What I Would’ve Done Differently – Episode 1

By Paul Giggi

Today I’m here to talk about things that I’ve done in the past that haven’t worked out so well. I’d love to stand here and share my successes, but I’d probably bore you to tears, hearing me either talk about things that I have done, that if I had the chance, I would do differently. So the one experience that I want to share with you today has to do with the area of site selection.

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What Fees are Associated with a Franchise?

By Paul Giggi

Continuation of our series: “Five Key Questions to ask a Franchisor”

Question #3

If you haven’t had a chance to see our video on this topic I would like to suggest you do so for our conversational piece on this important topic. For this blog, we will focus on Questions #3 of our Five Key Questions to ask a Franchisor during your initial interview regarding the concept of your interest.

During your introductory discussions with the Franchisor we have shared that there are many questions to consider asking in your discovery phase to help you to determine if a concept and Franchisor are the right ones for you to partner with in operating the business.

The 3rd of our Big 5 Questions to Ask:

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The 4 Elements of Site Selection

By Tiffany Toliver, P.E.

These four elements of site selection are pretty general; they will work for almost any franchised concept. And If you apply this structured way of analyzing real estate to your specific use, whether that be restaurant, retail outlet, entertainment venue, whatever, you’ll be able to compare sites apples to apples. This will help you make an informed decision rooted in data.

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What Happens When You Don’t Pick A Tested Franchise

By Steve Slowey

Last week I was in Denver Colorado for a trade show; everything concept you could think of was represented there, from oil changing to cupcakes. As a potential franchisee,  seeing all these concepts, where do you even begin? Yes, some folks know what they want but there may have been several branded concepts representing the same niche, so again, where do you begin?

I had the opportunity to speak with a lot of people and as the show went on, I found myself asking people how much they knew about Franchising. Honestly, I found that they didn’t know exactly how it works or even what a franchise agreement was.

So how do you make a decision, or pick between so many concepts, when you’re making such an important choice? You don’t, you do your research,  remove all emotion, and realize this could be the best, or the worst decision, depending on how you approach it.

Franchises should represent a concept that has been tested and proven to increase the opportunity for a potential Franchisee to make money. This idea only holds true if the Franchisee follows the advice and direction of the Franchisor. Considering the length of time a franchise agreement represents (usually 10 years), a concept should not even consider Franchising until they are solid in every facet of their operation. While I don’t believe a concept needs to be operational for a certain amount of time before franchising, they better be able to prove they know what they are doing. Just because someone has an idea that seems unique today doesn’t mean it will be successful as a franchise.

Newer concepts rely heavily on the Franchisee to give them credibility and help them build relevance in the market. Every Franchise we see began somewhere, but believe me, they all went through some growing pains typically at the expense of some Franchisee.

Personally, I have been successful in some franchises and I have been financially hurt by others. With the ones I was hurt by, the Franchisor allowed me to open even when things weren’t exactly right. What risk did the Franchisor have, more than that, what did the Franchisor do to help me through the struggle and to ensure that I was successful?

If you buy a Franchise, you will be paying for the use of their branded name and what they consider proprietary information, that should help you to be successful. Remember, this is a big decision and you need to ask the right questions and get sound advice before you commit. Let us help you. We are not here to convince you to buy a Franchise, we are here to simply help you do it the right way.

 

What is the ROI and why is that important to me?

By Paul Giggi

Five Key Questions to ask a Franchisor – Question #2

If you haven’t had a chance to see our video on this topic I would like to suggest you do so for our conversational piece on this important topic. For this blog we will focus on Questions #2 of our Key 5 questions to ask.

During your introductory discussions with the Franchisor we have shared that there are many questions to consider asking in your discovery phase to help you to determine if a particular concept and Franchisor is the right one for you to partner with in operating the business.

The second of our Big 5 Questions to Ask:

What is the ROI?

Once you have received some of the financial data that you should expect to pay as a part of your investment, which is the focus of question #1; your next questions should be about your expected Return On Investment, or ROI, from your investment in, and operation of, the concept in consideration.

