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  • 26 Nov 2014

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Franchising: a multitude of possibilities

by: CONTRIBUTED PHOTO - Although Lisa Floods Maid Brigade mobile franchise had a rocky start, she is now pleased with the decision she made.A good and profitable experience are what some franchisees say.

Unrealized stumbling blocks and devastating loss is what others lament.

A carefully plotted and well-supported path is what franchisors tout.

“There were times I was calling the CEO on his cell phone at 10 at night crying ‘I’m never going to make money in this business, this is really screwed up’,” says Maid Brigade franchisee, Lisa Flood.”I didn’t draw an income the first year and lost a fair amount of money. The second year I also lost a fair amount of money. My total W-2 was about $3,000. My third year I got up to maybe $12,000, and it’s been steadily climbing.”

Flood signed her franchise contract in December 1993.

“I cleaned my first house for money on Feb. 10, 1994. It’s 21 years now. I have a wonderful general manager who runs the day-to-day. I still provide financial oversight and general rudder, but I am now home with my kids and horse rescue.”

Unfortunately, not every franchisee has a happy ending.

“It’s been an absolutely horrible experience.” A retail food store franchisee, who agreed to speak anonymously, said, “I wanted to get into business and thought a franchise would be the best way to go. I threw my fortune into the business, and pretty much lost everything.”

In business a year-and-a-half, the franchisee closed his store. “For the retail food world, there is so much competition. It doesn’t matter whether your product is better or worse. ”

He added that to get into a widely-known retail food franchise, “Is $150,00-$350,000 for the franchise, training and licensing.” Additions include inventory, advertising, insurance, set up and store space.

“ In a commercial lease if you can’t make your rent, you are still responsible as a personal guarantor. There’s nothing that’s bulletproof, not a trust or LLC, that’s going to protect your assets,” he said.

In addition to the cost of the franchise, the franchisee is also obligated to send the franchisor royalties, also known as a license fee.

“Every franchisor takes a percentage based off your gross sales. You might be losing $20,000 a year, your business is failing, and they’re still going to take their 5 percent to 10 percent of gross sales.”

Flood explained that Maid Brigade has a sliding scale based on the franchisee gaining experience and needing less assistance from the franchisor. “Now I pay under 3.5 percent royalty. When I started it was about 10 percent.”

Costs, royalties, liabilities, obligations and more should all be stated in the Uniform Franchise Offering Circular (UFOC), which a perspective franchisee would be wise to have an attorney scrutinize and explain.

Attorney Katharine Martin, from the law offices of Jurva and Martin, said, “My biggest advice to a franchisee is to read the UFOC, and make sure they know what’s really in there. If something goes sideways, those are the terms they’re going to be held to. If the franchisor tells them something verbally, and it’s not in the written agreement, then it’s unenforceable. Any changes to the UFOC have to be in writing.”

Most concerning to Martin about a UFOC are the termination clauses. “It’s important to know if there is an option to renew automatically. Some will give a term of five or ten years, but after that if the franchisee does not automatically have an option to renew, they can be terminated.”

Franchisors of Bricks and Minifigs stores that sell new and used Legos, David Juarez and John Masek said, “We help custom-tailor what each store will need to purchase to get up and running. We give a certain amount of latitude to the franchisee. They can tweak what profits they want to focus more heavily on. Then we can determine what inventory they want.”

Masek added, “We make ourselves available to our franchisees from 7 or 8 in the morning until about 9 or 10 at night. Having a sounding board of experience helps reassure them in terms of making decisions on how to buy and how to sell different products.”

“With any franchise, the fee buys you into a system, and that system may contain different forms of advertising,” Masek said. There is also a requirement that franchisees use the Bricks and Minifigs computer system, which is managed by Juarez and Masek.

“We obviously train everybody how to buy, sell and trade the Lego product,” Masek said. “Having a passion is absolutely critical.”

For Allen and Keya Chiang, who purchased an existing Direct Buy franchise in 2006 and ran it until 2011, the end came when they were unable to further hold out against the Great Recession.

Keya Chiang said, “When we were looking at different options available, the better fit for us was to purchase an existing franchise that had a proven revenue stream rather than strike out into a territory we knew little about.”

About the franchise, Allen Chiang said, “It delivered on its original promises until the recession hit. It exceeded our expectations in owner revenues. It exceeded our expectations in profits, membership sales — everything was peachy.” Keya Chiang said, “Nothing beats owning your own business. For that reason we always want to keep our eyes and ears open for another opportunity.”

Having had the experience of purchasing and running an existing business, Allen Chiang said, “In buying a business, of any kind, I will buy only on tax revenue, and not profit and loss reported revenue.” The Chiangs said they would definitely hire an accountant. Allen Chiang also said, “I will dissect the franchisor agreement until my eyes are fully open to what my franchisee royalties are paying for, and what they’re beholden to me for, and what I’m beholden to them for.”

When buying a franchise, Keya Chiang said, “Do your due diligence.” She advises talking not only to people who are operating a franchise but also with people who are no longer in business. When looking at a particular franchise, “Look at court cases where a franchisee has sued that franchisor, and what those issues were.”

Franchises are available by the thousands. Precision-Consulting, run by Jeff Spoor, represents hundreds of franchisors. Spoor said, “The least expensive franchise in our portfolio is a $10,000 home-based cruise planning business. And I have food franchises that can take over $1 million to get the doors open.”

“We go through an in-depth questionnaire.” Spoor said. “The client calls the shots and we do the work. If I can get a client placed into a franchise, I am paid a commission by the franchisor.”

Spoor said franchisors’ responsibilities include, “Bringing on board franchisees that are a good fit for their system, providing strong training prior to launch, and supporting the franchisee on a continual basis.”

“During the length of the contract, say five or 10 years,” Spoor said, “the franchisor will track the performance of the franchisee and offer support where needed, because everybody wins if the franchisee is successful.”

Joan Brown can be reached at

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