When Heather Owen was working as an auditor for an Arizona government agency, a job that involved spending a lot of time traveling around the state, she was often frustrating with what she calls an inability to find a good facility at which to board her dog.
“I was looking for places that provided more play time for the dogs,” she said. When she couldn’t find a facility she liked, she decided to establish one herself.
Owen quit her job to become a franchisee of Camp Bow Wow, opening a location in Avondale. It was a “180-degree” turnaround but she hasn’t looked back.
“I’m happier working all day with dogs than sitting behind a desk,” she said. “There’s nothing better than doggie kisses to fix your day.”
Owen is among the thousands of people each year who become small-business owners by purchasing a franchise — often pursuing a personal passion or interest.
Franchising represents a relatively quick and direct way to jump-start a business, as budding entrepreneurs essentially receive a playbook so they can follow down the path blazed by others on how to deal with customers, hire staff, cut through red tape, find locations and more.
“There was so much I didn’t know I didn’t know,” she said.
Benefits and drawbacks to franchising
With the economy healthy again, franchise businesses are growing. Arizona and other Southwestern states could enjoy a special edge, according to a report compiled by the International Franchise Association. Population and job growth, a modest cost of living and other factors could make Arizona a prime destination for expansion.
“Franchising is a great way to go,” said Neal Courtney, CEO of Cookie Cutters Haircuts for Kids, which has two locations in the Valley. “In most cases, these concepts have been around for a while.”
Franchise networks often get started when an entrepreneur builds a business that’s flourishing yet decides that he or she can’t keep hiring great managers in increasingly remote locations, said Robert Cresanti, president and CEO of the International Franchise Association during a conference held recently in Phoenix.
“They figure they can attract better people to run new stores if those people are owners,” he said.
However, franchising isn’t without its drawbacks. As with other small businesses, many franchisees fail. Even if a new owner survives or thrives, the time, financial and emotional commitments can take a toll.
The advantages range from satisfaction, prestige and at least some control and independence to unlimited income potential and steady job security. But the drawbacks can include more stress, longer hours, income fluctuations and the risk of losing your investment.
John Chotras said he spent 15 years as owner of a Valley franchise of a carpet and furniture cleaning company. It started out well, but he said the company opened too many outlets, leading to over-saturation and declining profitability.
Meanwhile, the parent company, which has since been sold, required franchisees to buy vans and uniforms and made other demands that “added to the costs of doing business,” Chotras said.
Eventually, Chotras said he walked away, essentially handing his franchise back to the parent company. He now works part-time at a large hardware chain.
“I’m making money in the hopes one day I can fully retire,” he said. “People go into (franchises) thinking it will be their nest egg.”
‘You don’t need to start from scratch’
Not everyone is cut out to own this type of business, and not all concepts are destined for profitable expansion. But many franchises do prosper.
Arthur Socha, a 60-year-old former American Express manager in Phoenix, bought an Executive Care franchise in Scottsdale with his wife, Dede, a physical therapist.
“It wasn’t time for me to retire and hit the golf course,” he said, so the couple looked around for new opportunities. With franchising,”You don’t need to start from scratch.”
Their franchise provides home health-care services for the elderly and others needing help with routine living tasks. The experience has been both demanding and invigorating.
“You have to work hard and view it as a real job,” Socha said. “You really need to have a good plan in place and be brutally honest about yourself and your expectations.”
1. Start with a lot of research
It’s important to investigate before buying a franchise.
In addition to basic business considerations — such as demand for a product or service, competition and the personal income and other demographic information of potential customers in the area — it’s important to check out the parent company or franchisor.
Try to find out about management’s experience, the brand’s reputation, lawsuits, the franchise’s failure rate and other aspects. The International Franchise Association has an online guide, “Franchising 101,” that explores these and other topics in more detail at franchise.org.
Franchises operate in all sorts of businesses — restaurants, auto-repair shops, cleaning services, gyms and much more — so you can afford to be selective.
“Look at the company’s culture to make sure it’s a good fit,” said Owen. “Understand what you’re getting into.”
It’s often wise to link up with businesses in an industry you’re familiar or for which you have a passion.
“It doesn’t make sense to be cutting hair when you’ve been a mechanic in the Air Force all your life,” Cresanti said.
The better franchisors do a reasonably good job of weeding out potential candidates, whether for lack of aptitude, financial deficiencies or other reasons, he added.
2. Have a cash cushion
At a time when surveys indicate roughly 40 percent of Americans would struggle to come up with a couple thousand dollars to meet an emergency, the cost to buy a franchise can be daunting. Ongoing expenses add to the financial burden.
