018- Franchise Business Options

Oct 22, 2019

 Show Notes: 

Often times when we think of starting a business, we think about creating a product or a service, launching a new brand, and getting ourselves out into the marketplace. As an entrepreneur, we see ourselves creating something from nothing as a means to self-validate that we are a successful entrepreneur. However, this course isn't the only option for those wishing to own and operate their own business. Franchise business options are an alternative to starting a business from scratch.

Franchises allow you to build off of a success business model and existing brand recognition to open a business and see quicker success, assuming you put in the work required. 

In this interview with franchise business broker Joe Fox from the Franchise Consulting Company, you'll learn:

  1. There are hundreds of franchise business opportunities that exist spanning many different industries
  2. Franchises allow you to start with a proven system, eliminating the guesswork from starting and running a business
  3. Some franchises offer business coaching throughout your ownership
  4. Initial and ongoing financial capital investment needed to buy a franchise varies dramatically and financing option exist
  5. There are options for how "hands-on" you wish to be as a franchisee owner
  6. Franchises may not be the right option for you if you wish to go outside the proven system
  7. Working with a franchise consultant will help to ensure you avoid the pitfalls and understand what you're getting into before buying into a franchise

Resources:

Interview Transcription:

Jeremy Epp: Hello everybody. I want to welcome Joe Fox to the show. Joe is part of the franchise consulting company and I've asked Joe to come onto the show today to answer several questions that I know you may be interested in and curious about the franchise business. So welcome to the show, Joe.

Joe Fox: Thanks. I really appreciate you having me. I look forward to being able to share what I know.

Jeremy Epp: All right, sounds great. I understand that you've been doing this for just a little while, but you've got some background experience that led you to this. Can you tell us a little bit about that?

Joe Fox: Yeah, you bet. I've actually been in the business world for over 30 years and through that have helped literally hundreds of people with business creation and business modification and business optimization. I've been with the Franchise Consultant Company for a bit now and it's one of the largest global companies of its kind, operating in the US and five other countries, but I really got into consulting for franchises to help people. Something I've always enjoyed throughout my career is helping people, but now I'm able to help people get educated on business ownership and that's really what we do hundreds of times a day and throughout our company with our 140 consultants that we have, teach people what they need to know about business ownership and how franchising might help them attain their financial independence.

Jeremy Epp: Do you find that people contact you because they're curious about franchise and they're just trying to understand more about it or they've already got a pretty good idea and they're just wanting to see what opportunities lie in the franchise world?

Joe Fox: Yeah, it's a good question. I think it kind of runs the gamut. There are people who know nothing about the franchise world. They've heard about it, they've seen maybe friends or business acquaintances get involved in franchising and in owning a franchise. And then, there are other people that are very knowledgeable and experienced, but they need somebody who can walk them through the process and who can make the introductions to the franchise or companies. And it is a unique world and one that has lots of twists and turns. And so, being able to provide consulting services, for me, it's exciting for me, but it's also very valuable for the person on the other side.

Jeremy Epp: No, I got to admit, when I first think about franchises and what that means, the first thing that pops into my mind is restaurants. Subways, McDonald's, etcetera, stuff like that. And then, the second area that comes to mind is like single individual service oriented companies maybe as a carpet cleaner or something like a home inspector or something like that. I know that it's a lot more than that. Can you give some more details about what franchises are and how broad they can be?

Joe Fox: Yeah, you bet. And yeah, most of us hear franchising, we think of a Subway or a McDonald's or Taco Bell. As it turns out, there's over 3,000 different franchise companies in the US and they run the gamut from dry cleaners to chimney sweeps to maid services, elder care, any food concept you could think of, automotive, oil change places, break places. Just about anything you can imagine somebody has created a franchise environment for, which is great because franchises help people become business owners. And you're in business for yourself, but you're not by yourself. You've got a company that gives you a system and a track record and helps you get up and running fast and you avoid the common mistakes that people typically have when they're starting up a business. So a franchise really, to me, it's a collection of systems and processes that have been vetted and shown to work and then that provides opportunity for others.

