Benetrends Blog – The Senior Franchise Boom

Benetrends Blog discussing a CNBC article about Older Americans Purchasing Franchises

Written by Nicole Russo

Click Here For the Article

In a recent article by Julie Halpert, Special to CNBC.com, she highlights the boom in senior franchise owners.

Older Americans are becoming a fast-growing segment of those buying franchises. The percentage of people 55 and over who are franchise owners has risen from 20 percent in 2007 to 28 percent—a 40 percent increase, according to Franchise Business Review.

Older Americans want to “control their own destiny and go into business for themselves but not by themselves,” said Matt Haller, a spokeman for the International Franchise Association. “They see franchising as a great way to do that.” At the International Franchise Expo in New York in June, an event that attracts 18,000 prospective franchisees, 28 percent of attendees were 51 and older.

Jania Bailey, president and chief operating officer of FranNet, said 70 percent to 80 percent of her clients are over 50. They are typically outplaced or soon-to-be outplaced executives with significant savings looking to replace a six-figure income.

Franchises are considered a safer bet, and there’s some data to back that up. A 2012 study by her group found that after five years, 85 percent of her franchisee clients remained in business, compared with 50 percent who started their own thing.

  • Denny Jensen, 70, retired from his job as a senior vice president of Visa International in 2004 and spent the next several years playing golf.  In January, he combined retirement savings with a personal loan and invested $220,000 for a Molly Maid franchise in the Reno, Nev., area.
  • Les Clark, 72, owns two Papa John’s in The Villages, a Florida retirement community. His biggest concern was whether the area would support a pizza place, more often associated with teenagers and young families
  • Tom Roskosz, 64, who spent $150,000 on a Fish Window Cleaning franchise in Savannah, Ga. “I would never have dreamed of window cleaning,” he said, but he liked not having to work nights, weekends or holidays. Roskosz now has 700 regular customers and projected revenues in the $250,000 range this year.
  • Ellen Sullivan, 55, leveraged her background as a nurse to Doctors Express, a franchise that provides urgent care services.   She and her partner, a friend who is a doctor, paid $750,000 in start-up costs and opened in October 2010.

http://www.cnbc.com/id/101040521

More Seniors Buying Franchises – CNBC Article

Here is an article written by Julie Halpert for CNBC discussing the increasing trend for older Americans purchasing franchises. She provides excellent examples of retirees and others deciding that entrepreneurship through franchising was for them.   I was interviewed by Julie for this article thanks to Marshall Reddy, President of NE Florida FranNet.  By the way, he asked for forgiveness for the reference to “senior”!

Grandpapa John’s pizza: The senior franchise boom

Published: Tuesday, 17 Sep 2013 | 2:13 PM ET
By: Julie Halpert, Special to CNBC.com

Denny Jensen, 70, retired from his job as a senior vice president of Visa International in 2004 and spent the next several years playing golf. He eventually got bored and decided to buy a franchise, because the idea of a proven company that provided plenty of support appealed to him.

In January, he combined retirement savings with a personal loan and invested $220,000 for a Molly Maid franchise in the Reno, Nev., area.

“I enjoy getting up in the morning and going to work,” Jensen said. “Your mind is working all the time, whether dealing with a customer complaint” or brainstorming about marketing. He expects to turn a $100,000 profit this year.

Jensen represents a growing trend among older Americans. Instead of a fresh-faced teenager or middle-aged manager, a retiree might greet you behind the counter when you request a cleaning service or place your order for a Papa John’s Pizza.

Older Americans are becoming a fast-growing segment of those buying franchises. The percentage of people 55 and over who are franchise owners has risen from 20 percent in 2007 to 28 percent—a 40 percent increase, according to Franchise Business Review. Such operations satisfy the desire to run a business but provide an established community, making it easier than starting from scratch.

“It’s almost like buying a business in a box,” said Jody Holtzman, senior vice president for thought leadership at AARP. “You’re jumping into something new,” but it has an established brand, and marketing, distribution and supply chain.

Older Americans want to “control their own destiny and go into business for themselves but not by themselves,” said Matt Haller, a spokeman for the International Franchise Association. “They see franchising as a great way to do that.” At the International Franchise Expo in New York in June, an event that attracts 18,000 prospective franchisees, 28 percent of attendees were 51 and older.

