Does anyone has some experience starting a Franchise Company?

[Kokaka]

Hi all.
So as some of you know, Im a beginner entrepreneur who ended up in the beauty industry by some strange twist of fate.
So far, I have opend 1 advanced beauty clinic and its going great and I want to expand and turn this concept into a franchise.
I also have a second company that develop machines for beauty clinics so I have a great synergy going on between them.

Anyway, because of this, I am starting to be ready to expand and am looking to open 2-5 more clinics this year but as a franchise. I will sell my concept and lease my machines to the franchise takers.
Currently, I will start to work with one of the best franchise consultants I could find so they will help me a great deal, but before I start, I am wondering if anyone has some experience to share or any tips on developing a franchice company.
I will use theese 2-3 month before the second wave has passed to try to learn as much as possible before I hire the consultant firm because they are expensive as hell and the more I know initially the better.

 

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[Madame Peccato]

Start from @Walter Hay's topic

Rapid Scaling a business by franchising

Over the past few years I have posted frequently on the subject of franchising, and as requested by some members I have at last released my book on the subject. The title is: FRANCHISE YOUR WAY TO THE FASTLANE SCALING ON STEROIDS This thread will possibly become an AMA, but not only do I intend...

www.thefastlaneforum.com

There's also this thread

HOT! - Let's talk about franchising

Recently, I started looking into the world of franchising and gathering as much info as I could. Why? At first because it's something that I wanted to potentially structure my business for in the future. My mindset was that franchises are proven money making systems. Their value is immense...

www.thefastlaneforum.com

 

[Kokaka]

Start from @Walter Hay's topic

Rapid Scaling a business by franchising

Over the past few years I have posted frequently on the subject of franchising, and as requested by some members I have at last released my book on the subject. The title is: FRANCHISE YOUR WAY TO THE FASTLANE SCALING ON STEROIDS This thread will possibly become an AMA, but not only do I intend...

www.thefastlaneforum.com

There's also this thread

HOT! - Let's talk about franchising

Recently, I started looking into the world of franchising and gathering as much info as I could. Why? At first because it's something that I wanted to potentially structure my business for in the future. My mindset was that franchises are proven money making systems. Their value is immense...

www.thefastlaneforum.com

Great thanks. Will read it all

 

[Kid]

Just to echo what Madame Peccato wrote - Walter Hay is very experienced in this topic.

 

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[Walter Hay]

Currently, I will start to work with one of the best franchise consultants I could find so they will help me a great deal, but before I start, I am wondering if anyone has some experience to share or any tips on developing a franchice company.

Beware of franchise consultants. They invariably set out to give you a plan that involves them having the right to sell franchises for you. There are several problems with that.

• They charge high rates of commission.
• They tend to sell too many franchises and overload a territory.
• They charge substantial fees to provide a plan.
• The plan will include advertising your franchises, but the advertising is more about their business than about yours.

In my book I have a link to a rare person in the industry. He operates a no frills business to guide people through the process of setting up a franchise system, but he doesn't sell franchises. I have no connection with him, but If I wanted to set up another franchise network, I would engage his services.

Walter

 

[Kokaka]

Beware of franchise consultants. They invariably set out to give you a plan that involves them having the right to sell franchises for you. There are several problems with that.

• They charge high rates of commission.
• They tend to sell too many franchises and overload a territory.
• They charge substantial fees to provide a plan.
• The plan will include advertising your franchises, but the advertising is more about their business than about yours.

In my book I have a link to a rare person in the industry. He operates a no frills business to guide people through the process of setting up a franchise system, but he doesn't sell franchises. I have no connection with him, but If I wanted to set up another franchise network, I would engage his services.

Walter

Hi Walter.
Thanks for the input and will definatly buy your book.
The consultant I am hiring is only charging for building the foundation for constructing the business plan, expansion strategy, both national and international and the juridical parts.
Also this firm dont sell franchises or have in the contract of making extra money.
I can if I want hire them to advertise and hire franchisees but that is as you said, very expensive.

So, they charge me quite alot for a rock solid foundation.
However with that money, I could almost open another clinic.

I wanted to hire them due to a quote from Dan Peña which is "hire laywers and accountaints you cant afford" and in this case, they will help me with the foundation.

So if you where me, with 6 month of practical business skills, the ability to learn very fast and with just enough to either open 1 franchise cilinic alone now or pay for a consultant and wait for someone to bite and open later on. What would you choose?

 

[Walter Hay]

So if you where me, with 6 month of practical business skills, the ability to learn very fast and with just enough to either open 1 franchise cilinic alone now or pay for a consultant and wait for someone to bite and open later on. What would you choose?