Jeremy Epp: Right. That leads into my question, you began to answer it, which would be why would somebody even consider buying a franchise. And you mentioned you've got the support network, you've got the systems and the tools. Probably I would imagine a lot of marketing and research as far as what marketplaces are looking for as well. What other support would a potential franchisee expect to have as far as if they bought into a particular franchise or does it vary from franchise to franchise?

Joe Fox: Yeah, I think your last question is probably the one to start with and it's probably the most important. It does vary from from franchise company to franchise company and that's something that individuals or through their consultants really need to dig deep and find out what are the services, what are the things that are provided for the franchisee? I come in and I buy this business, what are you going to help me with? And for most people, it's the things that we are not experienced in and that is real estate. Maybe finding a location, how to negotiate a lease. How to do the market research to determine what location will be best for your business. And then marketing, certainly marketing. The legal aspect, just training is critical.

Joe Fox: A lot of times people will acquire businesses that they have maybe some knowledge of, but not a deep enough knowledge to really be a strong business owner yet. But the franchise companies, the good ones, will provide that kind of in depth training and ongoing training throughout. It's important to make sure that support is there in the beginning and throughout the life. And that that's critical.

Jeremy Epp: Is that what you deem as what would make a good franchise company to buy into, one that would stay in the long game as far as the support?

Joe Fox: Yeah, definitely that's one of the factors. And as I said, there's over 3,000 companies in the US. We deal with about 300 and those are companies we've vetted to make sure that they provide all of the things that you need to provide to be a strong franchise. So, what is a good franchise? What do they provide? What do they do? Well, you're going to look at it like you would anything else. You want to see what their track record is and look at their management team or the parent company. Are they folks that are experienced in this? Have they been in the industry and know how to lead this company? Look around and see what kind of services are needed in your local market. If there's a company out there, franchise company called Mosquito Hunters, well, in my neck of the woods in Southern California, we don't need that service.

Joe Fox: So, I wouldn't suggest anyone open a franchise here with that. Now if you go to Florida, Texas, those franchisees are doing really, really well with that franchise. So, you've got to look around locally and see what's going to work for ya. And then, making sure you check in with other franchisees that are already there and see how happy they are, what kind of money they're making. And that's one of the things we do is introduce those people to you, to perspective folks, so that they can talk to people that are actually doing it and learn how things are going and what's it going to be like for them.

Jeremy Epp: So definitely the buyer, the franchisee needs to do their own due diligence, work with you and understand some of the pitfalls and certainly investigate a buyer beware there as well. Are there candidates that are more ideal, that are more suited, better suited to buying a franchise or have you come across people to where, to say it bluntly, they really have no business jumping into a franchise situation?

Joe Fox: Yeah, and it's really complex and I'll try to simplify it a little. And the short answer is yes, there are people that should not be operating or owning a franchise, but our real job and what we love to do is match people with the right concept and the right business model for their, not just skill set, but for their interest and for what their financial wherewithal might be to get started or what their involvement is.

Joe Fox: There's opportunities for people to be an absentee owner, semi absentee owner where they check in once every couple of weeks. Opportunities where it's a owner operator, it's one person and they do the whole thing, and everything in between. People say, "Do I have to know how to run a business? Do I have to have done that before?" Answer is no. A lot of these concepts, if you're strong in sales or marketing, you'll do really well and the franchisor will teach you the rest of operating and owning the business. Likewise, if you're not strong in sales, there are some concepts that have their own call centers that generate leads for you and generate customers for you.

Jeremy Epp: Okay.

Joe Fox: So, it's really the matching of all of these things that I think where we provide a lot of value, but absolutely what people need to look at.

Jeremy Epp: Yeah, that makes a lot of sense. Now, I guess one of my first thoughts on the skepticism side when I think of franchise is, well, aren't you just buying a job? I mean, is it realistic for somebody who's working in corporate America today, they're making a six figure salary. Can they replace that salary in the first year or two of operation with a franchise?

