Centralized marketing programs are powerful tools for franchisees. Not only do they provide a streamlined way to market, they make it easy for franchisees to reach a wide audience at a reasonable cost. But if you want to get the most out of a franchise’s marketing program, you must make sure that they have a strong and effective system. Here’s what you need to know.
Centralized Marketing Program Benefits
The biggest benefit of any franchise’s centralized marketing program is the economies of scale. By pooling their ongoing financial contributions, a collection of franchisees can run marketing campaigns they couldn’t afford if they were working as individual entities. For example, television advertisements, national radio ads, and massive online ad campaigns can quickly become too costly for a single franchisee. By working together, franchisees can reach a larger market share by using powerful and expensive marketing tools for a reasonable fee. Here are some other benefits:
- Centralized administration.
Hiring vendors, buying space, and tackling design and branding can all be handled by one entity instead of each individual franchisee.
- Lowered expenses.
By purchasing large printed quantities of materials or services in bulk, the franchise can secure lower prices than an individual franchisee.
- Unified brand.
When one entity controls the branding for the franchise, all marketing sends a uniformed and more powerful message about what the company offers customers.
- Access to more data.
When the franchise runs campaigns they can see all data collected from customers from across all regions. This allows the franchise to see customer trends and understand what’s working or not working. It can even give insights into what products or services they should offer in the future.
While there are some solid benefits of a centralized marketing program there are some drawbacks potential franchisees should think about.
- Failure to meet local needs.
Sometimes centralized marketing programs fail to create marketing materials/campaigns that speak to local needs. This is usually the case with marketing programs that have been poorly implemented.
- Top-down strategizing.
All centralized marketing programs usually have one department that makes the final decision on marketing strategies. But well-run programs listen to franchisees. However, the potential drawback of this type of marketing system is that sometimes the “top-dog” in the administrative office fails to take seriously the suggestions or needs of the franchisees that are depending on them.
When you’re looking to buy a franchise, you need to make sure that their centralized marketing program is following best practices. Here’s what you should look for:
- Campaigns drive customers.
When it comes to marketing “building it” doesn’t guarantee that customers will knock on your door. Make sure that the franchise’s past marketing campaigns have been effective in delivering customers to franchisees.
- Listens to franchisees.
No one is better qualified to strategize about marketing than those who understand the customers. Smart franchises understand that franchisees are the people who are closest to the customers not someone in headquarters. That’s why some franchises have systems set up to receive franchisee feedback and suggestions about marketing campaigns, branding, and marketing materials. And many franchises have “franchisee advisory boards” in place so that there is a standing committee that will speak on behalf of franchisees when marketing strategies are being created. If a franchise has no system for receiving franchisee feedback and suggestions for their marketing, this is a serious red flag that the centralized marketing program may be failing to meet franchisee needs.
- Makes good investments.
The trick to marketing is putting your money in the right place so that you get the type of results you need. Some franchise marketing programs get this right while others fail miserably. There are three main areas of investment where marketing dollars must go:
Paying salaries, agency fees, and other expenses related to administering the marketing program.
- Advertising materials.
Paying for the creation of all marketing materials such as printed ads, brochures, radio ads, television ads, and online ads.
Paying for the spots where materials will go such as magazines, websites, television or radio stations.
There is no magical number for getting this investment split right. The investment portioning that works is the right one at the time. However, there are some investment splits that are so lopsided that you know immediately that it’s off. So, for example, if you notice that 80% of all marketing investments go into administrative expenses, it’s probably an ill-managed program. In any case, don’t be afraid to ask questions when something seems off.
- Franchisee satisfaction. Pick up the phone and ask existing franchisees how they feel about the marketing program. Are campaigns delivering the results they expect? Are they listened to? How do they feel about the marketing investment split? Many franchisees will be quite upfront with you about their experiences. If you notice that the majority of the franchisees are dissatisfied with the marketing plan, it’s a bad sign.
While no franchise is going to let you pore over the details of their marketing system document, you should ask them about it and ask to see the table of contents. How long have they had a written marketing system? How extensive is it? Do they have effective systems set up to support franchisees? The most important thing is that this document exists and that the franchise has a proven system for marketing their brand. If they don’t have a written document for their marketing system this is a huge red flag.
If you’re looking for a franchise that has a strong marketing program, take the time to investigate and ask the right questions.
Franchisors trying to expand and allow their franchisees more opportunity for growth and increased market share must have a solid infrastructure in place. A strong infrastructure will provide franchisees with the tools needed to effectively execute the business model and present a consistent brand image for consumers at every stage of interaction. Let’s take a look at the foundational elements every franchise needs for long-term and national/international success.
