Franchising...? In this Economy?

It is possible that the downward spiraling economy is responsible for the spike in interest in franchise ownership. With so many companies downsizing and unemployment numbers climbing, this country finds itself with a surplus of available managers, supervisors and otherwise qualified individuals.

The phrase "bulletproof job" will surely emerge on Google at the year's end as being one of the most (if not the most) searched phrases of 2008, but we know this now--nothing is truly bulletproof when it comes to jobs. Despite the typically steep upfront cash requirement for franchising, and aside of these fledgling economic times, this may very well be the best time to explore franchise ownership, believe it or not.

If we've said it once, we've said it a million times--franchise ownership is the security of owning your own business with the backing of the solid reputation of those who have gone, and succeeded, before you.

Unlike with independent business ownership, with franchise ownership you get the confidence of a good name, training and a solid business model from which to build your business to be as successful as possible.

The name of the game is research. Knowing your own personal strengths, your market and your budget are all steps to becoming a practical franchise owner. Google everything related to the franchise you have an interest in, but don't get so invested in the opinions regarding their successes (or failures) of other franchise owners that you neglect to realize a potentially great opportunity.

This is a nice corporate video put together by Molly Maid about investing in franchise ownership during these sketchy economic times. We liked it.

Confessions of a Former Independent Tanning Salon Owner.

Once upon a time, a girl in the Midwest, sick of working hard for everyone else, tired of leaving her kids at home to be raised by everyone but her, who decided to go into business for herself. Here’s her (er—my) story.

I stated the why of wanting to own my own business. This was followed by a whole series of questions regarding business ownership—everything from what type of business I desired to embark upon, to whether or not I had enough capital, to did I need (or want) business partners?

Deciding to open a tanning salon wasn’t a stretch. I was a misplaced Floridian who missed the rosy, healthy-looking glow of a sun-splashed body. One of my dearest Florida friends owned and operated her own tanning salon and hanging around her place, I got a taste of what was involved as far as licensing, costs, upkeep, employees, etc. I felt that the decision to open a tanning salon was a practical choice that wouldn’t require a ton of research on my part. I certainly didn’t want to wander blindly into business ownership. I only wish that the decisions beyond what kind of business to open had come with such great ease.

I briefly explored buying into a tanning salon franchise, but balked at the prices on those things. I remember thinking it would take me ten years to recoup my investment and I’d have to share a percentage of my profits still after that! Convinced that I could do it myself for a fraction of the cost, I ordered a tanning bed catalogue and set about planning and spending.

I used a personal savings/loan combination to open Tropical Tan North—yes, I actually went into the experience with dreams of a South someday. I rented a premium location near major businesses and a huge local college, two distinct advantages over the other tanning salons currently in local operation. I also played secret shopper to those salons to see what worked or didn’t work for their businesses. I got the proper permits and paid (through the nose) to have the place renovated to accommodate half a dozen beds to start with and for wiring to city code. None of this came cheap. In fact, I had to forgo one of my initially intended bed purchases (each one cost as much as a compact car) just to offset costs, then I had to justify this decision to my banker with whom I’d taken out the loan—bankers understand collateral, not ideas. I opened Tropical Tan North and it was wildly successful, and I closed it four years later. Here’s why:

1) I wasn’t making tons of money. Oh, I was making money, but not nearly enough given the outrageous clientele numbers we were enjoying. The salon had a great location, was always open, had the newest bulbs, the cleanest beds and the lowest cost lotions, so we had the numbers. But, for example, I barely profited off of tanning lotions, which I underestimated to be such a huge part of salon business. I’d mistakenly figured it to be “bonus” money instead of realizing that lotion was a staple to almost every tanner who entered the salon. By neglecting to realize this and seriously under-pricing the competition, I literally walked away from profit.

2) The cost of salon upkeep was insane. Because we had higher traffic than other salons, the beds were constantly in operation, which naturally spelled out the need to replace bulbs and acrylics more often, not to mention those occasional mishaps that result in bed damage. This probably wouldn’t have been such an issue had I made better pricing decisions on tanning packages and, as mentioned, the lotions.

3) I was dead-tired. In my case, superior customer service became a curse. Because our salon had become known for its courtesy, I was personally in attendance for at least 14 hours a day, every day, to deliver. I did have two part time employees, but because they weren’t enjoying competitive wages (read miniscule profit margin), I was getting sub-par reviews for their courtesy, and on occasion, I suffered profit loss through missing lotion or freebie sessions they’d “sampled” to their friends and family. I couldn’t be the only eyes/ears of the salon, couldn’t risk further shrinking my tiny profit margin, and couldn’t take it any longer. I paid my bills and closed up shop.

