If you are thinking about opening a franchise, the most important advice anyone can give you is to choose the franchise that’s right for you.
Finding that perfect fit doesn’t happen in a day, but when it happens for you, you’ll feel the difference.
Palo Alto Software CEO Sabrina Parsons recently hosted Joel Libava, The Franchise King and a long-time franchise purchasing consultant, for an hourlong chat on how to take the first steps towards successful franchise ownership. Joel’s advice on how to find the right franchise for you is to follow these steps:
- Make sure you’re “franchise material”
- Define your top skills
- Determine your budget
- Match your skills to franchise options
- Contact franchisors
- Contact franchisees
- Ask lots of questions
- Rinse and repeat
Check out the full discussion on “How to Choose The Right Franchise For You” below:
Sabrina: All right, I think we’re going to go ahead and get started here so
that we can use the full amount of time. With that, I’m going to kick off.
This is a Google Hangout that’s going to talk about how do you choose the
best franchise if you’re interested in starting a franchise.
We have none other than Joel the Franchise King. We’re very excited to have
him with us. He is really the expert on all things related to franchising,
but particularly what we like about Joel is his focus on helping a small
business owner who owns a franchise be successful. That includes choosing
the right franchise, and then once you’re running a franchise, best
practices and all kinds of great small business tips that are particularly
relevant if you own and run a franchise.
With that, I’m going to kick it over to Joel. We will have a presentation
that Joel has put together for us that’ll help put all the information that
he’s talking about in front of you. We’ll make the presentation and
information available afterwards as well so that if you don’t want to
furiously write notes you don’t have to.
We might adjust the presentation a little bit to make sure it’s a better
takeaway for everybody, but we can provide follow-up information. With
that, I’m going to kick it over to Joel and let him get started.
Joel Libava: Thank you so much, Sabrina. I met Sabrina about a year ago at
an event in New York City at a Small Business Influencer Awards ceremony.
She had a little request for me, and I didn’t bring it with me. So, here it
is, Sabrina. Here is the actual crown. It stays . . .
Sabrina: That makes you the king. Of course, you’ve got to have a crown if
you’re going to be a king.
Joel Libava: That’s right, and it is safely tucked away behind some of my
castle walls. It doesn’t get taken out a lot, but when it does, it does.
Anyway, thank you so much for that introduction and thank you for having
me. Welcome, everyone. My name is Joel Libava. Obviously, I am The
Franchise King. Real quick, what I do, and then I’m going to get it over to
what this is really about, which is you.
I’m a former franchise broker, which means I used to get paid large
commissions to match folks like you up to franchises. Great little
business, I did okay, but things changed for me. The market was getting
kind of crowded. There were brokers everywhere. I was getting a little
burned out. I really wanted to focus on my passion, which was making sure
that people that do find franchises and do actually buy them can really
really increase their chances of success.
I am advisor. I actually work for the people like you who are looking to
buy a franchise. You are my clients, not the franchisors any more. I’m
coming at this in a really really unbiased way. I’m out to protect you.
If you want to remember what I do, I work for you, and I want to try to
protect you and make sure that you know everything going in and leave no
This presentation is going to focus on how to choose a franchise that is
right for you and what makes a good franchise. I’m also going to go into a
quick question that you should ask yourself, and that is, are you right for
Now, let’s get started. What is a franchise, you might ask. I happen to
know what a franchise is, but in case you don’t, here’s the definition. A
franchise, it’s basically a license. The franchisor, which is the franchise
company and the entrepreneur or entrepreneurs who came up with the
franchise concept, is agreeing to license their service or their product or
both to a person; you, and for that, you pay an up-front franchise fee and
then you get to use their trademarks.
Usually you’re assigned a specific territory, but not always. You get to
use their signage, their colors, their name, their proprietary information,
all the things that they give you, whether it’s software, business systems,
their 300-page operations manual.
Basically you get what I like to call the special sauce. You get it all
once you become a franchisee. The franchisee is the person buying the
franchise. The franchisor is the person selling the franchise and granting
you the right to use the system.
A franchise is just a system. Here’s what you get. You get their operating
system, which is really really the most important part of franchising. That
should be why you’re buying the franchise, because you believe in their
system and you want to get up and running fast. You’re paying for their
experience, and that’s what you’re getting, hopefully.
Hopefully. It’s not a perfect world, of course, but hopefully they’ve made
enough mistakes to know what not to do, and you get to benefit from that
Think about if you were going to start your own business from scratch. You
have a fantastic idea for a service or product that you feel that the
market really needs. You start it up, but the first year is really really
you making a lot of mistakes.
One of the things you do get is the system and the procedures and all the
other goodies that come with the franchise. One of the other things that’s
really important is the brand. A lot of people buy a franchise just because
of the brand. Think about Subway, think about McDonald’s. Is it a good
reason to buy a franchise? Well, it depends. It depends what kind of person
Here are the franchise types. These are the basic categories. The most
popular and the most visible of course, food service. I just taught an
entrepreneur class at a high school, and I asked the girls at the high
school, “What is a franchise?”
Most of them came up with food franchises. We all do that. I did it before
I actually entered the field. Food franchises are visible and they’re easy
to identify with.
There’s also retail franchise, personal services, home services; things
like maid services, handyman services, business-to-business, this is for
the salesperson in you. These are franchises that specialize in consulting,
training. Printing franchises don’t look like they’re business-to-business.
They look more like a retail franchise, but they’re not. They are business-
Sabrina: Joel, can I just ask a quick question?