A Strong and Consistent Brand
Every franchise needs a strong brand that distinguishes itself from competitors and that is consistently applied throughout the business. Good branding increases customer loyalty and reduces market confusion while keeping down costs for franchisees. As a foundational practice, franchises should develop a unique logo and go through all the necessary legal steps to ensure that no other business can copy it and fraudulently sell counterfeit products or services under the same or similar logo. Strong branding will also help protect the franchisee’s investment by increasing the loyalty of consumers and making it easy to recognize the company.
Franchisors with strong support systems can improve franchisee success rates. Support such as new product development, public relations initiatives, advertising assistance, approved suppliers list, and billing and collections can go a long way in helping the franchisee run their business in a systematic and effective way. Franchisees can also benefit from onsite visits where franchise consultants advise them about issues that can only be seen via an in-person experience. Here are some specific examples of how franchise support infrastructure can help franchisees.
- Provide ad copy for advertising campaigns. No matter how strong a brand is, every franchise will need to participate in ongoing advertising campaigns to raise awareness about their business.
- Provide maintenance support for technology systems used in the franchise. For example, a travel franchise might receive technical support for their reservations system.
- Provide payroll services to the franchisee. An experienced payroll team can make employee payment and payroll taxes easy to handle.
Strong franchisors also provide ample training opportunities for franchisees. Good franchisee training systems include the following key elements:
- An operations manual. The operations manual is like a textbook that will help ensure quality control for all franchise units. Good operations manuals will instruct the franchisee on how to operate the franchise even if they have zero experience. This ensures that franchisees don’t operate on assumptions and that they keep things consistent across the brand. An operations manual will also help enforce system standards since there will be a quantifiable way to measure quality.
- Headquarters training. To further ensure brand consistency and quality, every franchisee should go through training at the prototype franchise. During their headquarters training, franchisees can gain a deeper understanding of the brand and culture and make connections with headquarters personnel.
- Onsite training. In addition to training at the headquarters, franchisees should train onsite and that training should be tailored to their level of experience and knowledge. Onsite trainings should be adapted to the location and they should focus on improving the success of the franchisee in their day-to-day operations.
As a franchisee becomes acclimated to a franchisor’s system via training, it can be easy to forget key details, this is why having onsite support during the first week of operations is key to ensuring a successful opening.
Even if a franchisee does everything by the book, it’s almost inevitable that they will face legal issues or have questions. It’s important that a franchisor provide some legal support for their franchisees so that the advice they are getting comes from attorneys who understand the franchise business and the franchisor’s brand specifically. Providing some type of legal support is critical to reducing potential liability for the franchisee and the entire brand. When it comes to legal issues, an ounce of prevention really is worth more than a pound of cure.
One of the powerful ways that franchisors support franchisees is through their supplier infrastructure. By providing a list of vetted suppliers to franchisees, they can leverage their collective purchasing power to get discounts on products, supplies, and services. These discounts allow the franchises to offer better prices and increase their profit margin.
For franchisees who want to fully leverage the support infrastructure provided by the franchisor, bringing on an experienced consultant may be a smart choice. Working with experienced consultants can really benefit new franchisees who may want to avoid some of the common pitfalls they may not notice because of their lack of experience.
Franchisors who have strong systems that they constantly improve are better positioned to help franchisees expand and become more profitable. For franchisees, it’s important to make sure that a franchisor’s systems are actually scalable. The easiest way to do this is by watching how effectively other franchisees have expanded with the brand. But in the case of newer franchises, franchisees will need to do a lot of research and have a basic understanding of how the best systems work. There are two important things to remember about systems:
- Good systems are scalable.
You can easily have two people working on the system or 200.
- Good systems are relatively easy to use.
Good systems should be simple and just about anyone should be able to learn to use it.
If a system has both of these characteristics it probably has a very strong foundation.
The success of any franchise business is depending heavily on the business infrastructure that has been created.
When most franchisees think about running a successful business, they think of controlling expenses, increasing revenue, and maximizing profits. But there’s another side to running a successful business—building important business relationships. If you want to have a long-term, sustainable and financially successful business, you must nurture your most important relationships.
Business Relationship Types
Customers. Your customers are the most obvious business relationship type, without them your franchise would simply not survive. When you’re building relationships with customers you should think about the following:
- Attracting new customers. When you first interact with someone who has never heard of your business before, it’s important to make a good first impression. Show them what value you’re delivering and why they should choose you over competitors.
