canadian
T h e
m a g a z i n e
f o r
f r a n c h i s e e s w w w. c a n a d i a n f r a n c h i s e m a g a z i n e . c o m
Financing Your Franchise
volume 2 issue 1
$5.95
Realizing the dream
painting the franchise world Pink
LATEST NEWS
FINANCIAL ADVICE FROM THE BANKS
TOP LAWYERS’ ADVICE
I began my journey with Sherpa Kids wanting to do something worthwhile in my community. I’m not a salesperson but I love talking to Principals and Governing Council members about Sherpa Kids.
Sherpa Kids will work and engage with all stakeholders to ensure continuous learning that meets children’s needs. We pride ourselves on creating a nurturing and caring environment for the care of your school-aged children. We do this through a structured and well-balanced program in before, after school and vacation care services. Become a Sherpa Kids Country Master Franchisee and make an investment on two levels. Your new life will be rewarding financially and personally as you help school communities and franchisees achieve their business and lifestyle goals. Each member of the Sherpa Kids Franchise System has an important role to play. The success of every individual Franchise strengthens the Sherpa Kids brand. A growing Franchise System means greater marketing and advertising power, more brand awareness, higher market penetration, new and improved systems, and more team members to share knowledge, ideas and strategies. Already operating in 4 countries – Australia, New Zealand, South Africa, England, Canada and soon to be Ireland.
Canadian Franchising
from the desk of the CANADIAN FRANCHISING VOLUME 2, ISSUE 1 president: Colin Bradbury. colin@cgbpublishing.com
publisher: Vikki Bradbury. vikki@cgbpublishing.com
EDITORIAL: editor@cgbpublishing.com
Advertising Sales: advertising@cgbpublishing.com
LAYOUT: bergdisdesign@gmail.com
COVER IMAGE: Yeh! Yogurt
CGB PUBLISHING 676 Wain Rd. Sidney, BC V8L 5M5 CANADA www.canadianfranchisemagazine.com Proud member of the IFA:
International Franchise Association 1501 K Street, N.W., Suite 350 Washington, D.C. 20005 Phone: (202) 628-8000 Fax: (202) 628-0812 www.franchise.org
“The only way of finding the limits of the possible is by going beyond them into the impossible”. Arthur C. Clark
S
o you have decided to take the step to entrepreneurship well done! Canadian franchising offers expert advice on some of the many questions you may well be asking yourself as you take this Journey. In this issue we discuss realizing the dream by John Blair of franNet in which he asks the very question I posed at the start of my comment. Positives and negatives are addressed and excellent tips and advice are given in this article. Buying into the American Dream is covered by Ned Levitt of Dickinson Wright LLP plus we have lots more informative advice from some key figures in the world of Franchising. Got questions on Finance, let’s face it this is one of the main items you will need to have in place unless you’re one of those rare big lottery winners. Joseph Pisani of BMO talks us through the five C’s of obtaining credit, How do you communicate what is needed? What should the application include? Where does one even start? Last but by no means least, we have our cover story where we get to meet the energetic and gutsy Gurman twins of Yeh! Yogurt. A wonderfully tasty franchise that is painting the world pink! I hope you enjoy this issue and don’t forget to check out our website www.canadianfranchisemagazine.com or like us on Facebook, maybe even send us a tweet! We are always interested in comments from our readers or maybe you have a question that we can address with one of our experts, Happy reading,
Vikki Bradbury
Publisher
The information and contents in this publication are believed by the publisher to be true, correct and accurate but no independent investigation has been undertaken. Accordingly the publisher does not represent or warrant that the information and contents are true, correct or accurate and recommends that each reader seek appropriate professional advice, guidance and direction before acting or relying on all information contained herein. Opinions expressed in the articles contained in this publication are not necessarily those of the publisher. The publication is sold subject to the terms and conditions that it shall not be copied in whole or part, resold, hired out, without the express permission of the publisher.
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34 On the Cover 10 Yeh! Painting the Franchise World Pink 16 Finance Your Franchise
29
38
19 Realizing The Dream
19
canadian franchising
volume 2 issue 1
In Every Issue 06
What’s New Canadian Franchise News
16
Financial Advice
38
Legal Advice
Page 4
44
10
22
Expert Advice 12
Buying into the American Dream Edward Levitt Dickinson Wright LLP
16
financing your Franchise
The 5 C’s of Credit
19
38
Joseph Pisani BMO
Realizing the Dream
Three ways to go into business for yourself
24
29 International News Franchisee’s Ongoing Obligations Bianca Sevastos Baybridge Lawyers
John Blair FranNet
Quality Lease Negotiations
8 Steps every Franchise Owner should take for Their Family
44
David Wimer Advisors LLC
What To Consider When Taking The Road To Entrepreneurship and Franchising
Wayne Maillet Franchise Specialists
Scott Simcik FGP Commercial Leasing
26
Factoring
How to Finance your Business without Debt or Dilution of Equity
Franchisor In Depth 34
School is Easy
40
Sherpa Kids
Profile 22
Mr Mikes
48
Pillar to Post
40 Page 5
canadian franchising
Canadian Franchising
canadian franchising
dogtopia
there is great news There is great news for dog owners in Vancouver, Coquitlam and Calgary! Dogtopia will soon be providing an alternative to chewed up shoes and shredded couches! The best dog daycare franchise in the United States is about to open the first Canadian location. Chris Aconley from Port Moody, BC, is combining his entrepreneurial spirit and love of dogs to open the first Canadian Dogtopia franchise in Coquitlam. The grand opening is scheduled to open this fall. “The pet industry is booming, and I am excited to be a part of it. I love the business model and I love the core values of Dogtopia”, Aconley stated. “What really set Dogtopia apart from other franchise opportunities was the focus on the well being of the dogs, while still creating a profitable
business model”. Soon to follow the Coquitlam grand opening will be stores both in Vancouver and Calgary, opening before the end of 2014. Dogtopia currently is opening the 30th store in the U.S., in Orange County, CA. This month Dogtopia will also be hosting the 10th anniversary of the annual Charity Dog Wash in locations across
the U.S. raising money for the charitable arm of the company, K9 Support. With regions now open in Eastern and Western Canada, and across the U.S., Dogtopia is the fastest growing franchise in the pet industry. If you are interested in finding out more about franchise opportunities within Canada, please visit dogtopiacanada.ca.