Joe Fox: A short answer is usually, and I would say that person you just described makes up about 80% of our clients, people who are in the corporate world, mid level managers or up. They maybe got a few bucks put to the side to do something, but they need to have an income or they need to replace an income. A lot of people that have been downsized. So yeah, there are concepts where you can pick up a $100,000 in salary in the first year, but there are other times where you're reinvesting back into the business to get it started. And some are out there who say, "Well, I'll take less of a salary. I just want to build equity and value in my business, so in five years I can sell it and make my hit then." So, it depends. But there are plenty of people who need to do exactly what you've described and there are concepts that can accomplish that.

Jeremy Epp: Okay, that's encouraging. So, it's not just buying a dry cleaning job where you the employee, maybe you've got a helper and you're working 12 hours a day, six days a week, and it doesn't sound very exciting.

Joe Fox: And I would say that's the small minority of concepts that we deal with are where you've got to break your back to just break even. EVerything that we're recommending and working with are concepts that are proven. You mentioned $100,000, it's kind of a benchmark for people in their first or second year to be able to attain that. And again, that's the number a lot of people throw out to me when they're looking. Yeah.

Jeremy Epp: Okay. Next I want to talk a little bit about costs because people would think it's going to cost you quite a bit. So, talk a little bit about what the costs are to buy a franchise. Does this cover startup costs? Are there ongoing costs? Are these above and beyond or is it all mixed up depending upon which franchise you end up looking at?

Joe Fox: Yeah, and again, with the number of options out there, the range is pretty broad. You can get started for as little as $75,000 or even less, up to many millions. There are Hilton hotel franchises, got a couple million bucks, we can get you going. McDonald's are more expensive than some food concepts. It just really depends. Most of the ones that I'm working with these days are probably in the $150,000 to $500,000 range to get started, but that's not out of pocket. That's the cost for the person coming in, but they may be able to finance 70% or 80% of that.

Joe Fox: There's small business admin loans, there are veterans programs with funding. There are actually a lot of franchisers that discount the costs of their fees and their startup to veterans and first responders, which is really cool. But it could be anywhere, but there are lots of financial groups that back franchisees who are looking to invest in reputable proven concepts. And again, the 300 or so we deal with fall into that category. Almost every one of those have options for financing. If the person wants to maybe invest 20% of that $150,000. It's all over the place really.

Jeremy Epp: Okay. Yeah. I know many, many, many years ago I sat down with RE/MAX and looked at franchise options with them. And to be honest, I was extremely shocked at how affordable it was to get in on the initial costs. And then there were some ongoing maintenance costs for marketing, but I was... Yeah, it kind of blew my mind to how affordable it was back in the day. So for having a name brand company like that behind you and by your side, it was quite attractive. I ended up going a different route because our business model is a little bit different. But certainly it was surprising to me.

Joe Fox: One of the things I'd like to just also mention when you were asking about salary and how much does it cost to start up, those two questions. There's also a lot of resales out there, where franchisees are now ready to exit or they've decided to go another route and there's viable businesses that are for sale that are up and running. You're still joining as a franchisee and become part of the franchise environment. But the startup work is already done. You're not opening a store from scratch or opening a business from scratch. It's up and operating and we have a large portfolio of resales that are always getting refreshed. So, that's another option.

Jeremy Epp: That's interesting. So, tell me a little bit about what you see as some of the common mistakes that buyers make when they're purchasing a franchise.

Joe Fox: Yeah, and it's unfortunate because most people that want to get into business are so sincere and so genuine and they really want to make it work, but they don't know what they don't know. And that's what's been really eye opening for me as I got into this and have learned a lot more. There are some pitfalls and you've got to make the right steps.

Joe Fox: First and foremost, most people don't put in the time that's necessary upfront or they're not working with a team of experts who can help them analyze all their opportunities. Again, you don't know what you don't know. So, how do I know to do this? But that's where it's important to use a consultant, whether it's my group or me or another good franchise consulting group that's out there. Don't go do this alone and think just because you've successfully operated a business before or because you read some books and you think you know how to do it. Go partner with somebody who really knows the ropes and can help you avoid all the pitfalls and make sure that you ask the right questions and get the right disclosures.