The Return of Investment can be measured in both time to recover your initial investment as well as the amount of money you make above and beyond your initial investment.

I would typically first want to look and the ROI on the basis of time to recover my initial investment.  As an example, if my initial investment is $1 Million and the business makes $100K per year, my ROI is 10 years; in other words it will take you 10 years to earn your initial invest back and this is not a desirable plan, particulary when you consider that you will more than likely be infusing additional monies into the business as you operate for items such as maintenance, updates, replacements, etc…  Typically, you should try to recover your investment within the first 4 to 5 years which would then give you the out years (years 6 – 10) to make your true profit on your investment. Generally, with a franchise restaurant, you will be required to sign a 10-year term for each site you wish to open and this term will match the lease (should you choose this approach to occupancy) as well as the term of your lender should you use debt financing, so all of your forecasting for the return is based upon that term. Therefore, an investment of $1M in which you receive back $200,000 per year would be a solid investment as you would recover your investment in 5 years and then be earning a return of 20% on your initial financial investment.

The amount of profit you make above your initial investment is the monetary return on your investment. For example, if your initial investment is $1.0 Million and after you have recovered your initial investment you are making 100 K/year then your monetary return is 10%. Understand that the Franchisor can not share what your expectations of your ROI but can direct you to how you can acquire the necessary information that will allow you to accurately forecast your return.

Calculating your ROI will also help you determine when you may be best positioned to sell your restaurant should this be something you have as a strategy in your business.

When you look at a franchise restaurant you want to add to your initial investment all of the items if cost to get started so don’t forget your Franchise Fee and any other start-up costs such as legal charges.  This can be an involved process so be sure to get sound advice on expectations and objectives.

Profit alone is no way to judge your business

By Steve Slowey

So I took over one of my restaurants from a manager who, in many circumstances, could not do the job. Today makes a full month since I took over. In that month, I have dealt with entitled employees, poorly executed systems, lack of training, and poor execution at every level. It is amazing how much damage is done when there is no leadership and no accountability.

Ultimately this is my fault as l should have never allowed it to get to this point but, I did. This scenario is not uncommon. It is likely we all have all allowed parts of our professional or business lives go, then found ourselves having to clean up the mess we created. Businesses are either in a progressive state or a regressive state; there is not a third direction.

This store has been in a regressive state for a while, and though it was and is still making money, business would be crushed if another concept were to open in the area. Profit alone is no way to judge your business. Ironically, at this location, the manager even said that he ‘didn’t see an issue’, that ‘the store was making money’.

The consumer has the ability to choose where they spend their money, and it is every employee’s job to ensure that the customer made the right choice when they walk in the restaurant. Open your eyes and try to see what your customer sees. Do a thorough evaluation of yourself and your business and make the changes needed to stay relevant.

Well-ran businesses do not worry about competition, they embrace it because their standards are high, and their execution is consistent. I have a lot of work still to do to get this store where I know it should be, but is there really any other choice? By being an absentee owner, I allowed this to happen so I have nobody to blame but myself. 

I hope you do some soul searching and take an honest look at your business. If you don’t like what you see, address it. I am doing just that. I am already seeing progress and getting good customer feedback but it has taken hard work to get here.

I am a believer in clear and concise systems that maintain standards and evaluate performance. Getting those systems in place has been difficult but they are the reason I am getting results. The systems are exposing the employees who are productive and the ones who are not.

If you find yourself wondering how to address some of the issues you are facing let us know.  I am confident we have the tools to help you get back on track.

What Is The Total Investment Cost?

By Paul Giggi

Question 1 of 5 in the Blog Series: Top 5 Questions To Ask a Franchisor

If you haven’t had a chance to see our Video on this topic I would like to suggest you do so. For this blog we will focus on Question #1 of our Key 5 questions to ask the Franchisor.

At your first introduction to a Franchisor, there are many questions to consider asking. Some are more important than others in the initial phase as you try to determine if a particular concept and Franchisor is the right one for you to partner with in operating the business.

The first of our 5 Key Questions to Ask:

What is the Total Investment Cost?