- Listening. Once you’ve won someone over as a customer, listening to their concerns and wants is critical to keeping them. Setup a process where you can collect candid feedback, and make adjustments to how you’re doing business so that you’re constantly improving.
- Customer service. When you’re a franchise owner, you benefit from established and battle-tested processes that can make running a successful business easier. Use established processes to keep your customer service quality at the highest levels. Even one bad interaction can turn a customer against your business, so put into place a process for quickly responding to negative feedback.
- Reward systems. Be sure to leverage any loyalty reward systems available through your franchise. Customers are more likely to return if they know you appreciate their business.
Employees. Good help really is hard to find, and most franchise owners don’t realize that until they’ve been tasked with replacing a very high-quality employee. Your relationship with your employees will make a huge difference in the long-term health of your business because keeping your best employees around long-term is pivotal. Take the time to invest in your employees’ personal and career well-being so that they’re not only motivated to remain with your business but they will recommend you to other people looking for work. Having a reputation as a good employer will make it easier for you to hire good quality people even when better-funded competitors offer higher wages. Many high-quality employees are willing to work for less if they can work in a healthy workplace environment and they have opportunities for advancement. Here are a few basic things you can do to improve your relationship with employees:
- Provide fair wages.
Good employees won’t stick around if they’re not paid fairly. There are always other employers willing to pay a premium for excellent workers.
- Create transparent policies.
Communicate expectations clearly and in writing so that there is no confusion about what you want from employees.
- Keep out toxic individuals.
People who create drama, pick fights, or engage in other toxic behavior will kill your business faster than a recession. Once you realize that someone is toxic, remove them from your workplace.
- Offer recognition and money.
Never take excellent work for granted, take the time to recognize employee excellence systematically through annual bonuses or “employee of the month” type programs.
Maintaining positive relationships with your employees is a profitable strategy.
Vendors are more than just “the help.” They are an important part of your growing franchise. You must take the time to find out how vendors can better serve your business goals and be careful to treat them with the respect they deserve. This means paying vendor invoices in a timely manner and communicating professionally even when you’re dissatisfied with a service or product. When you’re building a relationship with a vendor this is what you should consider:
Look for vendors who can meet your quality demands.
Build relationships with vendors who can deliver what you need at the scale you want.
Consider if your vendor can grow with you as your business expands.
Even if you’re not quite ready to take on a vendor, always keep an eye out for vendors who can help you reach your future goals.
One of the relationships some franchisees fail to nurture is their relationship with colleagues. Nurturing relationships with other franchisees and individuals working in the industry is important. People in the same industry as you can provide valuable insights into the industry trends, news, and developments that simply can’t be found in an internet search. To continuously build your relationships with colleagues, join industry organizations and attend industry events, this is where you will build valuable connections that will serve your business in ways you can’t imagine.
The right business loan can transform your franchise business from small and just getting by to expansive and thriving. This is why properly nurturing your relationships with lenders is critical to your success. The first step to doing that is working with a lender you trust and that believes in the long-term viability of your business. Then you should stay committed to keeping your promise to repay the loan according to the terms you agreed to. You should also share your business objectives with your lender and find out how they can help you reach your goals at each step in your development. If you’ve made some major advancements feel free to share the news with your lender’s contact person.
No matter what type of business relationship you’re nurturing, there are some general strategies that can help you maintain and grow the relationship.
- Be authentic. Not that you have to let “everything hang out” but you should be your best self. Feel free to share aspects of your life you don’t mind being public and be willing to listen to the challenges and accomplishments your business contacts want to share.
- Share the knowledge. If you have valuable information you believe may help a business contact, don’t be afraid to share it with a little note. Once you’ve established a pattern of sharing valuable information, your business contacts will begin to see you as a valuable resource they want to remain connected to.
- Share your contacts. If you’re well-connected, you might be surprised at how many may benefit from your introductions. When you notice potentially valuable connections, don’t be shy about making introductions.
Treat your business relationships like a valuable resource so that your business can benefit for years to come.
Work-life balance is a buzzword muttered by even the most overworked business executives and employees. But what does work-life balance really mean and why is it critical to business success? When employees and business executives talk about work-life balance they focus on the amount of time spent in the office in proportion to the amount of time spent doing other just as worthwhile activities unrelated to work. But what work-life balance is really about is being a well-rounded employee who understands that having a life outside of the workplace is critical to productivity, career success, and a satisfying life. But what does that look like? And why is it important that business owners focus on hiring well-rounded employees who have a healthy attitude towards work-life balance?
