53 - Tip Tuesday - Franchises 101 with Tom Scarda
Tom used to work for the subway system in New York for 13 years. After becoming frustrated with bureaucracy and politics, he had an ah-ha moment when he realized his bosses weren’t living the life that he wanted, but instead it was the business owners who were. So he started to look at franchises because essentially they were businesses with training wheels and that was really what he needed at that moment; training wheels.
He contacted FranChoice and matched him to a franchise which was a smoothie and coffee franchise. He built it into 3 locations in less than five years, then sold it and semi-retired at 41 years old. FranChoice had him come on board, and help people to figure out if Franchising is the right choice.
What are some things I need to look into to make sure that I’m investing in the right franchise? There are no rules or regulations or laws that dictate if it’s a franchise or not. There is, however, protection mechanisms from the government. The FTC oversees franchising and works over the same rules as the Security Exchange. It’s a very regulated industry. Every franchise is mandated to have a franchise disclosure document, and this is what separates the legit franchises from all of the others. It has to be filed with the FTC and the State Attorney General Office. It’s all about protecting the buyer.
It’s against the law to call yourself a franchise without this paperwork.
Are there any regulations around getting approved? You have to get a franchise attorney before you become a franchise. Anyone can say that, but they have to supply 3 years of financials. You then have to fill out information. You don’t have to be a successful franchise or company. It’s up to you to do due diligence to make sure you’re figuring out if they're the real deal.
What makes a good franchise opportunity great? First you’re going to look at the numbers, and the average earnings across the country, etc. At the end of the day and the most important thing, is to talk to the franchise owners who are already in it. Then you can ask about all aspects like initial and ongoing training. Do they invest in SEO or do you have to do it? Do they do advertising or do you have to do it locally? Then figure out the culture of the franchise, and that’s not on paper. The only way to figure that out is to visit the company and talk to franchise owners.
How much hand holding should I expect? It really does vary. It’s one of the biggest problems with franchising. A lot of people when it comes to franchising their business, don’t realize the handholding that will be required. When you franchise your business you move from business owner to a sales and support business. Most franchises never get past five units.
Tom never recommends a company unless they have at least 25 owners that have been running 3-5 years.
The support can really vary. Some companies are very diligent about making decisions that are based on the best interest of their franchisees.
When it comes to experience, should you get experience first or does it matter? Really great franchises have really great training systems. If you talk to the franchisees, they make it sound like they invented the product or service. A lot of time restaurants will require some sort of restaurant experience.
Tom advises that you don’t need to go for high dollar amount in order to get your money back. You can go for smaller, and then purchase more units.
How do I know what a good deal is? It’s not a bad thing if they charge you a higher royalty because that can mean they’re going to put a lot of investment in your future. Or if they’re going to charge you a really high fee up front, and then a small royalty, they may not be looking at your future investments.
Tom recommends spending at least 50 hours researching and getting into the details of a potential franchise to really understand what you’re getting into. Go out to corporate headquarters so you can meet people. That’s really the formula to figure that out.
Tom also recommends to make sure that it’s more about just a passion for you in what you’re pursing. To live and breathe it, is slightly different from just enjoying it.
Is there a list of franchises to see what’s available? The best advice Tom can give is to go to the website: franchise.org. There’s abou 1200 franchises on there. Those are typically the ones on the up and up, so they’re the ones who are for real.
Tom can be found at franchisesavvy.net
More About Tom: Tom Scarda, Franchise Expert, worked for the New York Subway system for 13 years and was frustrated with the bureaucracy and politics. He wanted to be an entrepreneur but didn’t know how. He saw franchising as the answer. He purchased a Smoothie franchise in 2000. He built it and sold it within five years and semi-retired at 41-years old. As a government worker with no business ownership experience, that was not bad.
After selling his smoothie Franchise in 20015, FranChoice, a franchise consulting firm, asked Tom to come on board and help people do what he did. He has been helping people figure out if franchising is for them for the past 9 years. Tom is 1 of only 1,004 Certified Franchise Experts in the world, certified by the International Franchise Association. He is also the author of The Magic of Choosing Uncertainty - How to Manage Change, Embrace Fear, and Live a Fulfilled Life. Tom lives in New York with his wife, Gina, and their two children, and two dogs, Diego and Oliver.