fox and fiddle Award winning Group of Pubs
The award winning Fox and Fiddle Group of Pubs is a wellknown brand that will be celebrating 25 years of delicious pub fare this December. There are several locations all over the GTA, British Columbia, North Bay, Windsor and Winnipeg with plans to expand all over Canada and into the United States. Our Group of pubs are warm and inviting and enjoy an array of patrons from the young and curious to the older refined clientele. As time has gone by we have evolved and changed along with our patrons; from our menu items to our branding and interior design. We observe the trends and listen to our clientele’s wants and needs and always strive to make the Fox and Fiddle a home away from home. Each location is specifically tailored to its neighborhood to make it just right. Come try our delicious new menu items, our thirst quenching domestic and imported drafts and our superb cocktail menus. Our patios are now in full swing, with live entertainment, a fire pit in York Mills and cool breeze misters at Yonge Street. Follow us @FoxandFiddle on Facebook, Twitter and Instagram for daily posts, contests and promotions at the Fox and Fiddle. www.pegasusgroup.ca
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MR MIKES SteakhouseCasual set to
sponsor Airdrie-to-Olds MS Bike Tour
What’s better than kicking back, relaxing and enjoying a cold beverage after an 80-kilometre cycling trip? Doing it for a good cause. This year the Johnson MS Bike Tour, a two-day ride from Airdrie to Olds and back on June 14 and 15, will offer riders something a little different at the end of the first leg of their trip: food and relaxation courtesy of MR MIKES SteakhouseCasual. On the evening of Saturday, June 14 in Olds, the popular steakhouse chain will be treating the top 100 fundraisers from the ride to a sponsored VIP area – a place where riders can mingle with local dignitaries and enjoy signature drinks and appetizers courtesy of MR MIKES. “A big part of our culture as a company is supporting our communities,” explains Rick Villalpando, Vice President of Franchising and Real Estate at RAMMP, the company that owns MR MIKES. “Our
franchisees take great pride in that. So for us, the MS Bike Tour was a great way to give back.” The steakhouse’s “come-as-you-are” approach fits right in at the bike race,
says Villalpando. “Riders may be sweaty and tired, but so what? They’re here to support a great cause, and that’s what’s important.” www.mrmikes.ca
“ITEX is expanding and growing,” explains Michael Muzzin, CEO of ITEX in Canada. “ITEX is the industry leader for business to business barter - not only in Canada but throughout North America. We are seeing more and more that entrepreneurs are engaging in virtual or digital currencies like ITEX barter and as the industry leader, it only makes sense for ITEX to lead the way in growth in North America.” “Not only is this a great opportunity for existing businesses to get involved in the rapidly growing virtual currency/ barter industry, but this is also a wonderful opportunity for entrepreneurs and professionals to start and grow their own business as well.”
itex b2b - Expanding and growing ITEX in Ontario, (http://www.creativebarter.ca/) the nation’s leading business bartering network is expanding throughout Canada and is rolling out a Mentor Program to develop new ITEX Business Broker Partners
ITEX will be opening new ITEX offices in Saskatchewan, Alberta and BC. Targeted expansion cities include Calgary, Edmonton, Red Deer, Lethbridge, Medicine Hat, Vancouver, Victoria, Kelowna, Saskatoon and Regina.
For more about ITEX, the new ITEX Mentor Program, and the opportunities it provides, please contact Michael Muzzin at michael.muzzin@itexcanada.net or call 647.477.5414 ext. 232. For information about ITEX, please visit www.creativebarter.ca
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canadian franchising
Canadian Franchising
canadian franchising
Alternative Health Becomes Mainstream
Spa Franchise Provides Massage for the Masses Hand & Stone Massage and Facial Spa Shows Exceptional Growth to be Continued in 2014 As Canadians continue to invest in healthy lifestyles, Hand & Stone Massage and Facial Spas (Hand & Stone), one of the fastest growing spa franchises, continues to enjoy immense success. With an additional two locations opened in 2013 and overall growth of the system up 92% from the previous year, Hand & Stone is poised for an incredible 2014. “The growth that Hand & Stone has seen this past year is a clear indication that this is a thriving concept and necessary service in Canada,” said Gigi Harding, CEO of Hand & Stone Canada. “Our goal is to open another seven locations in 2014 (the first opening downtown Toronto May 26th) with an additional seven franchisees signed on. This trend of growth is exactly what we envisioned
when Hand & Stone came to Canada and it is giving tremendous opportunities to the communities we enter.” “The scope of franchising in Canada has changed so much over the past few years which is leading to an immense amount of growth opportunities,” said
Gigi Harding. “There is a real need for the services of Hand & Stone throughout Canada and we have high expectations that we’ll be able to satisfy the needs of the communities we service.” www.handandstonemassagefranchise.ca
ifg Is your bank open? There are varying reports in the national and international press concerning the state of the economy. There are numerous different opinions on whether we are in a growth mode or stable - at lease most experts seem to agree that we are not in retreat. For small business entrepreneurs however their outlook is, ‘how and where do I get funding to grow my business’ - a very valid question and one that would normally be answered with a trip to your local bank. Banks in many areas it seems have the appearance of being open and welcoming to their small business clients - however the reality is something quite different. With many covertly showing the ‘closed’ sign, how will small business move forward? There are few experts that would disagree that it is small business that is the driving force behind economic growth. Fortunately there is a healthy and accessible secondary market for small business owners to explore. It’s all a case of looking outside of the box and not giving up when your bank says ‘No’. Many tailor-made programs exist that, in many instances, offer greater leverage and more flexibility than a conventional bank loan. If your bank is closed, take a look at some alternative financing options. www.interfacefinancial.com
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Liquid Capital Corp Digital Marketing Activities Liquid Capital Corp. is a Canadian based franchise with over 70 locations throughout North America, including Mexico. The company is one of the few Canadian companies to successfully enter the US market with a financial services franchise model. Liquid Capital Corp. specializes in Factoring, Purchase Finance Program and Supply Chain Payment Program and helps small and medium businesses grow by providing working capital. The company’s
strong B2B business model and a solid industry reputation has garnered it Franchise Research Institute’s World Class Franchise Award for 10 consecutive years. In recent months, Liquid Capital Corp. has committed to becoming a digital leader in the financial services franchising industry. The company is currently engaged in a number of core digital marketing activities as well as migrating its new franchisee training to a digital Learning
Management System. The company also offers an extensive on-boarding sales training as well as a referral marketing program. Directors and managers at Liquid Capital believe success of its franchisees and the company is possible through growth and adaption in today’s increasingly digitized and competitive landscape of financial services and franchising industries. www.liquidcapitalcorp.com
Oxford Learning is a Better Career Oxford Learning has been helping Canadian children develop stronger reading, writing, math, homework and study skills for nearly 30 years. Oxford Learning’s programs don’t just help students get better marks on the next test; they help students develop learning skills that will stay with them forever. From learning to read to preparing for university success, Oxford Learning’s programs help students become confident, motivated learners for life!