Start-up expenses, which can run into the hundreds of thousands of dollars if not higher, include franchise-purchase fees along with the costs to acquire or lease a business location, equipment, furniture and inventory.
Ongoing expenses include salaries, insurance, utilities, marketing, rent and interest, assuming you take out a loan.
Average initial investments range considerably by the type of business, geographic area and other factors. For example, new owners of fast-food restaurants nationally invest about $447,000 on average, according to the International Franchise Association.
On the lower end are businesses such as home health care, where new franchisees face initial investments of about $110,000 on average. But other businesses can be much more capital-intensive, such as lodging/hotels, where new owners face initial investments of $26.6 million on average.
3. Don’t expect overnight success
The first several months often are the most difficult and can be the most demanding in terms of stress and time commitment. During that initial stage, “You might get a lot of new customers but probably not as many repeat customers,” Courtney said.
That’s why he lists patience, a long-term perspective and a thick skin as helpful attributes.
“Not a lot of businesses out there make money from day one,” he said. “You have to build it and support it — and even if you do build it, people won’t just come.”
As a new franchisee, you probably should have enough money in reserve to cover at least six months of operations before the business hopefully generates positive cash flow.
The success or continuity rate of franchises varies. According to the International Franchise Association, 85 percent of home health-care services are still around after three years, as are 89 percent of lodging businesses and 91 percent of fast-food restaurant outlets.
4. Prepare for the unexpected
Even if you carefully follow the company script, there’s a good chance things will go wrong at first. You can almost count on unanticipated snags, even with fairly routine activities.
Owen at Camp Bow Wow cited staffing as a major responsibility and commitment, along with getting her location in proper shape. She wanted to remodel the Avondale dog-care facility. That included plumbing changes that involved a lot of “permitting, inspections and red tape,” she said.
For Socha, one of the biggest challenges was finding and hiring qualified employees, including certified nursing assistants, for his home health-services franchise. Even finding a place in which to do business proved deceptively difficult.
“Some things took a lot longer than I expected,” he said. “It took several months to find office space.”
Don’t forget about talking with franchisees in the local area or other states, both prior to buying and afterward.
“I have made good friends in the franchise system,” said Owen. “I talk with them regularly and share ideas, and we learn from one another’s mistakes.”
5. Ask about resolving differences
Franchisees must be prepared to work closely with the parent company or franchisor. That’s why it’s critical to join an organization only if the products, strategy and even culture are a good fit.
“It’s a long-term relationship,” said Debbie Roxarzade, founder and CEO of Rachel’s Kitchen, a Las Vegas restaurant chain that’s planning to expand soon to Arizona. “It’s like being in a marriage.”
Sometimes these relationships, like real marriages, are filled with resentment and bitterness and turn sour. It’s best to determine, before you invest, how disputes can be worked out.
Top executives of Scottsdale-based Forever Living Products last year were sued by a distributor for allegedly inflating the prices of beauty and other products charged by the parent company to an affiliated firm for sale in Japan.
This dispute pits partners who have been doing business together for nearly 40 years.
While the case involves a distributorship rather than a franchise, it points to the type of animosity that can smolder for decades, even among parties supporting a common brand who have achieved success together.
As another example, some 7-Eleven franchise owners have complained recently about “working more, taking home less (money) and fighting for recognition as independent contractors (as) specified in their franchise agreements,” according to a statement by a group that claims to represent owners of more than 7,000 franchised locations.
The company’s policy of distributing revenue as the franchise network expands and a new royalty system are points of contention.
6. Make sure you’re a team player
One of the key advantages of joining a franchise is that you don’t need to reinvent the wheel. You gain access to a proven business model with consistent services, practices and procedures.
There’s no need to repeat the same mistakes that founders and early franchisees made.
Rather than venturing out on his own, Socha liked the franchising model, which he calls a “business in the box” where processes and procedures already are in place. “Work with the franchise partner,” he suggests. “Use the recipe — they want you to succeed.”
But conforming also can be a source of irritation if your inclination is to experiment, innovate or deviate.
“You need to have the ability to follow a plan and execute,” Courtney said. “Franchisees struggle when they try to do it their own way.”
The United States dominates the world in franchising, though most of the growth in new outlets is happening in other nations, said Cresanti. In this country, a generally stable economic backdrop and the recent reduction in income-tax rates are providing a tailwind.
As long as there’s an entrepreneurial spirit, there will be a role for franchising.
“You may put in a lot of time, but you don’t really count the hours,” said Socha. “You come in, look around and say, ‘This is ours.'”