Financing a new franchise? Find out what lenders look for when approving a loan so you can get your paperwork together and create your business plan.
A wave of new franchise opportunities are becoming available, according to a recent article from the Associated Press.
For a long time, only certain industries and major brands were synonymous with franchises. But now aspiring franchisees have a variety of options to choose from, outside of traditional industries like restaurants and hotels. Many of these options are being offered by the growing number of small businesses and new brands that are opting to go the franchise route.
Why smaller franchisors are succeeding
This new breed doesn’t offer the same brand recognition as long-established franchisors but they make up for it with a number of advantages. For example, start-up costs can be lower, competition for prime locations can be less fierce, and growth potential can seem unlimited.
There is also a personal aspect that comes with partnering with a smaller franchisor. The franchisee can have an easier time communicating with the parent company since they’ll likely be in touch with senior employees and possibly even the CEO. When it comes to the actual operations, the franchisee can feel like they’re running a local small business, as opposed to another cookie-cutter chain store.
The Associated Press’s article comes on the heels of a favorable report released by the International Franchise Association earlier this year. For the sixth year in a row, franchise small businesses are growing at a faster pace than non-franchise small businesses. More than 13,000 new franchise locations are expected to open this year, with many of them coming from smaller franchisors in non-traditional industries.
Should you franchise your business?
The potential for economic growth is a major reason why so many businesses are getting into the franchise game. Expansion can happen more rapidly with the help of franchisees but there are other factors to take into account.
There are numerous state and federal laws specifically concerning franchise businesses. The most well-known is the Franchise Rule enforced by Federal Trade Commission, which says all prospective franchisees must be presented with a Franchise Disclosure Document (FDD). An FDD shares various details about the company and outlines how the franchisee is expected to operate their business.
There is even more to consider besides legal requirements when deciding whether or not to franchise a business. Your business should be unique, easy to replicate, and be well suited to operate in different locations.
Whether you’re a fledgling franchisor or just starting to offer franchise opportunities, BookKeeping Express (BKE) can help. We can ensure all your franchisees keep consistently formatted financial records and provide the financial reports you need. Learn more about the benefits of working with BKE.
Franchise businesses have evolved beyond fast-food restaurants and gas stations. There are now hundreds of different brands across various industries that offer franchise opportunities to smart and capable people. In fact, the economic outlook is bright for franchises in 2016 and beyond.
If you run a successful business, you might have thought about selling franchise rights to other entrepreneurs. The overwhelming advantage is that your brand will grow at a much faster rate than you could achieve on your own. But there is more to consider. Here are some other questions you should ask yourself before you offer franchise opportunities.
Will my business be appealing to potential franchisees?
The truth is few businesses make for good franchises. Good franchise options have a strong appeal and clear distinction from similar businesses.
For example, if you own a typical burger restaurant, it probably won’t make for a great franchise. Even if it’s a successful business, it’s not the most groundbreaking concept. But if you offer unique menu items or have other factors that make you standout, other business owner may want to replicate you idea.
Is your business idea easy to understand and copy?
Successful franchises are easy to replicate. Any potential franchisee should be able to understand what you do and how you do it. That means the way you operate shouldn’t be too complicated.
If you do decide to go ahead and franchise your business, you should have clearly documented procedures. You want each franchisee to operate in a consistent manner so you should offer a “playbook” they can follow in order to achieve success.
Can your business succeed across multiple locations?
If your business is successful because of its specific location, that’s great. But it probably won’t make for a good franchise.
If you’re going to offer franchise opportunities, your business should be free of location restrictions. It should be able to succeed in any suitable location that is frequented by potential customers.
Do you understand the laws associated with franchising?
There are a number of federal and state laws that must be followed when offering franchise opportunities. For instance, you must present each potential franchisee with a Franchise Disclosure Document (FDD) that consists of very specific information.
Be sure to consult with a lawyer before offering franchise opportunities so you understand the laws you must adhere to.
