For every franchisee chasing success, there are many competitors engaged in the same pursuit. Studying the competition by visiting their locations and looking for help-wanted signs signaling expansion plans, for instance, helps long-lived franchisees know when to initiate marketing plans to counter rivals’ efforts.

Franchisees can’t succeed without good employees. Winning franchisees treat employees well, so they will treat customers well. Some franchise businesses, such as fast food, have high employee-turnover rates. Providing corporate-style benefits such as medical, dental and retirement benefits can go along way to helping workers feel as though a franchise job is a career. Making sure employees are properly trained and executing according to the rules is vital.

That goes double for your managers. Franchisers say the No. 1 reason for a franchisee’s failure is that they don’t hire the right managers. Franchisees who lack management skills themselves might want to choose a business that could be run by just one or two people. Or, consider hiring someone skilled at motivating others.

Don’t forget: You have to follow the rules, too. Franchises aren’t designed for the independent-minded. They depend on a by-the-book execution of a business plan, adherence to time-tested systems, and a willingness to follow directions.

Insufficient funding is a prescription for failure in any business. With a franchise, the initial fee is clearly stated, but newcomers often underestimate operating costs. A slow beginning or unanticipated event can quickly drain and doom an undercapitalized franchise.

Unrealistic optimism also can be a recipe for financial distress. Borrowing to expand just before a downturn, for example, can lead to rapid bankruptcy. Franchisees need a financial cushion to weather unexpected situations. Experts advise new franchisees to have a nest egg for emergencies and assume they will lose money the first two years.

Franchisees who leave the management of their units to managers and who may or may not be on the premises every day are also less likely to succeed than owners who take a hands-on approach. They may not know if the help is showing up, what customers are complaining about, or whether employees are dipping into the till. Theft can be contagious and contaminate an entire organization if not stopped immediately.

Marketing a Business

Beauty Game:
Being Viewed
As 'Natural'
By ELLEN

Proving that your brand is more authentic than the competition's is always difficult for marketers. For the increasingly crowded category of "natural" beauty products, that task is particularly challenging. That's why Burt's Bees, owned by Clorox Co., and a handful of other brands that try to minimize their use of synthetic ingredients have developed a certification process by which they can officially claim their right to call their products "natural."


Burt's Bees
Mike Indursky of Burt's Bees

In August, Burt's Bees products, including lip balm and body oil, began hitting store shelves affixed with a Natural Products Association seal. The sticker promises that at least 95% of ingredients are natural or derived from natural sources, that they have no "potential suspected human health risks" and that development processes haven't significantly altered the effect of the natural ingredients, among other criteria.

Mike Indursky, Burt's Bees' marketing chief, led the brand's involvement in the certification. Prior to joining Burt's Bees, Mr. Indursky held senior marketing roles with L'Oréal's Garnier hair-care line and Maybelline cosmetics as well as Unilever's cosmetics. Below, he discusses shoppers' confusion with natural products, how his all-natural brand has been affected by being purchased last year by Clorox and his approach to maintaining a small-brand feel as business grows.

WSJ: Why does Burt's Bees need its naturalness certified?

Mr. Indursky: We did a study last year that found that 78% of women believe that when they see the word "natural" on a product, that some governing body is regulating what's in there. That's not the case. And 97% of women told us they want some sort of regulation. We felt we had a responsibility to explain to people what natural is, and what natural isn't, so they can make the most informed choice. We worked with the Natural Products Association and our competitors to develop the criteria.

WSJ: Many have attempted and failed to develop similar seals. Why do you think this one will work?

Mr. Indursky: You've got the Natural Products Association, a non-government, nonprofit, third-party organization that's leading this. Before, a lot of efforts were simply from manufacturers. Also, the companies that joined really are the leaders in natural personal care, so that's a big difference.

WSJ: Several European countries have natural label standards. Why is the U.S. so slow to adopt one?

Mr. Indursky: The trend of inner and outer well-being is more highly developed in Europe. The U.S. is slower, but it has picked up significantly -- if personal-care sales here are growing at 3%, natural personal-care sales are about five times that amount.

WSJ: Since the standards are devised by the participating companies rather than a government agency, isn't there a risk that this seal could be perceived as even more marketing hype?

Mr. Indursky: That would be risky if it weren't for the National Product Association's leadership over it, and their use of third-party certifiers. The brands have no inclusion over the certification process.

WSJ: How do you tackle shoppers' confusion with natural products?

