People who buy franchises are among those creating new American jobs—about 36,000 this year, according to the International Franchise Association. The trade association, which represents about 1,250 franchise companies and 10,000 individual franchises, recently reported that new job growth this year contrasts with the loss of 400,000 franchise jobs in 2009.
One man involved in job creation is Jeff Haas, a former Chrysler executive who bought a CertaPro painting franchise last year. Rather than waiting to be downsized as budgets and resources were cut, he resigned. Haas and his wife, Gwen, bought an existing CertaPro franchise in Newport News, Virginia.
Today, he has about 30 employees and contractors. He says he enjoys being the boss after spending the past 20 years working as a supervisor in the supply division and later as a plant manager for Chrysler.
“When the deal closed on Sept. 15, 2009, the first thing that came to mind was, ‘I need to make this work,’” said Haas, admitting he has not yet drawn a salary from the business. He said he hopes to start paying himself this year.
To buy the franchise, he tapped into his retirement savings at a time when the stock market was hammering his portfolio. Rather than go it alone, he agreed to let the former owner stay on to work as an outside sales rep. It was a good move for both of them. The former owner now focuses on bringing in new business, while Haas manages the day-to-day operations and supervises the painting crews. Meanwhile, Jeff’s wife, Gwen, handles customer service, sets up appointments and offers interior decorating and color consultations.
Haas said he evaluated several companies with the help of a franchise consultant. They narrowed it down to the painting franchise, a company that provides home assistance for the elderly and one offering handyman services.
His advice to corporate executives considering a new life as a franchise owner: “You have to do your homework, research the franchises and discuss your decision with your entire family,” said Haas. “You have to make sure you are motivated and dedicated.”
For someone who has spent most of their career working for a major corporation, finding the right franchise depends on several factors, according to small business attorney and author, Cliff Ennico.
“Before buying a franchise, speak to as many franchisees (franchise owners) as possible,” said Ennico. “Don’t rely on the franchise company’s estimates of the start-up costs. Get real world quotes in your area and create a spreadsheet showing how and when you will be profitable.”
Ennico points out that a franchise may be profitable in certain areas of the country where real estate and employee costs are low, but the profit model may break down in more expensive regions including the East and West Coast. “You have to sell an awful lot of doughnuts each month to pay rent that’s $60 a square foot or more,” said Ennico.
He advises many former executives interested in buying a franchise. His mission is to keep them from making big mistakes.
“A good attorney can help educate you on the risks of buying that particular business,” said Ennico. Although franchise fees are rarely negotiable, Ennico said most franchise companies, will if pressed, provide “a clarification letter explaining provisions in their contract that might be ambiguous. It could be a useful document to have if you have to sue them down the road.”
Franchise consultants are also available to help potential buyers find the right franchise for their skills and personality. Karol Mercurio, who once headed up training for NutriSystem, now works for Toronto-based Match Point. The company provides free consulting services to potential buyers. (When a sale is made, the franchise company pays the consultants a flat fee or a commission).
Mercurio, who has been a franchise consultant for 10 years, cautions clients against buying a franchise just because it’s trendy or ‘hot.’
“I prefer to take people in a direction that is recession-resistant and internet-proof,” she said, adding that some of the most successful franchises include home maintenance and repair services, cleaning services, education and senior care services.
Business coaching, sales training, cost-reduction and Internet marketing franchises are also a good fit former corporate executives. Franchise buyers have to feel comfortable buying a business that includes extensive support and training, as well as a proven marketing strategy. There is little tolerance for mavericks who want to do their own thing.
Following directions can pay off, Mercurio said. “Ninety-two percent of franchises are still successful after five years, versus a 23 percent success rate for independent businesses,” she said.
So, the most important thing to remember if you decide to buy a franchise is to follow the guidelines and rules.
“Would you paint the McDonald’s golden arches green?” she asks. “No…because that would change the whole thing. You have to remember branding is important, especially in the food industry.”
Still, she cautions against buying a franchise just because you love the product.
“People say they want to buy a Dunkin’ Donuts franchise because the love the doughnuts and they make a great cup of coffee,” said Mercurio. “But, remember, you can still buy a dozen doughnuts without owning the store.”
Jane Applegate is a small business consultant, speaker and author of four books on small business success, including 201 Great Ideas for Your Small Business, published by John Wiley & Sons. The Applegate Group Inc. provides strategic marketing, customized training and video production services to big and small companies.