June 2, 2009

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Success Never Tasted so Sweet

The tall, white chef hat, named the toque, has always been a symbol of culina...Read More

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Set Up Shop

Franchises Offer Low-risk Business Options

By Tom Haraldsen

June 2, 2009

In business, as in life, there are no guarantees. But there are always smart ways to bet. For the victims of the current economic recession, the idea of leaving corporate America behind and finding their own personal piece of the pie has been more enticing than ever. It means having the opportunity to run a business, be your own boss and control your destiny. So it comes as no surprise that many people looking to take control of their financial futures are turning to the age-old concept of buying a franchise. And the timing might be perfect. With financial institutions encouraged to use federal economic stimulus money toward making loans of all varieties, the cash necessary to start a franchise is more readily accessible. You just have to choose one that matches your lifestyle and your passion. Franchising means buying into an already established business, opening a storefront or territory under the name of that business and operating within the boundaries established by the franchisor. And some of Utah’s most successful franchisors, and franchisees, say that if you’re stepping out into a business of your own, it’s the only way to go. “There’s no way we could have started Winger’s without the franchising experience we had gathered from other businesses,” says Eric Slaymaker, president of Wingers, USA, Inc. and part owner of the Slaymaker Group. His experience is somewhat unique, as Slaymaker Group is both a franchisor of the 41 Winger’s restaurant locations in seven western states, and a franchisee of TGI Friday’s restaurants. “We were able to gain years and years of multiple concept operational experience as a franchisee [with Tony Roma’s, Sizzler and Chi Chi’s Mexican restaurants],” he says. “When you strike out on your own, the chances of failure are significantly higher than when you are part of a proven concept with lots of resources to draw on. I always tell anyone who asks me about starting a business to take a look first at franchising.” Slaymaker pointed out that franchisors have generally done the experimenting and made all the mistakes with their concepts and, thus, refined the process for operations before they ever roll out the opportunities to potential franchisees. Twenty years ago, the International Franchise Association, a membership organization for the industry, said nine out of 10 independently-owned businesses fail in their first 10 years. During that same time period, 87 to 90 percent of franchise locations remain in operation. That statistic is still used by the IFA today. Sweet Success Mark Gilleland, chief operating officer with Farr’s Ice Cream in Salt Lake City, has been involved in franchising for more than 20 years with retailers such as Pro Image and Nacho Fast. He recently joined Farr’s to help the 80-year-old company develop its own franchise concept—Farr’s Ice Cream and Frozen Yogurt Cafés. The new Farr’s locations, scheduled to open later this year, will feature café-style round tables, chairs and sofas, an interactive area for kids and fireplaces. The concept is to allow customers to serve themselves and create hundreds of different combinations of soft ice cream and toppings. “The best asset you have as a business owner is yourself,” Gilleland says. “When an owner can couple his or her passion for success with the ability to be their own boss, they truly do control their own destiny. Franchising allows you to be in business for yourself but not by yourself, because the franchisor’s experience eliminates most of the risk.” In the case of Farr’s Ice Cream, which actually started as an ice making business in 1895 and began producing ice cream commercially in 1929, franchising is a completely new way to market their product. “There is something very unique about ice cream,” says company President, Mike Farr. “People get very excited about it. So we see an opportunity to bring our premiere product to the public in a new way, and our franchisees have a chance to do something that’s a lot of fun as well.” And having fun is important. Franchisees need to enjoy their business choices, and see the mutually beneficial relationship between a franchise’s parent company and its franchisees. Franchising provides entrepreneurs with an affordable means of starting or accelerating expansion of their business with far less risk. The corporate office provides a turn key opportunity complete with training and established supply channels, and supports the franchisee with marketing and advertising. Accounting, inventory control, personnel management and purchasing are all “taught” by hands-on franchisors working side-by-side with their franchisees. Franchisees, conversely, combine that company knowledge with their personal entrepreneurial drive and spirit to form a strong business relationship with that franchise. And the talents and initiatives of those franchisees helps the franchisor build its brand. “People aren’t used to managing themselves, so a plug and play business like franchising is the right way to jump start into an industry,” says Rob Ross, vice president with Midvale-based United Shipping Solutions. USS is a