Joe Fox: There's a lot of legal disclosing that needs to go on and if you don't ask the right questions, they may not disclose certain things. The reputable ones do. They lay it all out. If the group that you're considering, the franchise company you're considering won't let you go talk to franchisees or won't let you go work in a franchise owners businesses for a day or two, then I would not do business with them. All of our contacts steps allow somebody to come in, meet with the franchisees, work with them for a day or two, and it's random. It's not here, these are the two you can go work with. Reach out, call someone in your area and we'll set you up and you go sit with them for a couple of days and understand what you're getting into. So I think it's just really doing your homework, but consultant expert that can really teach you the questions to ask.

Jeremy Epp: Yeah, I would think that it would be very quickly overwhelming regarding terminology when it comes to the legal paperwork and just understanding what your do's and your don'ts, what your limitations are within a contract. So if a buyer wanted to, let's just say, purchase into a franchise, but they had all these creative ideas that were outside of the norm, are those generally frowned upon by the franchiser because it's not consistent, or do some allow for that flexibility where others do not?

Joe Fox: Yeah, I think some allow for that flexibility. Some don't. If you think about a McDonald's for example, and if I'm an entrepreneur and I bought a McDonald's and I just know for sure that in my McDonald's I can sell tacos, so I'm going to start selling tacos. And then the next week, I decide maybe I'll sell pizzas. That would not work out very well. McDonald's is one of the very rigid... It might work for me for a day or two selling pizza. McDonald's would not tolerate that because they have a proven model. Having said that, there are some franchise concepts that want you to be more creative and want you to be more entrepreneurial, to use the term. And again, it's just finding the right match with what it is you want to do. If you're somebody who doesn't want to follow what everyone else is doing that's been successful because you think you can have a better idea, than there are certain concepts I would not introduce you to.

Jeremy Epp: Okay. Okay. And along the same lines here, who would franchises not be good for? As you're interviewing them and screening them and having the early conversations, what are some red flags that you're immediately saying, "I don't think this is a good fit?"

Joe Fox: Yeah, good question. One of the things that people view this as, or need to view this as when you're getting into a franchise relationship, is just that. It's a relationship. It's like getting married in some ways. You've got to check each other out, you've got to test each other and learn about each other before you decide if you're right for each other. And so while the person coming in is checking out the company, the company is also checking the person very carefully to make sure that they are someone who can operate the concept and do well for themselves, which thereby would do well for the company.

Joe Fox: I think somebody that's... I would call him a hardcore entrepreneur, who is fast moving and has a lot of great ideas and wants to test those ideas. And I was like that some years ago and I know a lot of people who were, and franchising at a time for me would have been a horrible thing because I didn't have the patience or the tolerance to follow someone else's system. But then when you get into it, you find systems that are great. So, somebody that really wants to be that independent, entrepreneurial franchising is probably not good for them.

Jeremy Epp: Joe, in your experience in both working in the franchise business and outside, what are the cons or the downsizes of buying a franchise that you've come across and that you've seen?

Joe Fox: So, some people would view it initially as a downside. It later becomes the thing that makes you successful. And that is you have to follow a system. And again, if you've been somebody who's been successful, you've probably been someone who's been creative and entrepreneurial and you have ideas and you want to try them. So, that can be a little tough at first. But if you learn to follow a system's that's already proven, then you'll be successful. If you're buying a franchise, you just have to follow their recipe. That's part of the deal. You also need to make sure that you like the people that you're going to be working with on a corporate level, so this is part of that vetting a company.

Joe Fox: If you're not comfortable with the people, if you don't like their style, if you don't like how they approach things or do things, even though you may like their system, don't get involved in a relationship with them because you're in it for the long haul. So are they. There's a day called a discovery day where the person who's going to buy a franchise goes and meets with the corporate team and learns more in detail and it's a required step. That's probably the most critical step for both sides of the relationship because you find out the personalities and the people that are part of the business.

