Spadea Lignana

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“Helping Franchisees Move from Owning a Job to Owning a Business” explores the idea of owning a business, rather than a job. Join us as our three panelists led a Q&A session that discusses the fundamentals necessary to own a successful business.

Donald Welsh

Multi-unit franchisee for Sonic Drive-In

Don entered the franchising industry in 2005, when he opened three Sonic Drive-In restaurants: one in southeastern Pennsylvania, one in northern Delaware, and one in southern New Jersey. In 2007, Sonic honored Don as the Franchisee of the Year, based on the criteria that he was willing to embrace Sonic programs and build the brand market. Don represents Sonic on a variety of committees. Connect with Donald.

Todd Leonard

VP of Operations & Franchise Development for Executive Care

Todd is the vice president of operations and franchise development for Executive Care, a national franchise that offers its clients non-medical senior home care services. This helps seniors retain their independence for as long as possible and provides peace-of-mind to families. Todd prides himself in his company’s mission: to provide quality, essential services with compassion for the families they serve. Connect with Todd.

Mark Steinke

Franchisee for Focalpoint Business Coaching

Mark is a business coach who works with business owners, executives, and other professionals to refine their focus. When clients come to Mark, they typically are spreading themselves thin across many different business areas. Mark helps his clients decide which role they should fill, allowing them to work on the business rather than in it. Connect with Mark.

Let’s take a look at a few key discussions during this event:

[2:33-11:01] Advice for New Franchisees   

We open up our luncheon by discussing how a franchisee approaches the franchising world. Todd points out, “stability can be hard to find in the job market today.” Individuals are seeking long-term solutions and the franchise industry can offer that if the franchisee is capable of running a business.

Mark and Don both agree that a newly integrated franchisee can’t solely rely on the franchise model to take care of everything. In order to succeed, a franchisee needs to have business skills, principles, and ideas (and a franchisor that understands this as well).

A lack of business skills breeds poor decisions. If you are having a hard time achieving your goals, a business consultant may be able to step in for support.

[11:02-24:28] Emerging Franchisors & Franchisees: Training, Skill & Support

Franchisors do a disservice to the business by selling a franchise to an individual that doesn’t have the appropriate skill set to handle a particular business. Mark emphasizes the importance of the vetting process. There are plenty of “assessments that ascertain business skills.” A behavior interview can be helpful too; this kind of evaluation can make it easier for you to understand if your candidate is qualified.

Although it is important to measure your potential franchisee’s skills, team culture matters too. Todd explains, “One single person will not have all the skills necessary. It becomes just as critical to focus on structured training suitable for a variety of personalities.”

Although a business plan can be a methodical process, this kind of structure can address a franchisee’s plan for growth and can be used as a coaching tool along the way.

[24:29-28:58] How to Motivate Complacency

It’s human nature that individuals become complacent. How do you deal with that? Don exclaims, “Grow or die!” It can be hard to enforce development agreements and even the “top dogs” in the industry can get too comfortable. If this is the case, use them as a model of success. This kind of franchisee can be a beacon that can build up franchisees that are new or struggling.

[28:59-38:09] Audience Questions

The panel answers questions about unit economics, margins, and marketing efforts.

[38:09-52:56] Managing Validation

A good indication that your business model works is if the franchisee has the ability to “step out” and the business continues to succeed. Todd speaks from a potential buyer’s perspective, “If your girl or guy is still handling day to day operations after five years, this is not a good validator.”

Don holds a different view. He explains, the only real difference between two McDonalds is the real estate and the owner—the rest is identical. As long as the business has solid fundamentals, the only aspect a potential franchisee should be validating is their own ability.

Todd remarks, a business model is a great accountability component if you find your ability lacks. Some franchisors require a business plan before a deal is signed. It can take up to a year for that business model to be approved; if you have worked that long on your plan “hold yourself accountable.”

[52:57-53:58] Takeaways

Tom ends the luncheon by asking each panelist what for one important message:

Todd says, “integrity from both sides.” A franchisor should help direct and grow a franchisee and the franchisee should absorb what is necessary from the business model in order to succeed.

Mark states, “it’s a business first and a franchise second, operate it that way.”

Don ends the discussion with a question: “Are we selling franchisees or are we buying franchisees or is it something entirely different? Make sure you are authentic.”

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During this luncheon, we cover “Franchise Exit Strategies: Best Practices for Buying or Selling an Existing Franchise.” We welcome panelists, Eric Lavinder, Jena Henderson, Jim Provo, and moderator, Tom Spadea, to cover the unique challenges associated with exiting or inbounding into the franchise system.