Older people also have a key advantage that makes ownership easier to achieve than it is for many younger people: access to capital, either in cash savings or a 401(k).

The senior franchise story isn’t just about affluence and an overly easy retirement, though.

Adam Sohn, vice president of brand alliances and partnerships for AARP, said a big driver of the boom is what he called the “working worried”: older people who fear being pushed out of their jobs, as many who are unemployed and finding it difficult to get back into the job market.

The franchise model makes sense for seniors with entrepreneurial flair but no grounding in today’s app economy—people who aren’t interested in “coming up with the next Facebook,” Sohn said.

Franchisors with older customers are particularly welcoming of senior buyers.

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Joe Smith, vice president of franchise development for Papa John’s International, said his company is attracting young retirees with business experience and said older owners are comfortable investing more in ensuring that the store well launched.

Les Clark, 72, owns two Papa John’s in The Villages, a Florida retirement community. His biggest concern was whether the area would support a pizza place, more often associated with teenagers and young families. The answer was yes.

“So many people thanked us for bringing Papa John’s to The Villages,” he said.

Jania Bailey, president and chief operating officer of FranNet, which matches potential franchisees with franchisors, said 70 percent to 80 percent of her clients are over 50. They are typically outplaced or soon-to-be outplaced executives with significant savings looking to replace a six-figure income.

Franchises are considered a safer bet, and there’s some data to back that up. A 2012 study by her group found that after five years, 85 percent of her franchisee clients remained in business, compared with 50 percent who started their own thing.

Seniors are also moving beyond traditional fast-food franchises to service-based businesses that require less up-front investment but are profitable longer term.

Take Tom Roskosz, 64, who spent $150,000 on a Fish Window Cleaning franchise in Savannah, Ga.

“I would never have dreamed of window cleaning,” he said, but he liked not having to work nights, weekends or holidays.

Roskosz now has 700 regular customers and projected revenues in the $250,000 range this year. “I love meeting the people and the business owners,” he said. “I enjoy the challenge that comes with building up your revenue and relationships.”

Ellen Sullivan, 55, leveraged her background as a nurse to Doctors Express, a franchise that provides urgent care services.

She and her partner, a friend who is a doctor, paid $750,000 in start-up costs and opened in October 2010. It was a great choice for this stage of her life and helped fuel her passion for providing affordable health care, she said.

“Every day we’re making a difference in people’s lives,” said Sullivan, who lives in Jacksonville, Ga. “It’s very rewarding to hear they’re very satisfied with the services they receive.”

Jensen recently received approval from Molly Maid to expand his territory into Carson City, Nev. Though he may eventually hire a full-time manager, he said, “I don’t have a vision of selling it.”

Thinking About Buying a Franchise? Do the Right Amount of Due Diligence

By Ellen Sullivan

Published in Advantage Business Magazine   –   August 15, 2013

Click here to go to article

What exactly is due diligence? How much is too little or too much? Due diligence, by definition, is the research and analysis of a company or organization done in preparation for a business transaction. Much of the information needed to do due diligence on a potential franchise purchase is available. You need to know where to get it.  Obtaining the right information at the right time, and engaging the right team of experts is the core of an effective and efficient due diligence process.

Businesses that succeed and demonstrate sustainability are based upon a solid business plan and profitability model. The majority of franchises that are operating today have this, or they would not be in business. That said, a key step in the decision about whether or not to purchase a franchise involves due diligence. Before you fall in love with a concept, or rely on what a salesperson told you, or assume a business will be successful, or sign any documents, or pay any money, it’s imperative to take the time to do your homework.

Before You Dive In – Create an Advisory Board

Assemble a team of key professionals. Engaging these experts can guide you in due diligence and through the ups and downs of the lifecycle of your business.  They can save you time, money, and potentially from making a poor decision.

  • An accountant to provide financial advice, document review, financial modeling, and financial management oversight.
  • A franchise or business attorney to review documents and the corporate structure. For some specialties, such as healthcare, a specialized attorney should be consulted. These legal professionals will guide you through the legal landscape of the franchise and business law, regulatory requirements, and the franchise documents. Regulations vary from state to state. Understanding the legal picture is important when addressing compliance requirements, managing risk, and to avert future litigation.
  • Depending upon your background, other professionals to consider may be a business or a marketing consultant. Meanwhile, check out the local Small Business Development Centers (SBDC) for staff and tools available to help with financial and business planning and go-to market strategies.
  • A reputable franchise broker can suggest specific franchises that fit best with your goals, skill sets, and interests (personally and professionally).  A reputable broker will be candid with you as you progress through the due diligence process.