Joel Libava: Please.
Sabrina: I think food service, like you say, and you’ve given examples.
Everybody knows Subway, McDonald’s. Could you give a well-known example of
the other categories; the retail, the personal services, the B2B, just
because people, I think sometimes it helps them be like, “Oh, I get it. I
know what he’s talking about.”
Joel Libava: Sure, sure. Think of a personal service franchise like a Mr.
Handyman, Molly Maid, Maid Brigade, things like that, things that provide
personal services to the house. Think of a retail franchise. There are
retail franchises that specialize in things like science.
Science by Tomorrow is kind of a combination retail franchise and a
manufacturing franchise. PostNet is a retail franchise, the UPS Store;
something that has a store-front. A well-known business-to-business
franchise, Sandler Training, Sandler Sales Training would be a business-to-
business franchise. I hope that helps a little bit.
Sabrina: I think so. I think that helps. People, whether they’ve heard of
it or not, I think that helps. If you haven’t heard, for instance
Sandler’s, if you’re not in the sales world you may not have heard of it,
but it’s easy to Google, and then you’ll get a good idea of what Joel is
talking about in terms of business-to-business or personal service so that
you start to really think about this.
If you’re here watching him, it’s probably because you’re interested in
considering a franchise.
Joel Libava: Those are great points, Sabrina, because I’m in the franchise
business, so I know what these are, but people that might just be starting
might not know some of the names because I said some of them are branded
and some of them are not.
Here’s a secret. Just because a franchise is not very well-known to you or
very well-branded doesn’t mean that there a lot of really successful
franchisees in that franchise. Don’t just think of the brand as the reason
to go into a franchise. I think that’s really important to know.
There’s a lot of money being made in franchises that you’ve never heard of.
Sabrina: And Joel, something like McDonald’s, and I know you’re probably
going to go into it later so I don’t want to jump in too far down your
presentation, McDonald’s versus a franchise that I haven’t heard of the
brand, am I going to be paying extra money for the brand? Is that something
that always happens, or does it really depend on the franchise?
Joel Libava: That’s a great question. It depends on the franchise. The
costs for branding are usually built in all the fees that are associated
with the franchise, but McDonald’s because they are so dominant can really
charge what they want for the up-front franchise fee, for everything that’s
Does it mean they do? Not necessarily. Some people are looking at two or
three different franchises of a category. Let’s go back to residential
cleaning services. Let’s say that they’re looking at three maid services
The franchise fee might be $30,000 up front for one of them, $20,000 up
front for another one, $25,000 up front for one. The franchise fee is
really just the cost of entry. I never want people to comparison shop
franchise fees because it’s really about more than a franchise fee.
The questions comes to branding, and are you paying more for a well-
established brand? You’re paying, but you might not see what you’re paying,
if that makes sense. The branding’s built in there already, so some of the
things might be a little more costly to you.
But hopefully because they’re branded, it’s going to come back in spades
Sabrina: Okay, great. Thank you.
Joel Libava: Sure. The last franchise type I want to . . . These are just
basic franchise sectors. The green energy-related franchises, there’s a lot
of up-and-coming franchises that are really really trying to tap into green
technology. It’s been a tough, tough road.
There are franchises that offer solar arrays for your house or your
business. They actually design solar energy systems for you. They sell it,
they install it, they service it. That’s more a regional, California,
Arizona, et cetera.
There are franchises that offer let’s say commercial cleaning services.
They’re starting to use green solutions, green chemicals. There are dry
cleaners now that are claiming to be green because they’re only using
Some franchises are out there now that are green because they want to be
green, and some, like a solar energy franchise, are green because that is
their business. It’s a very small sector of franchising, but it’s one that
I think that people should know about.
Next I’d like to talk about some of the risk involved in starting a
franchise. My late father Jerry Libava used this cartoon when he did his
seminars, and when I do public seminars I use it also.
A couple guys sitting on the end of a beam up real high in a 100-story
building, and they’re talking about risk. What this goes to show you is
everyone’s risk level is different.
There are people that fly 2,000-mile-an-hour jets for a living. They’re in
the military. What they do we consider really risky, but when they’re in
the cockpit they probably have a different look or different feel to what
they’re doing because they’re used to doing it.
Your definition of risk and my definition of risk are going to be really
really different, but please remember this. There’s an awful lot of spin
out there that is partly my industry’s fault, that says that buying a
franchise is less risky than buying an independent business or starting
your own business.
It’s really not unless a lot of things line up. For instance, are you a fit
for the franchise? I’m going to get into that in a minute. Are you a fit
for franchising in general? Are you a rule-follower? Is the geographical
area that you live in ripe for the kind of franchise that you’re interested
Do you have enough money for that first year, especially to back you up as
you get started? There are so many things that go into choosing a
franchise, and then once you’re up and running, keeping it up and running
and keeping it profitable.
Sabrina: Joel, I really appreciate you saying that because we hear that all
the time, is that, “Wow, I’ll just start a franchise. It’s less risky.” At
the end of the day, running a business is running a business is running a
business, and it’s not easy.
I would encourage all of you to use Joel’s tips on are you franchise
material, but to also think about some of those if you’re not going to
start a franchise, if you go through all of this and you say, “You know
what, I’m not that rule-follower” or “I’m not that person.” This helps you
understand that maybe you should start your own business.
A lot of these same rules apply. You still have to have money to make it
through the first year. You still have to understand all the risks. If
you’re trying to start a new business to be your own boss, maybe that’s not
a great reason to start a business. I hear it from people all the time.