The Out-of-Balance Employee
When we talk about workplace bullies we rarely see the connection to how an out-of-balance employee who has an unhealthy relationship with work can present as bullies who care very little about others. The truth is that an out-of-balance employee may in fact suffer from a skewed perception of their place in your organization. An out-of-balance employee is someone who spends too much time working and not enough time tending to their personal life.
On the surface, it may seem that this is good for a business’ bottom-line but when you look closely this attitude can be costly. Out-of-balance employees aren’t superhuman, they eventually burn out, breakdown, quit or get fired because they’re simply ineffective. Out-of-balance employees neglect their spouses, their children, and their health. This is the employee who won’t schedule their yearly healthy checkup because they don’t have time due to their busy schedule. This is also the employee who will leave weeks of vacation time on the books year after year because they don’t want to be seen as slacking.
They must always be perceived as the most productive and the most committed. And because they neglect self-care and have no time to recharge they can become easily agitated and overly competitive and combative with other employees. In the end, the out-of-balance employee may be more willing to stay late and take on extra work but they’re also more likely to contribute to a toxic workplace culture that drives even your most loyal employees out the door. And this out-of-balance employee may not always present as a bully, sometimes they present as a workplace martyr which can have its own negative impact.
Dangerous Workplace Martyrs
The workplace martyr is another type of out-of-balance employee who can unwittingly harm the culture of your business. The martyr is always looking to go above and beyond but often in a way that doesn’t cultivate teamwork or mutual trust and respect. Below are some signs of a workplace martyr:
- They are always stressed. No matter how slow business is at the moment, the workplace martyr is always stressed because they are constantly busy doing things that they could delegate to someone else.
- They micromanage. Even if you’ve invested in skilled employees to help lighten the workload, the workplace martyr doesn’t believe that anyone can do the job as good as they can. They nitpick at everything and may even redo good work because they believe it is imperfect.
- They never ask for help. Workplace martyrs always do everything themselves. They believe that if they’re asking for help they’re not doing their job. And even if they ask for help, they may not fully trust the person helping them to do a good job.
- When you have even one workplace martyr as an employee this can harm employee morale, foment distrust, and drive away good talent. And if the rumor mill gets going about your toxic workplace culture it may be next to impossible to find healthy employees willing to work with you especially in a booming economy.
Cultivating Balanced Employees
We’ve talked about what an out-of-balance employee looks but what can businesses do to cultivate a more balanced relationship to work? Let’s take a look at some concrete strategies to ensure that you hire and retain well-rounded employees who will contribute to your business for years to come.
- Act as an example. Founders and CEOs are often guilty of having out-of-balance work lives. And when you’re trying to build a company from the ground up or when you’re trying to push past obstacles that keep your business from reaching its full potential being the workplace martyr can feel necessary. But if you want to attract and keep well-rounded employees, you must serve as an example of what work-life balance looks like. You should keep decent business hours, enjoy your time off, and be willing to delegate responsibilities to the employees you paid to help you.
- Offer flex-time. Life happens every day of the week, not just on Saturday and Sunday. This is why offering employees work from home options can make it easier for them to remain well-balanced and take care of the important life issues that inevitably come up. This will require you to trust your employees and to have a clear idea of what essential work they’re supposed to complete whether they’re in the office or working remotely.
- Give employees autonomy. Micromanaging the work of employees is the easiest way to discourage them and send them looking for other opportunities. By giving your employees the autonomy to decide how to do their work, you give them a chance to become more productive. They will have an incentive to figure out a way to complete work tasks in a more effective and efficient manner without burning out.
- Develop “life first” policies. Let’s face it, we have a workaholic culture that rewards out-of-balance behavior with lots of praise and awe. If you want to cultivate well-rounded employees, you must put in place “life first” policies that allow an ample amount of personal time and that mandates a certain amount of time off each year.
Businesses that value a healthy work-life balance will have less turnover and a happier workforce.
Getting enough funding for your franchise is critical if you want a fighting chance at success. If you fail to raise enough capital you could run out of cash before you can make a profit or you may miss opportunities for growth because you don’t have enough cash to expand. This is why franchisees should strategize about funding whether they’re a start-up or an established business.
If you’re a new franchisee opening your first location, don’t overlook the importance of covering all your basics for at least the first six to twelve months. You need to cover at least your essential fixed and ongoing costs such as:
- Employee salaries (including your own)
- Royalty and advertising fees
Essential costs are expenses that are absolutely critical for your business to run. It’s important that you do not include non-essential costs on this list. Non-essential purchases can be delayed until after your franchise begins to make a profit.