Mr. Indursky: Right now anyone can have a bottle that is green with some flowers on it and call it "natural." Burt's Bees approaches this in two ways: We helped develop this certification standard, and we developed more education efforts through our Web site and an ad campaign that explains our ingredients and what a natural product really is.

WSJ: What's the ultimate goal of this certification?

Mr. Indursky: The endgame is to try to get to a point where all products are 100% natural. Unfortunately, certain ingredients give a benefit that you can't get naturally. For instance virtually every shampoo or conditioner has what you call a quat, which helps hair be soft and manageable. Without that your hair can become a bit straw-like. There's no natural quat available. On a positive note, a quat has no suspected human health risk. We're hoping by creating this certification, you're giving people the incentive to commercialize a natural quat so we can get away from the synthetic version. Where we do draw a very strong line is on any synthetic ingredient that has a suspected human health risk.

WSJ: Any examples?

Mr. Indursky: Parabens are a preservative used in many personal-care products, and studies have shown that they can lead to endocrine disruption and affect your hormone balance. There are plenty of natural alternatives to parabens. Our belief is that even though the FDA says that parabens are safe, a natural product shouldn't have them. When there's a natural alternative, that's what you should use.

WSJ: As a marketer, how do you balance your brand's natural stance with your parent-company's brand, which is synonymous with bleach?

Mr. Indursky: There's nothing to balance. Burt's Bees is doing what it has always done, regardless of Clorox owning us. Clorox has been a fantastic supporter of ours, and our levels of sustainability and natural ingredients have only increased since we've been acquired.

WSJ: How do you maintain a niche feel to your brand when it has become so widely distributed, now even in Wal-Mart Stores Inc.?

Mr. Indursky: We've been fortunate, every time we've opened in a new distribution, the gift stores and natural stores still keep us. We're rooted in authenticity, and our homey packaging has to maintain that. The worst thing we would do is repackage our product into something supermodern and scientific. But in merchandising, advertising and on our Web site we've gone more into the science that comes from nature -- all the stuff that our packaging on its own doesn't do.

WSJ: How has beauty marketing changed over the course of your career?

Mr. Indursky: In the 1970s and 1980s, it was always "hope in a bottle." People are now seeing that beauty does come at a cost. Health and well-being are becoming a larger part of the equation. Before, it was all about this magic ingredient. That doesn't fly anymore. Real education is important. Consumers don't want hope in a bottle, they want truth in a bottle.

Write to Ellen Byron at ellen.byron@wsj.com

Don Boroian Client - Lifeway Foods

#2: Lifeway Foods Inc.
By: H. Lee Murphy September 15, 2008
Independent directors are a bargain at Lifeway Foods Inc., where their total pay runs all of $4,500 a year. That's less than the after-meeting golf fees rung up by many larger companies' boards.

A maker of kefir and other cultured dairy products once marketed primarily as a health food, Morton Grove-based Lifeway is expanding its distribution to mainstream grocery chains. CEO Julie Smolyansky has said the company intends to franchise a chain of boutique-cafes to provide an additional sales channel.

First-half revenue rose 21%, to $22.6 million, but Lifeway's profits have been under attack. Raw milk prices zoomed in the second half of last year, and, though they've eased in recent months, costs continue to squeeze profit margins. Second-quarter earnings amounted to 5 cents a share, prompting analyst Jacklyn Rider of New York-based Lazard Capital Markets LLC to downgrade the stock from "buy" to "hold" and reduce her 2008 earnings estimate to 26 cents a share from 30 cents.

Howard Halpern, a Taglich Bros. Inc. analyst in New York, is more focused on revenue. "The top line is the best indication of where they are going," he says. "Margins may be squeezed at the moment, but if they can keep growing, eventually they'll get their leverage back and earnings will return."

As for the low director salaries, Mr. Halpern isn't surprised. "For companies this size . . . being a director is a labor of love for everyone involved," he says. "You don't do it for the money."