It’s a great time to own a franchise business, according to the the International Franchise Association’s Franchise Business Outlook: 2016 report. For the sixth year in a row, small business franchises are growing at a faster rate than non-franchise small businesses.
Here are some of the key findings from the IAF’s annual report:
Franchise businesses will contribute about 278,000 new jobs to the economy in 2016.
Franchises have created nearly 1 million new jobs in the past five years. The average annual job growth in the franchise sector over that time has been 2.6 percent.
More than 13,000 new franchise establishments will open this year.
The Gross Domestic Product (GDP) of franchise businesses is estimated to increase 5.6 percent in 2016 to $552 billion.
The IFA’s 2016 Outlook Report examines franchises in 10 general areas: Automotive, Business Services, Commercial and Residential Services, Lodging, Personal Services, Quick Service Restaurants, Real Estate, Retail Food, Retail Products and Services, and Full-Service Restaurants.
All 10 areas are projected to see growth in 2016, with Lodging, Retail Products and Services, and Restaurants expected to lead the way.
BookKeeping Express (BKE) provides accounting and bookkeeping services for franchisors and franchisees. We serve professional service providers, real estate agents, restaurants, health and wellness businesses, home service contractors, and other business types. See how we can help you with your franchise business.
Our friends at Dogtopia recently released impressive mid-year financial numbers. The dog daycare industry leader signed 40 franchise agreements in Q1 of 2016 and is on pace to award 100 new stores by the end of the year.
Much of Dogtopia’s growth has taken place in its home state of Arizona where 12 units are slated to open in the near future. They’re also planning international expansion starting with six new units in Edmonton, Canada.
“Since we began reinventing our brand last June, we have experienced exponential growth and positive feedback from our franchisees and pet parents alike,” stated Alex Samios, VP Franchise Development for Dogtopia. “Our numbers speak for themselves – the brand’s total comp sales have increased by 18 percent from last year and is on track to surpass that this year.”
Dogtopia plans to build on its recent success and soon expand to Atlanta, Boston, Chicago, Dallas, Denver, Houston, Los Angeles, New York City, San Antonio, San Francisco, and Seattle. For more information about Dogtopia franchise opportunities, visit dogtopia.com/franchising.
BookKeeping Express (BKE) is proud to be the preferred outsourced accounting and bookkeeping partner for Dogtopia franchises. Our financial specialists deliver accurate and up-to-date books using modern cloud technology combined with a deep understanding of the operations of Dogtopia franchises. Discover how we work with franchises and multi-unit businesses.
Congratulations to Dogtopia on all their recent and future success!
Opening a franchise business comes with quite a few benefits. You get many of the advantages of owning your own business, plus on-going support from the franchise company.
If you’re considering opening a franchise business, there is a lot to take into account. Depending on your industry, you likely have a few choices in franchise brands and want to make the best, most informed decision possible.
The importance of the Franchise Disclosure Document (FDD)
Many of your questions will be answered by the Franchise Disclosure Document (FDD). The FDD is a comprehensive document franchisors are required to share with prospective franchisees. It contains 23 “items” detailing important information about the franchise company, how it operates, and your responsibilities should you chose to enter into the agreement. Here are some questions a FDD will answer:
- What are the upfront fees? – The franchisor will let you know the initial fees you will pay and how the amounts are calculated in item 5
- What initial investment is required? – In addition to franchise fees, the initial investment you’ll have to make will be estimated in item 7
- Does the franchisor offer any financing? – If the franchisor is willing to assist you with financing, they’ll let you know in item 10
- What will your territory be? – Your location’s territory will be outlined in item 12
The importance of item 19
The FDD provides a wealth of information but what you really want to know is how much money you can expect to make. This information is included in item 19 “Financial Performance Representations,” however the franchisor is not required to include it.
Your potential franchisor will hopefully provide this information. If they don’t, you should still inquire about earnings potential. The franchise company has likely researched the viability of the location you’re considering and will have some idea of what you can hope to earn.
