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Aug 27, 2018

Cheers To Business | Ep2 | Starting A Business: Franchise

On this episode, Karen and Cadie talk about different ways to start a business, specifically looking at, buying into, and opening into a franchise. Karen and Cadie have opened Payroll Vault, a payroll and outsourced HR service franchise, and have a lot to say about the world of the franchise business. What exactly is a franchise are the pros and cons? Where does one find franchise opportunities? What is the best way to start the search and purchasing process?

Learn more about Karen Simmons & Cadie Gaut

Sponsors:

Karen C. Simmons, P.C.

Payroll Vault - Mobile & Baldwin Counties


About Cheers To Business

Cheers To Business is a seriously casual business and entrepreneur podcast that discusses starting, running, refining and growing your company, or excelling at your current job with two or your soon-to-be friends - over a glass of wine. Please subscribe, review and rate Cheers To Business on iTunes, SoundCloud & Overcast. You can contact and stay connected with us by LIKING our Cheers To Business Facebook page. Thanks for listening and as always, CHEERS to you!

 

 Full Show Transcript:

Karen: Hey, welcome to today's show. This is our second episode, we're really excited. And today, we're gonna be talking about the different ways to start a business. And one is start your own. Two, you can buy an existing. Three, open a franchise. And that's what we're gonna talk about today.

I'm Karen. I'm a CPA, entrepreneur with big ideas, and I'm The Mom.

Cadie: I'm Cadie. I'm a payroll specialist, business owner, and detail-oriented person that makes things happen, and I'm the daughter.

Welcome to "Cheers to Business

Karen: Cadie, you currently own a franchise. What do you see as the pros and cons in your experience?

Cadie: Well, I think the first thing I want to touch on is what a franchise is. I think there's a big misconception. Franchises are independently owned and operated businesses.

Karen: So you own your own company, basically.

Cadie: Yes. You own your own company, you have an agreement with a brand that may be national, but as far as in your local district, you're making the decisions, you're doing the staffing. It's really your own entity.

Karen: A lot of people are under the misconception that they tell you everything to do.

Cadie: Well, I mean some brands have more flexibility, others are more strict, and I think that's an important thing to look into when you are going into the franchise, you know, talk to other owners who currently are doing business with that brand. People who've owned one maybe in the past, and also the agreement that you're signing up with that franchise.

Karen: You know, for example, in the CPA firm, it was me and my team, and so we knew our own rules. I think I found in the CPA firm in that structure, CPAs don't make money doing payrolls. Well, when you have over 120 of them...I knew I could open up a payroll company, but I didn't want to reinvent the wheel.

Cadie: I was doing those payrolls. Thank you very much.

Karen: Yes, you were. You did the majority of those payrolls. And did them very well, by the way.

Cadie: But not efficiently. And that's...

Karen: Correct.

Cadie: That's the key, is I have this much work to do, how can I do it as fast as possible and as accurate as possible? And that's where a franchise really steps in, because they know how to do it.

Karen: They've already tested everything. And I think, you know, we researched, both of us went and, you know, we're researching trying to see where the perfect platform was and that's where Payroll Vault came in and you've taken it and just run like a rockstar. Now, tell about the beginning there when we were thinking about doing this. What do you remember? What comes to mind the foremost of what our concerns were or why, yes, go. Besides being the efficiencies?

Cadie: I think one of the most important things kinda when you're getting started is the brand. You know, when people create their own brand, their own logo, the name, the colors, you get very emotionally attached to that. And that's one thing almost when you step into a franchise is you have to learn to connect with that brand because it's not something that you necessarily invented or created.

Karen: But it's been tested. So that's a plus.

Cadie: Well, I mean from getting everything started by getting a franchise, they give you the playbook. You're not writing the playbook, and you have to look inside yourself and know whether or not you're the type of person who can follow a playbook or do you need to be the one inventing it and, and you know, maybe running into brick wall?

Karen: And I think that is the personality type. However, you know, depending on what you want to do, I think you've gotta be able to step back, talk to the right people, do the research to see which model. I've done both. That's because for this situation, that worked, for this situation, the other worked.

Cadie: And it's not a guarantee. I mean, just because the franchise company is telling you what to do, are you listening to them? Are you listening to other franchise owners? It's important...I think that there's a middle ground, you know, especially if the franchise gives you the flexibility. You've gotta really play with what works in your market.

Karen: I think you gotta have the personality too to the to accept that your way is not always best.

Cadie: Amen.

Karen: We always go in and...I'm so smart. I mean, I have the t-shirt. It says...

Cadie: I'll be smarter if you're less stupid, or something.

Karen: No, I'd be nice if you were smart, but that wasn't the one I was talking about.

Cadie: Okay. Sorry. There were so many.

Karen: I was talking...the one I wore at conference last week.

Cadie: While you were doing your presentation.

Karen: Yeah, I wore it on purpose. It's not that I'm bossy, it's that I have better ideas. And I was making a statement. I actually had a suit to wear to that, but that one was more appropriate at a franchise conference where I was actually speaking at and she was there as the owner. So...

Cadie: Back on track.

