Becoming a franchise owner puts a wealth of resources, training and education at your disposal.
When Bob and Danielle Beauregard decided to add septic pumping to the services offered by their Mr. Rooter franchise in Anderson, South Carolina, they didn’t know much about the industry. But they had a great resource at their disposal: the 250-some Mr. Rooter franchises located nationwide.
“I didn’t know a lot about pumping, but other franchisees were a big help,” says Bob. “I can call any of those owners to talk about how to fix a problem, whereas I can’t call a local competitor and ask how they’d handle it.”
That’s just one of many reasons why investing in a franchise made sense for the couple. Bob is the first one to admit that while he’s a great plumber (he’s earned a mechanical contractor’s license from the state of South Carolina, the rough equivalent of a master plumber’s license), he wasn’t always a great businessman. But the franchise network helped him learn the ropes.
The franchise also provides great marketing support and a detailed business plan. The initial investment is based on territory population; in the Beauregards’ case, the initial fee was about $43,000, he says, which they financed in-house with a five-year loan.
Yes, the franchise company mandates certain things, such as the logo, uniforms and company colors. But on most other matters, the couple receives advice but is free to make their own business decisions. For instance, the Beauregards did not have to get corporate approval to enter the market for septic pumping, as long as it’s run as a Mr. Rooter service, not as a separate entity.
“When you’re buying into a franchise, you’re buying a system that’s been in place for more than 40 years,” Bob says. “Why reinvent the wheel?”
Benefit No. 1 is the brand. “There used to be a drugstore on every corner,” says Donald MacDonald, founder and CEO of the Rooter-Man franchise system headquartered in Massachusetts. “Today, they’re all Walgreens, CVS or other major brands.”
He believes the same is coming true for service businesses. “Consumers feel more comfortable doing business with a national brand,” MacDonald says. They put some faith in universal standards that national franchisors set for their operations, and at least some believe that when things go wrong, a big–name brand can be more easily held accountable than a one-person shop with a voice mailbox that’s always full.
But brand recognition is just the beginning.
Kurt Kittleson knows franchising from both sides. Kittleson started a bathroom remodeling business, American Bathtub Liners, in 1978. He and his business partner built it into a successful nationwide operation by selling franchises. They sold the company, now called Re-Bath, in 2001.
Later, Kittleson got back into the business he founded from the other side, buying a Re-Bath franchise after his children were grown and out of the home. Now he also has a bluefrog franchise in the Phoenix market.
“Most people who go into franchising don’t have very extensive business experience,” Kittleson points out. “They’ve worked for someone else, they’re tired of relying on a company for a paycheck and they want to control their own destiny.”
Joining a franchise provides systems — from accounting and operations procedures to employee relations, sales, advertising and marketing guidance — along with a network of experienced business operators who can provide support and advice.
“A lot of things you can spend a couple of years learning — and probably making some very expensive mistakes — they’ve already done for you,” Kittleson says.
That doesn’t mean it’s easy. “There are learning curves involved and I’ve experienced them all,” Kittleson says with a rueful chuckle.
Know your cash needs
Whether starting your own business or buying a franchise, you’ll need to have some cash on hand, but just how much can depend a great deal on who the franchisor is. Big-name brands will be pricey. “If you’re doing a smaller franchise, the capital requirements aren’t nearly as high,” Kittleson says.
Getting in on the ground floor will typically require you to pay the franchisor for the rights to a particular geographic territory. You’ll also need to purchase or lease a building or buildings for the operation as well as supplies and equipment, including vehicles. There are hiring costs, payroll costs and costs for business services you require: accounting, attorneys, advertising and so on.
“You can finance some of that,” Kittleson says. “But you’re still going to need cash for opening costs and training and inventory.”
In short, you can’t do it on a shoestring. Many businesses — solo or franchise — start out undercapitalized to start with, he warns. “It’s important to understand what your cash needs are going to be.”
Get expert help
Kittleson advises retaining an accountant to help you carefully analyze the business opportunity a franchisor offers. A good franchisor will also be able to help you understand the total startup costs, along with giving you realistic projections on whether the business is likely to turn a profit immediately or whether you can expect to lose money until it builds to a sustainable and profitable level.
Part of that analysis is also getting a clear-eyed understanding of your prospective competition in the territory. When people taking the plunge into buying a franchise call for advice, Kittleson says, “I ask, ‘Who’s your competition?’ A lot of them don’t know the answer.”
Don’t grow too fast
Even as a franchisee, you want to grow the business with care. “Growing slowly to a level that you can manage effectively is much more important than how big you try to get or how fast you try to get there.”
Especially for a newcomer, it’s likely to be much safer to start up a new territory for a franchisor than to buy an existing one, he points out. If the existing operation is successful, it won’t be cheap; if it has problems, you may be in for a lot more than you bargained.
Hard work — and big rewards
If you’re seriously considering joining a particular franchise company, Kittleson advises talking to as many of its franchisees as you can — and not just the ones that the franchisor points you. “The ones that aren’t doing well aren’t going to say it’s their fault, but at least you can get a little insight about what’s trending.”
Finally, Kittleson warns that franchising isn’t for the unmotivated or unenergetic. To prospective franchisees, he offers this advice: “Be ready to work harder than you ever worked in your previous job — longer hours, more sleepless nights.” It doesn’t last forever, but it does come with the territory.
“That’s the price you pay to create the equity long-term in your life,” he says — building wealth that you can realize as the business and you mature.