Eric Lavinder

Executive Vice President of T‍‍‍he Simple Greek (a Marcus Lemonis Company). Connect with Eric.

Jena Henderson

Vice-President, B‍‍‍rand Services Saladworks‍‍‍. Connect with Jena.

Jim Provo 

Franchisee, My Salon Suites, SBA Economic‍‍‍ Development Specialist‍‍‍. Connect with Jim.

Let’s highlight a few key discussions throughout this event:

[2:39-4:54] Why do people sell and transition in the first place?

Jena points out, “Our lives are constantly changing.” The franchise arena may have been suitable at one point, but eventually, life gets in the way. Eric and Jim agree—each emphasize the importance of maintaining a clear plan of action when your exit time is near.

It may be that your operations aren’t successful, or you are ready to retire. Regardless, set clear expectations and understand how to execute your plan. If your vision and communication are clear, your exit will be graceful.

[4:55-8:52] Let’s talk evaluations.

There are many methods of evaluations out there. Jim mentions a common financial method which can be determined by establishing the proper multiple of a seller’s discretionary earnings.

However you chose to understand the value, an evaluation is necessary. Establishing this number will help a seller assess the worth of a business and a buyer to determine if the business is a worthy investment.

There are a lot of factors that drive a business owner to sell — sometimes the challenge for a seller can be, “Why should I sell?” Do the research! There are plenty of digital resources that can help you.

[8:53-12:10] How do franchisors deal with franchisee’s unrealistic expectations?

One word: honesty. Eric points out how simple a conversation based upon revenue can be if a franchisee isn’t producing sales. If your business is failing, “You have two options: get back in your store and fix your sales! If your business isn’t making money, get out and sell.”

Jena adds, as a franchisor, it’s your responsibility to keep a close eye on a business where an exit may be in the works. Oftentimes a franchisee will sit on a business that is bleeding because they are not ready to sell their location for less than what they put into it. The reality is, a franchisee should not expect to receive a profit when selling. The franchisor should monitor these situations and step in to have that difficult conversation if necessary.

[12:11-29:59] What do you think surprises buyers or sellers about the sales process?

All panelists agree that the amount of due diligence that is necessary between a buyer and seller is overwhelming for some to imagine. Each party should know the franchise requirements, be educated and understand the FDD. Eric reminds us, the franchise system shouldn’t be considered an entrepreneur venture. “You are buying into a system” that enforces spending to be allocated in order to continuously reinvent the business.

If you are a seller, have a mediator to discuss negotiations between marketing and operations. Additionally, a business broker can provide resources and aid in the search for buyers.

The resale process takes time; make sure to have your books in order and documentation ready so the negotiation process can run smoothly. All panelists agree, refrain from communicating exit details to your team. Circumstances where information is shared early can lead to a decrease in the value of a business. Employees may quit, or performance could decline if word of new management becomes common knowledge.

Jena strongly suggests: “Don’t stop trying to build your business just because you don’t want to run it anymore.” The value of your business will only go up if you continue to build while you are on your way out.

[30:00-34:44] How important is the lease?

From a lender perspective, Jim points out that the term of the loan can’t exceed the term of the lease. Your obligations to your landlord and your franchisor may be separate.

Your franchisor might be flexible regarding certain terms in order to motivate the execution of an exit; however, a landlord will not operate the same way. If you do find yourself with long-term obligations to a landlord, Jena suggests speaking with your franchisor and broker about your options.

Also, it’s not a bad idea to purchase a business appraisal prior to the start of the selling process. This will provide information about the value of your business so you can set the right expectations.

[35:14-45:00] Audience questions.

Here the panel answers questions from the audience surrounding topics about average evaluation prices, business brokers, pro-formas and attorney recommendations.

[46:14-48:51] Are there any strategies that work for transferring a business to a family member?

Succession planning is a great option; from a franchisor’s standpoint, having an inbounding franchisee that has a keen understanding of the business is optimal. Eric and Jim state: make sure succession conversations happen early on before the exit takes place. “Your franchisor will want to make sure your family member has the network and is qualified.”

48:52-50:00 Panel Takeaways.

Jim says, “Start early! If you are selling, don’t let your business deteriorate while the sale is going down. If you are buying, be aware of that potential and monitor any degradation or improvement as this will change the value of the business.”

Jena urges you to do your homework and read the franchise agreement.

Eric wraps up the discussion with some sage advice: understand why you are buying or selling, set realistic expectations, and do your due diligence.

Learn more about the Philadelphia Franchise Association and catch the full-length video here.