If you start a franchise, you will be, and Joel will talk about it more,
you will have to answer to the franchisor and you will have to follow the
rules, but ultimately as soon as you start employing people they’re your
boss. You’ve got to meet payroll. They depend on you.
Payroll and your bills become your boss. Think about it from a bigger
picture as well because Joel’s tips are great and some of them are
franchise-specific, but a lot of them apply to running a good small
Joel Libava: Thank you. Thank you very much. Of course proper planning
helps a lot of things, so make sure that before you even think about
applying for a loan that you create a solid business plan because today’s
lenders are looking for that. That’s part of what you need to do anyway.
You need to have a long-term plan for your franchise.
Make sure you’re franchise material. Are you a rule-follower or are you
kind of a rule-follower? If you’re kind of a rule-follower, you should
probably look to start an independent business.
Please don’t think about investing a couple hundred thousand dollars in a
franchise knowing in the back of your mind that you really don’t like rules
but you’re hoping to get lucky because it’s a hot concept. You’re going to
fail. Or you’re at least going to argue enough with the franchisor that
it’s going to be an ugly relationship, and these relationships can be ten
years because most franchise contracts are ten years. So please, before you
even start going online looking for a franchise, make sure you’re franchise
You know yourself. This isn’t a time to fool yourself. If you’ve lost your
job five times, if you’ve been downsized so many times that you are just so
sick of working in corporate America that you have to do something, don’t
make it a franchise if you know in your heart it probably isn’t going to be
a fit for you. Really really important.
The thing that you need to do before you start looking for that perfect
franchise is to really take a break, get a pad of paper, get a pen, and
write down what your top skills are. If you’re really great at sales, if
you’re really good at operations, if you’re good at customer service, write
this down, because you’re really going to be able to use it.
The search for a franchise starts with you. It doesn’t start with the
actual franchises that are out there. You need to figure out what you’re
really best at, and you know, you know.
Write down what you’re really really good at. Some people are great in
sales, some people are very very comfortable shaking hands, networking, and
selling their product or services. That is fine. Write it down.
Some people absolutely dislike sales so much that the word “sales” freaks
them out and they start sweating. If you can’t sell, you can’t sell. That’s
okay. But if you can sell, it opens up the door to a lot of different
opportunities that are out there.
If you can’t sell of if you’re just not comfortable selling, it’s okay,
there are plenty of things, there are thousands of things for you to look
Maybe you’re good at operations. Maybe you’re better at what we call the
back of the house, running things from the back of the house, running the
systems, being in the background. That’s fine also, just write it down.
Maybe you’re great with customers. Maybe you’re the person that all the
employees go to when there’s a headache with a customer or a client. Write
Maybe you are awesome at managing employees. Some people don’t like
managing employees. Some people just aren’t good people managers. That’s
okay, but if you are, write that one down.
Finally, there are some people that are good at managing things and
processes but don’t like working with people. There are opportunities out
there for you like that. It just depends on what you’re looking for in a
business, so write down your top work skills so you know what is going on
with the important stuff. Remember, this is really really about you.
Sabrina: Joel, can I ask a quick question as well?
Joel Libava: Sure.
Sabrina: Oftentimes, we work with small businesses who maybe they decided,
it’s somebody who’s starting a business, and they started out on their own
but then they brought in a partner, do you have some tips and advice if
someone’s thinking of going into a franchise with a partner, be it a
spouse, a brother, a sister, a good friend? Are there some things that
people should beware of, things that are good, things that are bad?
Joel Libava: Definitely. This gets really really tricky. If you’re thinking
about going into a business, whether it’s a franchise or not, with your
spouse or partner, that’s okay. That can be sometimes a little more sane
than going into business with an old college friend.
At least with a family member, you kind of know what to expect. It doesn’t
have to be as formal if it’s a spouse. If it’s a rich uncle, it kind of
needs to be a little more formal. If it’s a college buddy or a college
friend or someone that you used to work with and you want to have them as a
partner, I’m going to want you to do something that’s really really
You’re going to need to find a business attorney and get a formal
partnership contract written up because the person that you’re thinking
about partnering with, once he or she sees everything in writing, you’re
going to know whether it’s a go or not.
Sabrina, you know this. It’s one thing to talk to a friend about “Hey,
let’s get a business together. Let’s buy a franchise together,” but when
the reality sets in and they find out that you are going to learn about
their finances and they’re going to learn about yours and it’s going to get
kind of personal, sometimes people freak out and say, “No no no, I don’t
want anything formal.”
You need to walk away from that, am I right?
Sabrina: Absolutely, absolutely. The biggest pitfalls we see with small
business owners, the ones that are the hardest to solve, are the issues
with a partner when there’s no contract. You both get going, somebody signs
this thing, the other person starts the bank account.
The bank account may be in your partner’s name, not in your name. I know a
good friend who now runs a very successful real estate technology company
here in Oregon, but started as a young person when he was about 20, 21, a
snowboarding clothing company back in the early ’90s when snowboarding was
just taking off.
This company was going gangbusters. He started it with his then girlfriend,
broke up. He was the on-the-ground sales guy, and also, he was a
competitive snowboarder. So he dealt with the operations of the clothes and
the styles and the fulfillment, and she dealt with all the financial stuff,
the bank account, the credit lines.
When they broke up and she got upset, everything that was worth anything
was in her name. She totally destroyed the business because of a very bad
breakup, and there was nothing he could do about. He didn’t have any
agreements, stuff wasn’t in his name, and to this day, he knows that it
could have been a big big company.
