Business Proposal
Not a Franchise


Phone: 970-567-2500
Email: mark@coloradostonecrafts.com

About Franchising

When I first considered sharing my business, naturally I thought of franchising. I thought I could just fill out some State paperwork with the help of a lawyer, and Iíd be on my way. To learn more, I talked to a couple friends who had recently franchised their businesses. They were both encouraging and they shed some light on the process. I also read two books on the subject. My friends and the books quickly taught me just how involved, expensive, and time consuming it is to franchise a business.

When considering the cost of franchising, my friends were on opposite ends of the financial spectrum. One of my friends has already spent $180,000 and was planning to launch his franchise nationally in April of 2014. Itís a business that cleans operating rooms for hospitals. He chose a common way of franchising, which is to hire a lawyer and a franchise developer to do most of the work. But now, for reasons that I think are deceptive, and always seem to extract more money from my friend, his launch has been pushed back many times. It is now February 2016 and the excuses keep coming.

My other friend managed better with only $40,000 in fees and services. He has a Mail and Copy Center business. He did most of the paperwork himself with some input and advice from a lawyer. He is building his franchise himself in nearby towns and has started five franchise units in his first year.

What Iíve learned is that with a lawyer, a franchise developer, and numerous other services and fees and red tape and tedious details to consider, an average person spends about $100,000 to franchise a business, and it takes at least a year to get it finalized. I donít have this kind of money or time. And the more I looked at the cost of franchising, the more it seemed to be a racket that primarily makes the lawyers and franchise developers rich. So I figured, there must be another way. Thankfully, there is.

Before I get to that, thereís another side of the coin, the side that is your point of view, the one who might buy a franchise. If you have spent any time considering a franchise yourself, you know how expensive it can be. A franchise fee for a small unknown business can typically cost $10,000 to $50,000, while a household name-brand restaurant franchise can be $250,000. And that is just for the right to use the companyís name, suppliers and procedures. You still have to invest more money in the machinery, the inventory, the materials to make the products, and you have to secure a site or build a building to suit the franchise requirements. Then you have to pay for training, probably hire employees, and numerous other business details. Total capital investment is typically $100,000 up to a million dollars and more. The more I looked at the cost of buying a franchise from the buyerís point of view, the more it looked like an extreme financial risk that most average people are unwilling or unable to take.

Two Franchise Examples

Hereís a typical example from my research. This guy in Arizona has a business applying some kind of special epoxy coating on cement floors, used primarily in home garages. His franchise fee is $35,000 with a capital investment close to $200,000. This includes $35,000 for the initial epoxy floor product and thereís $54,000 for a box truck (a brand new one apparently). Most of the rest of the money, about $111,000, goes for the franchise name and procedures, training, initial advertising, office furniture, supplies, licenses and permits, and ďother field equipment,Ē which I think is a few mops according to a picture on their web site. And keep in mind that these are just the initial costs.

After all that, according to their franchise documents, they are also going to take 6.5% of your gross for a royalty fee PLUS 10% for advertising every month.

Furthermore, you will not have much control over your business. With any franchise, youíre locked into the way the franchisor wants to do business. If heís a jerk and makes you do things that donít make sense, or if the advertising is ineffective, or if you want to develop your own procedures or create new products? Sorry, all of your personal freedom regarding the business is irrelevant, or at least controlled by the franchisor. You only get as much freedom in your business (that you paid $200,000 for) that the franchisor allows you to have. How much control you have is actually determined by the legal documents that were drawn up by the lawyers when the franchise was created. So youíre legally bound to play the franchisorís game.

Now in this specific case, with the epoxy coating company, there are probably some products that were developed for this business that truly might be special or better than similar products. And they have developed procedures that are probably very efficient. And theyíre promising hands-on training and support using the internet. But really, when you boil it all down, arenít we talking about painting or mopping your garage floor with an epoxy-based product, and something similar is already available at Home Depot or Lowes? Even if the franchise product is the best around, is it worth $200,000? Some would actually say, ďYes.Ē But in my mind, thatís a lot of money for something I could probably figure out myself. Besides, wouldnít a lot of people who would care enough to coat their garage floor just do it themselves and not have a reason to call the franchise you bought?