The costs for funding your startup franchise will vary depending on the type of franchise you’re running. Take a look at your documentation for your franchise to get startup cost estimates then make a plan for raising or self-funding the seed money you need to get started.
As with any business, franchisees have access to the typical funding sources such as bank loans and credit cards but they also have access to franchise-specific funding sources. Let’s take a look at funding sources franchisees should consider:
Traditional Bank Loans
Every business has access to traditional bank loans if they qualify. And while it’s true that going to a bank for a loan means you will need to meet their high standards, the Small Business Administration (SBA) reported that franchises were 15% more likely to receive a bank loan than other types of businesses. Many banks are more open to funding franchises that are connected to a brand with a long track record of success. In their eyes, franchises are less risky.
Some franchisors will help fund you by discounting their franchise fees or partnering with you to get a loan.
You can apply for a small business loan through the SBA. The SBA has a franchise registry with hundreds of vetted businesses. And if your franchise is on the registry, it may be easier for you to get an SBA loan.
Franchise Specific Lenders
There are lenders who specifically lend to franchisees. Consider investigating this option and comparing the rates and terms to find the best match for your situation.
There are thousands of business owners out there looking for opportunities to invest in businesses. If can prove that your business plan is viable, they may be interested in investing in your business.
If your startup funding needs are small, credit cards may be a viable funding option. Just beware of the interest rates. Credit card interest rates are much higher than interest rates on a typical bank loan.
Friends and Family
This may be one of the easiest ways to fund your business in the beginning especially if your friends and family trust your business sense.
Potential franchisees can use their 401k to invest in themselves. This is a commonly used path to business ownership. The details are complicated and best left to companies specializing in this type of arrangement. The fees are reasonable and the process is straightforward as long as you are using a specialist.
You don’t have to always look to external sources for funding your startup, dipping into your savings is a legitimate funding strategy that has been successfully used by many business owners in the past.
A few notes of caution:
- Establish boundaries. If you’re borrowing money from your friends and family, use written agreements with clear boundaries around what the ‘investors” can expect from you. In the case of a family or friend loan, be clear about when repayment is due and what risk, if any, the investors are taking.
- Don’t risk your financial solvency. When you’re self-funding, make sure that you’re not recklessly jeopardizing your life basics such as housing. If you’re taking out a loan against your home, have a plan for what will happen if you’re unable to pay it back in the time you agreed.
- Read the fine print. When you’re desperately trying to fund your franchise, it can be tempting to take any offer on the table from banks and investors. However, you could be jumping out of the frying pan into the fire if you don’t understand the terms you’re agreeing to. Work with an advisor who understands franchise financing and contracts to ensure that your investor and loan agreements are fair and reasonable.
If your franchise has been running for a year or more and you need funding for new equipment, expansion, or other opportunities, it may be easier to find funding. Traditional lenders may be more likely to fund your franchise if you have an established track record of financial performance and a good credit history. But even if you qualify for a traditional bank loan, you should also take a look at franchise-specific funding as they may offer competitive rates.
What Funders Look For
Whether you’re applying for a traditional loan or looking for investors, there are certain qualities that funders are searching for.
- Industry experience. When you’re asking for funding, lenders and investors want to know that you understand your industry and have a track record of success. The more experience you have, the better.
- Financial performance. If you can prove that your franchise brand has a track record of financial performance, getting funding may be easier even for a new startup. If you’re an established franchise, proving that you have been profitable can open many funding doors.
- Effective business plan. One of the benefits of being a franchisee is that you have access to a business plan that has been proven effective. This effective business plan will count heavily in your favor as you seek funding.
- Market share. Funders will want proof that you have enough of the market share to be profitable and expand.
- A clear financial benefit. If you’re looking for investors, they will want to see clearly how they will profit and how quickly. Work with a franchise expert to make sure that your investor agreements work for all parties involved.
Even if you’re not currently looking for funding, knowing your funding options and being prepared to seize funding opportunities is critical for your business success.
Branding is critical for anyone selling services or products. Whether you’re selling to consumers or businesses, you must have a clear branding message that tells the customer who you are and what you’re offering. Let’s take a closer look at why branding is important.