He was tripling his sales every quarter. She just took all the money,
dissolved the business, and it was all in her name. There was legally
nothing he could do even though it sucked and it was not in good faith and
it was not what they agreed to. He oftentimes does a lot of talks here at
the U of O Business School.
He went and got his MBA after this disaster. He’ll talk to the business
school students and basically say the same thing that you’re saying, Joel.
It might be uncomfortable, but if people aren’t willing to sign a contract
and put things in writing, then when stuff gets tough, that’s when those
people aren’t going to be able to handle it.
Joel Libava: That’s right, that’s right, and it is one thing to talk to
someone, talk to a friend or an uncle about maybe getting some backing or
going into business together, but when you send this over to them, they
have to fill it out, and they know that you’re going to see it. It might
The spouse, if there’s a spouse involved, might get uncomfortable. “Hey
honey, you know what? I don’t want to show them our finances.” It gets
really weird. That’s why it’s important to do this up front.
What you’re looking at is a net worth statement. It is easy to do. Before
you look for a franchise, you have a few things to do. You have to write
down your skills, you have to decide if you’re really franchise material,
if you’re comfortable with rule-following, and you have to figure out a
The only way to do that is to start at the beginning. Do a net worth
statement. Simple, assets on one side, liabilities on the other. The
difference is your net worth.
Franchise doors are going to want that. Most of them before they have
serious discussions with you are going to need to know what your net worth
is. A lot of them have minimums, usually three $300 to $350 thousand net
worth. That kind of range is a minimum for a franchise.
They’re also going to want to know what your liquid assets are. You may
have a $500,000 net worth. I’ve seen this before, $400,000 of it is in IRAs
and 401Ks, and I’m sure, Sabrina, you’ve seen that too. IRAs and 401Ks are
not liquid assets.
If you have a stock that is not in an IRA, that’s liquid, but IRAs are not
considered liquid. Franchisors will not look at that as part of your
liquid. Am I right?
Sabrina: Absolutely. Like Joel says, you’re going to have to show them your
underwear. You’re just going to have to do that if you’re going to go into
business [inaudible 00:25:58].
Joel Libava: I didn’t say that.
Sabrina: Well, you are. You’re going to have to expose all the finances.
Joel Libava: You’re right.
Sabrina: And you want to, right? The last thing you want is to get in a
relationship with someone who’s your good college buddy that you didn’t
know has now defaulted on five different credit cards and his credit or her
credit is in a mess.
There’s no reason you should know if you’re just college buddies and you go
to the football game together, but if you’re going to be in business, you
definitely need to know because that’s going to affect your business
finances, your ability to get a loan, your ability to get approval by the
franchisor. It’s a whole different ball game.
Beyond that, think about a scenario where you start a business with your
partner. Everything’s going great, and then some life event happens to your
partner and they want out. They say, “I’ve invested x amount of money over
the last three or four years,” and then that person puts someone out.
Maybe that’s a right amount, maybe it’s not. Maybe the person’s crazy about
the value that his investment or her investment from three years ago is
If you’ve got contracts about who owns what, who put what in, where’s the
equity and the ownership, and then what happens if somebody wants out?
What’s the buyout price? How do you calculate? How do you calculate
valuation? All those things, and there’s no arguments.
Then the person says, “Hey, I want out,” and you go, “Great, let’s look at
the contract. Let’s see where we are. We’ve got the formulas in there, and,
oh look, I owe you x amount of dollars, and that gives me your ownership,
and I’m good to go.”
If you don’t have all of that, you guys are going to be in a mess, and most
likely it’ll basically pull the business apart. Beyond the now you’ve got
to expose your personal finances to your partner, you’ve got to put down on
paper things that sometimes are difficult to talk about, and especially
Like Joel said, sometimes it’s easier with family members because you can
talk about hard subjects, and sometimes it’s not. You’ve got to put it down
in writing legally in a contract.
Joel Libava: I have the best tip ever on this topic, Sabrina. It comes from
my late father. He said, “Joel, when you work with people that are looking
at franchises, try to suggest gently to them,” which is not my way of
operating, but he suggested that, “Try to do without a partner,” really,
because not only if it’s a little complicated up front or a lot
complicated, you have to make twice as much revenue.
You have to make twice as much money because you’re dividing it in half, so
you have to have some pretty aggressive business plans going on to start
If it’s a multi-unit operation where you’re planning on opening three or
five of these franchises, then the partnership idea might not be bad, but
get everything in writing. Get everything in writing.
Sabrina and I have seen a lot of different nightmares happen. It’s fun to
talk about getting into business with someone, but the reality is usually
Sabrina: Like Joel says, if you can start it on your own, start it on your
own, and then if things are wildly successful you’re ready for that second
or third location, it puts you in a power position if you then start to
look for a partner.
At that point, you’ve taken the riskiest part of the endeavor. You’ve
started it. Things are going really well. You own it 100 percent. You’re
now in the power position to make an offer to someone to say, “Hey, you
want to join me. I’d like a partner, and this is what I’m offering for this
It’s no longer two people starting it from zero, having to split equal-
equal. If you can get it started on your own, you can always bring in a
partner later if things are going phenomenally and you need the extra help.
Joel Libava: That’s right, that’s right, so please remember this, folks.
Now that Sabrina and I have totally freaked you out about partnership,
let’s get on to the fun stuff, which is choosing a franchise.
