For Many Small Business Owners, Franchises Are The Answer

November 1, 2010
By Ned Smith, BusinessNewsDaily Senior Writer

For many business owners, converting an existing business into a franchise operation is the way to have the best of both worlds — the autonomy of running your own operation and the support and marketing clout that comes from being part of a national organization.

Thousands looking for franchise opportunities will flock to the International Franchise Association’s (IFA) West Coast Expo this week. For many small business owners, franchising is a lifeline in troubled times that has kept them afloat and helped them stay in business.

Franchisors generally have a well-known name that is advertised and promoted and also possess specific product or service offerings. They also have developed a blueprint for how their franchises should be operated. When you become one of their franchisees, you pay a franchise fee up front and a percentage of earnings for the right to use offer products and services under their name. In exchange, you receive back-office support, marketing assistance and, sometimes, help in securing financing.

Although you continue to operate with a high degree of independence, you are bound by the rules of the franchise playbook, which can be restrictive. Nonetheless, an overwhelming majority of franchisees find it to be compelling business proposition.

Not alone

One example of a business owner who’s made the switch is Ernie Filice. He served as the owner of Garnett Staffing in Morgan Hill, Calif., for 11 years. But the recession took an especially heavy toll on staffing companies, who traditionally provide temporary and “temp-to-permanent” office help.

Filice became a franchisee for Express Employment Professionals in December 2009 through the company’s “Team With Express” program for established staffing business owners.

“It was serendipity,” he told BusinessNewsDaily. “As an independent, I was always at the bottom of the curve looking up. They made it quite easy for me. The franchise document was fairly easy to work with.”

Today, Filice is doing well despite the tight economy. He has averaged 1,276 employee hours over the past four weeks and increased his hours billed by 26 percent over his first week as a franchisee. Overall, he is up 36 percent in gross margin.

“I don’t think I would have survived without the help of the franchise,” he said. “We’re able to operate as a small business by having the backing of a large company behind it. Now there’s a bit of accountability, which is a good thing. They like to say, ‘You’re still on your own, but you’re not by yourself.’”

Filice says that the franchise fees he pays are really a wash, taking the place of many of the back-office expenses he had before.

“Actually,” he said, “I’m spending less now than I was before.”

Marketing support

The recession dealt a different hand to Joe Reising. His family had owned a General Motors new car dealership in Beecher, Ill., about 50 miles south of Chicago, for 81 years. Until GM phased out the oldest surviving American automobile marquee in 2004, they had sold both Oldsmobiles and Chevrolets.

Then the recession and GM’s bankruptcy hit. Because there were seven Chevrolet dealerships within a 20-mile radius, GM pulled the plug on the Reising’s Chevy franchise as well.

“It’s a pretty big slap in the face,” Reising said.

He converted his moribund dealership into a Meineke Car Care Center after reading about that company’s program for disenfranchised dealers in a trade paper. The Chevrolet dealership closed down on July 2, reopened as a Meineke franchise on Sept. 1 and now shares an existing facility with Reising’s used-car operation.

“The cost of doing business as an independent is just too high,” Reising said.

The cost of converting his business to a Meineke franchise was $100,000, Reising said, which included his franchise fee and new equipment and signage.

He doesn’t expect an immediate payback.

“I’m pretty optimistic,” he said, “but it’s probably going to take a year to get the business going.”

The main attraction of choosing to go with a franchise, Reising said, was the marketing and advertising support. Before signing up, he conducted his own due diligence.

“I ask a lot of questions,” he said. “I checked with a couple of guys who had Meineke franchises and were successful. I think it’s a good company. If you’ve got a question, you can get someone on the phone with you and get an answer.”