When To Move On, or NOT With A Franchise

Written by Jim Otto

Saying YES to the franchise. It takes a lot to say yes a franchise, and we don't blame you. It's a huge decision that takes so much time and careful consideration. But how do you know that it is time to say YES?! We have some tips on when you know you have found the franchise for you!

Someone who was looking for a franchise asked the question that everyone eventually comes to recently asked me. When do I move forward? First of all I congratulated them for getting to this point! Franchise ownership is a great way to build wealth and gain financial independence. I answered them by giving them some reasons to NOT move forward with a franchise, here are some of those reasons. 

Questionable Profitability - Did you know that the FTC does not monitor or audit the Financial Performance Representation (FPR) of a franchise? If the numbers just don't add up or the Franchisor can't give you a satisfactory answer about the numbers in the Item 19 then you should probably look elsewhere. To complicate this issue more, many franchisors don't even provide numbers in their Item 19. Can you imagine buying an existing business from someone and them not providing you numbers? 

High Start Up Cost - If the cost to start up a franchise is really high compared to what you can earn on the bottom line that would be another red flag. This is most commonly referred to in franchising as the Asset to Income ratio or ASI. I have seen franchises that can make $100,000 with an investment of $50,000 and franchises that cost a million dollars to build out that only make $50,000. You do the math. 

Unfair Termination - I was recently reading an FDD and if the franchisee did not hit certain sales numbers after three years of operation the franchisor had the right to take over the location. You see these unfair termination clauses sometimes and the franchises that have them should be avoided! 

Inflated Prices on Supplies - I recently visited with a franchisee next to one of my Shear Madness Haircuts for Kids salons; he had invested in one of the most popular fitness franchises out there today. When I asked him how it was going he said, " Man, they are charging me a fee for everything I order from them!"  Most franchises provide you there own proprietary supplies. This can be a good thing and one of the reasons that you bought a franchise. You get to use there Trademarked items, proprietary systems and branding. Where the issue arises is this can be a major profit center for the franchisor and some franchisors markup these items to a point where it can dig into the franchisees margins. Make sure you understand what you have to order from the franchisor. It should be defined in the Franchise Disclosure Document (FDD). 

Moving forward with your franchise of choice should be an exciting time for you and your family. One of the things that will make it all the more exciting is knowing that you have done your due diligence and are comfortable with how your franchisor runs the franchise system. Making sure you have a handle on these four items is a good place to start. 

 

Make a Positive Difference TODAY!

Shear Madness Franchising franchises our award-winning Shear Madness Haircuts for Kids salons. We have worked with franchise stores in providing franchisee support (in order to encourage continual growth and business success), and have sometimes seen the unexpected happen! When it does, we help by identifying and helping with challenges that might arise for franchisees. Additionally, we work to present options that can help prevent these events as well. As many franchise owners may not have opened a business before, having someone who can advise them is a significant advantage of franchise ownership!

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Franchise Revenue Was Not The Issue, This Was...

Written by Jim Otto

Research. Research. Research. Doing research before you invest is so important. So know how much it is going to cost to pay your employees and hold retail in your store. Make sure you are trained in both so you can be as successful as possible.

Franchise candidates spend a great deal of time studying revenues of various franchises. Yes, average revenue is an important number when researching franchises, but that only tells one side of the story. 
 
Expenses are the cost incurred in the operation of a business and have a HUGE impact on the profitability  of a franchise.  The fact that you have a royalty payment and payments into the marketing fund makes studying the expenses even more important! Make sure you understand the following two expenses, especially if you are looking at a service or retail business.
 
-   Labor Cost: This is what you pay your employees and it should be calculated as a percentage of your revenue. I think of labor cost kind of like that RPM meter in your car. If the franchisor can't explain and train you to control this cost when you are redlining, then you will probably crash and burn. Make sure you understand what the industry average is and ask existing  franchisees what THEIR labor cost percentage is.
 