Remember I talked about writing down your top skills. Now it’s time to be a
Here’s a sales guy. If you are comfortable with sales, when you start your
search for a franchise, try to determine if there’s going to be a sales
aspect to your ownership. Make sure you know what the role of the owner is.
If you’re good at selling, there are franchises out there that allow you to
use those skills. I mentioned Sandler Sales Training as an example. It has
the word “sales” in it. There’s business coaching franchises. There are
franchises where you have to go out to find customers.
Here’s one that you don’t think is sales, but it is. I’m sure out of all
the people in this Hangout today, thousands of you, well maybe not
thousands, senior care is probably one of the things you’re thinking of.
Folks, if you’re looking to get into a senior care franchise because you
really want to impact the lives of senior citizens and their families, that
is a fantastic reason to do it, but know this, it is a sales business.
How do you think families that need help with their aged parents and aging
parents, how do you think they’re going to find you? They’re not going to
stop at your store front at the strip center where you’re located. You have
to go find them.
You have to create relationships, referral relationships with hospitals,
nursing homes, attorneys, people that can provide you referrals. It is a
sales and marketing business. The service just happens to be senior care.
Please remember that.
That is why it’s so important for you not to assume you know what the
franchise owner does. You’ve got to dig in deep. Most of the franchise
websites give you enough information to do that, but please make sure you
know what the role is as the franchisor. Very, very important.
Senior care is a fantastic business to get into now. Just make sure you can
sell or you can hire someone that is a real tiger and can sell, and adjust
your business plan for that because you’re going to have to pay some pretty
good money for a strong salesperson.
I talked about people management. If you’re good at managing people, maybe
there’s a franchise out there that allows you to manage a large number of
people. Going back to senior care, guess what, you have a ton of employees.
Some of them are part-time, some of them are full-time, but the providers
are actually your employees. You’re in charge of their payroll.
If you’re good at managing people, maybe that is an opportunity that you
want to look at.
Food service. If you own a Burger King or a McDonald’s, you have a lot of
employees. If you are a multi-unit owner of a food franchise or a retail
franchise where there’s a lot of employees, if one of your top skills is
managing people, by all means look at that.
Some people are good at managing people, some aren’t. I’m not. I’ve been
there before. I know that, so I would never look at something where I’m
going to be in a management capacity for people. I would do better at
something where I’m out and about networking. Please make sure you realize
I also talked about customer service. I’m going to go back to the personal
service business industry for a minute. Think about it, if you own a
residential cleaning company like a Maid Brigade or a Molly Maid, something
like that, where customer service is the key, it could be a good business
for you because people complain.
If you’re the go-to person, and you are really really good at shmoozing,
think about an opportunity where there are a lot of interactions with
customers and clients, and you could really really shine.
It doesn’t matter what the franchise is or what the franchise does as much
as it matters what you’re good at and what skills you can leverage when you
choose a franchise. Please have an open mind.
Once you decide your top skills and once you start thinking about ideas, it
is time to look for a franchise. You can go online, Franchisedirect.com is
one of the people I partner with. It’s a great website. There are hundreds
of different franchise websites around. They all are there for one reason,
to provide information for you and to provide a way for you to contact
Once you start looking at some of the big franchise websites, let’s say
that you’re interested in a franchise that specializes in dry cleaning. You
go to the web page, and there’s going to be something called “Request More
Information.” There’s going to be a form on there for you to fill out your
name, your address, phone number, possibly some financial information, just
some basic things.
If you see a couple opportunities on these websites, request information.
It sounds like, “Well yeah, Joel, that’s a no-brainer,” but you know what?
You can be a little nervous doing it because the reality of buying a
franchise and the reality of looking at a franchise are way different.
It’s one thing to say, “Well, I’ve been downsized from my corporate job. I
think I’m going to get my own business. I’m going to start looking at
franchises.” You start looking around and you find one, and it says,
“Request More Information,” and all of a sudden you find yourself freezing.
Oh man, do I really want to do this?
Requesting information from a franchisor is a little baby step, but it’s
also kind of a big step. You’re not signing your life away, you’re just
requesting information. There’s no obligation.
If you see a few franchise opportunities, fill out the forms, request
information, because you don’t know what you don’t know. Arrange a call
with a franchise representative. Believe me, if you fill out a request for
information form, if it’s a franchise that is very good with follow-up and
very professional, you’ll hear from them within the day.
They will email you back, and they’re going to want to arrange to have a
phone call. Get to that first phone call. Request information, get to that
first phone call.
These are only franchises that you feel you’re a fit for, though. Make sure
you’re matching yourself to opportunities that can really leverage your
skills. Hopefully I’ve been pounding that home enough, but it’s really
If you’re still interested, that’s when you start talking to franchisees,
and that’s when you find out if you’re franchise material for that specific
Keep doing it. Rinse and repeat, I call it. Keep looking at opportunities
until you find what you think is the one. You’re going to know when you
find the one, but it might take as long as you want. It also might take
longer than you want.
Figure, from beginning to end, when you start looking at a franchise until
you actually buy it, figure 90 days. Sabrina, you’ve gone through this with
a lot of people because of your company and helping people write business
plans. Three or four months is the norm if you’re going to do it right.
Sabrina: If you think about it in the scheme of things, that’s not that
Joel Libava: No.
Sabrina: A lot of people will take three or four months just to figure out
if they want to jump off the cliff to start a business. The only thing I
would echo is I think there’s a lot of people who are hesitant to ask
business information because they don’t want to appear, I hear this all the
time, “Oh, I don’t want to look dumb.”