Jeremy Epp: Have you seen the franchisers come back to you and say, "I don't think this is a good fit," with a potential franchisee?

Joe Fox: I was on a call this week with a company that's opened, like many companies, they start off opening their stores or their company locations themselves. And then they become a franchise company and they start selling the locations and franchises. And there's a company that has one location and they're ready to sell it and move it. I've got a fantastic client, but my client already owns 14 other franchises in Latin America. And this franchise wants somebody that's going to be at that store 24/7. Not literally, but every day. They want someone who's going to be at the business every day. This guy manages through his management teams.

Joe Fox: He's operating his own large organization and he does very well. I can't convince the guy that's trying to sell the one store that this guy who's an expert at operating franchises is a good fit for him. And it's not my job to convince him of that, but for him to look. So, they met and they decided it's not the right opportunity. Everything about it was right except for the franchisor not being comfortable that the guy wouldn't be there every day.

Jeremy Epp: Right. You mentioned location, do you find that franchises typically have some kind of territorial boundaries to help make their franchisees successful with not too much competition right in their immediate backyard?

Joe Fox: They do. And I'd say, I can't think of one that I've dealt with or that we represent that doesn't have that. I think that's part of what you're buying into and investing in is that protected territory. Different businesses have different size markets, but they all know what their radius is for their particular area and their particular concept or their brand. And I would say if a franchise doesn't have that protection, I'm pretty sure I would not do business with them. I don't want another Subway a block away from me. That would be crazy for me. It might be crazy for Subway, but I'm not saying they do that. But yeah, I think if there's not some sort of territorial protection, than I would steer away from it.

Jeremy Epp: Yeah, it makes sense. Thinking worst case scenario here, have you ever heard or seen the headquarters of the franchise company going out of business? And if so, what happens to the franchisees in that situation?

Joe Fox: Yeah, and unfortunately it does happen. Fortunately, not very often, but this is one of the reasons you got to do your homework up front. You've got to make sure the company you're buying into is well capitalized and has a track record of success. There's a lot of concepts out there that are new and exciting and look really good on paper, but they're not proven up yet. And I've got some clients who want to invest in those and I'm suggesting that maybe they should wait until there's a little bit of a track record because it's higher risk. So when one of those companies does go out of business, generally the franchisor goes bankrupt, but the franchisees, they stay in business.

Joe Fox: Now they may operate under a different trade name. So instead of being, 360 Painting, they might be Joe's Painting Company. But they've already established their local market. And if they can handle some of the back office infrastructure that the franchisor might've offered, they can generally keep operating on their own and do well.

Jeremy Epp: Interesting. So, I'm a big believer in begin with the end in mind. When somebody looks at buying into a franchise, what type of exit strategies do you work with them to make sure that exists, to allow them to move on when they're ready to?

Joe Fox: Most franchise companies, they want the same thing. They want your business to thrive, so that they can collect royalties because that's part of the franchise world. You pay a small royalty. That's how they stay in business and provide the support for you. But if you're doing well, then when it does come time to exit and you want to sell your business, you have a valuable asset. And we have to all look at this as we talked in the beginning about, are you just buying a paycheck? No, you're making an investment in your future financial security. And to me, it's like buying a house.

Joe Fox: As consultants, we're kind of viewed as a buyers agent, like real estate. If a buyer in real estate comes to me and says, "Hey Joe, help me find a house and buy a house," and I do, that person doesn't usually pay me. The person we're buying the house from, the seller, pays me. So, the same is true in franchise consulting. The franchiser company pay me a fee when I find them a candidate that is the right fit and the right match for them. And that's the best world for everybody. So when it comes time for an exit, we have those relationships to do resells.

Joe Fox: Again, with another client I had on a call today, he's looking at picking up nine franchises that are for sale in Puerto Rico. Great businesses. Every one of them is profitable still. They weren't impacted by the storm and the guy that's selling them is going to make a bunch of money and the guy that's buying them is still getting in when they're in growth mode. So, it's a fantastic deal. And that happens quite a bit actually. So yeah, there's lots of good exits there.

