How to Start a Franchise

How to Start a Franchise Beth Haselhorst: The network of franchise small businesses operating across the nation today is huge. More than 800,000 US franchises were operating in 2007 and more adjoining the ranks as independent entrepreneurs decide to extend to the franchise model. Franchise Expert Dick Rennick is an award winning founder of a 360 unit franchise system and former chairman of the International Franchise Association. Dick is recognized as one of the leading experts in franchising. Welcome to SBTV.com, Dick? Dick Rennick: Thank you. Beth Haselhorst: Let’s go and talk about why independent businesses might decide to grow to franchising. What are some of the advantages, the reasons they would do that? Dick Rennick: Well, I think that’s a two part question. One is that there’s what we call a conversion franchise. Somebody maybe had a home decorating business that they started on their own and maybe someone also had a carpet cleaning business that they wanted to change into a franchise. They could either become a conversion franchise and join an existing name brand and become a franchisee of that main brand or they could become a franchisor. And to become a franchisor they would have to emulate what people in their industry are already doing and we’d have to get them the right counsel, the right accounting, all the right things to get them to become a franchisor. Beth Haselhorst: If I want to join an existing franchise the conversion franchise, what’s the benefit of me doing that so I can continue my own business as it is? Dick Rennick: Well, the benefits are that you’re in business not by yourself but you’re with someone and you’re growing a national brand. And so over time the idea is to the franchising. You’re going to enhance your brand name, you’re going to be much more recognized. You’re going to have other people throughout the country. You’re going to get national buying power, national advertising buying power. You’re going to get advertising and marketing campaigns that are all part of the franchise system. So there’s a huge benefit to it. The downside to it is, are you able to abide by rules and regulations, changing the name of your company? Are you able to abide by new colors, are you able to abide by new hours. All these kinds of things you have to seriously consider, not that peoplewon’t do it but some people maybe don’t want to make those kind of change. Beth Haselhorst: When it comes to a business ownership in franchising what it is in state in Federal rules that people need to be aware of? Dick Rennick: Very good. Their franchising is made of an agreement called the Uniform Franchise Offering Circulars better called the UFOC. And that came about in the 50s and 60s. We had a thing called the swage you act where people would come to town like suing these famous elixir, Dr. Jules, medicine man selling something and people were selling franchises for a $100.00, $500.00 to $1000.00 and they would sell it in small town USA and go on and you never see him again. So the Federal Trade Commission got involved and they made these rules. There are 22 rules to the franchise document, these items and they’re all the same for every franchise company. They have to answer things like, are you in litigation? Have you been sued? Have you ever filed bankruptcy? What is it you’re offering for a franchise? So everybody has to abide by the same 22 items no matter what you’re selling whether it’s fast food, carpet cleaning, home décor, you name it everybody abides by this document. Beth Haselhorst: Are all the states also regulating businesses? Dick Rennick: There are about 15 states that have their own filing and registration. That means they’re asking for more information than just making your document federally approved. States like California, Washington, Illinois, Maryland, New York, they have their own rules that are up and above and beyond the Federal trade rule. Beth Haselhorst: What are some of the common mistakes you see entrepreneurs are making when trying to expand their small business to franchising? Dick Rennick: Going into under capitalized. The number one issue today in any business whether you’re an entrepreneur starting your own business or whether you’re an entrepreneur that you want to take your business and convert it into a franchise or whether you want to become a franchisor and sell your great idea. It’s capital. You’ve got to make sure that you’ve done or you do diligence to make sure that you’ve got the money to take you from point A to point B. The second thing is you want to make sure that you put together great business plan and that you put together people that can help you, take you to the level that you want to get to in franchising. A lot of times people would wind up coming to people like me and we would help them, take them into the franchise arena. And we put them in touch with expert franchise, attorney experts, accounting experts, marketing experts and we give them choices of which they can use. We’d make recommendations of course but, everybody the day of having everything in house is quickly going away because you can hire these experts on retainers, on a buy cost basis and I have to have payroll not have to have those kinds of cost. Not have to worry about HR issues, etcetera. So that if you can have a smaller staff and still have great marketing, great PR, great HR. All those kinds of things and saves you money, you can pass those benefits on to your franchise system that you’re about to grow. Beth Haselhorst: So there’s lots to think about obviously when trying to determine if you grow your business through franchising where do you recommend I start from a small business that’s considering franchising. Where do I start to find out if this is the right move for me? Dick Rennick: I would go to www.franchise.org. It’s the International Franchise Association website and you can go on there and garner a lot of information. There are some great books that are sold are Barnes and Nobles. One of them comes to mind is the first and second edition of “Franchising for Dummies”. It’s the yellow book which is here on the show. You can also at the International Franchise Association, they have a myriad of books that are easy to be purchased $25.00 to $30.00 per book that will help you make the determination as do you want to have your business go the next step. Now you can do all the reading you want to in the world. You can do all the research you want to in the world online but there’s going to come a time when you need to sit down with a company like me and you need to spend a few dollars with them to find out if your system and your business is franchisable. Sometimes maybe it’s franchisable, maybe it’s kind of out there on a dealership role and maybe that’s out there that it wouldn’t meet the rules and regulations over franchise. So somewhere on the line you need to sit down with a franchise expert that can help you make that determination. Beth Haselhorst: You really know what you’re getting into. Dick Rennick: I bet you. Beth Haselhorst: Well, thank you very much for joining us today, Dick. Look for other segments on franchising in small business from Dick here on SBTV.com. You can also learn more about Dick Rennick and his company by going to www.teamrennick.com. This isSBTV.com. Small business is our only business.