WHO'S MAKING WHAT
Non-executive board members
> Renzo Bernardi $1,500
> Pol Sikar $1,500
> Julie Oberweis $1,500
> Juan Carlos Dalto $0


THE BOTTOM LINE
> Three-year total shareholder return: 37.2%, period ended 12/31/07
> Total non-executive board compensation in 2007: $4,500

www.francorp.com

Francorp Client, Lifeway Foods

Lifeway Foods to Begin a Franchise Program for Its Starfruit, 'Kefir Boutique' Cafe
Mon Jul 7, 2008 3:48pm EDT Email | Print | Share| Reprints | Single Page | Recommend (0) [-] Text [+] Featured Broker sponsored link
Lifeway Foods to Begin a Franchise Program for Its Starfruit, 'Kefir Boutique'
Cafe

MORTON GROVE, Ill., July 7 /PRNewswire-FirstCall/ -- Lifeway Foods, Inc.
(Nasdaq: LWAY), the country's leading manufacturer of kefir and a provider of
other natural and organic dairy products, announced today that it is
franchising its Starfruit "kefir boutique" cafe.
The new retail concept debuted April 15th at 1745 W. Division Street in
the trendy Wicker Park neighborhood in Chicago and serves as a prototype for
it's national franchise program. The shop offers several flavors of frozen
kefir with over 20 toppings as well as customized kefir parfaits, and
smoothie-style kefir drinks.
"Since announcing the initial opening of Starfruit, we have been bombarded
with requests for franchise opportunities from all over the country," said
Julie Smolyansky, President and CEO of Lifeway Foods, Inc. "Starfruit will
capitalize on the renewed popularity of frozen yogurt shops while offering a
healthier alternative with all the probiotic benefits of kefir and franchising
the concept can help us grow the brand quickly."
The expansion into retailing provides a new sales channel for Lifeway's
products, coincides with the resurgence in the frozen yogurt category and
offers an opportunity for Lifeway to promote the health benefits of its kefir
products beyond grocery shelves.
Those benefits include 10 live and active probiotic cultures that have
been shown in various studies to enhance the immune system, fight fatigue,
promote gastrointestinal health, aid in vitamin and mineral absorption, and
ease lactose intolerance. Yogurt has a similar taste and texture to kefir but
many of these frozen yogurt style shops do not use a real live and active
product and contain only two or three of these cultures if any.
"Starfruit will capitalize on the renewed popularity of frozen yogurt
shops while offering a healthier alternative with all the probiotic benefits
of kefir," said Julie Smolyansky, President and CEO of Lifeway Foods Inc. "We
have been pioneering leaders in the field of probiotics and kefir. This
leadership will translate into the quality of the Starfruit product line.
This is a promising diversification that will leverage our leadership in the
kefir market, familiarize a whole new group of consumers with kefir as well as
teach existing customers new ways to consume kefir, and provide a potentially
very lucrative new revenue stream."
Julie Smolyansky stated that the company is accepting applications for
individuals interested in becoming franchise partners for individual or
multiple locations. Lifeway has engaged Francorp, the world's leader in
franchise consulting, to develop their franchise program.
For more information, email franchising@starfruitcafe.com or call
847-967-1010.
About Lifeway Foods
Lifeway is America's leading supplier of the cultured dairy product know
as kefir and the country's only supplier of organic kefir. Lifeway Foods,
recently named Crain's Chicago 49th fastest growing Chicago Companies and
Fortune Small Business' 49th Fastest Growing Small Business, one of only 4
companies to ever be named to the list five straight years in a row.
Lifeway's kefir products include regular and organic kefir, a soy-based
version called SoyTreat, a new Indian variety known as Lifeway Lassi, organic
whole milk kefir, and a children's line of organic kefir products called
ProBugs(TM) packaged in a no-spill pouch. Lifeway also produces the La Fruta
line of drinkable yogurt marketed in US Hispanic communities, a variety of
cheese products and It's Pudding! organic pudding.
SOURCE Lifeway Foods, Inc.

Lifeway Foods, Inc., +1-847-967-1010, franchising@starfruitcafe.com

Wendy's Shareholders Approve Takeover

Wendy's, Triarc approve takeover deal
By LAUREN SHEPHERD – 2 days ago

NEW YORK (AP) — Shareholders of Wendy's and Triarc approved a $2.34 billion deal on Monday that will make the nation's No. 3 hamburger chain a part of billionaire investor Nelson Peltz's empire.

Triarc Cos. Inc. shareholders voted from New York while shareholders of Dublin, Ohio-based Wendy's International Inc. approved the deal from the company's headquarters. Directors of both companies had already OK'd the transaction.

Atlanta-based Triarc operates the Arby's fast food chain and is owned by Peltz. Triarc said in April it would buy Wendy's for $26.78 per share in an all-stock deal, after the chain known for its square hamburgers and the Frosty dessert rejected at least two earlier offers by Peltz.