Other questions to ask
A FDD with item 19 will answer a lot of your questions but not all of them. Here are few more you should run by the franchisor:
What’s the franchisor's long-term business plan?
As you review the FDD, you’ll get some idea of the franchisor’s long-term plans. However, you should still ask what their goals are for future and how they plan to accomplish them. This information will be especially valuable if you hope to eventually operate multiple units.
What’s the franchisor's marketing strategy?
One of the biggest advantages of owning a franchise business is much of the marketing is done for you. The franchise company is often a large business with big budgets and lots of resources that can be used to reach a mass of potential customers.
Be sure to ask the franchisor what their marketing strategy is and how they plan to promote your particular location.
What technology does the franchisor recommend I use?
New technology is improving the way small businesses operate. Ask your prospective franchisor what technology they suggest? If they recommend specific solutions for different back office responsibilities, that’s a good sign.
Does the franchisor provide any training or supplemental support?
Any franchisor you enter into an agreement with should care about your business’s success. Ask them if they provide any business management, financial, or other types of training. It can also be beneficial to ask if they recommend a particular accountant, bookkeeper, tax preparer, or other partner who understands your industry.
Selecting the right franchise for you doesn’t have to be an intimidating endeavor. You’ll find that a detailed FDD and asking the right questions will help you make the right decision.
BookKeeping Express (BKE) provides accounting and bookkeeping services for leading franchise brands. Visit our multi-unit businesses and franchises page to learn more.
Many of us kick around the idea of opening our own business from time to time. It can seem like a great idea on the surface. You get to be your own boss, make your own decisions, and hopefully become very wealthy if everything goes right. However, the next wave of thoughts can bring you back to reality. Starting a business can be very costly, take up all your time, and there is real possibility that it fails.
Opening a franchise business can be a good alternative to going into business all on your own. You’ll follow a plan that has already proven to be successful and have on-going support from the franchisor. In this blog post, we’ll explore five advantages of opening a franchise business:
1. Limited risk
Starting a franchise can be much less risky than pursuing your own business idea. If a franchisor is opening new locations with new franchisees, their company is likely doing well.
Furthermore, the franchisor probably employees smart people who have analyzed and weighed the risk versus benefit of growth. It’s resources like these that franchisees have access to but the typical small business owner does not.
2. A clear vision of the business
You might have a business concept in mind but only a vague idea of how it would operate. You don’t have the same guesswork when you’re preparing to open a franchise business. You’ll be given directions on how to operate, so much of the trial and error new businesses go through will be avoided. You’ll also know what the branding and store design will look like so you’ll always have a clear vision of the look and feel of the business as you prepare to launch.
3. Insight into startup costs
One of the scariest parts of opening a business is paying for all the startup costs while you wait for consistent revenue to start coming in. You can create a business plan and estimate costs but it’s not uncommon for unforeseen issues to arise, especially early on.
Franchisees fortunately are given insight into startup costs. The franchisor must include initial fees and investment costs in the Franchise Disclosure Document (FDD) they present to potential franchisees.
4. Help selecting a location
It’s often said that a business’s success is greatly influenced by its location. However, there is so much to consider when selecting a location for a new business and little you can do if the space you chose doesn’t meet your expectations.
Most franchisors have a plan for growth and future locations mapped out. When you inquire about launching a franchise, they’ll likely help you select an ideal area and store space.
5. Guidance from the franchisor
Once you sign on to become a franchisee, the franchisor is going to do everything they can to help you succeed. They’ll not only tell you the best way to operate, they’ll likely also provide guidance that can help you become a better business owner. That could include training on financial recordkeeping or advising on what technology to use. It’s in the franchisor’s best interest to help all their franchisees thrive.
BookKeeping Express (BKE) provides accounting and bookkeeping services to franchisees and multi-unit business owners in a variety of industries. Visit our industries solutions page to learn more.