I suspect that they have not yet given you an estimate of the cost of meeting legal requirements. You need to have at least your disclosure documents, franchise agreements, and operations manual prepared by or at least examined by a lawyer with experience in franchising.

That process can cost a lot of money. The consultant that I recommend can save you a huge amount of money.

I would leave expansion planning until the first franchise is performing well.

Regarding advertising for your first franchise, and selecting the best applicant, I suggest you do that yourself. You are the one who knows what kind of person you want to work with. Remember that the franchisor/ franchisee relationship is very close.

It is far better to treat them like a partner than to treat them as an employee, although in reality they are most like an employee. You need to be compatible.

Walter

 

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[Kokaka]

I suspect that they have not yet given you an estimate of the cost of meeting legal requirements. You need to have at least your disclosure documents, franchise agreements, and operations manual prepared by or at least examined by a lawyer with experience in franchising.

That process can cost a lot of money. The consultant that I recommend can save you a huge amount of money.

I would leave expansion planning until the first franchise is performing well.

Regarding advertising for your first franchise, and selecting the best applicant, I suggest you do that yourself. You are the one who knows what kind of person you want to work with. Remember that the franchisor/ franchisee relationship is very close.

It is far better to treat them like a partner than to treat them as an employee, although in reality they are most like an employee. You need to be compatible.

Walter

Thanks.
I have the deal ready. It is everything. Legal, disclosure etc. The manual I can make myself from a blueprint they provife or hire them to help me with it.
So its everything I need to get going.

I appreciate your contact but I will open in Scandinavia so I believe the rules are abit different.

Also happy for your input about treating them as a partner. I have a backround from the military so Im used of working together for a common goal. So it seems this mentality is well suited

 

[Ronak]

This is just me, but there are things that you may not know yet regarding running a second location, and you don't know what they may be. It would seem more logical to at least get location 2 going under your ownership so you gain a better understanding of the nuance of multi unit operations.

Which one is the safer option that won't kill you if things don't work out as planned?

If the consultant works out, then great. If they don't, then you have nothing to show for it.

If you open location 2, at least you have greater control over the outcome.

Why not open the 2nd location and put your acquaintance in as a owner trainee? Best of both worlds.

Then you can always hire a consultant and have a better cushion.

 

[Kokaka]

This is just me, but there are things that you may not know yet regarding running a second location, and you don't know what they may be. It would seem more logical to at least get location 2 going under your ownership so you gain a better understanding of the nuance of multi unit operations.

Which one is the safer option that won't kill you if things don't work out as planned?

If the consultant works out, then great. If they don't, then you have nothing to show for it.

If you open location 2, at least you have greater control over the outcome.

Why not open the 2nd location and put your acquaintance in as a owner trainee? Best of both worlds.

Then you can always hire a consultant and have a better cushion.

But with a franchise, wouldnt the franchise taker be their own boss and do all the work so I wouldnt have to worry about it?
Because for me, the best would be to open a business, put my machines there and find someone who can run it without my involvement. I just provide marketing, service, training and a key-ready business.
Is there a way do do something like that on your own, without a consultant?

 

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[Ronak]

Again, you don't know what you don't know.
For example, what if sales are not up to par at the 2nd location. How do you know if it's a management issue, location issue, or something else entirely? You can document, replicate, and implement processes, and still get different results. If you run the 2nd location yourself, you would discover these issues. If you get a franchisee from the get go, you may be tempted to blame them if for slow sales whereas it may be another issue causing the problem. Then both will be unhappy and instead of a proven concept, you'll have a dud on your hands.

Right now you have 1 proven location, but no proof whether it’s replicatable.

2nd question-
Find someone with a proven track record and give them equity. Don't try to go without some guidance, just find the right one, which isn't always easy or apparent.

 

[Walter Hay]

But with a franchise, wouldnt the franchise taker be their own boss and do all the work so I wouldnt have to worry about it?
Because for me, the best would be to open a business, put my machines there and find someone who can run it without my involvement. I just provide marketing, service, training and a key-ready business.
Is there a way do do something like that on your own, without a consultant?

Franchising is not that easy. As franchisor you have a responsibility to make sure that the franchisees can run the business and do it profitably. If the franchisee has some problems or finds that there are some things he/she doesn't understand very well, it is in your interest to provide help and guidance.

Almost every franchisee will require not only training, but will need you to hold their hand for a while. You seem to be looking at this as if you are selling a business. You are not. You are selling a licence to operate a business the way you know is the best way. That "best way" must be explained in every detail in the operations manual that you provide.

For a franchise to work you must have a good working relationship with the franchisees. You must have their best interests at heart, because if they prosper, so will you. If they prosper, they will recommend your franchise system to the next person you want to sell a franchise to.