So Much More Than Tutoring
Every student is unique, which is why Oxford Learning’s programs are built to fit each student’s exact needs, creating a personalized learning experience that bring results that really last.
Join Our Team!
Be part of an industry that makes a difference in the lives of kids and families! With in- depth training and ongoing hands-on support, our franchisees are prepared for success. Discover the wealth that comes from investing in a career whose bottom line is not only measured
in numbers, but in the smiles of happy children. Help the students in your community have a better school year with an Oxford Learning franchise. Contact Franchise. For more information: www.oxfordlearning.com
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canadian franchising
Canadian Franchising
cover story
Frozen yogurt
& cafe
At Yeh! We are painting the franchise world PINK!
At Yeh! we are more than Yogurt – We are Canada’s first self-serve premium frozen yogurt and café concept. We are dedicated to delivering a unique retail experience to all our customers-with accent on fresh and healthy yogurt products.
T
he energetic and gutsy Gurman Twins (Jon and Marvin) are coCEO’s of Yeh! Yogurt and Cafe. They bring more than 35 years of experience building and marketing brands across North America. They invite you to join them in this tasty adventure. With over 30 retail locations Yeh! is focused on its continued expansion across Canada and the US with stores opened in Montreal, Toronto, Atlantic Canada, New York and Massachusetts as well as expanding Master License Programs in China and the Middle East. At Yeh!, customers enter an urban cool and welcoming environment where homemade yogurts and a wide assortment of toppings are offered. “We are the Starbucks of the Yogurt business,”
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says Jon. “When you walk into a Yeh!, the experience is to lounge, you want to spend time there, the atmosphere is very inviting, it’s clean, it’s a lifestyle.” “We are committed to staying ahead of the competition by constantly researching and developing new products, as well as creating an unsurpassed customer experience.” Yeh! is a lifestyle brand built on three distinct pillars: 1. Fresh Ingredients: Our products are homemade and contain natural ingredients 2. Healthy Living: We promote an active lifestyle 3. Creative Thinking: Our flavors and toppings inspire personal creations
Customers delight themselves with an ever-evolving offering of self-serve frozen yogurt plus a wide variety of toppings and homemade complementary products including crepes, waffles, shakes, smoothies, smores and specialty coffees. We also offer Yeh! product’s to go. Price is determined by weight.
Franchise with Yeh!
Our #1 priority is to help our Yeh! franchisee’s succeed. We select motivated individuals who will proudly embrace the Yeh! brand. As a Yeh! Franchise owner, you benefit from the following: • Organization with a proven business model • Training and ongoing franchise support • Strong network of providers/suppliers • Economies of scale • Locally tailored marketing plans • In-store promotional material • Social media marketing • Real estate location assistance
We offer single, multi area and master franchise opportunities. “It’s a total team effort. They’re on board; we’re on board. Franchisees are our most important asset, their success is our success. We love our franchisees,” adds Jon.
Training 360 Degree Franchise Support System
We have developed a comprehensive training program that will prepare every franchisee to operate their Yeh! retail business. Yeh! Franchisees receive full training and the opportunity to work hands-on in a corporate store while their shop is being built. Once the store is up and running, training crews are sent into
the store to work alongside new owners for a few weeks to ensure through training in all aspects of the job. Training is currently offered at Yeh! headquarters in Montreal, Quebec, and in the GTA of Ontario where we cover the following: • Store operation • Supplies and Inventory • Customer Service • Product Information • Equipment Knowledge • Business Management & Accounting • Marketing, Advertising & Branding • Human Resources – Hiring and Employee Management
Marketing
We provide the latest marketing materials and social media campaigns to drive traffic to the Yeh! retail store. This includes: • In store promotional material • Interior and exterior signage • Seasonal and holiday promotions • Regional campaigns
We assist with local advertising and marketing campaigns and spearhead programs directed at local events, charities, sports teams, camps and universities.
Locations
Regardless of whether you are interested in a street front, retail center, or indoor shopping mall location, we will assist you in designing and building an ideal store environment. Each of our locations incorporates the distinct Yeh! look: vibrant colors, modern materials, illuminated counters and signature seating. Our designs are flexible enough to adapt to any space and size. Our ideal franchise candidates are outgoing, community minded and entrepreneurial. A minimum availability of $110k to $150k in liquid capital is required in order to be considered for this opportunity.
Minimum total investment: Kiosk 150 to 200 square feet $200K to $250K Inline store 600 to 1500 square feet $280K to $350K
Contact Yeh!
For more information, email: franchise@yehyogurt.com
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cover story
Canadian Franchising
expert advice
Edward Levitt Partner Dickinson Wright LLP
Buying a Franchise
Buying into the American Dream
In the world of franchising, Canada occupies a unique position. Geographically, we share a common border with the U.S. franchise behemoth, as does Mexico, but Canadians are more like Americans than any other people on the planet.
T
his means that American franchise successes are more likely to be repeated in Canada than anywhere else. With that promise of success, for decades many Canadians have sought out and invested in U.S. franchises; some have achieved incredible results (witness the success of McDonalds’s Canada) and some have failed miserably (anyone had a Red Barn burger recently?). There are so many reasons why one such franchise investment succeeds and another fails that it would take at least a book, if not several, to do justice to the question. However, what follows is a brief look at some of the most common and arguably obvious factors that spell the difference between success and failure.
Will the Concept Work in Canada?