seven-year-old logistics and transportation company with 126 franchises across the country. “With a franchise, the processes and systems are in place, the ones that have proven successful over time,” Ross says. “Franchisees love the fact that they can take those concepts and control their own opportunities. No one is limiting their potential.” Like many franchisors, Ross has seen an increase in interest in the franchising business concept, especially in the past year. Many of those looking for something new are venturing into areas where they have no expertise or previous experience. Brandon Oquendo earned a degree from Westminster College and worked in corporate America for many years, but he found his focus changing toward being an entrepreneur. He now owns three Five Star Painting franchises in Utah, one of the nation’s fastest-growing franchises in the service industry. Five Star focuses on commercial and residential painting, and Oquendo has franchises in Salt Lake City, Park City and northern Utah. “I’m not a painter, and I don’t need to be,” he says. “I have always wanted to be my own business owner and Five Star showed me a concept that provided a proven formula with limited risk. I hire painters on either a full-time or subcontract basis, and I coordinate their appointments. If you just follow the system Five Star has developed, you can succeed. That’s the simple way to make a business grow and that’s the way franchising works.” Weighing the Risks According to the IFA, there are close to 800,000 business establishments in the country that are part of a franchise system. Those businesses employ 10 million people and have a payroll exceeding $300 billion. The most common type of franchise is quick service restaurants, such as McDonalds or Subway (about 55 percent of all franchises fall in this category), but there are also high percentages in lodging, retail and full service food/restaurants. The service industry is heavily franchised and growing the most rapidly. Service-related fields such as home repair and remodeling, household furnishings, carpet cleaning and various maintenance and cleaning services are considered the “hot” areas by the IFA. The association points out that it is nearly impossible for anyone to drive down any business street or walk through any mall without seeing many franchised businesses. While franchises are not risk-free (there is a fallout rate of about 1 in 10, according to the IFA), there are some distinct advantages for a business owner buying a franchise, besides minimal risk. For one thing, name recognition is huge. A well-known name can pull in return customers or clients and give the franchisee a competitive edge in attracting new customers. Training and support, including regimented business operation procedures and tips on hiring and management of employees, is generally provided. There are economies of scale for purchasing of inventory and fixtures, as franchisors have established relationships with manufacturers and get volume discount pricing. Advertising and marketing materials, and in some cases co-op advertising dollars, are often available, and franchisors work with their “zees,” as they are called, on site selection and financing options. But there are disadvantages as well. As a trade for the security, marketing power and training of a franchise’s trademark, business owners, must be able and willing to give up some of their independence. Franchise fees are required up front to secure the rights to an area, and vary widely from as low as $15,000 to some in the six figures. The monthly royalties, which also range from 3 to 8 percent or more of retail sales, remind the franchisees that they do, in fact, have someone to report to. Franchisors require their franchisees to maintain certain standards, almost always require purchases of inventory and/or materials from only approved sources (thus limiting a franchisee’s right to negotiate with a vendor), and can terminate a franchisee’s rights if conditions or standards are not met. Slaymaker said that at the end of the day, when you own and operate a successful business, those agreements are all worth it. “My advice to someone looking to buy a franchise is, first, have a passion for whatever they are looking at,” he says. “It has to match the type of lifestyle they enjoy, and they need to be a people person.” Next, he suggests they look at the different segments of the industry. “Food, service, retail—whatever you choose, be sure it’s something steady. Do your due diligence and look for hot concepts. And third, visit locations with existing franchises to see how they operate.” “The reality is that a well-established, successfully run franchise business is more recession-proof than any untested, untried idea,” Oquendo adds. “In the case of Five Star, my business is almost all virtual—everything comes to my Blackberry or laptop. If you just follow the margins and the guidelines, it’s easy to manage a profitable business with the help a franchisor gives you.” All franchises are required to provide an operating circular to potential franchisees. Some states require franchise companies to file or register their franchise offerings with a state agency (Utah is not one of them). The Department of Commerce Website at www.commerce.utah.gov/mvfranchise.html has information about franchises and the laws governing them in Utah.
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