Business Consulting Franchise Industry Report 2012 - Franchise Information (3)

Franchise Information

Important Note: The provisions and fees illustrated in this report are only the most common and not a complete listing. Please review the Franchise Disclosure Document (FDD) for all of the provisions and fees related to investing in that specific franchise.

The qualifications needed for each franchise system vary by franchisor. Prospective franchisees considering the business consulting franchise industry need to assess their qualifications to see if they match up with those required in this field. Prospective franchisees also need to determine which franchise most closely resembles their own personal business philosophy. One note from current franchisees is to stay open minded during the process. A franchise can be the right one for you even when at first it didn’t seem to be.

As Sandler Training franchisee Nigel Dunand attests, “Franchising can be a great way to start a business, whether you are looking for executive franchises in areas such as coaching, consultancy and finance, management franchises such as recruitment or care services, or a business in print and design, there is a wide variety of options open.”

Pre-Opening Process

Investing in any franchise usually involves a discovery process. From the perspective of the prospective franchisee, it is similar to visiting a car dealership when buying a car, or going to an open house when purchasing a home. “[The discovery process includes] the candidate getting to know us – what the business is and what the market looks like in the industry,” says Murphy. The discovery process also allows the franchisor to gauge how serious the prospective franchisee is about getting into business with their brand.

After the prospective franchisee meets with the franchisor, usually at the franchisor’s headquarters or at a designated franchise outlet, the prospective franchisee will typically get some additional time to review the company’s FDD. Once the prospective franchisee decides that the business is the right match for them, they will sign the franchise agreement, and enter into the training process before opening their franchised business.

In researching and evaluating potential franchises, there are several factors to consider. Below are some notes on a few of those items that must be considered when investing in a business consulting franchise.

Top Skills Needed

Here are some of the top skills needed in the business consulting industry, as given by Roger Murphy:

• Willing to learn and follow a system
• Good business skills
• Professional in nature
• Ethical behavior
• Problem solving
• Someone who puts clients first

Past Experience

If you have expertise in a certain field, taking advantage of it is a wonderful opportunity to use your existing skills to make your business a success. However, if you don’t have experience directly related to the consulting industry that isn’t a problem. While direct experience is an asset, it isn’t a requirement to become a franchisee. Franchisors offer comprehensive training programs and ongoing support that will provide you with everything you need to operate a successful business within the industry.

Building Rapport

Establishing trust quickly while on the job is critical to having success in the business consulting field. “[Trust] is imperative in our business – you are handling the largest financial asset someone has, or is going to buy,” remarks Murphy. “To develop trust you must have several things in place, including: credibility, a strong reputation, solid referral sources, and good references. This is a relationship driven business and to build trust we showcase that we have relationships with all the professionals that are needed to get deals done. Clients won’t work with us if they don’t feel comfortable confiding in us.”

Owner Involvement

While there are some franchise industries that allow absentee ownership - a management style where the owner is not required to be present on-site to perform day-to-day operations - the business consulting franchise industry is considerably less accepting of the arrangement. In fact, virtually all business consulting franchises don’t allow the arrangement, meaning 100 percent of a franchise system’s current franchisees are owner/operators. Of course, there are exceptions like ActionCoach that do allow for absentee ownership.

Territory

The territory a franchisee will be granted to run their franchised business will be dependent on a number of factors that commonly include one or a combination of the following: zip code, area business profiles, population density, and/or additional factors. Within this industry, being granted an exclusive or protected territory is uncommon. As a franchisee, you will most likely have to compete with other outlets the franchisor owns, in addition to competitive brands that may or may not be controlled by the franchisor.

Initial Costs

The range of investment between franchises can be large due to variations in their business systems and what it requires to execute them. The following charts demonstrate this by comparing initial costs associated with opening one of the 15 example franchises presented below. Initial costs associated with opening a franchise include many items such as the franchise fee, training expenses (such as travel and living expenses, not the actual training courses), real estate purchases (if applicable), additional funds needed for a specified number of months, and more.

Initial Investment Ranges for Selected Franchises

A sometimes overlooked financial requirement involved in franchise investment is the minimum amount of cash, or liquidity, required of a prospective franchisee by the franchisor. Liquidity is the amount of cash someone has immediate access to, or assets that can be converted to cash right away such as certificates of deposit or stocks. The amount of liquidity desired by franchisors acts in a similar manner as a safety net in the opening days of the franchise by making as sure as they can that the franchisee has cash on hand to pay the bills until revenue starts coming in steadily.

Liquidity Requirement for Selected Franchises

In the same vein as liquidity requirements, many franchisors also have guidelines pertaining to net worth, which includes the liquid assets as described above and/or financing available to the franchisee. Net worth is defined as the total amount of someone’s assets (including their home, any stocks or investments, or other items of value) minus their liabilities (the amount owed on their mortgage, credit card debt, or other money they owe).

Desired Net Worth of Prospective Franchisees for Selected Franchises

Ongoing Fees

The average length of the franchise agreement for the 15 highlighted franchises is about 10 years, and regardless of length there will be costs that must be paid regularly during that time period of the franchise agreement. These costs include items such as royalty fees and marketing costs, and are predominately assessed for the franchisee to continue reaping the benefits that come with being a part of the franchisor’s business system. Although fees like these are common, the amount and way they are assessed aren’t universal. The following chart illustrates this by showcasing the royalty fee for selected franchises.

Royalty Structure for Selected Franchises

There are additional ongoing fees that are assessed regularly such as technology fees to cover items like server hosting, internet access, etc. Select fees are assessed on an “as needed” basis such as audit fees or costs for additional training. All prospective franchisees should do their research and carefully review a franchisor’s FDD for more detailed information on all systems, procedures and costs involved before in investing in that franchise.

“If you are going to get into this business, you are going to have to like people, like learning about a lot of different kinds of businesses, like problem solving, be able to stay organized and in control, listen well, have good marketing and customer service skills, networking skills, accept training and be confident – you need to put yourself on same level as CPAs and lawyers,” says Murphy.

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