While we Canadians look, dress and talk (sort of!) like Americans, there are some real differences in our cultures and buying habits. The problem is, however, these differences are not obvious. Which means Canadian franchise investors
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and, for that matter, U.S. franchisors, often make assumptions about the Canadian market that are not true or not true enough. Foregoing a sufficiently thorough market study for the concept in Canada is like operating a piece of heavy equipment blindfolded. Local knowledge may lead to the investment being rejected or the concept being adapted properly for the Canadian market. Either way, the potential investor comes out a winner.
Can the U.S. Franchisor Support the System in Canada?
In most cases, one of the principal reasons for buying the rights to a U.S. concept, is to acquire the know-how in that business by capitalizing on the franchisor’s experience and knowledge gained over many years and with much investment. Sounds good! But if the U.S. franchisor does not have a sufficient infrastructure to provide the critical and inevitably needed support to the Canadian investor, all of that great knowledge will be of little value. This should lead to an examination of the franchis-
ors capabilities to support the Canadian expansion, at least in the early years.
Is There Enough Capital?
A Canadian expansion of a U.S. franchise system, is, in many ways, a startup. Of course, with the know-how of the franchisor, it is much further along than a brand new business concept, but the need for working capital will be significant while the business is being established in Canada. The Canadian investor will have to fund the initial payments for the rights to the U.S. franchisor, staffing costs, professional fees, initial marketing costs, possibly building costs or sub-franchise selling costs and then living expenses for the investor until a positive cash flow is achieved. The root cause for failure can often be traced to the lack of adequate capital, which in turn often results from inadequate information provided by the franchisor on the magnitude of the needed capital. This problem is most common where the U.S. franchisor is more interested in “closing” a deal than making the right deal with the right party.
Does the Deal Make Sense?
A good concept with a bad deal for the investor, still ends up in failure. It is very common for Canadian investors to purchase master franchise rights from U.S. franchisors for parts of Canada or for the entire country. Master franchising means the Canadian investor will be selling sub-franchises and sharing the revenue from those sub-franchises with the U.S. franchisor, i.e. initial franchise fees, royalties, renewal fees and transfer fees. Problems arise when the shared portions of such fees do not match up with the cost of delivering the services upon which the fees are based. If, for example, on a 6% royalty rate it takes 4% to support the system properly in Canada (which is not unrealistic) and the U.S. franchisor demands 3% of the 6% as its cut, then disaster is lurking just around the corner. One of the most difficult numbers to ascertain in all of franchising is the amount that should be paid for the frontend franchise fee or territorial rights fee for the grant of master franchise rights. This number will be influenced by many factors, including the length of the term of the grant, the history of success of the
In most cases, one of the principal reasons for buying the rights to a U.S. concept, is to acquire the knowhow in that business by capitalizing on the franchisor’s experience and knowledge gained over many years and with much investment.”
franchise system, the amount of training and initial support to be provided by the franchisor and the level of additional investment required of the franchisee. Drawing analogies to other existing systems, with master structures, can be helpful in deciding upon the amount to charge, but it is best to relate the fee to the potential for profit and return on capital of both parties. In one survey, of the master franchisees studied, 36% invested $100,000 to $250,000, 28% invested less than $100,000, 21% invested $250,000 to $500,000 and 17% invested more than $500,000,000. Another very common mistake made in master franchise deals is with the establishment of unrealistic quotas on the opening schedule of units. According to one study out of 142 restaurant master
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expert advice
Canadian Franchising
expert advice
Edward Levitt Partner Dickinson Wright LLP
franchisees only 55 were in business at the end of the development term, 21 master franchisees did not open a single unit and 6 master franchisees met or exceeded their development commitments. It is important to agree on clear growth (and unit maintenance) targets for the master franchisee. On the other hand, most targets in master franchise arrangements are not met.
Other Matters
There are so many reasons why one such franchise investment succeeds and another fails.�
Some other important considerations are:
1
Is the term of the master franchise agreement sufficiently long to ensure that a reasonable return on investment can be achieved? Will the master franchisee have to adhere strictly to the franchisor’s form of unit franchise agreement in all circumstances or will there be some flexibility? Will the master franchisee administer a regional advertising fund for
2 3
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the territory or will it all be controlled by the franchisor? If there are critical inventory items, who supplies them to the franchisees, the master franchisee, the franchisor or third parties and who benefits from volume purchases?
4
Conclusion
There is lots more to consider, but this is a good start.
Edward (Ned) Levitt is a Certified Franchise Executive, a partner at Dickinson Wright LLP, Toronto, Canada, and provides legal services to Canadian and international clients on all aspects of Canadian franchise law. He was General Counsel to the Canadian Franchise Association (2000-2007) and is a member of the American Bar Association Forum on Franchising, the International Bar Association and the International Franchise Association. As a member of the Ontario Franchise Sector Working Team, Ned was instrumental in the creation of Ontario’s franchise legislation. Among his many publications is the leading text, Canadian Franchise Legislation (2001, LexisNexis/ Butterworths).
Ned can be reached at 416.646.3842 or nlevitt@dickinsonwright.com www.dickinsonwright.com
Contact Publisher Vikki Bradbury for global solutions on your multi-media advertising approach. email: vikki@cgbpublishing.com • phone: 778 426 2446
expert advice
Joseph Pisani, Director of National Franchising Services, BMO
Financing Your Franchise
The 5 C’s of obtaining credit financing request. Some are simply not sure as to how to go about it. How do you communicate what is needed? What should the application include? Where does one even start? The answer lies in knowing who to speak to and in the creation of a well developed financing proposal which addresses the key points as often communicated by the banks to the marketplace through various brochures and publications.
What exactly is a “Bank Financing Proposal?”
If you are in the process of buying a franchise or have plans to expand your existing location, chances are that you will seek some level of financial assistance.