I say, “Well, it’s because you don’t look dumb if you ask questions.” Most
people who start small businesses didn’t get an MBA. They aren’t business
majors, they’re people who are passionate about running a business and
being in charge and maybe passionate about say a particular franchise.
They really believe in what they do or they believe in the product or their
skills match so well they become passionate about it. It doesn’t mean that
you are the absolute business guru with an MBA, so ask the questions. Don’t
be afraid. Understand what is meant by product margins. Ask all the
questions. Look at a balance sheet.
Sit down with an accountant, a CPA. Almost everybody has a friend who’s a
CPA. There’s a lot of them out there. Ask a friend to sit down with you and
go over some of the financial statements and understand them, and then you
can ask better questions when you get in touch with that franchisor and
that person who’s charged on the franchise side to help you understand
whether you’re going to buy into that franchise. You can ask them all those
You don’t want to not ask a question and a year later say, “Oh my gosh, if
I had only known.”
Joel Libava: That’s right.
Sabrina: So don’t be afraid. You’re not supposed to know it all, and the
more questions you ask, the smarter you look. You don’t look dumb for
Joel Libava: You are 100 percent right, and I’m glad you brought that up
because a lot of people I’ve worked with over the years are ex-CEOs of
companies. These are people that are used to making four or five hundred
thousand dollars a year. They’ve come in with big egos and a lot of
knowledge about business, more than me, but they’ve never bought a
franchise. It’s a different process.
So, put your ego aside. You’re not going to look stupid. It’s not about you
looking stupid or you looking smart, it’s about getting information. Ask
great questions. I have tons of questions that you can ask franchisees and
franchisors on my main website. They’re in my e-books, they’re in my
Everything you want to ask is there. The information is out there. Even if
you don’t get it from me, you’re going to find the information if you look,
but believe it or not, there are people who during their franchise
research, which really wasn’t research, I don’t know what it was, never
even talked to existing franchise owners of the concept that they were
interested in. They didn’t even think about doing it.
You must talk to the people that wrote the check. There are people that are
just like you in these franchise systems that were nervous, that weren’t
sure if it was right for them. They’re the ones to talk to.
They will tell you the truth if you know how to ask the questions and you
know when to ask the questions. It’s really important. They have no reason
to be dishonest with you. Franchisees don’t get $500 checks sent to them by
the franchisors to say good things. They’re going to tell you the truth.
You just have to ask them the right way.
To summarize, if you really really really, because I want to leave some
time for Q&A, if you really want to make sure that you’re choosing the
right franchise for you, don’t start by going to look for a franchise
first. Start off with you. Make sure you understand at a deep level what
you’re really good and what you think you’d like to be doing as a
Make sure that you are okay with rules and do your budget. Make sure that
you’re going to have enough money for that first year because the first
year it’s tough. Don’t plan on making any money. Plan on paying your bills,
meeting your expenses.
When you write a formal business plan, you’ll know exactly where you’re
going to be based on projection. The projections might not be perfect, they
might not be right, but they’re going to definitely be a guidepost for you
to keep on moving. That way, you don’t have to guess.
Rinse and repeat until you find a franchise that feels right. I’m telling
you, you’re going to know when it feels right. You’re going to visit
headquarters. You’re either going to trust the CEO of the franchise company
or not. You’re either going to see a real franchise operation in front of
you with support and computer systems and field officers are going to go
visit you or you’re going to see an operation that’s run out of a basement.
The only way to do that is to visit headquarters. Use your guts. If you
have trusted your instincts in the past, you’ve really got to trust it with
this. Try, it’s really hard to do, but try to take the emotion out of it.
Stick to the facts. Make a decision based on facts if you can.
That’s what I have for you. I really really really want to open it up for
Q&A. There is a special bonus waiting for you if you go to a webpage that I
created. If you choose to do this on your own and you want some guidance,
grab my e-book.
If you go to thefranchiseking.com/bplans, there is a special discount. The
e-book has everything you need. There it is now, and it comes 100 percent
This Google Hangout was not set up to promote the book, but there are
people that really really want to make sure that they’re doing this right.
Grab the book if you think it’s for you. If you don’t like it, let me know
and I’ll give you your money back. It’s really not a big deal for me to do.
I want to open it up for Q&A.
Sabrina: Great, great. Thanks, Joel. I really want to reiterate that the
Google Hangout is meant for information, but Joel’s book and the reason we
have him here is because he’s got great information.
If you’re really thinking about starting a franchise, this is a good first
step. It’s not going to cost you a lot of money. It’s going to give you a
lot of information, and like Joel says, if you don’t think it’s right for
you, he’ll give you your money back.
These are the small things that if you feel like you can’t do something
like this maybe you’re not quite ready to start a business. A business is
going to be a big endeavor, and you are going to have to put some good cash
out, especially that first year, so start with information.
We do have some questions. I’ll start with this one that might be a trick
question, Joel, because you have emphasized in a really positive way that
the best franchise to start is one that matches the person’s skill and
their risk profile, how much risk they’re willing to take.
Someone still wants to know, is there a franchise that you would consider,
or a type of franchise that’s easier to start than others? Are there some
that maybe lend themselves to be better, not 300 percent jobs maybe; part-
time jobs. Is there anything that somebody could look at to say, “Wow, if
you really want something easy, maybe it’s not going to make you a ton of
money, but maybe it’s just some additional income on the side.” Is there
something like that? Is there a franchise you would say is the easiest to
Joel Libava: In my book, there’s really not one franchise that I can think
of that is easy to start. There are franchises that I can think of that are
home-based that might be easier on the pocketbook.