Karen: Okay, back on track. We need the bill. So franchises. You'd be amazed at what places are franchises and what aren't. Cadie, what's some of the ones you've learned over the past three years?

Cadie: McDonald's a franchise.

Karen: Newk's.

Karen: Whataburger.

Karen: AT&T stores.

Cadie: Jani-King [SP].

Karen: Moe's [SP].

Cadie: Huntington Learning Centers

Karen: It goes on and on.

Cadie: I mean, the list goes on.

Karen: Yeah. You'd be amazed at what are franchise is that you don't think they are, but what that means is that there's someone here possibly local, more times than not, that your neighbor could own his own company, but because the shingle says a corporate name, they think it's not theirs, and that's not true. And I think that's what you were referencing earlier.

Cadie: Yes. They do own their businesses. I think a lot of times people...you know, for example, Starbucks, they are corporate owned. Yes, they may have a local manager, however, they're not independently owned. They all fall under their own umbrella.

Karen: Right, and when it's not corporate, you don't necessarily have the national advertising and, you know, they make their people go out and be in the community. It's your choices whether how successful you want your business to be.

Cadie: And I think an important thing kinda off to the side, but so long the franchise, is let's say you are starting a business completely from scratch. Some people go into the idea of, "Hey, I'm gonna start this business with the intention of franchising it in the future and becoming a franchisor," meaning you created the brand that other people can buy into.

Karen: I can think of two here locally that are in the middle of that right now. You know, they are building their brand. They built it where there are about...one has already started and another one is about to start. And they had built that brand, but how much investment does it take and is somebody willing to do that?

Cadie: I think that's one of the biggest compliments if someone comes up to your business and ask if there's a franchise opportunity.

Karen: Well, I don't know if I shared with you, but you know, I was actually at the Payroll Vault conference last week as a vendor for our company, Flexible Benefits, Inc., which is benefit packages for employees. And I did the presentation on that company and when I went back to my booth at the conference, one of the Payroll Vault owners came up to me and said, "Are you planning on franchising that?" I didn't know what to say. For once in my life, I was speechless. And it was because my mind had not gone there, that was my first presentation, and I had the wrong PowerPoint up. So I have no idea what I said while I was up there. In fact, all I remember is you telling me to wrap it up. So, you know, to have that possibility, I think that's in people's minds now. Of course, I think it's more on people's minds that already own or work for a franchise.

Cadie: If you were interested in franchising your brand, kinda, what's the first step to do that?

Karen: I think I would actually contact the other franchise owners that I know and our franchisors, who we know corporate. I think that, first of all, I would get my ducks in a row with talking with a franchise attorney. I mean, the documents, everything. Look at the document that we have for Payroll Vault. And I've seen other documents. They're an inch, inch-and-a-half thick with legalese. So, you know, presented with something like that, what did we do when we got the thing, Cadie?

Cadie: Oh man, we hired an attorney.

Karen: Exactly.

Cadie: I read it, but we also got an attorney.

Karen: And I trust you. So, that worked by itself, but I think, you know, what are the rules and stipulations? There's gotta be federal guidance, things that, you know, we might not necessarily know, but that again throws in a third aspect of it. One, starting from scratch. Two, buying a franchise. Or three, building a brand to be a franchiser, because they're all totally different things.

Cadie: Absolutely. So, if someone walked up to you just real quick, two pros and two cons of owning a franchise.

Karen: I think one of the pros is definitely not reinventing the wheel. Two, I think one of the pros is having just the acceptance of perception.

Cadie: Ooh.

Karen: I know.

Cadie: I like that term.

Karen: Thank you. To being known now for Payroll Vault, nobody here knew it. It's all out in Colorado and out West. You know, there's quite a few in California, a lot in Colorado. So we had to push that brand from scratch. So that was a little different. But it's definitely part of the package. As far as con, yes, you are answerable to someone else. I think that you have to choose whether you consider royalties, and what happens is is that the price you paid for not reinventing the will is you pay them a percentage of sales. And so every month, on your sales, you have to pay them. I consider that an investment. However, I could see where that would turn into a con at some point if you feel like you're doing all the work. Cadie, your feelings on that? It's tough.

Cadie: I definitely agree with all of those, you know, pros. I like the community aspect. If, you know, we run into a situation that we've never dealt with before, I'm able to reach out to X amount of people and, "Hey, have you gone through this? Have you dealt with this?" And kinda we're able to bounce off those ideas of people who are not only in the same industry, but they understand our model and our values and how we operate. Another pro is definitely to go further into not reinventing the wheel. You know, the brand is developed, meaning not just the logo, but what that brand...

Karen: Efficiencies or process?

Cadie: Yes. Well, even just the website, everything like that, you know, best practices. Here's what we look for when hiring. Here's how to operate the software. I mean, everything you could imagine.

Karen: Even forms, can you imagine all the forms I had to come up with when I started from scratch? I had to create an award program versus they handed everything to you.

Cadie: Yeah, it's fantastic. I mean, normally, franchises offer a training period. So you go to where the headquarters is or they come to you and they make sure that everything is good to go. I mean, that piece of mind, it's invaluable.