Jeremy Epp: Interesting. Totally a win-win, so that's fantastic. Plus the nice thing is since there... It's not a quick turn, it's not something to where a high pressure sales environment would exist because bottom line is there's a lot of time to do due diligence on both parties side to ensure it's the right fit.

Joe Fox: Yep. It's just critical that spending the time to make sure you know who you're partnering with is critical and then having someone that can help walk you through that is equally important.

Jeremy Epp: Joe, if somebody was looking at doing this, what do you typically anticipate is a timeframe that they could plan to as far as duration of time to find the right business, do their due diligence, determine if this was a good fit for them, as well as for the franchising company, and then pull it all together? Is it six months? Is it a year? Is it longer? What's a typical turn time?

Joe Fox: It can range from as short as 60 days to a year or more depending on the individual and the circumstances. Having said that, I'd say the norm is three to six months. The franchisor has scheduled discovery days so you don't end up waiting two months to go to a discovery day. When you get to that point, the finance companies are all set up and they know how to process and evaluate and approve somebody fairly quickly, so it doesn't get really drawn out. The thing that usually makes the process a little longer is just somebody being very careful and being a little hesitant and I'm okay with that. They have to get comfortable. This is a big decision. And as you said, there's no high pressure sales. I would say to any of your audience. If somebody feels a high pressure sell in a franchise environment, run fast the other way. The good ones don't operate like.

Jeremy Epp: Right. I couldn't agree more. As we wrap it up, Joe, what final advice would you want to touch on to somebody that's on the fence or maybe they've never even considered a franchising before and are interested in learning more about it or very curious and think it might be something that's a right fit for them?

Joe Fox: Yeah, I think that's the beauty of what I'm doing now and there are others out there, not just our company but other companies. There's some reputable ones as well. We get to teach, we get to educate, and so if you are out there considering franchising or business ownership in general and don't know if franchising is the right path, reach out. Contact somebody who is an expert, whether that's through our company or any other. And ask the questions. There's no obligation for you to work with somebody and learn. And again, if someone wants to charge you for that, I would not talk to them.

Joe Fox: There's plenty of experts out there who are aligned like I am and like we are in our company to provide that information. So, an educated consumer is the best consumer, an educated business purchaser or someone looking to start a business, that's the best possible deal. So educate yourself, dig deep, learn all you can. We'll give contact information at the end. There's a fantastic book out there called the Franchise MBA. I'd be happy to send a free copy to anybody that contacts me. It really spells out everything. It's written by the CEO of our group. It's a fantastic resource and tool. Just do your homework and don't feel pressured or rushed.

Jeremy Epp: Excellent. Well Joe, I do appreciate you coming onto the show and sharing this knowledge. I think you gave a lot of information for people to think about. Again, there's systems, there's network support, there's marketing support, there's all these things that make it something to consider. If you are not sure what you want to do as far as you want to leave the corporate world and run your own business, franchise is certainly an opportunity for you to investigate further. Joe, if somebody is interested in learning more about franchise opportunities, how can they get ahold of you?

Joe Fox: Yeah, thanks. So, email is as good as any. It's [email protected] And yes, I wish it was shorter, but it's not. I also have a website. It's JoeFoxFranchise.com. And of course, there's always the telephone, 949-439-7267.

Jeremy Epp: All right, well, thanks again Joe. I really appreciate it.

Joe Fox: Thanks for having me. I really appreciate being able to share.

Jeremy Epp: So there you go. Hope you enjoyed that episode and learned as much as I did about franchise opportunities that are all around us that we don't even see as we go about our day. If you want to learn more about how to start up, launch, and grow a profitable business, be sure to head on over to JeremyEpp.com and subscribe to the show. And once again, I appreciate you tuning in and I look forward to speaking with you again soon.

 

Stay connected with news and updates!

Join our mailing list to receive the latest news and updates.
Don't worry, your information will not be shared.

Subscribe
Close
Get the latest information delivered right to your Inbox