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Tag Archive | "commitment"

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By Paul D’Amato, SCORE Counselor and former franchise Owner 

 

Franchising 

Franchising accounts for 40 percent of all retail sales in the United States, employs over 18 million people and accounts for roughly $1.5 trillion in output.[1]  Many people that are interested in becoming an entrepreneur look at franchising as a viable option to help them start a business. Be careful.

Franchising is not for everyone, and it is likely you will work at least as hard or harder for yourself as you do working for someone else. If franchising is something you are considering, here are some things to think about before going too far:

Is the business a good fit for your personality?

Nearly all franchise companies will tell you that they have such a clearly defined business that anyone can run it. Even if this is true, and I feel in many cases this is just a sales pitch, it is important that you are happy doing whatever it is. For example, there are some excellent franchises that rely on the franchisee making sales calls. If you are skilled at sales and enjoy it then these franchises may be a good fit for you. However, some people may hate to make sales calls and a business that relies on the franchisee making sales calls may be a big mistake. Whatever business it is, don’t kid yourself into thinking that you can get someone else to manage it. You will be extremely involved and will be overseeing every aspect of the business. Because of that, it is critical you find something that is exciting for you and is a good fit.

Due diligence

Due diligence is a term given to the process of verifying for yourself that the business is what it claims to be. You should plan to spend as much time as it takes in this process to make sure that you understand exactly what you are getting into. A full description of due diligence is certainly beyond the scope of this article, but I do want to point out a few of my favorite things to look at when I first start looking at a franchise.

Time Commitment

It has been very enlightening for me on several occasions to compare what franchisors claim for time commitment against what the actual franchisees are saying the time commitment is. Recently I was looking at a franchise that claimed on one of its video presentations to take no more than 10-15 hours per week for the franchisee. In fact, they said that you could easily run this franchise and continue to be involved full time in another job. This seemed almost too good to be true to me, and when I started talking to franchisees it turned out that it was. I called and talked to five different franchisees in various parts of the country and every one said that they were spending at least 40 hours per week running the franchise and that it was a much greater time commitment than what they had been led to believe. Be sure to do your homework and research.

Profitability

The central question of every investor in a franchise should be; are you going to make money? Unfortunately, this can be one of the most difficult questions to answer. It is not required that franchisors make an earnings claim in their disclosure materials to you. Many franchisors do not make a claim about earnings because it opens them up to liability with their franchisees. If the franchisor tells you that you are going to make a 20 percent return on your investment and you lose money, the franchisor might end up in court.  So, although there are arguments why some franchisors do not make earnings claims, I would be leery of any franchisor that is unable or unwilling to give you any information about how your investment might do. I would be much more inclined to invest in a franchise that publicly makes an earnings claim.

Whether the franchise gives you an earnings claim or not, you are still going to have to verify profitability by talking to existing franchisees in the business. Unfortunately, franchisees can be hesitant to give you actual numbers. It would be very rare for a franchisee to fax you their income statement and balance sheet for instance. However, I have been quite successful in asking enough questions that I arrive at a pretty good picture of how they are doing. For example, asking how many customers they have and their average ticket price per customer is a good way at getting their gross sales figure without asking directly.

Exit Strategy

I have a good friend who is a business consultant at McKinsey and one of his favorite questions to ask his clients is “okay, but what then?” If everything works well, and in 10 or 15 years you want to retire, will you be able to?  Some franchises do not allow the transfer of the franchise to another party. On the other side, some franchises are more than happy to buy you out at a fair price whenever you are ready to sell. It is much easier to ask these kinds of questions before you get involved with a franchise than once you have signed on the dotted line. It is always good to have an exit strategy even if you never use it.

Evergreen Provision

Similar in some ways to an exit strategy is what is sometimes called an “evergreen provision.” This provision in the franchise agreement gives the franchisee the right to transfer the franchise to your kids without the franchisor blocking the transfer in some way. Personally, I would love to be able to pass a business along to my kids someday so this is another thing I look for.

Defined Territories / Encroachment

Most lawsuits in franchising seem to come out of encroachment.  Encroachment is when the franchisor opens another store right across the street from your store and half of your customers leave. This is a nasty practice and certainly something that you should be very careful to research before you enter in to any franchise. What makes this subject so complex is that you want lots of branches for brand recognition – just not right next to your branch. One of McDonald’s strengths, of course, is that they have locations all over the world. However, even McDonalds has to be careful not to open their branches so close together that neither can survive. Exactly how this is managed varies from franchise to franchise, but is a very important thing to take into account. The policy should be clearly spelled out in the agreement so you don’t wake up and find a new location right across the street.

