Tips On Being Ready To Franchise Your Business

Franchising your business is a great way to expand your business without the requirements of upfront capital that company expansion would require. Franchising may appear to be the “golden ticket” to financial security, but if you and your business are not ready to enter into the business of franchising, then the seeming golden ticket may end up being a mirage. This post is meant to give an overview of things you want to think about before taking the giant step into the world of franchising. Remember, if your business is not ready for franchising, pushing it there might result in ultimate failure.

What is your Golden Egg? The reason the golden egg was worth such sacrifice and effort to obtain in the fairy tale of Jack and the Bean stock, was because it was unique. Everyone can obtain a regular egg, but the golden egg? that was unique and difficult to procure on one’s own. If you are considering taking your business to a franchise business, you need to have that “golden egg.” You need to know what would draw a potential franchisee to not only consider your franchise concept, but pay you to be a part of it. This does not mean that your concept has to be a one of a kind or extraordinary concept or service, but the way it is done, or the manner it is procured needs to be something that would compel someone to buy. Closely examine your business to find out what unique element, idea or service you can offer your franchisees.

Is your business a proven concept? Another way to ask this question is whether your business has worked out most of the kinks and if your business is “turnkey” ready. A startup concept is typically not ready for franchising because the concept has not been worked out and tested in the market. Even if you have just a couple of stores or units open and operating, if they are successful and the public is accepting of the business, then your business model may be ready for franchising. There is no hard and fast rule as to how many stores or units need to be in operation before you are ready to franchise, but

Is your business easy to learn? A successful franchise concept is going to be easy to learn. Some franchising guides will ask if your business is easily replicated. You may be worried that if your concept is easy then others will steal the idea and leave you behind. This is a risk with any business; but remind yourself of the first point above. A unique business does not have to be difficult to explain or replicate –it just has to be unique in some way. You want your franchisees to be able to understand the concept immediately and to feel comfortable that they can be successful. A business model that can be easily taught and duplicated for your franchisees is a key element in being ready to franchise.

What is being sold –you or your business? Take a step back and determine whether your business is successful because of your stellar salesmanship, or the location, or another extraneous factor, or is it successful because of the concept meaning it can be successful if run in most locations and by most people. Of course this is generalizing things, but the point is, the concept itself needs to be saleable. If you take the super star location away or the super star salesperson away, will your concept still work. If the answer is yes, then you are on the path to being ready to franchise.

Do you have the time to sell and teach your business? Franchising is a new business. You may have a successful business model for a store that you have been running, but franchising will take you away from that business and require you to focus on the new business of franchising. Some of the most successful franchises are those where the franchisor is committed to helping franchisees succeed and take the time to train. Most successful franchisors are dedicated to producing a symbiotic relationship with their franchisees.

Do you have sufficient capital? While franchising requires less capital than self expansion would require, franchising is a business in and of itself, which requires capital. Here are just a few of the areas you will need to spend a substantial amount of money on: 1) Attorney fees. There are many regulations and rules at the federal and state level that are imposed on franchisors. In addition, there are regulated documents that must be provided to each potential franchisee and the requirements for those documents are strictly enforced. 2) Accountant fees. Every start-up franchise will need to provide an opening balance sheet and in some states, an audited balance sheet is required. You will also want to work with an accountant to set up your accounting system for franchisees, including how royalties will be collected, and what line items should be included in the reporting by franchisees. 3) Staff. Franchising is a new business and requires staff with a different set of skills than you have probably hired for your own business concept. You will need sufficient support staff. 4) Advertising. Every franchisor needs to understand the value of advertising and marketing. You will need to promote your franchise in order to sell your franchise.

The above are just pointers and there are exceptions to most rules. However, by going through the list you can feel more confident in your decision to hold off on franchising or to move forward with franchising.

A Primer on What Employers Should Know About Social Media Policies

In its third report of 2012, on May 30, 2012, the National Labor Relation’s Board (“NLRB”) further narrowed the scope of what would be construed as an acceptable employee social media policy. If you are an employer and want to restrict your employee’s social media use, you will want to read the Report (found here: NLRB May 30Report –click 'Operations Management Memo'). This latest report clarifies how various policies can be found to limit an employee’s Section 7 rights (read the National Labor Relations Act here) and are therefore unlawful.

The basic rule derived from the various NLRB reports is that an employer will be liable for social medial policies and rules that “would reasonably tend to chill employees in the exercise of their Section 7 rights.” However, if your social media policy provides rules “that clarify and restrict their scope by including examples of clearly illegal or unprotected conduct, such that they would not be reasonably construed to cover protected activity, [the rule is] not unlawful.”  

Essentially, three main points were made in the May 30 report:

1.   Do not be over-broad in your policies. Be specific. If you do not want employees sharing personal information of other employees, be sure that you are not limiting the employee’s right to discuss labor conditions, salaries and wages, etc.

2.  Give clear examples. Tell your employees what type of conduct is not allowed (i.e. discriminatory, harassing, obscene, malicious, threatening, disparaging, etc.). If you do not want confidential information to be disclosed to the public, tell your employees specifically what type of confidential information is included. Remember, it cannot include those items that are covered by the Act.

3.   General disclaimer or “savings clause” does not cure the over-broad portions of a social media policy. In other words, if your policy is full of over-broad policies and you fail to give limiting examples and clarifications, your statement that the policy will be administered in compliance with all applicable laws and regulations, will not overcome the problems.

The Report gives several examples of poorly written policies and why they were found unlawful. However, it also gives employers the opportunity to view a policy that was found to be compliant with the act. Wal-Mart’s policies were found to be in compliance and are provided for readers starting at page 22 of the Report.