I
n most situations this scenario would require that you submit an application for financing to your local banker. What is important to know in advance is what will the banker expect to see in your application and what evaluation criteria will the banker use in assessing your application? Quite often a business owner will experience some hesitation or even frustration when preparing their
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In very general terms, a bank financing proposal (“proposal”) is a written document – or presentation – that a potential borrower will use to convey the following to the banker: 1. an outline of the business activity 2. the amount of money required and from what sources 3. how the money will be used 4. how it will be repaid 5. what financial return to the business the banker may expect 6. what security will be provided
All the major financial institutions provide publications on this very subject and in some material even provide examples of what should be included and how to present it. There is no need for you to guess and there are no excuses for you not being aware of what the banks are expecting. Keep it simple while all business
proposals are addressed as soon as possible, it is likely that your banker is dealing with a number of concurrent proposals. Keep your proposal simple and factual and honestly recognize any risk/downside the application may entail (the latter will illustrate that you are aware of the relevant risks and how to manage them). Including a brief one or two-page summary that briefly describes your business, its history, where its future lies and the money you require to get it there, can make a strong initial impression on your banker and help to set your proposal apart.
Your proposal should include/ address: • Business name, address, key contact names • Table of contents (including page numbers) • Summary • Industry overview (key drivers, demographics, trends) • Management structure (background, qualifications, responsibilities) • Product / service offering • The market (size, competition, supply, overall standing) • Financing outline (emphasize the use of requested funds) • Basic corporate information (shareholders, lawyer, accountant) • Appendices (biographies, product literature, historical financial statements, forecast income and cash flow statements)
Having presented this information to the banker, it is equally important that you understand how your proposal will be assessed and what areas in particular will the banker focus on. Your banker will be keenly interested in all areas that touch on the six points mentioned earlier. These key elements will be specifically considered as the banker conducts their due diligence – their assessment – with both observations and questions likely emanating from one or more of the following “5C’s of Credit”:
Character
Probably the most important part of the overall assessment process and decision to extend credit is the stability and commitment to the business from the owner. The banker is looking to identify critical character traits such as trustworthiness, demonstrated good judgement, credibility, honesty and reliability. Business experience or previous employment, stability, education and overall integrity are also considered. In your proposal, and particularly if you are a new customer to the bank, it would not be unreasonable for you to also include 2 or 3 personal or business references.
Capacity
Does the business proposal seem realistic and consequently does it appear that the business will generate sufficient net earnings to service both their day to day and longer term credit obligations. The assessment would include an evaluation of various business ratios, sales assumptions, operational obligations and carrying costs. In addition, what possible financial reserves may be necessary should the need arise. Be as accurate and realistic as possible – even to the extent of being conservative. Any exaggeration of expectations may be to your disadvantage in the long run. The banker’s assessment would also look at owner salaries and what personal debt servicing obligations exist. In summary, will the borrower have the capacity to repay their debt obligations over an acceptable timeline?
Credit
This is simple enough to evaluate as it primarily involves an assessment of the borrower’s credit history. This would
Be as accurate and realistic as possible.” include both a review of the owner’s personal credit history as well as the business’s track record. Needless to say, it is important to maintain a good credit rating and to divulge all credit obligations (again both business and personal) to the bank as part of your proposal. Not conveying or trying to conceal financial problems (both previous and current) may eventually be to your detriment when it comes to receiving a favourable response from the bank.
Capital
This deals with the owner’s personal financial commitment to the business. Notwithstanding how convincing the business proposal may be, banks generally expect owners to provide a reasonable level of their own cash into the business. In addition this element deals with the financial stability of the business; being adequately capitalized at the outset and having a reasonable cushion to fall back on – a reserve for contingencies.
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expert advice
Canadian Franchising
expert advice
Joseph Pisani, Director of National Franchising Services, Bank of Montreal
Other reasons for having owners provide a reasonable level of their own capital into the business include: • It represents a tangible commitment on behalf of the owner and to some extent is an indication to the banker of their confidence level in the proposal. • In new/start-up situations and particularly in franchising businesses, there are often certain capital requirements that the banks normally do not finance. These would include items such as the franchise fee, training expenses, pre-opening expenses, security deposits – often referred to as intangibles. • Banks also have fairly rigid criteria in terms of the maximum level of financing available for certain business assets such as equipment, leasehold improvements, inventory and accounts receivable. • In more simple terms, the business simply cannot afford to be 100% financed at the outset as this would place significant strain on the business in terms of meeting its debt obligations and maintaining enough reserve for its daily working capital needs.
Collateral
Collateral is simply the value of assets available to support the various loan facilities requested. For example: • Operating loans are often supported by a pledge to the bank of all inventory and receivables but the extent to which the bank finances and accords a lending value to these assets is limited and will
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vary with individual circumstances. • Term financing is usually provided to support capital purchases such as equipment, vehicles and leasehold expenditures. While these assets certainly have a tangible value, the lending value of these assets and corresponding loan availability would be less than the actual cost – hence the need for owner equity as a down payment towards these assets. • Important to note that there are certain loan facilities such as financing arrangements under the Canada Small Business Loans (often referred to as the Government Guaranteed Loans program) that would permit a higher level of financing and corresponding collateral support to the Bank. • For new borrowers where there is no financial history or limited track record or where the bank requires an additional level of security to support the application such as a collateral charge on real estate. It is not unreasonable for the banker to request personal guarantees from the owners. It is important to understand that in terms of business banking, the bank does not look to their security as the primary source of loan repayment. Business profits and surplus cash repay bank debt. Therefore it is imperative that your business proposal be realistic and convincing in order to establish financing arrangements that are reasonable and attainable from your perspective and that of the banker. One of your primary objectives
in both your written proposal and in your subsequent discussions with the banker is to present a “sound” business case as opposed to one that is more focused on the safety of the bank’s funds. During your initial discussions with the banker, and regardless of the results of your negotiations, you should pay particular attention to the terminology that apparently is important to the banker as they review your proposal. Often you will hear terms such as liquidity, leverage, debt to equity, debt servicing capabilities, just to name a few. Your awareness of these key points, and ensuring that they are addressed in any subsequent loan applications or at time of your next business review, will definitely improve your chances of receiving a favourable reply. In most business banking situations it is likely that banking arrangements, including credit lines, will be subject to review on an annual basis. In this regard, and as your business moves forward, demonstrating profitability and building tangible net worth, the banker should be in a position each subsequent year to more easily complete their assessment of the business as per the “5C’s”- probably resulting in an even stronger overall assessment – which will be to your long term benefit. ® Registered trade-marks of Bank of Montreal. Joseph Pisani is the director of national franchising services for the Bank of Montreal (BMO). For more information, contact him at (416) 927-6025 or via e-mail at joseph.pisani@bmo.com. Mr. Joseph Pisani - Bank of Montreal Joseph Pisani has been in Commercial
Banking for over fourteen years, ten of those with the Bank of Montreal. Joseph joined the Bank of Montreal’s Franchising Services Department in 2006 as Manager, National Franchising. He was promoted to Director of National Franchising in 2012 His past work experiences include roles as Commercial Banking Account Manager, and operating a small business and working in the advertising industry. Based out of Toronto, Joseph’s role as Director of National Franchising Services consists of identifying, developing and managing a portfolio of financial service programs aimed at facilitating financing and cash management products for selected franchise and networks as well as other industry verticals.