 Where to Start – The Federal Disclosure Document

The Franchisor will provide you with a Federal Disclosure Document or FDD. This is a legal document required by the Federal Trade Commission (FTC) that must be presented to prospective buyers of franchises in the pre-sale disclosure process.   This document discloses extensive information about the franchisor and the franchise organization, intended to give the potential franchisee enough information to make educated decisions about the investment. A copy of the franchise agreement should be included. There is a 14-day wait period required by the FTC between the receipt of the FDD and the signing of an agreement.

The FDD package provides a wealth of knowledge, with details about how the franchise system is working. It can be several hundreds of pages in length and it contains important data, financial information, and legal requirements. Examples of the information disclosed include:

  • Franchisor ownership and changes in ownership
  • Bios of principals and key personnel
  • Number of units that have sold, resold, or closed over time
  • List of franchisee owners by location
  • Significant lawsuits filed by franchisees
  • Financial performance
  • Fees, estimated investment costs, royalties, marketing funds requirements, and other costs
  • Franchise Agreement
  • Audited Financial Statements
  • Term of Agreement, options to renew and on what terms
  • Territory included in agreement and exclusivity rights

Provide a copy of the disclosure documents to your accountant and attorney(s).  Plan to have a review session with each expert to understand the documents in depth and know the facts. You will be piecing together important details that disclose the strengths and weaknesses of the franchise system. Know what legal and financial obligations are required. Decipher the rules. Understand other details such as restrictive covenants and rules around trade secrets.

Talk To Those Who Know – The Franchisees

While much of the information you need is found in the FDD, there is still more work to do. Obtain names and contact information for franchisees. Most franchisors will provide an introduction for you to the franchisees. Talk with as many as you can. Be prepared ahead of time with a list of questions. Most are willing to answer a few questions. Be respectful of their time.

Some sample questions include:

What kind of support is available for franchisees?

Were you satisfied with the training?

What was your experience to breakeven?

Do you have input into the vendors?

What do you get for your royalty payments?

What were your hurdles?

How close was your experience to the FDD?

How on point was the project plan provided by the franchisor?

How is the marketing fund used?

What worked?  What didn’t?

Would you do it again?

Kathee Murphee, President and CEO of Jacksonville Comfort Keepers franchise, recommends talking with franchise owners. “Talking and listening to other franchise owners is an important step in due diligence. You can learn information from others’ experiences that can help you be successful in your own decision making.”

What Else Should You Know?

Additional research on your part will help to answer questions such as:

  • What is the sales proposition of the product?
  • Is the product sustainable? Where is it in its lifecycle?
  • Who is the competition in your market? Are they successful and why?
  • What is the market saturation level?
  • Is the franchise credible in the public and press? Does it enjoy a good reputation?
  • Are the cash requirements reasonable?  What will you do if you need additional working capital?
  • Is lending available? And if so, who is lending and to whom?
  • What kind of staff is needed? What is the degree of difficulty in finding and hiring the right staff?

Meet the Franchisor

Many franchise systems hold Discovery Days. These typically involve a visit to the corporate office where you’ll meet the principals and key staff, hear presentations, observe an operating unit, and get a sense of what the franchise is all about. This is the time to ask any lingering questions. It’s your chance to size up the franchisor. In turn, the franchisor will be doing the same, deciding if you would make a good addition to their system.

One Last Question

How receptive is the franchisor to the franchisees’ input? A franchisor committed to its franchisees will have a method for franchisees to voice new ideas, help solve problems, and maintain a balance in decision-making. One way to offer input is through a Franchise Advisory Council, where the franchisor and franchisees come together to better the overall system. A group such as this can be key to the success of the franchise.

Balance the Pros/Cons and Move Forward

Now it’s time to put it all together. Take all that you have learned about the product and the franchisor, all the advice from your advisory group, along with your financial plan, and personal goals, and decide if this particular franchise is right for you. Are you passionate about the possibility? Marshall Reddy, President of FranNet of North Florida sums it up best: “Matching your talents with the right franchise is a recipe for success.”