Yor consultant should have explained all this to you.

Walter

 

[Kokaka]

Franchising is not that easy. As franchisor you have a responsibility to make sure that the franchisees can run the business and do it profitably. If the franchisee has some problems or finds that there are some things he/she doesn't understand very well, it is in your interest to provide help and guidance.

Almost every franchisee will require not only training, but will need you to hold their hand for a while. You seem to be looking at this as if you are selling a business. You are not. You are selling a licence to operate a business the way you know is the best way. That "best way" must be explained in every detail in the operations manual that you provide.

For a franchise to work you must have a good working relationship with the franchisees. You must have their best interests at heart, because if they prosper, so will you. If they prosper, they will recommend your franchise system to the next person you want to sell a franchise to.

Yor consultant should have explained all this to you.

Walter

Oh absolutley. Im not looking to just sell, for me thats. I want to look more or less as a business partnership. Because I know in the beauty industry, alot of people are really god practicly, but need help with taxes, marketing, strategies, permits etc. Thats what I meant with training. My goal is to make every franchisee as good as they can possibly be in all areas of the business. And ofcourse we will have followup meetings etc. Because its as you say. If their business is doing well, mine is doing well aswell, so I see myself as a partner, not a owner.

 

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[Kokaka]

Again, you don't know what you don't know.
For example, what if sales are not up to par at the 2nd location. How do you know if it's a management issue, location issue, or something else entirely? You can document, replicate, and implement processes, and still get different results. If you run the 2nd location yourself, you would discover these issues. If you get a franchisee from the get go, you may be tempted to blame them if for slow sales whereas it may be another issue causing the problem. Then both will be unhappy and instead of a proven concept, you'll have a dud on your hands.

Right now you have 1 proven location, but no proof whether it’s replicatable.

2nd question-
Find someone with a proven track record and give them equity. Don't try to go without some guidance, just find the right one, which isn't always easy or apparent.

Thanks for the advice.
I talked to the franchise consultant yesterday and managed to negotiate a new, very lucrative deal for me in lowering the initiall fees and be able to pay them back 50% when I open my first franchise.
So because of this, I can take my time and find someone good to help me with the 2nd one and really make sure everything is smooth before I undertake the 3+.
Sure, wont make alot on it but thats not important. Will learn and continue to build a good foundation.

 

[Kokaka]

Thanks for the advice.
I talked to the franchise consultant yesterday and managed to negotiate a new, very lucrative deal for me in lowering the initiall fees and be able to pay them back 50% when I open my first franchise.
So because of this, I can take my time and find someone good to help me with the 2nd one and really make sure everything is smooth before I undertake the 3+.
Sure, wont make alot on it but thats not important. Will learn and continue to build a good foundation.

Also called to a clinic thats up for sale in a neighbouring town. Very big and seems quite nice.
So if where to buy this clinic. What would some options be to get someone to become the owner there but I sell all my machines to someone who will become the owner/manager?

Example. I buy the clinic for ex. 50k, find someone to become the owner who has to lease the machines with a down payment of 75k and a low ,monthly payment of the machines without intrest. Use the excess to put up new signs, furniture etc.
Then I'm +/- 0 in expenses and will reap monthly passive income?

 

[Walter Hay]

Also called to a clinic thats up for sale in a neighbouring town. Very big and seems quite nice.
So if where to buy this clinic. What would some options be to get someone to become the owner there but I sell all my machines to someone who will become the owner/manager?

Example. I buy the clinic for ex. 50k, find someone to become the owner who has to lease the machines with a down payment of 75k and a low ,monthly payment of the machines without intrest. Use the excess to put up new signs, furniture etc.
Then I'm +/- 0 in expenses and will reap monthly passive income?

I hope this works out for you, but be sure you don't do things that legally make it a franchise unless you have done everything necessary to comply with franchise legislation.

These can include:

• Requiring the use of your business name.
• Requiring the use of your logo.
• Following your instructions exactly.

There are other things that can bring upon you a legal obligation to comply with all the rules of franchising.

Please note that I am not providing legal advice.

Walter

 

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[Kokaka]

I hope this works out for you, but be sure you don't do things that legally make it a franchise unless you have done everything necessary to comply with franchise legislation.

These can include:

• Requiring the use of your business name.
• Requiring the use of your logo.
• Following your instructions exactly.

There are other things that can bring upon you a legal obligation to comply with all the rules of franchising.

Please note that I am not providing legal advice.

Walter

Thanks
It seems I should go with the franchise consultant first to get more experience because I see there are some legal and administratife stuff I dint yet understand. Then later, do this kind of idea.