Maybe Iím wrong about that, but these kinds of questions need to be considered when getting involved with any business. It just seems to me after my research, there are very few franchise businesses that:

1) have a product or service that is specialized enough that people couldnít figure it out on their own, because the knowledge, skill, and training is not very specialized.

2) have a low enough up-front cost that would make the financial risk manageable for average folks.

Hereís another example I just have to throw out. Thereís a franchise called Doody Calls which is a pet waste removal service. Got that? Read it slowÖa pet waste removal service. The franchise fee is $40,000 (are you laughing yet?) and total capital investment is $45,000 to $67,000. I think those pooper scoopers must be gold plated. Actually, to be fair, they do provide car-wrap signage and intranet support and a scheduling service, too. But still, couldnít anyone start this on their own and save themselves $42,000 dollars? I just had to laugh at this one. You can find this and lots of other franchises for your research at www.franchisegator.com.

Franchise Scams

Another thing to consider is the risk of being victimized by a scam. Anyone considering a franchise is taking a risk because they are putting their hopes and dreams in someone elseís hands, and this may get them nothing in the end. Let me demonstrateÖ

My wife is a dental assistant (best in the county I always say) and she has a nice couple who are patients who wanted to buy into a lesser-known coffee shop franchise which required a $35,000 franchise fee. Fine, thatís not unusual. So they get a loan from the equity in their house and use their life savings to pay the fee. Then, according to the franchise documents, they have to secure a location for the coffee shop and pay another $10,000 for traffic studies, population growth reports, and assorted fees before the franchisor will fly out to approve the site. So they dive in and after they fulfill all the requirements, the franchisor flies out and decides he just doesnít like the site location they picked and told them to find another one. And for that theyíll have to pony up another $10,000. After six months of this game, the couple lost all their savings, they still have to pay back the equity loan, and they have no coffee shop to pay it back with. They lost everything and they have nothing. Franchise buyers beware; stories like this are not uncommon.

To minimize the risk of this kind of fraud or scam, some people are willing to pay half a million dollars on a good name-brand franchise that everyone knows, say for something in the restaurant business like Subway or Olive Garden. In this case your risk of losing everything is minimal, but your new restaurant still needs to be successful, and there are many reasons a restaurant may not be successful. Maybe the location wasnít as good as you thought it would be. Maybe the manager you hired turns out to be a dud. Maybe your employee turnover is higher than expected so your food quality and service suffers. Maybe a downturn in the economy makes people eat out less. There are a lot of reasons that nearly 60% of all restaurants fail in the first three years (Parsa - 2005 Ohio State University study).

Like I said, itís a risk and a gamble that not many people are willing to make without a safety net. Thatís what the franchise agreement is for, right? Thatís the safety net. Well, sort of. Remember, the franchise agreement is written mostly by the franchisor so it mostly protects the franchisor, not the franchisee, the one who invested all that money. In short, buying a franchise is buying a piece of someone elseís business, not your own. So they call the shots.

So if things donít go well, can you get your money back from a big franchise? It seems to me, chances are slim. With our last example, who is going to buy a failing restaurant? If youíre lucky, you can sell the location to another restaurant owner who thinks they can do better. If youíre lucky, your landlord will let you out of your lease, or you might find another business to sublet to. If youíre lucky, the franchisor will buy your business and location back from you, but donít expect to come out ahead in that deal. You may be able to retrieve some of your losses by selling your ovens and equipment and fixtures, but most of your money is down the drain.

So here is a tip if youíre considering buying a franchise -- if you can, be sure to interview other franchisees who DIDN'T make it. Of course, even if the franchisor gives you some names, they will choose the names carefully and those selected few will likely be legally bound to not represent the franchise in a negative light. I know this happens because I have witnessed this lack of transparency and honesty in my interviews.