Out Of Obscurity
A properly branded business is one that can move from obscurity to recognition and respect in the consciousness of a customer. When companies create a cohesive and recognizable brand, not only will customers become aware of the businesses’ existence, they will begin to recognize the symbols of that business. For example, everyone knows Nike’s “swoosh” and McDonald’s “golden arches.” This is because those companies created so much brand recognition that the symbols of their brand became imprinted in the minds of customers and non-customers alike.
There are many ways to go about blasting your business out of obscurity but the underlying goal is to get attention. You want as many eyes on you and your product/services as possible. At the very least, your business needs an online presence and an offline strategy for raising awareness about your brand. It’s about selling your products/services but it’s also about building relationships with people, and that takes a lot of time so you should start now. Here are just a few ways to gain attention for your brand:
- Do something newsworthy.
Get involved in your community, hire someone interesting, or do something else that other people would like to know about then share it. Local reporters are always looking for an opportunity to write about interesting people so become a news source.
- Create a platform.
If you want to get attention for your brand, you need a platform where people can go to get more information. Social media websites are a great start, but you should always have a platform that you control such as your website, blog, or mailing list. Social media platforms sometimes remove or ban accounts for no reason. You don’t want to be dependent solely on one platform to build your brand.
- Connect to community.
Do you know other businesses that complement your own? If so, get involved with their platforms and contribute. Write guest posts, comment on their blogs, do interviews on topics you have expertise in. You can also follow them on social media and repost valuable content they share. Getting connected to a community is a great way to get recognized.
There are a lot of ways to pull your brand out of obscurity. It’s just a matter of being creative enough to think of which tactics work best for you.
Branding isn’t just about selling your products and services, it’s also about building trust. No one buys from companies they don’t trust. Businesses that can’t or won’t keep their promises are remembered for the wrong reasons. And if a company breaks trust enough, they will find themselves gaining the wrong kind of attention. Don’t earn yourself a bad reputation. Focus on building trust for your brand. Here are a few tips on how you can build trust for your brand:
So many businesses hear the advice to “be authentic” so often that it may sound a bit cliché but authenticity is the primary way to build trust around your brand. What does it really mean to be authentic? The simplest way to describe authenticity is to say it’s about being true to what you really are, your values and your ways of existing. Every business has a “personality” that makes it different from others. You need to discover and project your business personality in your branding message.
Remaining consistent with the type of message you project in your brand is closely related to being authentic. As you build your brand, you need to think specifically about what message you want to communicate to customers then you need to consistently stay on message in every post, marketing brochure or other branding material you distribute.
People see brands as people and people make mistakes. When you’ve made a mistake be willing to acknowledge that mistake, ask for feedback, and make the necessary improvements to better your customer’s experience. You should also share with your customers both your successes and challenges so that they can see that you are very much like them in that you too experience ups and downs.
Think and Act Long-Term
Branding is a long-term investment in your customer relationships. Think of branding as a lifelong courtship between you and your customers and potential customers. Your goal is to continue to keep the attention of your customers and remind them why you’re a great partner. Branding is not something you do once and forget about, it must continue over the life of your business. Once you stop branding, your business will begin to suffer.
Many businesses put off branding because they’re afraid to get it wrong. The truth is that there is no perfect way to do branding only some general best practices. If you’re making an effort you will inevitably make a few missteps and mistakes but that’s okay. The most important thing is that you begin building your brand today. You can start with something as simple as a website and go from there.
West Coast Franchise Law serves multi-unit, quick-serve franchises and their franchise, leasing and business law needs. Contact Us.
The year 2017 marked the first time in 30 years that the tax law has had a significant overhaul. And for restaurant owners, the new tax law changes could mean serious financial gains. Let’s take a look at how the new tax law impact restaurant owners.
Write-Offs For Expansions
If you’re a restaurant owner who plans to upgrade existing equipment or open new locations, you may be allowed to write off your total investment on your taxes. This write-off for expansions and upgrades expires in 2023 so you’ll need to plan accordingly. But don’t just plan to save money, plan for how you can expand your business leveraging the new tax laws to your advantage. If you have a franchise, consider opening a new location and writing off the entire expense on your taxes and using the savings for reinvestment. Such strategic thinking can help provide long-term profits for your business.
Save On Personal Taxes
If your independent franchise restaurant is a pass-through company, you could save a lot of money on your personal taxes under the new tax law. The tax code updates are designed to relieve the pain of double taxation by exempting 20% of your income up to $175,000 for individual filers and up to $315,000 for couples. One of the biggest burdens facing franchise restaurant owners is the heavy tax burden. If you want to strategically benefit from the new rules around income taxation, you may want to consider planning how you will invest the money you’ve saved. Reinvesting in your business, retirement, or your children’s college fund are just a few of the many good choices. But no matter what you do, having a plan for how you will utilize that money is the best way to benefit from the new tax laws.
