Northern Nevada business owner Maurice Dussaq purchased a franchise because he could not find a business for sale that he had an interest in, and he did not want to start one from scratch. “Franchising seemed like a viable option, and I knew I wanted a business-to-business franchise that was profitable,” said the owner of two FASTSIGNS franchises, one in Carson City and one in Reno.
When Dussaq signed on with FASTSIGNS, the high-tech sign and graphic business was new at the time and intrigued him. “It’s nice to be able to say, after 15 years, that I don’t regret my decision,” he stated. However, he warned the entrepreneurial in spirit, “They offer you a system that works and if you’re not going to use it, do something else.”
Traci Roberts launched a Dream Dinners franchise in Las Vegas with her husband and sister-in-law in 2004. “We originally found out about Dream Dinners from family in Washington state. The three of us began talking with the founders of Dream Dinners and expressed our excitement and passion about bringing this to Las Vegas. Since Dream Dinners was in its infancy stage, we really had to rely on our gut feeling. We believed in the mission of the company, the women who started it and those who knew them.”
Dussaq and Roberts are two of many Nevada business owners who have embraced the concept of franchising. In fact, Nevada is a top state for franchises, which have significantly impacted economic development here. One growing franchise, Port of Subs, is based in Reno. Nevada is the leading state in the country as far as jobs and economic output created though franchised businesses.
Tami Lord, vice president, sales and leasing for Territory Incorporated, agreed that Nevada is a good market for entrepreneurs and new franchisees. “A state where the pull of the slot machine can change your future encourages the entrepreneurial spirit,” Lord said. “Many have moved to Las Vegas for a new start, a new future and a chance to own a piece of the American dream. Franchises give them the structure and market recognition to start a new business without all the guesswork.” Her company, based in Las Vegas, leases space in retail centers to franchise businesses of all kinds, both large and small.
Donna Curry lived in a town of 50,000 people before moving to Las Vegas in 1979. Her hometown had three thriving Subway restaurants. “I thought, if this small town can do well with three, what would the Las Vegas market be able to handle?” Curry purchased her first Subway franchise and attended Subway training in 1983. She is known as a pioneer of the Subway franchise system; the store number of her first location was 283, and there are now over 23,000 locations worldwide. “Individuals are turning to the franchise industry because it has a proven track record,” said Curry, who is now the Subway Development Agent for Southern Nevada. “This organization allows us to have a lower food cost than an individual owner could achieve. Advertising funding is another example of the positive aspect of franchising.”
Greg Roquet is an advisor with the Small Business Administration’s Service Corps of Retired Executives (SCORE) and also president of The Franchise Network (FranNet) of Northern California and Nevada, which helps individuals match their goals with selected national franchise companies. He cited a study by PriceWaterhouseCoopers about the economic impact of franchising. Franchising provides $1.53 trillion in economic output in the United States, representing 9.7 percent of the U.S. economy. Franchising also provides 14 percent of the jobs in the private sector workforce. Roquet stated, “A new franchise business opens some place in the United States every eight minutes.” The PriceWaterhouseCoopers research showed that jobs filled because of franchises represent 20 percent of Nevada’s private-sector workforce.
Roquet said franchises have been referred to as the “halfway house” of entrepreneurship, since they provide the opportunity to “work for yourself but not by yourself.” The franchisees pay the franchisor a monthly royalty fee. Roquet said the amount of the fee is usually determined as a percentage of sales and covers the use of the franchisor’s name and trademarks, the right to use its business model, and access to products and ongoing support. “The franchisor is your business partner, providing you with ‘back end’ support, which then allows you time to run the ‘front end’ of your business. A good franchise concept creates a win-win scenario for all,” he said. “You don’t want to judge a franchise based on the size of the royalty – you want to judge it by what it can provide to you after the royalty is paid.”
Erwin J. Keup, author of Franchise Bible: How to Buy a Franchise or Franchise Your Own Business, suggestsreferring to The Ultimate Book of Franchises to help select a franchise.The bookcontains more than 1,000 franchise listings. “You’re really buying a job when you buy a franchise,” Keup said. “So before you start calling the franchises, you should find one that fits your abilities. Get the offering circular and have qualified people advise you.” The offering circular contains a certified audit, which should be less than 10 months old and should include information about lawsuits that have been filed against the company.
Keup suggested potential franchisees have a professional walk them through franchise fees and how to evaluate them, royalties and why they should pay them, what to expect in terms of training and ongoing support, advertising, site selection and franchisee relations.
Mike Micone opened a Reno office of Accountants Inc. in 1996 and a Las Vegas office in 1998. Micone researched more than 20 franchises before settling upon Accountants Inc, a staffing service for financial professionals. “After three months, I knew this was the perfect match, so I evaluated the start-up costs and sold my house, car and boat to start a new life.” Micone said the positives of owning a franchise include proven processes that the corporation has already taken the time to work through, along with financing, marketing items, the accounting-specific database and software systems. “The IT support was a tremendous advantage,” he added. “I don’t have to manage these areas, which can take time away from developing the business. The most important part of determining which franchise to buy is how much ongoing support the company will provide and what it will cost.”