Franchise Costs

You might be wondering, why does a franchise cost so much? In part, itís because of the above example that turned out to be a scam. Rackets like this have caused the government to create a lot of rules and red tape to try and protect the franchisees, which means lawyers have to get involved, which makes everything more expensive.

Greed might also play a part. Is a lawyer greedy if he charges $50,000 to create the two main documents required by franchise law, especially if the lionís share of these documents can be duplicated from templates or software he bought? Is the franchise developer greedy when he gives bad advice so he can be employed longer to fix his own mistakes? Is the franchise owner greedy when he charges exorbitant fees in the name of recovering his investment? Greed can be anywhere.

So, for lots of reasons, both creating a franchise and buying a franchise are very expensive. For the average person or family looking to supplement their income or for the regular guy who wants to be his own boss, I found that few franchises are worth the risk or expense. Buying a popular name-brand franchise will minimize the risk, but if you can afford that, youíre already above average.

So by now, you might be wondering: is there another way? Yes there is. The other way is to buy a business idea, including all the knowledge and training you need for that business, but that doesnít make it a franchise.

The negative part for the one selling the business idea is they donít get rich off the idea, like they might if they sold franchise licenses. Unlike a franchise, they can not charge a franchise fee or collect monthly percentages of your gross sales. They also are not allowed to control any aspect of the business once it gets going. For me, this is ok. Iím not looking to get rich or control your business. I have always been less motivated by money and more motivated to help and serve.

The Heart of the Matter

That leads me to consider the heart of this next question. What are people really looking for in a business or a franchise? I think itís thisÖ the first thing theyíre looking for is an idea they can connect with. They may not know what it is, but they feel they will know a good thing when they see it. Theyíre not looking for an investment partner or a business name or OSHA regulations to comply with. Theyíre not looking for accounting programs or marketing strategies to find customers. All these things come later. What people need first is a big idea they can see themselves doing, an idea they can put their time, energy, and money into that will give them satisfaction and purpose.

Once they hit upon that big idea, the next thing theyíre looking for is the knowledge and the know-how to do it. Some business ideas are going to be intuitive; that is, you can probably figure them out on your own, such as landscaping or painting houses or cake decorating. But other big ideas require more knowledge. Youíre going to have to educate yourself. You may want to find a mentor to learn from or read some books and do research on the web. Youíre going to have to find suppliers and dealers and wholesalers. Youíll have to buy equipment and learn how to use it. Then you need to find or attract customers and develop marketing plans to reach those customers. And after a lot of time and energy is spent to figure it all out, and after a couple of years of learning from your mistakes, you will hopefully become a success.

Saving you all this time and energy is part of what buying a franchise is all about. This business-building process can be expensive and time consuming and most franchisors consider it to be worth something. And theyíre right, it is worth something. But how much less would a franchise cost if the business owners didnít have to pay so much to franchise their business? Why canít people just pay for the big idea, the knowledge and the know-how, and leave it at that? Well, that is exactly what Iím proposing. If you pursue this stone engraving business, you are not buying a part of my business, you are buying a business idea with all the knowledge and know-how I can provide. You will not be required to use my business name or motto, the forms I use, or the manufacturing techniques Iíve developed. Nor will I have a say in what markets you want to pursue, the prices you want to set, nor how much money you want to make. Iím here to help you get started, but then youíre on your own. Not that I wonít be available for questions or even some training or consulting if you need, but after that, you will be able to run your business the way you see fit.

Hopefully, engraving stone is a big idea that connects with you. If you follow through, I can provide all the knowledge and know-how you need to learn the skill and you will be able to start your own business, as your own boss making your own decisions and your own success. You get the best of both worlds without having to pay a fortune.

So letís get down to the nuts and bolts. What exactly are you getting with this non-franchised business idea? Everything will be itemized in the next chapter, The Proposal.

Web Introduction
Not a Franchise
The Proposal





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