You’ll probably come to the table knowing your total available investment capabilities. But to ascertain if you can afford the cost and risk of the venture, you need to understand the Total Investment Cost of the Franchise. Asking the question about Total Investment Cost has many parts to it, so be sure to ask for specifics and fully understand the reply.

Franchisors are governed by the Federal Trade Commission and, therefore are restricted in the detail of the information they can share as they are not allowed to make an earnings claim to prospective Franchisees.  This is to protect them (and you) as you move forward in your due diligence. Without this protection the Franchisor could fall prey to lawsuit liability; if they tell a prospect what they will see as a return and that return is later not realized. It protects you from unscrupulous Franchisors that otherwise might offer false financial promises and information so to entice you to become a Franchisee.

Franchisors are normally going to share with you a range of costs for the complete operations build-out and opening of a single unit. Within this range are numerous items to be sure to understand and discuss. Many of these costs are disclosed in the Franchise Disclosure Document that you will receive as your next step in the qualification and discovery process.

The range offered could be small or large depending on what type of construction (i.e. free standing, end cap, in line, etc.…), the purchase approach (build to suit, your own build, lease, etc.…),  and other important components. When this range is offered to you, if some of these items are not offered immediately, be sure to ask what category the range covers and then discuss the inclusions and exclusions of this range so you have a firm understanding of what additional costs you may have to incur.

Typically, the range will cover your construction costs, FF&E (Furniture, Fixtures and Equipment), permit costs, opening inventory, signage, POS (Point of Sale) systems, opening training costs, opening marketing costs and may even include a certain amount of working capital. There will be more items included and be sure to ask what items are in the range. Also, and as important, be sure to understand what is not in the range.  Often items such as your Real Estate costs and liquor licensing (if applicable) will not be included. Once you have the “all in” figure you are prepared to review the Franchise Disclosure Document (FDD) with a better understanding of the cost areas to target and get a clear understanding.

This question is an important one to fully understand and you may want to consult with those who are current franchisees of a concept or with people who have experience in this area so to be sure you leave no stone unturned in your informational search.

Please check out our Video and watch for future blogs on the other important questions to ask of your Franchisor.

What is on your mind?

By Steve Slowey

So I have written some blogs on various issues and I have talked about some of the challenges I have had in my career but I’d like your input on what you’d like to learn. 

I have made a lot of mistakes in my professional life and have learned from them. I have watched successful people and learned from them also. What do you want to learn? What are the challenges you are facing?

We (Paul, Tiffany and myself) have about 75 years of combined experience and it covers a broad spectrum; from being part of an existing franchise to starting a new concept. We have negotiated over 1000 leases and have owned more than 20 businesses. We could blog for years about running a profitable business, franchising, leases, and many other topics; but if there is a specific topic you’d like to hear more about, please let us know!

When I opened my first restaurant, I had no idea what I was doing. I would call the bank and get my balance and that’s how I knew I was making money. I did my profit and loss statement at the end of the year for tax purposes and learned the hard way about cash flow and taxable income. If I knew then what I know now, who knows?! But I do know now and I’m happy to help others that are currently in the position I was once in.

If you are considering leasing space and you have never done this before please let us know and learn from our experience. If you are considering a franchise let us know it is a huge decision that will contractually obligate you personally for the next 10 years. If you are struggling to make money in your business and don’t know what to do to turn it around then let us know.

I know there is tremendous value in my experience and would like to help you in your journey. I want this blog to be a service to you. Please comment below with any questions on franchising, leasing, construction, or running a profitable business. 

Understanding the Franchisor’s Approval Process

By Paul Giggi

As you research information regarding the franchised concepts you want to consider owning, you will eventually pare down your choices based upon a number of factors.  More than likely, these factors will include the concept’s financial requirements, the available markets, your comfort with the concept, your background in operating the specific type of business and other components we will cover in future blogs.

Once you reach the point of having chosen a concept to pursue ownership with, you will have an initial discussion with the Franchisor; I covered some of the base questions you should plan on asking in a previous blog (click here).

One of those questions was to ask for details regarding the particular Franchisors approval process and hurdles for new franchisees.  This is important area to understand as meeting these hurdles could potentially require an investment in your time and  some sort of financial investment. 