-   Cost of Goods Sold: Selling retail and products can be a big boost to your bottom line, or a big drag. Your franchisor being able to train you on terms like retail turns, stock to sale ratio and spoilage are important components on your cost of good sold.
 
While many franchises provide cost information, not all do. Lowering expenses can give you a big boost in profitability - and a big boost to your confidence that you picked the right franchise!  
 

Your Future is a Dream Come True!

Shear Madness Franchising franchises our award-winning Shear Madness Haircuts for Kids salons. We have worked with franchise stores in providing franchisee support (in order to encourage continual growth and business success), and have sometimes seen the unexpected happen! When it does, we help by identifying and helping with challenges that might arise for franchisees. Additionally, we work to present options that can help prevent these events as well. As many franchise owners may not have opened a business before, having someone who can advise them is a significant advantage of franchise ownership!

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Before You Buy a Franchise, Make Sure You Check These 5 Boxes

Written by Jim Otto

There is so much that goes into finding the right franchise for you. After all, it is going to be your baby and you want it to succeed. Still, there are a few things you need to consider heavily when looking into a franchise.

You have done your research and decided that buying into a franchise system is the right course of action for you and your family. Franchising is a proven business model that offers the chance to be in business for yourself - but not by yourself! But before you sign on the dotted line, let me offer you a final check list of things that may make or break your franchise:
 
*   Strong Demographics  - It sounds almost elementary, but make sure there are enough customers in your protected territory. Depending on what franchise system it is that you own, it takes a lot of customers to make a profitable location. 
 
*   Recurring Revenue  - Don't try and reinvent the wheel, or be talked into something that is not proven. Look at the top franchises over a long period of time. They almost all have one thing in common: customers that come back again and again. Franchises that have a high Customer Long Term Value (also referred to as CLV) have sustainable business models. 
 
*   Competition -  Make sure that you are bringing a new and exciting franchise business into your market. Creating the pre-opening buzz will get you off to a strong start. If there are already lots of businesses doing what you are doing in your market, then you're banking on the fact that your franchise differentiates itself enough to steal loyal customers from those other businesses. And that may be harder then you think! 
 
  • High ASI Ratio - Simply put, you want to own a franchise with a high Average Sales to Investment Ratio. The higher this ratio, the higher the return on sales. Look for a ratio of at least 2 to 1. So if Your build out cost is $200K, then this would be  $400K in revenue.  
 
  • * High ROI - You will want a good return on investment.  If you can determine what the average Net Income is then divide that by the your investment ($50,000 Net Income/ $200,000 Cost) - this gives you a return on investment (ROI) - if this is really high, it may be that although you may have a low ASI ration - the investment is still worth it.  And Vice Verso - if the ASI is high - looking at the ROI is important as this could still be low even with a high ASI.  Normally higher return on investment means that you will need to be more involved with your business.  So when evaluating your ROI make sure and take into consideration the amount of work you the owner will have to do.
 
If you have a passion  for business, franchising is an exciting way to create income and accumulate wealth for yourself and your family.  Additionally, if your franchise has these four business metrics you should be well on your way to owning a successful business! 
 

Your Future is Bright!

Shear Madness Franchising franchises our award-winning Shear Madness Haircuts for Kids salons. We have worked with franchise stores in providing franchisee support (in order to encourage continual growth and business success), and have sometimes seen the unexpected happen! When it does, we help by identifying and helping with challenges that might arise for franchisees. Additionally, we work to present options that can help prevent these events as well. As many franchise owners may not have opened a business before, having someone who can advise them is a significant advantage of franchise ownership!

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Your Employees Have To Have These Two Things!

Written by Jim Otto

Today there are two things as employer you want your staff to have: a great work ethic and a great attitude. Neither of these are things that can be taught, but are essential when having a great team of people at work.

