Franchise Growth (Part 3 of 3)

This posting refers back to yesterday’s listing of top franchise opportunities in 2011, courtesy of www.franchisebusinessreview.com.

Many of the franchises listed yesterday in the “best franchises” are small and in many cases very receptive to working with business brokers. Not only in selling new units, but in handling the sale of existing ones. Even when I was active in business brokerage we sold Orange Julius (the second sale I ever made), Tastee Freeze, Dairy Queen, etc. When franchises make up a very large segment of small business, and represent only 6 percent of the total business sales made by business brokers, a big opportunity is not being taken advantage of.

I can understand why business brokers have trouble selling new franchises. Commissions may be a lot less than a regular business sale. For example, a business might sell for $150,000 bringing in a $15,000 fee. A franchise might require a buyer to invest the same amount, but franchisors might not want to pay a $15,000 fee since the franchise fee might only be $30,000, but FF&E increase the amount to the $150,000 figure.

However, business brokers must realize that they really only have to refer the buyer to the franchisor who essentially does the rest of the deal. In most cases, the broker can only refer someone to the franchisor due to federal and state regulations. So a smaller fee is appropriate. The problem is that he business broker has a buyer who can buy a business or a franchise – same price, but the franchise usually brings in a much smaller fee. Not good sense on the broker’s part. Franchise sales require no dealings with sellers, landlords, regulatory agencies, etc. The franchisor does all that. The broker just refers a prospect to the franchisor and may do a bit of “gofer” work, but that’s it. The big plus is that it can bring multiple sales as a franchisor usually wants more than one unit in an area.

The best way to get involved is to look at the list posted yesterday, check the internet or the local papers. Contact the company’s franchise sales director and see if they want to place units in your area. Go to Barnes & Noble or any large book store and purchase a franchise guide in the magazine section – the International Franchise Association (IFA) publishes an excellent Franchise Opportunities Guide. Visit their web site and order a copy if you can’t find it locally – www.franchise.org. Go through it and start either calling or sending an email – a letter is better, and ask if they would like representation in your area.

At both United Business Investments (UBI) and later at VR Business brokers, we were very successful in selling new franchises. At VR, Fantastic Sam’s and Sylvan Learning had just launched their franchise sales – VR sold a lot of their new units.

For existing franchises, visit one of the franchised units – they are all over and many of the service businesses are franchises. As an example, when I first started in the business, as mentioned above, my second sale was an Orange Julius (OJ). So I started cold-calling the ones in our area. There was one that was a stand-alone OJ in a small strip center. And, as was my custom in cold-calling, I always expected a NO and so was always prepared to turn around and leave. Sometimes I even just turned around and left assuming I would hear a No. As I approached the window of the OJ, and started to automatically turn around, the man behind the counter grabbed my collar and said he was interested in talking. That stop led to the sale of over 10 OJs. The many who grabbed my collar had an arrangement with OJ that if an under-performing unit came on the market, they would refer it to him. He would buy it, build it up and sell it. Guess who did the selling. I am kidding on the quick turnaround when cold-calling, but not by much.

The second lesson in all this is that cold-calling can lead to a lot of deals.