Realizing the Dream
Three Ways to Go Into Business for Yourself So you think you may be ready to start your own business. You’re considering realizing the dream of business ownership, of running your own shop, of being your own boss. But you’re not quite sure where to turn or where to start.
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he good news? There’s a lot of information available on what to do. The bad news? There’s a lot of information available on what to do. As you can see, depending on where you place the emphasis, the search for a business can begin what may seem like an overwhelming process to go from curious business seeker to full-fledged entrepreneur. The best news? Here are some simple tips and other things to think about as you begin your search. The first thing to understand is there are essentially three different ways to go into business for yourself. You could: • Start a business from scratch • Buy an existing business • Buy a franchise
All three options provide the opportunity to go into business for yourself – and each opportunity has its pros and cons.
Start a business from scratch
This is truly the entrepreneurial dream in play here. You have a great product or idea that you’d like to start marketing and
selling. We’ve all heard the success stories of the person who had nothing and built an empire business from scratch. But are you cut out to be a self-made entrepreneur? Starting a business from scratch is typically described as the business that started from someone’s passion. You’ll hear stories of this type of business that got started in someone’s basement or garage, and before they knew it, they had a functioning business underneath them. Be careful though – this type of business also has the highest failure rate. According to research performed by Entrepreneur Weekly, roughly 25 percent of all start-up businesses fail in their first year. And more than half never see year five in the business’ lifespan. In addition to writing a business plan and securing financing for your business, there are many steps you need to take to make sure you’re operating strategically, legally and able to finance any growth you may see in this business venture. Necessary considerations for your start-up business include: determining the legal structure of your
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expert advice
John Blair, Director of Marketing and PR FranNet
expert advice
John Blair, Director of Marketing and PR FranNet
business; registering your business name; obtaining business licenses and permits; and understanding your roles and responsibilities as an employer. These are all critical to the operation of your business. When starting this type of business venture, there are positives and there are negatives. Positives
• You have total control • Room for creativity • Build the business from passion
Negatives • You have to create all systems • Highest failure rate • Limited financial options
What sorts of things should you consider when starting your business from scratch? Jumping into business for yourself is nothing to be taken lightly and should be carefully considered prior to any commitments being made.
Buy an existing business
The second option for going into business for yourself is to buy an existing business. Let’s say there’s a local hardware store or a flower shop in your town or community that comes up for sale and you’re interested in buying it. To many, this is an opportunity that seems a little less risky than starting a business from scratch. The business is operating (hopefully somewhat successfully or you wouldn’t be interested, right?), they’ve built a reputation in town and customers seem to like the product or service. You may even see this as an opportunity to perhaps improve some facet of the business to make it operate even more efficiently. One of the first considerations when looking to buy an existing business is to consider what you enjoy doing. For some people, turning a hobby into a career in business ownership is just the key they need. However, be careful -- what you enjoy doing as a hobby may not be as enjoyable when it’s a full-time job. This type of business requires a lot of homework to be done. Digging into the company’s books, performing solid market analysis and confirming in some sense the business is as solid as it seems
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P o s it iv es
from the outside are all keys in ensuring you’re stepping on the right path to successful business ownership. Positives • Cash flow • Good will • Actual financial results
Negatives • Higher debt service • Bad will • Hidden seller motives
One of the other major roadblocks you may see with this type of business is ensuring the business is properly valued. Especially true of an owner who built this business from scratch, the previous owner has put a lot of blood, sweat and tears into the building of their business – otherwise called “sentimental value.” And many times, the previous owner sees the blood, sweat and tears as having value, so they’ll tend to overprice their business based on the sentimental value. Unfortunately for them, there is
What sorts of things should you consider when starting your business from scratch?”
n e g at iv e s
no sentimental value – at least in terms of dollars of cents. You’ll be forced to really dig into the books and make sure you’re properly valuing the company based on revenue and profits – not blood, sweat and tears. There are several ways to properly value a company. Make sure you’re doing it correctly.
Buy a Franchise
The third option for going into business for yourself is to invest into a franchise. According to The Canadian Franchise
Association’s website (www.cfa.ca), the organization has roughly 600 corporate members across the country representing more than 40,000 business outlets. Many people think their only exposure to franchises is through fast food chains and retail outlets, but that couldn’t be further from the truth. From servicebased franchises to retail outlets, there are many popular industries that have franchised units, including hair care, senior care, automotive repair services, executive business coaching, and residential cleaning services. But with so many to choose from, what is the right one for you? That is the biggest question. FranNet (www.frannet.ca), a franchise consulting company with more than 100 consultants across North America, including six in Canada, helps match individuals seeking franchise business opportunities with their skillset, lifestyle and budget. According to the company, those franchise matches have resulted in more than 85 percent of them still open and operating after five years in business. A franchise consultant will also factor in your behavior profile, risk tolerance and lifestyle goals to determine the ideal opportunities in franchise business ownership. With a franchise, what you’re essentially investing into is a “business in a box.” You’re piggybacking on the learnings of someone else who can train you to operate their business. The franchisor will supply the name brand, opportunity, support and training -- you’ll supply the motor and financing that will launch and grow your franchise business in your community. However, all that name recognition, training and support doesn’t come without a cost. Most franchisors will require
you to pay an upfront franchise fee, as well as ongoing royalty payments based typically on your gross revenue. In order to protect the consumer from fraudulent franchisors, there’s federal and provincial franchise legislation across Canada that regulates the franchise industry. One document franchises are required to have and be able to provide you is the Franchise Disclosure Document (FDD). The document must contain information about the franchisor, its officers and its business. The FDD also provides information on litigation, bankruptcies and all costs associated with starting and operating the business, among many other items. This document will be a critical part of your due diligence process when researching specific franchise opportunities. There are also specific regulations in place governing how much time you must be given to review the FDD. It’s critical you know what’s required of the franchisors in your local province. Positives • Name recognition • Required disclosure • Franchisor support and expertise
Negatives • Territory restrictions • Franchise fee and royalties • Can only sell their products
Whether you’re starting your business from scratch, buying an existing business, or investing in a franchise, considering your own business is a significant decision. Remember: the best buyer is an educated buyer. There are a lot of variables to consider, but there are also many resources readily available as you embark on this incredible journey to business ownership. John Blair is the director of marketing and public relations for FranNet. John oversees brand development, strategy and innovation, and all public relations activities for FranNet while supporting more than 100 franchise consultants across Canada, the United States and Germany. A seasoned business professional, John has more than 20 years experience in executive roles in franchising and small business.