For four years my intended American Dream of being an independent business owner bordered an all-out nightmare. Analyzing the situation now, I can see that I had many assets: the desire, the knowledge and some cash and/or ability to get a loan. Had I invested that time, talent and money into a franchise tanning salon chain, I might still be in business today.

When you buy into a franchise, you’re buying patented knowledge. When making the decision to go independent, I seriously undervalued the benefit of guidance and tools of those who have gone before us. You see, when you’re buying into a franchise, you’re not just purchasing the rights to a name, some equipment and a business manual. You’re purchasing a wealth of experience from business pros who stand make a handsome living from, in part, your business success.

When you buy into a franchise, you’re buying into a reputation. My independent operation had a well-earned reputation that cost me only 14 hours a day, seven days a week, with minimal profit to show for it.

When you buy into a franchise, you’re buying a tried and true business plan. It works, or there would be no need for franchising whatsoever. You’re buying into pricing, scheduling, and other valuable operational information, which means you eventually stand to have some semblance of life outside of your business. As an independent owner/operator, I couldn’t even slip home to shower or read a bedtime story to my kid without fear that everything was going wacky back at the ranch.

There’s some serious benefit to the trust that comes with owning part of something bigger than you are. Not to say that you won’t still work hard or that you don’t have to have any of your own business sense to decide to buy into a franchise, there’s just no such thing. But along with the franchise price tag comes the power of a network and access to solid business knowledge, and that is priceless.

Busy Does Not Equal Profitable

My parents used to have a favorite watering hole and feed bag that served the best barbecue in the south along with beer brewed on the premises. What can I say? My pop likes his beer and 'cue.

Imagine my parents dismay when they approached the place one Saturday evening to find the doors shuttered and the lights off. "I don't understand it," my mother bemused, "the place was always so busy, how could they go out of business?"

She was partly right. The place was typically hopping on weekends, and on the occasions me and my misses accompanied them we had to wait a spell for a table. But, busy does not equal profitable. All busy means is that an establishment has a popular product that was effectively marketed to the surrounding area. That doesn't mean they are doing the most basic of economic functions -- buying low and selling high.

When purchasing a franchise, there's a good amount of research you should do before betting away your retirement and plunking down the balance of your 401K. One of the simplest things to do is visit a few of the franchise locations within driving distance and see how busy they are. It seems logical. But all this will tell you is how popular the product is, not how profitable you will be.

You still have to look into distribution agreements, leases, labor costs, franchise fees, etc. You know, the meat and potatoes of running a business. Otherwise you may end up like these guys. One of whom fell victim to the old "place is jumping" research.

And don't worry about my dad, he's already found a new place to gas up on the weekends. Instead of barbecue it's crab legs, and the microbrewery on the premises puts the other one to shame. He's a resilient man, my dad.

Franchise "Creature Feature" Writer

Alternate Supply Chains

I have a friend who used to own and operate a small video rental store, the type you would safely refer to as a "mom and pop" operation. There was only one location with a small, but loyal, customer base. The store was profitable, but slight shifts in the business could spoil the bottom line from month to month.

If you don't know anything about the DVD distribution pipeline, don't worry, it's actually pretty simple. The major studios sell the DVDs to a few distributors with warehouses across the country who in turn supply stores with the movies. Obviously, the more volume a store does, the more discount the distributor gives. Since my friend's store was so small, she obviously didn't net that much of a discount.

One day she was thumbing through the Sunday paper and saw an ad for one of the major electronic chains, the kind that sells everything -- including DVDs. Their advertised price for that week's major release was less than her distributor had charged her per unit of that title by approximately five dollars. It might not seem like much, but when she checked the previous sale prices at this retailer over the last month, at the volume she dealt in, the difference over all the units she purchased that month was astounding. In fact, the savings would approximately equal the monthly salary of one of her part-time employees.

On Monday, she called her distributor and asked if she could negotiate a better discount to help her compete in her market. Based on her volume, she couldn't get a better deal. She would have had to order around ten times the amounts she currently dealt in to achieve the next discount plateau.

So, she negotiated a deal with the manager of the local electronics store, and began purchasing her copies of movies directly from them at their weekly discount prices. She dealt in such small volume (about eight copies of a major release) that it didn't negatively impact the electronics store's bottom line, and since she was renting rather than selling she really wasn't competing. Her meager profits started looking up.