When I think of home-based, I think of envelope stuffing or stuff where I’m
at my home office. A home-based franchise doesn’t necessarily mean you’re
going to be at home. If you think about a home-based franchise, think about
the fact that you’re probably not going to be home much. You might have to
go out and sell.
Are they easier to start? Only financially. You can make a lot of money in
a home-based franchise. There are business-coaching franchises out there
where you are home-based but you are usually meeting in your client’s
They’re $75,000 to $100,000 total investment, but you have to be
really good at sales and you have to be good at coaching. You have to have
a lot of experience in business to do it. There’s no such thing as an easy
You know what? Business is tough. It’s tough. There’s competitors. There
are mom-and-pop operations that you’re competing against, there’s
technology that always creates some ruckus when new technology comes out.
It may affect your business. There’s really no such thing as an easy
It’s only easier if you’re a good fit to begin with and you have the
stomach for the risk because there’s risk involved.
Sabrina: Great great great. Wonderful. Thank you.
Looking at a franchise and funding that, what is the difference between say
me just opening a business and then needing to figure out a small business
SBA loan? Do franchisors sometimes provide easier paths to getting a
business loan, or is it really just dependent on your personal credit? How
do I navigate that whole business loan landscape if I’m going for a
franchise? Is it different than just starting a regular business?
Joel Libava: It used to be that if you were looking at a franchise business
versus an independent, if you were working with a local lender in your
community and the franchisor was something that the lender at least heard
of, it was a little bit easier to get the franchise up and running.
There’s something called the SBA registry, which is a small business
administration registry. If you Google it, you will find franchisors that
have been somewhat vetted by the SBA, but they’ve been vetted for being a
franchisor. They haven’t been vetted for being a successful franchisor.
They have met the requirements that they provide this and they provide that
system, et cetera. In most cases, it should be a little easier to get a
franchise financed because the figures in the business plan, everything’s
going to be a lot tighter because it’s been proven already.
The franchisor can certainly try to help a little bit, but banks these
days, and you know this Sabrina, if you have average or less than average
credit, I don’t care what franchise it is, it’s going to be tough to get
financed. You credit has to be good. Make sure you check your credit score.
If you can, use the free credit score websites out there to make sure your
credit score is decent enough to get funded because it’s still a tough
lending environment. Lenders for the most part are looking for ways to say
no, and you don’t want to give them any. You don’t want to give them any.
I’m not trying to be negative, but I’m telling you that the reality of the
situation is you better have good credit and you better come up shooting
with some money down, and that 30 percent is probably going to be that
Sabrina, you so the business plans. You see this a lot more closely than I
do, but I am not hearing of the lending environment getting that much
Sabrina: I agree. In fact, it’s one of the things that I try when I can to
lobby on the small business side. I think one of the most important things
has to do with making credit more available to small businesses. Definitely
yes, personal credit says something about how you manage money, and so if
your personal credit is a mess, I do think that you should start by fixing
that because when you run a business you’re managing money. But that being
said, I also don’t think it’s fair that small business owners don’t have as
A large corporation has all kinds of options in terms of getting cash in
the door that small business owners just don’t. Hopefully that gets better,
but right now, Joel’s right, it’s not better, and you better have a
A franchise business plan should be a little bit easier in that the
franchisor should provide some benchmarks and some numbers in terms of
marketing spend, and you know what it’s going to take to license all of the
brands in the franchise. You’re going to have a few more knowns in your
business plan, but you’re still going to have to go out there and figure
out, is my town even a good town to start this franchise?
Beyond the “Am I a good fit with this franchise,” the next step if you say,
“Great, I’m a good fit with these types of franchises,” is then the market
research. How many of these franchises are in your town? Can they support
another one? Are there none, and if there’s none, maybe there’s a reason
for that. Maybe the people in your town aren’t going to buy these services.
You’ve to really understand that in order to put your business plan
together, and then that’ll help with getting your loan, but it’s a tough
lending environment. We hope that it gets a little bit easier for small
But that being said, once you get your money, if things aren’t going great
a year later, it’s going to be even tougher to get more money. You really
have to think about understanding how much money you really need to float
you until you start bringing in more cash and profits because going back a
second time for money if things aren’t going well is going to be even
Joel Libava: I agree, I agree, but folks, don’t let this scare you. If you
want to be in business for yourself, do it. You don’t want to look back on
your life when you’re 85 years old when you had that chance when you were
out of a job or your job was so bad that you just had to do something.
You don’t want to look back on your life and say, “Man, why didn’t I at
least take my shot?” If it feels right, take your shot. Just do your
homework and be cautious.
Sabrina: Exactly, exactly. I think we’re telling all the cautionary tales
because if you can learn today from some of the failures that other people
have had, you’ll be better off. It’s exciting to own your own business. You
so have different levels of power and flexibility, and so if your risk
profile is such that you go through all of this and you’re excited, go for
it, but, Joel mentioned before, get data, get information.
I think that’s all we’re saying is get as much data and information as you
can, both when researching the franchise as well as when writing your
business plan as well as going forward. Talk to people. A lot of times
market research sounds very scary. What it can be in most cases is stand on
the street corner of the location you’re thinking of renting or leasing for
your franchise, and talk to the people who go by.
Have a clipboard and count how many cars drive by. Is there parking
available? That’s market research. A lot of times people think it’s
something big and fancy that need to pay a lot of money for, and it isn’t.