Franchising is a very important part of business in the US and the rest of the world. Franchises come in virtually every industry and in a myriad of shapes and sizes.  I would encourage people who are planning on becoming an entrepreneur to look into franchising as an option. As my mother says, “you won’t know any less.” But you need to be careful. Do extensive due diligence. Talk to franchisees, talk to your friends, get advice from accountants, get counsel from lawyers, and come into the SCORE office in Grand Rapids (111 Pearl St. NW) for some free advice paid for by the Small Business Association.  wwwscoregr.org

 

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A Year of Focused Commitment


_V-LevinBy Sen. Carl Levin

When I announced last March that I would not seek reelection in 2014, I said that I wanted to spend my time working on a number of serious challenges that Michigan and the nation face, rather than on reelection. As we begin the new year, I want to update you on the tests we faced in 2013 and where I believe we can move forward in the year ahead.

Among the tasks I mentioned in my announcement was my responsibility as chairman of the Senate Armed Services Committee to monitor and advance the end of our combat commitment to Afghanistan and to help the services, our troops and their families recover from the strains of more than a decade at war.

In two trips to Afghanistan over the last year, I have seen rapid and positive changes that are transforming security and daily life for the people of Afghanistan. Challenges remain, but our troops and our nation should feel a sense of accomplishment about what we have done there for our national security and for the people of Afghanistan.

In Syria, where severe repression has sparked a revolt against the dictator Bashar Assad, the use of chemical weapons by Assad’s forces against civilians shocked the world. With a strong U.S. push, international pressure pushed Assad into an unprecedented agreement to destroy Syria’s chemical weapons capability. That agreement is an advance for the security of the region and the world.

Pressure on another outlier country—Iran—has for the first time in decades provided at least some hope of progress. Late in the year, the United States and our allies reached an interim agreement that freezes Iran’s nuclear program and could set the stage for a final agreement that ends the possibility of an Iranian nuclear weapon. Like most Americans, I am skeptical of Iran’s leaders, but I believe this interim step should be given a chance to succeed.

As our involvement in Afghanistan recedes, we have an opportunity and a responsibility to give greater attention to tired military families and help the services rebuild military readiness that has been strained by war. But that opportunity will slip away if we do not address the continuing threat of budget sequestration.

Sequestration is the across-the-board, automatic spending cuts that slashed major funding from important domestic and national security programs in 2013. These cuts have closed Head Start classrooms; ended research programs to fight life-threatening diseases; and forced our military to ground fighter jets and cancel important training exercises. The budget agreement we reached at the end of 2013 reduces sequestration’s impact somewhat for the next two years and offers a bit of hope for an end to the cycle of crisis that has plagued Congress. But it does not touch sequestration for the following six years.

In the longer term, there is only one solution to the sequestration problem: We should replace these meat-ax cuts with a balanced deficit reduction plan. Any such plan must include additional revenue. I have introduced two bills that would close unjustified tax loopholes identified by the Permanent Subcommittee on Investigations, which I chair. These loopholes are the source of massive tax avoidance by highly profitable multinational corporations and wealthy individuals at the expense of middle-income families. I will continue searching for common ground with colleagues of both parties to work for a balanced replacement for sequestration.

We’ve made significant progress in recent years in building on Michigan’s manufacturing and technological excellence to enhance our state’s competitiveness and improve opportunities for Michigan workers. The growing strength of our auto industry as it emerges from its restructuring is just one result of these efforts. Michigan is an increasingly important hub for development of green-energy technologies in vehicles and other fields. The Facility for Rare Isotope Beams, a groundbreaking nuclear research facility being established at Michigan State University, reached important milestones. I’ll keep working in the year ahead to strengthen our foundation of economic competitiveness.

The last year was a difficult one for our state’s largest city, Detroit. I and other members of the Michigan delegation have worked to do all we could to make sure that the city has access to all available federal resources to assist in its recovery, and I’ll continue to look for ways to help.

There is no question this year will be a challenging one. My final year in the Senate will be one of focused commitment to the job I was sent here to do.

Carl Levin is the senior U.S. senator from Michigan.

 

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