www.frannet.com
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expert advice
Canadian Franchising
profile
Sam Naim, Mr Mikes
Sal Naim was born with the entrepreneurial spirit in his bones. His father opened a small restaurant in Edmonton in 1980, and expanded the family’s ventures to include many different facets of the foodservice and hospitality industry as Naim was growing up, including nightclubs, cafes, pizzerias and sit-down breakfast restaurants.
Mr Mikes Steakhouse – Casual
a Family affair Page 22
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oday the Bonnyville-based coowner of MR MIKES SteakhouseCasual has an expanding business of his own. Through their company, 5-Star Restaurant Group Inc., Naim and his brother Mike own MR MIKES stores in Bonnyville and Slave Lake, which have been open for about a year. The venture has been successful so far – the Bonneville location has already served more than 115,000 guests and Slave Lake has served more than 90,000. So successful that they’re moving quickly to open up 10 more MR MIKES in Northern Alberta. The brothers’ heritage in Northern Alberta is a key advantage – they know the area, its communities and the needs of its residents like they know their own family.
There’s something special about serving in a small community.” “There’s a lot of pride in communities like Bonneville and Slave Lake and I’m drawn to that,” Naim explains. “We like that underdog. We like being able to punch above our weight.” There’s something special about serving a small community, he says. “It’s the people. When you get to meet the people in the small towns, there’s an authenticity and lack of pretentious attitudes. People are just out here to work hard and be real.” Naim chose the MR MIKES brand because, unlike other steakhouses, it’s refreshingly unpretentious. “At MR MIKES you can still have a great steak, but you don’t have to dress up,” says Naim. “You can just come as you are.” That attitude has resonated with his guests, he says, and has played an
important factor in his company’s success in Northern Alberta’s burgeoning resource towns, where workers often arrive to the restaurants wearing their work boots. Not surprisingly, the delicious, no-nonsense Bacon Mikeburger and ribeye steaks are the most popular items on the menu. In smaller communities, there’s cachet to being a franchise, he says. “People want a full experience – with a franchise I think you’re able to offer so much more in terms of service and consistency,” Naim says. “You can trust the brand.” For Naim, one of the greatest rewards of owning a franchise is his increased capacity to give back to the community through his stores. “Our community is a big, big part of our plan. Whenever we
establish a new location our intent is to be there for a long time and to be active part of that community,” he says. Naim and his brother have worked with charities and community events including the Kids in the Kitchen Program by the Boys and Girls Club, Frost Fest in Slave Lake, the Bonnyville Health Foundation and a summer hockey camp for the Bonnyville Pontiacs. The Naim brothers and many of their staff volunteer their own time to make all this happen. “To see my staff step up and help out in the community really is a powerful experience,” he says. www.mrmikes.ca
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profile
Canadian Franchising
expert advice
Scott Simcik, President and CEO FGP Commercial Leasing
Quality Lease Negotiation is a 3-Step Process
How systematized is your site selection, lease negotiation and lease review? The primary responsibility of franchise industry CEOs is unit-level profitability.
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hile awarding qualified candidates and providing comprehensive training and support programs are a high priority, a quality three-step location and lease negotiation process will have the greatest impact on retail brick-and-mortar store volume within any industry. An honest appraisal of the strengths and weaknesses of your real estate department and processes is the first step to improve franchisee support. The cost of acquiring and training a
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new franchisee, the franchisee’s total investment and the potential income of both parties suggest the importance of deeply analyzing how systematized (or not) your current real estate processes are and how they may be affecting your franchisee annual turnover rate.
Step 1
Site Selection (Market Visit)
Site selection must include a market visit from a strategic partner who acts as an
exclusive tenant representative and works closely with the corporate management team. The same expert conducting each market visit improves the quality for each location. Combining the assistance of local leasing agents and your franchisees’ valuable input gives your brand the highest quality control in identifying perfect locations. Consider these actions: • Develop a pre-leasing questionnaire with a comprehensive checklist. Include defining trade areas within rural, medium, metropolitan and major-
metropolitan markets; demographics (population, age, income and ethnicity); minimum and maximum square footage; and tenant mix, visibility and other characteristics unique to your business. Failure to do so reduces the quality of locations for your franchisees as does outsourcing to multiple regional and national brokerage firms and individuals who are not properly trained or supervised by the franchisor on the questionnaire checklist. • Review your last 10 franchisee locations and determine how many different commercial leasing agents have performed site selection or market visits on a local level for your franchisees. If the answer is more than one, your site selection process is ineffective. • Do not refer franchisees to outsourced regional or national real estate firms that provide real estate services. This commonly used method holds little benefit for franchisees. A highly trained expert who is a true strategic partner, supervised and experienced on your customer and business concept, is most effective when visiting your franchisees’ markets. • This exclusive strategic partner should drive three natural trade areas and identify up to 15 locations within each trade area. Maximizing the number of vacancies and including the franchisor and franchisee in the short-listing process accelerates the location search, improves location quality and provides leverage in the lease negotiation stage.