Karen: Now, you pay for that. Most of them or all of that I've seen have an upfront franchise fee.

Cadie: Yes.

Karen: And that is dependent on, I think, the popularity, you know, economics, supply and demand.

Cadie: And the equipment as well. You know, it's gonna be a lot...Planet Fitness is another franchise. And I mean the cost to get a Planet Fitness, simply because of the gym equipment, it's astronomical.

Karen: And that brings, you know, what we hope you take away with today, listening to us, is, you know, what capital do I have to have?

Cadie: And most brands, if you go to their website, and you'll see franchise opportunities, it will tell you what that initial estimate buy-in cost is.

Karen: You know, they give you the level of liquidity before they'll even talk to you. That means you're...

Cadie: What's liquidity?

Karen: Liquidity?

Cadie: Go.

Karen: All right. Assets that you can make available very fast. Okay?

Cadie: Knowledge for the day.

Karen: It is. But that's not the book version. I'm sure there's very professional...

Cadie: We don't want the book version.

Karen: Good, because I'm not about the book version. I got flip flops on right now. So if you were to rely on someone to be able to be financially stable, how much could they come up with today? All right. They wanna know how liquid you are or can you even afford to do this? Next, can you afford to live until this gets up and running, whether it's a McDonald's or a brand you've never heard of? Either way, it takes time, build out, ordering, setting up employees. What other things did you see?

Cadie: Well, so my question is, let's say that I really liked this brand, I think I would be really good at running this business, but you know, I got debt out the wazoo, how does one go about...is it better to wait until you've established, you know, to have those assets in place, find an investor, go to a bank? How can you start a franchise money-wise?

Karen: I think the most aggravating answer is it depends. And it depends on is your neighbor or your uncle an investor and you can have an investor? Well, they're not gonna let you on the ticket, so you're gonna run it. It's your work, blood, sweat, and tears and you don't own it. Well, this, when you work a deal so that over so many years and to make sure he or she gets their money back because it has to be a win-win situation. Another one is hold out, work your butt off, and save up. You know, get your life in order, get out of debt. And that said so easily and it's not that easy. And that's another show.

Cadie: When getting a franchise started, what kinda price range could someone expect to pay? I know it depends, however, just a general answer what to expect.

Karen: It really goes back to supply and demand again. You know, usually, in general, they'd like you to be a couple of hundred thousand dollars liquid. When you get up to where they know you're gonna have to be able to afford the outlay, you know, you were talking about Jim's earlier. If you are gonna have a big outlay or build out of a restaurant or, you know, you have to go buy their brand, buy their stuff, their equipment, then is gonna be the liquidity. They're gonna want you to have more and be more financially stable because they know what you're gonna have to come out of pocket and they want you to be able to be able to do that.

Cadie: And some brands require you to be operationally involved in the business. So let's just say you wanna take the investor route and you just want to invest in a brand. Some like Chick-fil-A, the owners have to be involved in the operations of the business. So that's another thing too is how involved you have to be.

Karen: Well, and that goes back to what we've been saying the whole time in that you take a piece of paper and you put pros on one side and cons on the other side and you do it for each franchise that you're looking at until you find where there's more on the pros than on the cons and you can stomach and live with the cons.

Cadie: It should not be a quick decision.

Karen: Do not make it a quick decision, no. Everything is back to long-term. First, pay the franchise fee, eat while you build it, eat while you grow it, and then slowly it starts to pay off because never in my life have I have seen a good payoff come in the short term. It's always a long term.

Cadie: I think people don't see the long term though. That's a common thing to discuss is overnight success. Well, you didn't see the beginning. The beginning isn't really touched on. No one brags about not having money for three years.

Karen: Yeah, I think, you know, 2016 was actually a good year for me that I don't really wanna go into right now, but it was a good year. And people would come up, "Oh, my gosh, you're having the year. It's just amazing." And I said, "It took me 20 years to get here. It took 20 years of family, especially family, helping out clients." I mean, I couldn't have built what I have without you. One common thread I can see in all that we've talked about today is people. We talked about it in the first show of how we got here and why we're doing this and I think that the people around you, the people who have done it, the people who are gonna help you are one of the most important things in your life.

Cadie: So to sum it up, really, Franchise 101, do your research, talk to people.

Karen: That's right. And it cannot be a quick decision. It's not about dollar or a quick buck, but it's about having an emotional connection with what you're trying to do with your life, what you're trying to sell, because no one else is gonna buy into it unless you're emotionally connected. If you don't believe in it, nobody else is.

Cadie: Perfect.

Karen: Everybody that's listening to us today or thinking about, "Oh, that sounds intriguing. I'd like to look at what kinda franchise..." You know, so where do you go for the source?

Cadie: There's a couple different websites to research franchises. There's the Franchise Business Review. There is the International Franchise Association.

Karen: Which she won the award last year.

Cadie: IFA.

Karen: Proud mommy moment.

Cadie: Okay. I don't know. Those two resources are really probably the best to start off with. And then once you kinda get some ideas of brands that you wanna work with, go check out those companies directly.

Karen: Read between the lines and read the little print. That's where they get you.