Triarc said it will change its name to "Wendy's/Arby's Group Inc." and will trade under the "WEN" symbol on the New York Stock Exchange. Triarc's Chief Executive Roland Smith will take over as CEO of Wendy's and Kerrii B. Anderson, the current CEO, will step down.

Smith has said job cuts will likely be necessary, but he has yet to provide any details on those plans. He offered no new details in the company's statement but said more information would be forthcoming once the deal closes.

"We believe our combination represents a major strategic opportunity to create significant long-term value for all of our stakeholders, and we are working on a comprehensive integration plan and organizational structure to support enhanced operating performance at both brands," Smith said in the statement.

Smith has said Wendy's headquarters will remain in Ohio while Arby's will stay based in Atlanta.

Wendy's spokesman Denny Lynch said the company will "remain focused on running our business and doing the best we can to continue the turnaround at Wendy's."

The acquisition of the chain Dave Thomas launched in Columbus in 1969 comes as consumers increasingly cut back on discretionary spending and commodity costs take bites out of restaurant profits.

Wendy's has been hit harder than its fast-food competitors. Last month, the company reported lower second-quarter profit and sales, saying its results has been hurt by higher grain and fuel prices.

Under the terms of the deal, Wendy's shareholders will receive 4.25 shares of Triarc's Class A stock for each share of Wendy's stock they own. Each outstanding Class B share will be converted into one Class A share. Once the deal closes, expected on Sept. 29, the combined company will have only one class of stock.

Besides approving the acquisition, Triarc shareholders also voted to add a new member to its board and accepted the resignation of one of its current board members, Russell V. Umphenour Jr., to make room for two Wendy's directors — Janet Hill and J. Randolph Lewis.

Hill is vice president of corporate consulting firm Alexander & Associates Inc. and Lewis is senior vice president of distribution and logistics at Walgreen Co.

Wendy's shares fell 60 cents to $22.24 while Triarc shares dipped 12 cents to $5.26 in afternoon trading.

To Franchise or Not to Franchise?

To franchise or not to franchise: An analysis of decision rights and organizational form shares

Steven C. Michael, , 1

George Mason University, USA

For innovators and entrepreneurs in service businesses, franchising is frequently suggested as a way to succeed and grow. Academic research has provided little guidance for potential franchisors, however. This article provides a model to guide that choice of organizational form using results from agency theory. Analytically, franchising is a way to allocate decisions within the franchise system between the franchisor and the franchisee in order to promote efficiency and provide incentives. Franchisees make decisions regarding local operations, such as hours, prices, and locations, because they have the knowledge about local trading conditions. Franchisors make decisions regarding the product, its production, and associated marketing efforts that together create the standardization that the trademark signals. The revenue of franchise systems is divided to provide incentives to each party to support the allocation of decisions. Franchisors receive a percentage of gross sales, typically 5%, to compensate them for use of the trademark and associated services. Franchisees keep the unit's profits after paying royalties. These profits motivate the franchisee to make the good decisions that operate the unit efficiently.

But franchising has limitations as well. First, by making franchisees invest in a unit in a specific geographic area, the franchise system exposes the franchisees to business risk; it consists of local economic conditions beyond franchisees' control that could reduce or eliminate their capital. That risk could be eliminated by owning a geographically diversified portfolio of shares of units in different places, but then incentives are weakened. Second, the requirements of standardization under the common trademark constrain franchisees from the full use of their human capital, including their knowledge of local conditions. Some adaptations to the local market are prohibited by the requirement of standardization. So high levels of either business risk or human capital in an industry make franchising a less desirable choice of organizational form.

These ideas are tested with interindustry data using an econometric discrete choice model on the share of sales through franchise systems (termed organizational form share). The methodology is identical to market share models used in economics and marketing. Business risk, as measured by percent of units that have failed in the industry in the last 3 years, and human capital required in the industry, as measured by average wages paid, both negatively influence the share of sales through franchise systems.

The model can be applied by entrepreneurs considering franchising, especially in industries not traditionally associated with franchising. Using public data sources identified in the study, a prospective franchisor can research the industry to determine if industry conditions support franchising as the optimal choice of organizational form. The empirical texts also suggest a second managerially relevant conclusion: the decision of “should we franchise?” can be and should be separated from the decision of “how do we implement franchising?” Factors previously shown to influence the implementation of franchising, the degree of ownership of units within the system, do not influence organizational form share, thus suggesting that the strategic decision of whether to franchise is distinct from the operating decision of how to implement franchising.