Inheritance Tax Relief
The new tax law makes it easier and cheaper to pass down your family restaurant to your children. Your restaurant will still be taxed at the rate of 40% but that only applies if it’s valued at more than $11.2 million for individuals and $22.5 million for married couples. The previous rules applied the 40% rate only to businesses valued at half that rate. This tax relief rule will expire in 2025.
Corporate Tax Relief
For those few those few owners using a C corporation, the corporate tax rate is experiencing a steep drop from 35% to 21% creating huge tax savings for small and medium-sized franchise restaurants. And if deductions are applied strategically, it’s possible to pay as little as 20% in corporate tax. If you work closely with your tax accountant, you can plan your deductions and investments so that you can take full advantage of the changes in the corporate tax rule. But don’t wait, planning your tax strategy now can help you improve profits and saving significantly.
These are just a few of the benefits of the new tax law. If you want to find out how your restaurant’s specific circumstances will be impacted by the new tax law, speak with an expert who understands how the industry will be impacted.
Do you have questions about how the new tax law impacts restaurant owners? Contact us today.
Shifting from a single franchise to a multi-unit franchise allows you to leverage the economies of scale to grow your business. But how and why should you carefully pace the expansion of your franchise business?
Master Your Business Model
Before you shift to or expand your multi-unit franchise, you must master the business model. If you’re making mistakes in a single unit franchise, those mistakes will only be multiplied and magnified in a multi-unit scenario. If you can perfect the way you execute your business model in one franchise, it’ll be easier to implement the same successful strategies on a larger scale expansion.
Build A Strong Reputation
If you’re an owner with a single franchise unit, it’s important that you build a reputation for professionalism and business savvy in the franchise industry and great customer service with customers before you expand. Using your existing reputation it will be easier to attract the right customers quickly to your new franchise units. Also, if you are known as someone who has run a profitable franchise, it will be easier to get the loans you need to expand.
Gain Working Capital
You need money to successfully expand your franchise, and you can’t always depend on a line of credit to meet all of your needs. As you consider expanding your multi-unit franchise business, you must have the working capital necessary to make investments. Also, having enough cash on hand will inspire more confidence in lenders to loan you the money you need to grow.
Good help is hard to find. Before you expand your multi-unit franchise, you must be sure that you have access to a workforce that is capable of doing the jobs you have available. Check the data on the target locales where you want to open up new franchise units—is there a workforce available who is skilled enough to do the job and can you afford them? You need to know this information before you expand your franchise.
Every franchise owner dreams of cornering a lucrative market, but you’ll need more than a dream to successfully expand a multi-unit franchise. You must do research to find out if your target locales have enough of a customer base to purchase what you’re selling. Don’t skimp on this process, you don’t want to open up a franchise unit in a location that simply can’t deliver enough customers.
Look For Drawbacks
There is a drawback to every type of expansion—what is yours? Will you need to make substantial investments in training talent, upgrading a building, marketing and branding? Will that investment be difficult to recoup? You must look at all the possible drawbacks to a multi-unit franchise expansion so that you’re not stuck with a money-losing venture that could completely sink you financially.
Shifting Your Paradigm
When you go from running a single-unit franchise to operating a multi-unit franchise you will be required to make major changes in the way you think and operate. While it is possible to have hands-on supervising of a single franchise, such micro-management becomes impossible even at two or three units. Franchise owners who want to expand their business must learn to delegate major responsibility to other people and they must be prepared to deal with the complications and complexities of managing a business with so many moving parts. If you want to successfully expand your franchise business, you must pace yourself so that you can make the mental adjustments necessary.
Do you have questions about multi-unit franchise law? Contact us today.
Operating multi-unit franchises can be challenging and profitable but how can you go from a solo-entrepreneur to a multi-unit franchisee? Before you become a multi-unit franchisee, you need capital and support to succeed.
Understand The End Game
It’s easy to get caught up in the fantasy of owning and profiting from multiple franchise locations but the reality can be very different from fantasy. While it’s true that owning multiple businesses can improve overall profitability, it is also true that being a multi-unit franchisee will launch you into an entirely different system. Here are some things about the end game of multi-unit franchising you should understand:
- You can’t micromanage multiple stores. If you’re accustomed to a more hands-on approach to managing your business, you can’t carry this over to a multi-unit franchise. You must relinquish control to other people so that they can manage your business.