Ken Hollowell, president of California-based National Franchise Services, Inc., encouraged buyers to insist on receiving the UFOC (uniform franchise offering circular) at the first face-to-face meeting or 10 business days before the buyer is required to provide any funds or sign any agreement. “The actual franchise agreement is part of that document,” he said. “If the buyer cannot agree to the terms and conditions of the franchise agreement, the buyer would be wasting his or her time investigating the franchise.”
The best way to investigate whether a company is reputable, Keup suggested, is to contact several franchisees. “See if you can get ahold of them in person. If they’re not happy, you’ll find out, even just over the phone. But in person is better. ”
Michael Solomon owns 11 Great American Cookies franchises, including three in Southern Nevada. He likened interviewing existing franchises to calling references on a job application. “Call as many as you can – and not just those the company suggests.” Solomon recommends that franchisees carefully check into precisely which services the franchise offers. “Do they have their own administrative system? Will they handle your small business accounting? Will they negotiate with landlords to help you find new locations? Will they help develop new products?” Solomon warned that a lot of people fall in love with the idea of owning their own business. “While working for yourself can be very rewarding, it’s also a lot of work. You can’t romanticize what you are getting into.” Solomon recalls having to work over many holidays and working when his employees didn’t show up.
Luther Mack, who owns nine McDonalds restaurants in the Reno-Sparks area and one in Fernley, has been involved with McDonalds since 1968. Mack said the positives of running a franchise revolve around support. “McDonalds helps you find the best insurance, the best legal support, the best accountants. They are also a big help with marketing, training, public relations and political action,” he said. He suggested franchisees think twice before hiring family members. “Always look to hire on the outside before hiring family members, and make sure you have discipline and procedures in place.”
Mack is also on the community board for Wells Fargo, and he sees many franchisees and entrepreneurs fail due to under-capitalizing. “Make sure you know your business inside and out and that you are hands-on until you get your business running the way you want it. Double-check your bank deposits and have cash controls in your business. Plan for the busy times and the slow times so you have enough cash for the slow seasons. ”
Mack also suggested prospective franchisees take a close look at franchise fees. “All that glitters is not gold. Unlike independent businesses, with franchises, extra expenses can be incurred,” he warned.
When financing a franchise, franchisees should look for a lender who has experience in their industry, said Diane Cooper, president and CEO, GE Franchise Finance (GEFF). “We work with customers such as Claim Jumper to tailor their restaurant financing and provide innovative solutions that help maintain the long-term viability of their business,” Cooper said. “Claim Jumper was able to amortize its debt during a longer timeframe, realizing cash flow savings. That additional cash flow will help fuel the company’s long-term growth.” Scottsdale, Ariz.- based GEFF works with franchisees and franchisors in Nevada and across the United States.
Steve Synnott, president of the Denver-based wholesale group PRO Group, Inc., said positives of franchises include name recognition and branding, expertise in marketing, promotions, operational efficiencies, customer service support and training. Negatives include forfeiture of independence, fees and service charges and reporting requirements.
Territory Incorporated’s Lord said competition between various franchises is particularly interesting in Las Vegas, due in part to increasing land costs. “Users like Subway, Port of Subs, and Quiznos, or PostNet and the UPS Store are not only competing for the exact same space, but often are offering more than the asking rate, or accepting terms as proposed by the landlord just to secure the location before their competition does,” she reported. Lord sees Nevada as a hot area for franchises. When asked if franchises are displacing independents, Lord said it depends on the type of business. “For sandwich shops, mailbox stores and coffee shops, franchised branding seems to be preferred over independence,” she said. “However, for other uses such as dry cleaners, nail salons, beauty salons and pizza shops, both are equally competitive in the market. In many instances, the independent can move more quickly and efficiently than the franchise operators.”
George Knauf, a franchise consultant with Washington, D.C.-based FranChoice, encourages prospective franchisees to do their homework. “When you pick a franchise to investigate, the product or service is the last thing you should consider,” Knauf said. “All too often, we see cases such as computer programmers buying Web design franchises and failing because they were not willing to do what a successful owner in that business has to do – namely sell the services of the business.” Knauf warned prospective franchisees not to select franchises to investigate purely because they like the product or service. He joked, “If you want to eat ice cream and drink coffee, you can save thousands upon thousands of dollars by doing that on your own and not being a business owner at all.”
JOE: Sidebar if you have room:
SELECTED FRANCHISING RESOURCES
Franchise Bible: How to Buy a Franchise or Franchise Your Own Business, by Erwin J. Keup
FranNet – The Franchise Connection, www.frannet.com
The Ultimate Book of Franchises, by Rieva Lesonsky
Franchise Times, www.franchise.org
Federal Trade Commission’s “Consumer Guide to Buying A Franchise” (available through International Franchise Association)
National Franchise Services, Inc., www.kenhollowell.com