The post Franchise Exit Strategies: Best Practices for Buying or Selling an Existing Franchise  appeared first on Spadea Lignana.

To catch the latest Spadea Lignana news, be sure to tune in and subscribe to our panel discussions through our podcast on iTunes.

“Controlling Cost & Driving Profitability: Day to Day Strategies to Increase Profitability” is a relevant topic for any growing business. Moderator, Tom Spadea, and panel members, Katie Walsh, Jason Parker, and Brian Klein join us to discuss the ways in which franchise businesses can thrive through marketing, budgeting, culture, and transparency.

Katie Walsh

Katie is a multi-unit owner of three Rita’s Water Ice stores in South Jersey. Former manager at all 3 locations, Katie has come up the ranks after purchasing them out two years ago. Connect with Katie.

Jason Parker

Jason is the Co-founder and President of K-9 Resorts, a luxury pet day care system. The company has won several customer service awards due to its customer centric focus and operational culture. Connect with Jason.

Bryan Klein

Bryan is CEO and Founder of The MAX Challenge, a health experience centered around structured exercise classes and wellness. In 2013, the franchise grew to over 60 locations in 5 states, receiving tremendous success in a short time. Connect with Bryan.

Let’s take a look at a few key discussions during this event:

[6:10-10:53] War stories and the budgeting processes.

Katie kicks off the panel by discussing the importance of knowing the average numbers of your businesses. A realistic representation of your numbers when you enter a new franchise system allows you to gain perspective without shorting yourself capital. Jason agrees, adding that entering a franchise with a quality Item 19, or franchise disclosure document, makes a huge difference. Bryan includes, “our biggest obstacle is ourselves.” Understanding why you are financially motivated to enter a business will help you create realistic expectations.

Katie suggests that the best way to coach newer franchisees to be realistic is to spend the time going over the resources in place, such as, key performance indicators (KPI’s) and profit & loss reports (P&L’s). Jason believes that listening is key. Speaking to bordering business about their business models and speaking to employees is a great way to understand the culture and expectations.

[10:54-13:30] What are the most chronic mistakes made in day-to-day franchise operations?

Jason says, “not following the system that is in place.” Revenue takes a hit when requirements aren’t met and franchisees don’t follow proper protocol. Brian agrees with this sentiment, adding that oftentimes people believe they have a better marketing idea. If it’s an established franchise, the franchisee should stay within parameters. Katie suggests taking a step back and looking at the bigger picture; getting bogged down by day-to-day operations can create conflict.

[13:40-17:30] Theft in businesses.

Katie uses camera systems and requires management to monitor activity. If you are present in your store enough and understand how to interpret your food costs, you can pinpoint if the theft is internal and who is responsible. Jason expands on this statement: if you understand your numbers you will know if your range is off during a certain time frame. If your sales are generated mostly with credit cards, this data can be easily tracked. Bryan adds, basic business controls and standardizing your methods and forms emphasizes discrepancies.

[17:33-22:36] Improving unit level margins and creating an open system environment.

Having a standard chart of accounts where a franchisee reports to a franchisor who can analyze the numbers. All panelists agree that transparency can breed a healthy, competitive culture. If you create an open book environment, everyone within the system can learn from one another and understand where they fall. Training is also essential. Having a process in place that explains the value of revenue and how to increase your margins will motivate your team to interact with customers and sell.

[25:11-37:21] How to motivate a new franchise system to follow protocol.

Data doesn’t lie. Measure your stores that are opened for more than a year and those opened for less than a year. Even if the historical trail to success isn’t fully paved, pull out certain numbers that make sense and focus on that information. Abiding by a successful system is key, but it can be tough when the data isn’t fully-baked. If you have vetted your franchisee prior, hopefully you will not face a situation where a franchisee comes in with a negative attitude regarding an enforced standard.

[37:22-43:30] Cost effective marketing tools and training.  

Two words: social media. Facebook and Instagram are effective marketing tools. Also onboarding a marketing agency can help franchisees collect data, which will support growth and strengthen systems in place. Additionally, recruitment has a huge impact. Brian states, “you can’t train friendliness.” Make sure that your hiring process is standardized so that you can pre-screen candidates appropriately. Transparency is helpful here, providing skills ability tests or disc profiles improves retention and performance among employees.

[47:52-50:00] Is there one takeaway that you would want people to leave here with?

Katie says, “know your numbers and revisit them.” Jason believes understanding the system and respecting the processes are important. Brian ends the panel by stating, “Know your KPI’s and look deeper than your P&L. Be on top of it.”

Interested in learning about our Philadelphia Franchise Association events? Get more details and watch the full-length video here.

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