If you are writing or revising your employee manual’s social media policy, make sure that you reference the NLRB reports. And ask yourself if your policy leaves any question as to whether or not such lawful activities such as discussions on wages, working conditions, labor unions, etc. are somehow restricted.

This blog post is not meant to be an in depth examination of your duties and responsibilities as an employer in formulating a social media policy. Nor is it meant to cover all examples of how to avoid liability. You should discuss your social media policy with a qualified attorney or other qualified resource.

Top 10 Mistakes Made by Small Businesses

To succeed in business you need to have a passion for what you do, failures cannot defeat you, and you must be  determined, optimistic and patient. Yet even with all these attributes some business owners still fail because they do not learn from the mistake of others. Below is a list of the top 10 mistakes made by business owners of small businesses and how to avoid them.

1)  Wrong Business Entity Choice. Which to choose? An LLC? A Corporation? An S-Corp? Choosing the right type of business entity can affect everything from management and ownership voting to taxes and personal liability.  Consult an experienced business attorney to determine which type of entity is best for your company.

2)  Under Capitalization. Most new businesses are underfunded because the business owners underestimate the cost of start-up and running the business and have unrealistic expectations of revenues from sales.  Most businesses take 1-2 years to turn a profit.  A business owner should expect to invest double what he originally anticipates. SBA loans are a great resource for start-ups and other small businesses.

3)  Lack of an Effective Business Plan.  Starting a business without a business plan is like starting a trip without a map. If you do not know where you are going, you will never get there. You can purchase inexpensive business planning software from most business supply stores. 

4)  Failure to Market Effectively.  Many small businesses waste money with ineffective marketing techniques. Be creative and utilize the internet and other forms of media. Make sure you have a good website that can be found. A marketing consultant may be beneficial as your business grows.     

5)  Lack of Necessary Agreements.  An operating agreement, bylaws, employment agreements and buy sell agreements are essential to your business. In addition, many business owners are victimized by having their brilliant ideas and business concepts stolen by employees, independent contractors and even business partners.  If you have employees, partners or consultants, these agreements are a must.

6)  Over-expansion. Do not confuse success with rapid expansion.  Focus on slow and steady growth.  Grow regionally first, build your brand identity and then expand out.

7)  Owners Lack Basic Accounting Skills.  Educate yourself on how to balance your books.  Well kept accounting is essential to any business. There are many self-help resources available and many competent accounts that can help. 

8)   Under Insured.  Businesses often fail because they lack the proper insurance. Insuring a business is less costly than most people think.  Obtaining proper insurance needs to be a priority.

9)  Businesses Try to Do It All by Themselves.  Most businesses do not take advantage of outsourcing.  Being a jack of all trades and master of none can keep your business from getting off the ground.  Know what you do well and seek help in the areas where you need it.

10) Wrong Choice of Professional Help.  Many small businesses think attorneys are an unnecessary expense.  However, many law firms offer special rates for small and start-up businesses.  In addition, an experienced business attorney can help a business owner avoid many of the problems that it has seen other businesses make. Investing in legal advice upfront starts a business off on the right foot and protects against costly legal trouble in the future.

FTC Business Opportunity Rule

There are three requirements to qualify as a business opportunity under the new FTC Business Opportunity Rule. (1) There must be a solicitation to enter into a new business (if it is in the same line of business as a purchaser, it is not a business opportunity); (2) the purchaser must make a required payment; and (3) the seller must represent it will provide any of the following: (a) location for purchaser’s display, kiosk, machine, equipment, etc.; (b) that the seller will buy back any goods or services acquired or purchased from the seller; or (c) the outlet, accounts or customers for the purchaser.

The Federal Trade Commission’s new Business Opportunity Rule went into effect on March 1, 2012. Among the changes that were made was the removal of the dollar amount requirement to qualify as a business opportunity, the expansion to include at-home business programs, and the reduction of required disclosures to be made from 20 to 5.

The new rule does not preempt the various state business opportunity laws; therefore, if you are offering in one of the 25 states with a specific business opportunity law, you must also comply with those state-specific disclosure requirements.

The Required Disclosures

There are now five required disclosures under the Business Opportunity Rule.

1.      Information on the Seller: this includes the name of the business, the name of the seller of the business opportunity, the business address and telephone number.

2.      Earnings Claim: this is a check the box disclosure. If you check ‘yes’ that there is an earnings claim, additional disclosures are required.

3.      Litigation History: similar to the FTC Franchise Disclosure Item 3 requirements, a business opportunity must disclose its litigation history for the past 10 years for itself, affiliates, parents and subsidiaries.

4.      Cancellation and Refund Policy: this is a check the box disclosure. If you provide for cancellation or refund of the business opportunity, there are additional required disclosures.

5.      List of Purchasers: you must provide a list of all purchasers of your business opportunity for the prior 3 years, or just the 10 purchasers residing closest to your prospective buyer.

Under the Rule, every seller of a business opportunity must retain several documents for at least 3 years after the disclosure is made to a prospective buyer. These are:

·         The disclosure receipt page;

·         Every version of the disclosure document;

·         All signed contracts with the buyer;

·         All verbal or written cancellation or refund requests by the buyer;

·         All earnings claim substantiation records.

Prohibitions

The new Business Opportunity Rule contains a long list of prohibited practices in making disclosures. Among these are the prohibition against making any representations (verbal or written) which contradict the disclosure document, providing extraneous information outside of the disclosure document; making false or unsubstantiated earnings claims; and requiring the buyer disclaim or waive reliance on any of the disclosures or representations.

The new Rule is comprehensive and you should become familiar with the requirements both on the federal and state levels.