When you buy a franchise there are lots of things that the franchisor will teach you. The systems that a franchise has and how well you follow those systems may ultimately be the difference between your success or failure. One area that you will have the most control over is your staff and employees. Your franchisor will help you with build-out, initial and on-going training support, marketing, even guidance on getting to break even and beyond, but you will have to manage your staff. Your Human capital is one of the most vital parts of your franchise operations for a number of reasons. Your employees deliver your product, they are the face of your business, they create the fabulous experience that brings your customers coming back, they create those little interactions that make your customers think, " Wow, this company really gets me". Developing a great staff doesn't happen over night, it takes time. Additionally, if your new hires don't have the following two attributes, getting your franchise to where you want it to be is going to take longer than planned. 

 

* A Work EthicYou can't teach someone to have a work ethic. Work ethic is a tricky thing, some people have it out of need, they have a family and need to support and provide for their family. Some people learned it from there parents and are modeling it. But one thing is for sure, if you are going to put together a great team, having employees with a good work ethic is critical. 

 

* AttitudeI have heard people say, "That person needs an attitude adjustment", and you know I have seen that work, but only on a temporary basis. You know what behavioral psychologists will tell you, past behavior is the best predictor of future behavior. Companies spend a great deal of time and money working with and trying to fix people with bad attitudes. Find people with a good attitude about your company right from the beginning, nurture and train them, show them there valued, and your people will work together as a team. 

 

Getting your staff to work together as a team to create a fantastic customer experience is crucial to your franchises success. During the interview process you can ask questions that will give you clues on whether your candidate has these two important attributes. You are going get to where you want to go a lot faster if you can find candidates that have these two attributes. 

 

Building a better future TOGETHER!

Shear Madness Franchising franchises our award-winning Shear Madness Haircuts for Kids salons. We have worked with franchise stores in providing franchisee support (in order to encourage continual growth and business success), and have sometimes seen the unexpected happen! When it does, we help by identifying and helping with challenges that might arise for franchisees. Additionally, we work to present options that can help prevent these events as well. As many franchise owners may not have opened a business before, having someone who can advise them is a significant advantage of franchise ownership!

Are you interested in learning how YOU can join the Shear Madness Haircuts for Kids family and run your own successful small business? We are one of the fastest growing kids hair salons in the industry today! If you would like to learn more about this franchise opportunity or small business marketing, great marketing strategies, resources for small businesses, franchise success, how to grow your small business or how to become a successful owner of your own kids hair salon franchise business, please click below or call 1-888-98 GONE MAD

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Why Do People Miss This When Looking For a Franchise?

Written by Jim Otto

The moving parts of creating a successful business all stem from one important factor. While there are a lot of key components that go into creating a successful business, if you forget about this one, your structure is going to come crashing down.

There are lots of moving parts to a franchise, including your franchisors opening assistance, training and ongoing support. All of the aforementioned are important to your success as a franchisee, and the best way to measure these are to talk to current franchisees. 

 
As important as all these factors are, many people looking to buy a franchise fail to look at what is arguably the most important component of all:   the customer. More specifically, how many customers are there for your concept where you want to open? Or, how many times will they come back in a given year, and how long can you hold on to them? This is called customer long term value, or CLV, and it can be the difference between your success or failure. 
 
Think about this, would you rather own a business where your customer comes back twice a year, or 8 times a year? Will they come back for the next 2 years, or the next 8? Will you be able to create a loyal customer or one that only needs your service once or twice per year?
 
Customers are fickle! Make sure that you have lots of them in your trade area, and that the franchise you are looking at can hold on to them for a long time.
 

Building a better future TOGETHER!

Shear Madness Franchising franchises our award-winning Shear Madness Haircuts for Kids salons. We have worked with franchise stores in providing franchisee support (in order to encourage continual growth and business success), and have sometimes seen the unexpected happen! When it does, we help by identifying and helping with challenges that might arise for franchisees. Additionally, we work to present options that can help prevent these events as well. As many franchise owners may not have opened a business before, having someone who can advise them is a significant advantage of franchise ownership!

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