It’s just simply market research. The best kind is the kind when you
actually talk to people and you say, “What would you like? What are you
missing? Would you buy this?”
Simple things like foot traffic and car traffic and parking availability
are great to get a sense of, is this the right location, is this the right
business, is there a market for it? It’s all about just putting your ducks
in a row, making sure you have all the information and then you execute.
When you write that plan, really a lot of people will say, “It’s going to
be wrong. Why should I write it? I can’t predict the future.” You should
write it because it puts your assumptions down on paper and so then when
you start to maybe miss those assumptions, so you’re not making your sales
goals or you’re spending too much money, you can go back and say, “Wait a
minute. Why did I think I was going to sell to 100 people a day? What made
me think that?”
Then you can go back and say, “Oh wow, when I did my market research, it
was on the big game day weekend and I didn’t realize there was a lot of
people from out of town, and so my assumption was wrong. I better go back
and do foot traffic counts on a normal weekend.”
That’s what the business plan really does is it puts down your assumptions,
and then it’s easier to go back and find out which one of those assumptions
are wrong and then change those and adjust those levers.
It’s all about get your data, get your information, and then you’ll run a
great business and you’ll be excited and you’ll be successful.
I have another question. When you look at those lists that you can see
published, people will publish, you know, the fastest growing franchise and
this, the most successful. There’s all these lists. Should that influence
someone on what they should be starting?
If something’s on the list as the fastest-growing franchise, is that a red
flag? Does that mean maybe there’ll be too many of them and the market will
be oversaturated? Do I pay attention to any of those lists?
Joel Libava: I would pay attention to the lists if any franchise concepts
that are on the list are a fit for me, for what I’m good at. Otherwise,
they’re fun to read and it’s always nice to see top 100 or top 500, but
they don’t matter to you on a personal level.
The best franchise for you might not be on that list, but it might be.
Should it influence you? I don’t know. It’s okay to look at.
Sabrina: Another question, what sort of research tools should somebody use
to check the assumptions provided by the franchisor? When the franchisor
says, “Here’s what we expect and here’s some help with your marketing
plan,” how do I know that it’s not just more branding to sell me on the
How do I do a gut check to understand if I’m just being outsold by the
Joel Libava: This is an easy one, Sabrina. Find a couple franchisees that
are in business and ask them. All you have to do is say, “Look, I was
talking to the sales rep, and he or she told me that it’s going to be here
and then that’s going to be here and I’m really going to have to only spend
this on marketing. Are they right? What are you doing? Is this right?”
If you ask it that way, the franchisee’s going to open up. That is where
the truth will come out. The franchisee’s, start making some friends with a
few of them. Find out if what they franchisor’s telling you is truthful by
just asking the franchisees.
If the franchisor says that it’s between $200 and $225 thousand, all in to
start the franchise. Is it about what you had to spend? “Oh no no no, I’m
in Oregon. I had to spend $175,000” or “No, I actually was outside of
Manhattan. I had to spend 350.”
That’s the geography again.
Sabrina: Great, great, great. Great advice, and it goes back to don’t be
afraid to talk to people.
Joel Libava: Right.
Sabrina: For whatever the reason, when people assume that they don’t know,
especially in business, they get very shy about talking to people and
asking questions. At the end of the day, most of us aren’t MBAs and
I don’t have an MBA either, and in fact, I’m a history major. What I’ve
learned in business is information is golden, and so listen to Joel, go
talk to people.
If you’re thinking of opening a Subway down the street from an existing
Subway, maybe that’s not the best franchisee to talk to.
Joel Libava: That’s right.
Sabrina: Maybe you want to talk to the one in the . . .
Joel Libava: Start far away.
Sabrina: Yeah, in the next town over.
Joel Libava: Start far away and move in.
Sabrina: Exactly, because you don’t want to set up a nasty competitive
environment with someone. That’s not to say that you might not open a
franchise that’s down the street from a competing one, but just be smart
about who you go to.
There are so many people you can talk to, and I’ve really found that people
like to share their expertise and their knowledge, and they don’t need to
be compensated. They just like someone to say, “Hey, you’re knowledgeable.
I think you have a lot of information you can share. Would you share it
with me?” People like to be the experts.
Joel Libava: That’s right, that’s right.
Sabrina: Great. Well, I think that’s kind of the end of our session here
and most of the questions that we’ve had. I really want to thank Joel. I do
want to encourage you guys to check out his book. It’s really got some
great tips that’ll put you on the right place.
If you’re looking for business planning tools, check out bplans.com. You
guys obviously are aware of it because that’s how you got to this Google
Hangout. We have lots and lots of information for you. Bplans.com has 500
full complete sample plans. Some of them are for franchise business and
some of them have been disguised, but if you’re curious about some sort of
a sub shop or a pizza or a computer tech retail outlet store, you’re going
to find that on Bplans. Check it out and get information there and then
from there if you’re interested we have other planning tools and business
management tools. Check out liveplan.com.
Really the first place if you’re thinking of a franchise is to head over
and check out the information that Joel has for you on his website and in
Joel Libava: That’s right, thefranchiseking.com. I’d love to see you there.
I have to go return this crown to its secret place. Thank you for having
me. Great to be with you guys. Bplans, you guys rock, so keep doing what
Sabrina: Thank you so much, Joel.
Joel Libava: Sure, sure.
Sabrina: Thank you, everybody.
Joel Libava: Okay, I’m taking this away now.
Sabrina: Okay, bye.