- You must handle macro-level issues exclusively. Multi-unit franchisees can’t get caught up in the minutia of a business—they must focus on the macro-level issues such as profits, expenses, growth, cashflow etc. If you take your eye off these macro-level issues you will drop the ball and possibly damage your business.
- You need a dependable team behind you. No multi-unit franchisee operates alone. If you want to be successful or even just survive, you need a team of talented and dependable people who can help you run your business.
Be Prepared To Invest
Successful multi-unit franchisees understand that you must be prepared to make a substantial investment into your business. You will need to invest in:
- Franchise fees
- Staff Hiring and Training
- Property improvements
- Computer systems
- And more
The more you’re willing to invest in the right kinds of things, the more likely your business will succeed. Attempting to go the “discount” route could harm your efforts to grow and gain profitability as a multi-unit franchisee.
Find A Financial Partner
Multi-unit franchisees need financial partners who have faith in what they’re doing, are willing to invest in their business, and have the capacity to provide the capital needed to grow. You must be very careful about which lender you partner with because you want someone who is equipped to offer lines of credit and loans that will help you meet your goals. Look at your lender as a silent partner in your business. Don’t move to hastily when choosing a lender, take the same amount of care you would take if you were investigating a potential business partner.
Choose The Right Contract
If you’re signing onto a multi-unit agreement with a franchiser, read the fine print. Some multi-unit franchise agreements require you to open new franchise units every year or every other year. You need to be sure that you can meet any timetable that is laid out in the agreement. Think about the requirements that are needed to meet the multi-unit franchise agreement and make sure you have a plan in place to make this happen. There are some benefits to signing a multi-unit agreement such as discounted franchise fees and exclusive access to a certain territory. In many of these multi-unit franchise agreements, the franchiser is prohibited from giving another franchisee access to your territory.
Before you become a multi-unit franchisee, make sure that you have the support and capital you need to succeed.
Do you have questions about multi-unit franchisee law? Contact us today.
Are you a franchise owner stuck in a lease with unfavorable terms? If you have a solid plan and the right market conditions, you may successfully renegotiate an unfavorable lease. Let’s take a closer look at how.
Do Your Research
Before you attempt to renegotiate your lease, do some research on the current commercial real estate market. If you signed your lease a few years ago, how have the rental rates changed? Are tenants paying more or less than they were three or five years ago for similar spaces? If rental rates are depressed in your area, then you have a solid foundation for asking for a lower rate. On the other hand, if rental rates have increased and the value of your space has increased it may be more difficult to renegotiate your lease. That said, there are other mitigating circumstances that could help you get a rent reduction.
- Current construction. Is there increased noise and pollution due to construction? If construction is impacting you and your customers, you may successfully argue for a rent reduction. This could also be the case if construction has reduced the number of people coming to your business especially if you can show that construction has reduced your revenue.
- Future construction. If you know that there is major construction planned for the future, you may be able to negotiate a rent reduction because of anticipated disruption to your business.
- Structural damages. If there was a natural or manmade disaster that caused damage to your building, you may be able to negotiate at least a temporary rent reduction depending on the extent of the damages and the length of time your business will be impacted.
Extend Your Lease
When you step into your landlord’s office to renegotiate your lease, you must be prepared to give something in exchange. Offering an extended lease could be enticing to your landlord if it’s a difficult market for finding tenants. An extended lease can also offer the benefit of stability for your franchise if you plan to be there long-term. But before signing on for an extended lease be sure that you’re ready for the commitment and try to assess if your rental rate is likely to remain reasonable throughout the life of the lease.
Put Time On Your Side
Don’t wait until the last minute to renegotiate an unfavorable lease. While it may only take a few days to a few months to renegotiate your lease, landlords often respond slowly. If renegotiation is unsuccessful, it could take six months or more to find a new place to lease if your renegotiation goes south. To give yourself the gift of time, plan to begin your renegotiation at about a year before the end of your lease.
Be Prepared To Walk Away
Before you sit down to renegotiate your lease you must have an exit plan. What will you do if the landlord decides not to renegotiate your lease? You must be prepared to move. Before you talk to your landlord do your research on open spaces and find someplace that may be a good fit. You may even begin talking to the owner of the ‘plan b’ space BEFORE you begin renegotiating your current lease. Coming to the table with options will give you the confidence you need to demand more favorable terms.
If you’re thinking of renegotiating your lease, be prepared with data and options for moving to a new place with better terms.
Do you have questions about franchise law? Contact us today.