Growing your Denver Franchise

Betty Otte, SCORE Counselor

When most of us think about franchises, we are referring to the business-based franchise like the top 500 franchises published in Entrepreneur magazine each year. Entrepreneur’s 75 different categories range from automotive to services, but they all have one thing in common—a systematic method to deliver services or products.

You, the franchisee, have supported this system with your royalties and initial purchase price and it now will be one of your biggest assets as you decide to grow your business.

Since the systems for the franchise are already in place, your biggest concerns as you grow your business are:

• Finances –having sufficient capital and resources

• Location – for many businesses, location is critical.

• Employee training

• Culture transition

Employee Training and Culture Transition
You have worked the business in the first Denver franchise location, so those employees have translated your style into their work habits. They have seen by example how to handle a customer. To expand, you are required to hire people who will accept your style and be able to train other employees in that culture without your presence. Turnover of employees is expensive and time-consuming. Finding the right managers who can train and translate your wishes should be high on your priority list before taking on that second location.

How will your role change? Will you still manage the first location with a manager in the second or will you try to manage both? Trying to be in two places at once is difficult if not impossible. Will you put a manager in each location and personally tackle marketing and public relations? Can you relinquish control? It may be harder to do than you think.

Due Diligence
Be sure you exercise due diligence and investigate the following before you decide to expand:

1. Figure out why the franchisee is selling. If it’s because the Denver franchise is not successful, you need to figure out why. Lack of motivation or self-discipline, poor territory, inability to keep employees—there could and will be many reasons. You have the advantage of knowing the system so it is easier to differentiate perception from reality.

2. Protect yourself from liabilities. You will want to do a net asset sale to protect yourself from liabilities connected to the present owner with an indemnification clause. Even though s/he may have given you several reasons they want to sell, you may never know the true reason, so make sure to protect yourself from any outstanding legal actions.

3. Check financial statements. It is mandatory to check out the owners financial statements for 5 years or as long as they have been in business. What has the growth pattern been over this time period? Look at the sales tax returns and the income tax returns. It is easier to determine accounts payable, but equally important, in some businesses, is the accounts receivable. Often last minute games are played with receivables.

4. Can you assume an existing lease? It is important to check with the landlord if you are taking on an existing location for your Denver franchise opportunity. Many resources are available online to define due diligence requirements for the purchase of a business. Read one from SCORE.

5. Right of first refusal. In many franchise agreements, the franchisor has the right of first refusal. That means if the existing franchisee has someone who is willing to purchase the business, the franchisor has first right to come in and make the purchase at that price.

How to Grow the Franchise
There are two basic ways to grow your franchise:

• Purchasing another territory. One way to expand is to purchase a territory from another franchisee. The same due diligence must take place here, however, as with the purchase of any business.
  

• Purchase more territory or locations directly. Exercising this option means you will adhere to the same requirements published in the Uniform Franchise Offering Circular (UFOC) for the given year. UFOCs need to be renewed each year within the state of the sale. California and New York are the two states with the strictest requirements. More on UFOCs.
  

In many ways, growing a franchise is easier than growing an independent business. Take advantage of the network of other franchisees in the system. You all share a common goal and work within a given framework. Call them for marketing, PR and management tips.

Multiple unit management is a very different challenge, but it comes with many rewards. You, the owner, will change what you do, but your philosophy will double and triple with each new growth step. Make it the fun that it really can be. Seek help from your nearest SCORE office or online counselor. SCORE counseling is always free and confidential.

Should I Buy A Denver Franchise?

written by: Betty Otte, SCORE Counselor

When most of us think about Colorado franchises, we are referring to the business-based franchise like the top 500 franchises published in Entrepreneur magazine each year. Entrepreneur’s 75 different categories range from automotive to services, but they all have one thing in common—a systematic method to deliver services or products.

Franchising is not for everyone, but for an individual who has limited business experience or someone who enjoys working within an established system, franchising can be the best possible path.

Franchising is simply a method of distributing products or services, with at least two levels of people involved. The first is the franchisor, who lends his trademark or trade name and a business system. The other is the franchisee, who pays a royalty and often an initial fee for the right to do business under the franchisor’s name and system. The contract binding the two parties is the “franchise,” but that term is often used to mean the actual business that the franchisee operates.

Do You Have What It Takes?
Before you go into any business, Denver franchise or not, it is important to first ask yourself these important questions:

• Do you have strong motivation and drive to achieve success?

• Do you have confidence and enthusiasm for the product or service you will be representing?

• Are you able to motivate yourself and others and train employees?

• Do you have experience in the industry?

• Are you willing to promote your business and the brand?

The Franchise Lifestyle
Figure out if a Denver franchise lifestyle fits into your own lifestyle. Do you have the necessary support system to open this Denver franchise opportunity? Does your family support this decision? Do you have an accountant, banker and attorney who will assist you in your start up and growth phases?

The Importance of the Brand
In the franchise world, belonging to a system gives you, the franchisee, a competitive edge, which partially compensates for the cost of being in the system. The main value in franchising is the identity related to the brand. McDonald’s is the largest franchisor in the world with over 31,000 units. Due to consistency of product delivery and global advertising, McDonald’s has a major advantage over, say, Joe’s Diner.

It is important to remember that since the brand’s value is more important than anything else, including the service or the product, the customer’s loyalty is to the brand, NOT the individual franchisee. No consumer walks into a Dunkin Donuts franchise because they know the owner. They know Dunkin Donuts. What this means is that within a franchise system, you have to play by their rules. You couldn’t open a McDonald’s and sell pizza, for example.

Your success as a franchisee is based on your willingness to work with in a pre-existing system, and help to build the value inherent in the brand. This kind of a business is not for everyone, so you have to be honest with your ego on this one.

Choosing a Franchise
So let’s say you are willing to work within a system promoting their brand or service and you are not concerned that customer loyalty is not directed to you personally. Now what? What kind of business should you think about?

The choices can be overwhelming. Approximately 45% of all retail sales are franchise driven—everything from tires to laser hair removal. One out of every 12 businesses is a franchise, with a new outlet opening every 8 minutes. In addition, there are over 75 industries to choose from, with many of those industries having dozens and dozens of options. How do you decide?

Go back to your personal likes and dislikes. Don’t gravitate to fast foods just because you already know how to make a sandwich. Some top industry categories include auto, children, cleaning, exercise and chicken. Find an industry that you wouldn’t mind doing and thinking about 24/7. Then research all the different options within that industry. Some good resources include Entrepreneur Magazine’s annual top 500 franchises list, the International Franchise Association, franmarket.com or even Google.

Taking the Next Step
You have decided that you don’t mind building the brand and you confess that you will most likely have a higher success rate within a franchise than on your own. You also want to be a part of the annual $1.55 trillion dollar franchising revenue and you have selected your industry. Now what?

Now the fun begins as you start the research that will determine the difference between good and bad franchises. Remember that SCORE has over 10,500 volunteers ready to help mentor you, many of whom have franchise experience. Seek help from your nearest SCORE office or online counselor. SCORE counseling is always free and confidential.

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