Typically, the approval process will cover the following areas and you should be prepared to discuss them during your initial discussion with the Franchisor:

·       Background & Experience – There may be a requirement of a certain amount of experience in the industry you are investigating or in not direct experience, some background in running a business enterprise.

·       Financial Resources – You will be required to submit an Application covering your background and your financial resources, but this will come up in your initial discussion and you should be one and honest about this important matter.

·       Industry References – If you have a background in the industry you should be prepared to discuss that experience and supply names of people you have worked with that would provide a reference on your experience and successes.

·       Franchisor Financial Hurdles – There are typically minimum Liquid and Net Worth hurdles for financial approval.  The Liquid area is the money that you can readily access and is available for you to invest. This could be cash investment or equity. The Net Worth is the difference between your total financial assets and your total financial liabilities. This speaks to the depth of your financial resources. You should also be prepared to discuss how you will be financial the investment beyond your liquid cash infusion.  If your financial resources do not meet the hurdles or are very close to them, you may not meet Franchisor approval and may want to consider a partner to join in the investment.

·       Personal Financial Resources – Be sure to understand the financial requirements of the concept from the entry fees you will be charged, royalties, build out costs and any costs that are not included in the build out cost range you should receive from the Franchisor. You need to be sure to enter into your due diligence phase with your eyes wide open to all potential costs you will incur.

·       Interview / Discovery Day – One of the requirements that most concept Franchisors will have is you and your partner’s attendance in a Discovery Day. This event is normally held at the Franchisor’s corporate headquarters and is typically a day of discussion.  This event serves a number of purposes. It allows the Franchisor to meet you and you should consider this an interview of you as a potential Franchisee.  In turn, it is your chance to meet the members of the Franchisors staff and the people who will be supporting you and your business going forward… it is your chance to interview them. You should attend prepared with questions of all areas of the support you will be receiving and of the concept itself.  Additionally, in many cases you will have an opportunity to visit one of the concepts that are local… be sure to attend.

We will discuss the Discovery Day in more detail at another time, but this is an important component of the approval / research process and not to be overlooked.

Success is a byproduct of commitment to goals

By Steve Slowey

So I have finished my first week at a restaurant that I have owned but recently took over all the GM duties and it was not easy.

I live a relatively relaxed life and enjoy my routine. Taking on this project has certainly changed all that. I started by making an honest assessment of what was needed and created realistic goals for myself and my management. I narrowed the focus of my managers so I would not overwhelm them and I took on the brunt of the load. This particular store had several systems in place and really it had too many. The systems were burdensome and created so much of a workload that the primary function of the employee was replaced by all the additional tasks they were made to do. An example would be the servers, their primary function is to take care of the guest and insure that the guest experience is of a standard that the guest would become a repeat customer. The systems that were in place had the servers doing so much additional work that they were unable to properly attend to the guests needs and it showed in declining revenues. First, I redistributed the workload and made the guest the priority and did away with excessive tasks. I also worked hard to win the respect of my employees so they would be more willing to accept me and my philosophies.

Success is a byproduct of hard work and commitment and it begins at the top of every business and trickles down to all involved. I have to be willing to put in the work and make the time investment to ensure that the goals I have set are accomplished. I also have to be the one who accomplishes my goals and cannot expect them to be met by handing them off to someone else. Every successful business has a strong leader and this particular store was in desperate need of that. What keeps me going is that if I do this correctly, the time I am investing will pay dividends in the future not only by increasing the value of this store, but also by allowing me the ability to enjoy my life.

So many times in my professional life I have come across businesses that are in decline because the owners are unwilling to give up their personal time to properly correct the issues. People do things for only two reasons, either they want to or have to and if you wait till you have to the risk of failure will be much greater.

These next couple of weeks I will work to have the systems in place that will allow me to fiscally manage my cost of goods and labor to insure profitability. The retraining of my staff will be ongoing during this process and will continue until I see it executed consistently and achieving the desired goals. Once this is complete and my foundation is solid I can rebuild my revenues and feel confident that they are stable.