http://memphis.bizjournals.com/triad/othercities/triad/stories/2009/09/14/smallb1.html?s=sbc:1&b=1252900800^2078921&page=2
Friday, September 11, 2009
Business in a box: Franchising can be easier, tougher route for entrepreneurs
The Business Journal of the Greater Triad Area - by Matt Evans Staff writer
Twenty-two years up in the air — literally — was enough for Brooks Mayson. He wanted a street-level career, and he wanted to make one for himself.
So in the fall of 2007, at age 47 and after 22 years as a jumbo jet pilot, Mayson resigned from his job and six months later opened up an Express Oil Change and Service Center on Main Street in Kernersville. He became one of about 170 Express franchisees across eight states in the South, and one of two in the Triad.
“I’d been a pilot for so long that I realized I really knew very little about business,” Mayson says. “My feeling was that I wanted to give myself every opportunity, so I needed to go with a franchise.”
Mary Needham felt much the same way in 2006 when she decided after 15 years as an insurance agent that she wanted to get into the then-hot “you-cook” meal preparation business. A busy Greensboro professional herself, she had been a customer of a Dream Dinners franchise and was hooked by the concept of helping busy families prepare home-cooked meals in a central location that could be taken home and served over the course of a week or month.
“For somebody like me who couldn’t get dinner on the table, it was the best thing in the world,” Needham says. “I started pursuing it and did research on a lot of companies, but a lot of doors seemed closed. Entree Vous was one of the smaller franchises, but I went with the one I thought had the best food, and it seemed right.”
Franchises offer the promise of a “business in a box” for entrepreneurs, but no kind of business always goes as planned. For Mayson, franchising has proven its value over 18 months of growing his operations. Needham lasted about 16 difficult months before, with the help of an attorney, escaping her franchise agreement and reopening on her own.
Not every problem can be avoided, says John Cross, an attorney with Brooks Pierce McLendon Humphrey & Leonard in Greensboro, but careful preparation does go a long way.
“With franchises, an entrepreneur doesn’t have to be completely creative. They can find a sweet spot they like and have somebody teach them,” Cross says. “But you’re married to your franchisor, so you need to be comfortable.”
Decision making
The courtship between Mayson and Express Oil Change started well before he quit his job as a pilot. The first step was deciding what kind of business he wanted, considering and dismissing restaurants and retail and settling on automobile service. He wasn’t a trained mechanic, but he liked the set procedure of an oil-change operation. And after a long flying career, regular hours allowing time with his wife and two daughters was important.
“It fit my brain really well,” Mayson says of auto service.
His research led him to conclude that offering both maintenance and repairs was important, which narrowed his list of potential franchisors. He chose Express Oil after spending about 10 days over six months visiting existing stores and being impressed with how the franchises approached employee relations and customer service.
Among the critical services he received from his franchisor, Mayson says, was help with real estate, training and financing.
Express Oil has its own real estate department, Mayson says, that helped him decide that the Triad was a good market and narrow down a specific location. He also received detailed projections of construction and startup costs and help with zoning issues.
Training was a big factor in his decision because he was new the auto service business. Most of the franchises Mayson looked at provided two or three weeks of in-store training, but he doubted that would be enough.
“Not having the background, I felt I needed something more concentrated,” he says. His Express Oil training lasted 10 weeks and covered topics ranging from auto service to marketing.
The franchisor did not provide financing, but helped in making arrangements with a third party, Mayson says. The franchise fee was $27,500 and the cost of buying the land and constructing and equipping the building was around $1.2 million, he says. He put in 15 percent cash for the land and building and 25 percent cash for the equipment.
Mayson says he was able to arrange a loan through RBC Centura without too much difficulty, and he believes that’s largely because he was pursuing a franchise.
“There’s no question that having an established business model and a history of franchisees with similar backgrounds certainly opened up those doors for me,” he says.
Finding financing
Mary Needham went through a similar due diligence process before opening Entree Vous. She started thinking about starting her own business in 2005, she says, with her serious investigation beginning in late 2006 and her opening in December 2007.
She invested a total of about $225,000 during that time, she says, mostly from retirement funds but also with some financing from Bank of America.
Needham didn’t make any particular mistakes during that time that doomed her Entree Vous business, she says, but her timing was off. She got sold on the meal-prep concept when it was a hot new thing. But by the time she opened, not only was the recession getting started but the niche fad itself was fading, with other similar stores starting to close.
After about six months of disappointing sales, Needham added a catering component. That helped bring in revenue, but she still had to share the extra income with her franchisor even though she didn’t receive much if any extra support for that part of her business.
After about nine months, Needham says Entree Vous sold itself to a competitor and she and some other franchisees noticed what they describe as declining levels of support and advertising from their corporate office. She and a group of about a dozen other owners hired an attorney, who was eventually able to negotiate an exit from their franchise contracts.
Needham says she is prohibited from disclosing how much she had to pay to escape her contract, but it “could have been worse,” she says. She kept access to her recipes and her location on New Garden Road, and has reopened independently as Greater Expectations Catering and Meals-to-Go.
Being on her own gives her more flexibility, she says. She no longer offers self-service meal preparation because there was little demand for it, but she still supplements the catering business with prepared meals to pick up.
“From a workload level, I would say nothing’s really changed” being on her own as opposed to being a franchise, she says. “It’s hard to know now because summer is a slow season anyway, but we were up a little this year and I feel like this fall will be significantly better than last.”
Needham says her franchise experience did teach her to run her business, but at much too high a cost. She paid $75,000 up front for the right to open three locations, money she said is now just gone. She was lucky to be able to get out of her franchise agreement, she says, but that cost plenty as well.
Read the fine print
Cross, the attorney with Brooks Pierce, says nobody should get into a franchise agreement expecting to be able to get out if it doesn’t go well. Good franchisors will work with owners to avoid problems, but disputes do sometimes end up in court.
The most important source of information for any potential franchise buyer is not the fancy promotional Web site, Cross says, but rather the Franchise Disclosure Document that must be provided by all franchisors.
That document provides standardized information that will allow for accurate comparisons between opportunities, Cross says, and will also disclose things like lawsuits from existing owners.
Cross says an attorney can help a would-be business owner make sense of the document and franchise agreement, and also help form the appropriate corporation or other business structure. In some cases an attorney might also be able to get the franchise buyer a break on fees or terms, he said, but that depends on the business.
“If you’re going to open a Chick-fil-A, you’re not going to be able to negotiate. You’ll take it or leave it,” he says. “It depends on how strong the franchisor is.”
Beyond the legal details, Cross says most problems arise because the expectations of the franchisor and franchisee just don’t mesh. That’s especially common in service-oriented franchises such as locksmiths or cleaning companies, where the human element plays a bigger role.
Due diligence won’t guarantee against such problems, but it will improve the odds of success, he says.
Myths about franchising
- Franchising is all about restaurants. While many of the best-known are restaurants, there are actually 3,500 franchise concepts in 75 industries.
- The more you spend, the more you’ll make. There is no correlation between how much money a franchise costs and how much money it makes.
- You must have experience in the field. Experience isn’t necessary; in fact, many franchisors prefer their new franchisees to have backgrounds outside the industry.
- All franchises are created equal. Some franchisors will take on every franchisee that can sign a check, which makes for a weaker organization overall. The franchises that vet prospective franchisees just as much as the franchisees vet them get the best candidates and have the strongest system.
- A franchise will run itself. Just because you have the support of a larger organization and ongoing training programs, owning and operating a franchise is still a huge responsibility and takes a lot of work — especially at the beginning — to make it successful.
Source: MatchPoint Franchise Consultant Network