I guess you couldn't say she thought "out of the box" on that one since she was buying from a big box retailer, but she certainly didn't allow preconceived notions about an industry' supply chain keep her from turning a profit.

Purchasing goods from local farmer and growers, materials that don't need to be shipped from the other side of the country, and other little savings throughout your business (which is why it's so important to not allow the franchisor lock you into a singular supply chain) can be the difference between living in the red and living in the black.

Franchise "Creature Feature" Writer

Plan Your Store Layout Carefully

Upon entering my local grocery the other day, I noticed a weight scale placed directly at the entrance. I figured what the hey and hopped on. The red needle sprung to life and bounced back and forth for a few seconds before finally settling on a number. Needless to say I slinked off the scale with far less hubris than I had jumping on to it and prayed no one was standing behind me who saw that number.

Believe me when I say that little red needle adversely affected my shopping experience. When staring down the sale on 24 pack sodas, I decided tap water might be better. I figured my baked potatoes didn't need sour cream, so that didn't get purchased on this trip. And although I love cheese, I skipped that aisle completely.

All in all I spent less this week at the grocery store than I normally do by making those, and many similar, decisions.

So, the question the grocery store needs to ask is whether or not placing that weight scale directly at the entrance was the best decision for their store?

I've run a store before. I know that you need to add something to the store so other things get pushed around and everything gets shuffled up -- and you eventually wind up with a weight scale by the door.

Every now and then it's a good idea to take a step back and look at the store layout as a whole. What's the store's traffic? How does it flow? What can be put there to maximize sales? And most importantly, what shouldn't be put there because it will drive sales down?

It's like that old saying, don't lose sight of the forest for the trees. And the new saying I'm gonna try and spread across the nation, don't tell me I'm fat when you want me to buy food. Sure, it doesn't have the same ring as the first, but it's still very true.

Franchise "Creature Feature" Writer

I Love Chinese Food

I was a picky eater as a kid. I wouldn't eat much of anything my mother placed in front of me at the dinner table. When I got to college, I finally realized why that perception dogged me my entire upbringing; my mother was a picky eater and didn't expose me to a lot of great foods. The only time we ventured from Midwestern cuisine was for Italian.

One night I had friends take me to a Chinese buffet, and feeling adventurous, I tried it. AND LOVED IT!

After that, I tried lots of different types of food. But, I think my favorite is still Chinese. I love a type of food that can mix sweet sauces with meat.

The trick is, I would never want to open a Chinese restaurant. Besides the fact I have no earthly idea how to actually prepare it, I mostly just don't want to lose my love for it.

I've held it as a pretty good rule to never try and earn money at the things I love. I'm pretty sure it would wear that love down to the point I no longer have any feelings for it. And who wants that?

When choosing a business to start, pick something you're interested in, but not one of your true passions. You'll need that passion to help distract you when the stresses pile up. And believe me, they will.

Franchise "Creature Feature" Writer

I’m All About Leaps of Logic

Well, gas prices have hit a record high. Again. Is it just me, or should we wait until they drop back down a little before we start claiming records? It seems kind of silly to lead the nightly news every night with “record high gas prices.” I mean, when a long jumper sets a new record we don’t record every inch he or she passes over the record, just the final distance.

Until sanity returns to the record keepers of America, there is a lesson to be had from these super high gas prices. That lesson is that the prices for groceries are creeping up as well. It’s just logical. Food gets to the stores on trucks. Trucks take gas. So you could say that the price of gas and food are locked in a demented dance.

It’s wise to remember these times when negotiating a franchise agreement. If you’re purchasing a franchise that in any way requires supplies, then gas prices will become an issue.

Many restaurant franchises have exclusive supplier deals that have caused no end of heartaches for the owners. Prices have soared for food when store traffic has dropped, putting profits in jeopardy.

Negotiating the ability to choose suppliers is very important for a franchisee. Besides alleviating some of the corporate control that parent companies want to exert, it also gives the franchisee better footing to negotiate prices with the supplier. A supplier who knows you have the option to take your business elsewhere will be more willing to negotiate than one who knows he’s your only source.

This is an issue that the franchisor will fight you on. It’s a guaranteed revenue stream for them as it is common for them to own the supply line or get percentages of profits from the supplier. That’s why you have to be prepared to walk away from the table over this issue. If they want to go to the mat over the supply line, and not allow you the option to run your business profitably, then you seriously need to reconsider whether you want to be a franchise of this operation or not.

Franchise “Creature Feature” Writer