The absence of this manual will result in a major financial impact and lack of consistency on franchise locations. • Determine if your lease negotiation process is too long. Outsourcing to regional and national firms gives away quality and control. • Research to determine if the regional or national firms your company has selected to represent its franchisees in lease negotiation also represent landlords in your franchisees’ local markets. The fiduciary responsibility of the franchisor is to ensure exclusive representation and not expose their franchisees to commercial leasing firms who predominantly represent local landlords. These preexisting relationships can be a disadvantage to your franchisee. Assigning your franchisee to an exclusive tenant representative protects their best interest in site selection and lease negotiation. Justifying the use of a dual representation firm to gain access to “pocket listings” is short sighted. These vacancies are equally available to an exclusive tenant representation firm. • Evaluate the level of training your company has provided your strategic partner on unit-level economics, build-
Step 2
out terms, free rent, tenant improvement allowance, common area maintenance, taxes and insurance/NNN, personal guarantee limitations, and early termination clauses. It is essential that this representative is highly experienced on a master level to negotiate on the following: by rural, medium, metro, and major metro market sizes; types of ownership (local, regional and institutional); and is able to adapt to the negotiation styles of junior and senior leasing agents.
Lease Negotiation
Each franchisee must have an exclusive tenant representative working on his behalf. This individual will have an enormous financial impact on your occupancy rental rate and reducing franchisee start-up costs by negotiating, among other things, an aggressive tenant improvement allowance. Outsourcing these critical economic factors to multiple untrained, inexperienced leasing agents is detrimental to the business. Consider these options: • Develop a real estate operations manual that fully describes the definitions of a vanilla shell, site criteria, building requirements, floor plan specifications, site package, signage and other unique characteristics of your business concept.
an early termination clause are essential terms to be carefully negotiated into each lease. Common area maintenance fees and taxes and insurance/NNN should be closely examined and negotiated on a line-item basis. However, franchisees will often overlook the importance of these items because they are led to believe by leasing agents that they are non-negotiable and strictly prorated costs passed on to tenants from the landlord. Franchisors will suggest to franchisees to hire any attorney to review their lease. As part of your legal review process, it is imperative to select a real estate attorney who is highly experienced and specialized in commercial lease review and franchisee communications. This will expedite the process with the highest quality and flexibility within the final lease terms at legal rates prenegotiated on your franchisees behalf. Here are two recommendations: • Develop a legal checklist of terms to be negotiated in each lease that protects the franchisor, franchisee, funding, and equipment vendors. Some franchisors will request a franchisor addendum attached to each proposed lease, which protects the franchisor, franchisee, banks and leasing companies.
Assigning your franchisee to anexclusive tenant representative protects their best interest in site selection and lease negotiation.”
Step 3
• Protect your franchisees from picking and choosing local non-real estate attorneys who are unfamiliar with your brand to review landlord leases. This exposes your franchisee legally and financially to accept unfavorable landlord terms. An expensive legal bill with a protracted eight-week process can bring unnecessary legal gridlock. To achieve the highest quality locations for your franchisees, your ultimate goal is to locate a strategic partner who will act as your exclusive tenant representation firm, and who will provide these three steps of quality lease negotiation.
Legal review is typically the step in the lease negotiation process where flexibility is either gained or lost. A corporate signature, limited personal guarantee and
Scott J. Simcik is president and CEO of FGP Commercial Leasing. He can be reached at 800-471-1682 or mail to: scott@fgpcl.com or visit www.fgpcl.com
Legal Review
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expert advice
Canadian Franchising
expert advice
Lori Karpman, President, Lori Karpman & Company
factoring:
How to Finance your Business without Debt or Dilution of Equity Factoring, or “the sale of accounts receivable” is a source of funding whereby a company sells the value of their accounts receivable less a discount in case it doesn’t get collected or doesn’t pay on time to a third party in return for immediate payment.
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t has always been a choice for big business, but not so for small to medium ones with gross sales of $3 to $5 million per year, which really isn’t that small. The small business loan program offered by the banks is still essential for the initial start up phase but most companies need financing during the operating stage and often cannot get it from a bank for a variety of reasons. It can be because they have already borrowed the maximum available, or additional borrowing will cause them to breach their borrowing ratios under existing loans. This makes it very difficult for businesses especially seasonal
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ones, to ensure the steady cash flow required to run their business during the low periods, and young companies from filling big orders. So what, who, where does a business owner go? Factoring is hardly new and has existed since the days of the Roman Empire. Unfortunately, some scandals U.S. in the younger stages of the industry left factoring with a undeserved tarnished reputation that still prevails today. Factoring companies are not banks however in the US banks may have a factoring division which are regulated. It became seen as the recourse of last resort for companies in financial distress who sent
their accounts receivable to collections. In fact none of this is true; factoring is a brilliant way to fund operations without burdening it with debt that would take the company years to pay back, or diluting the owner’s equity. Results don’t lie; companies that factor their receivables usually double or triple their business in 2-3 years. Over $1 trillion in sales is factored worldwide annually. In fact, factoring is the champion of small business and an essential partner in managing its financial growth. Small and medium businesses often fail because of short term cash flow problems, not because business is bad! The two traditional financing options
Results don’t lie; companies that factor their receivables usually double or triple their business in 2-3 years.”
are: (1) traditional bank financing, and (2) private (equity) investment. Each of these options provides a company with much needed working capital for daily operations and to service current orders, however, there are significant costs associated with each choice. A traditional bank loan burdens the company with additional debt, plus the cost of the interest being paid on the debt, creating a debt greater than the amount borrowed. Additionally this being a loan it shows up as debt on financial statements, making it even more difficult for a company to get a bank loan later. All revenues coming in are being used to ser-
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expert advice
Canadian Franchising
expert advice
Lori Karpman, President, Lori Karpman & Company
vice debt instead of upgrading equipment or buying more inventory for example. It’s difficult for a business saddled with debt to grow. The other option is to seek private investors to invest money into the business and fund its operations. The issue with private investment is that the amount of equity required to be given in return for the investment is usually substantially more than the equity is currently worth, and it will cost many times that amount to buy out that shareholder at a later date. It’s the most expensive form of financing there is. The end result is the dilution of the owner’s equity in their own company. It can even result in a complete loss and transference of control to the new investor. While this may work for a large company with many shareholders it is generally not a good alternative for owner operated or family run businesses. Simply put: Every company has “receivables” from the people it sold products or services to. The company sells all its accounts receivables to a factor at a discount. The factor discounts their value based on a variety of factors such as the industry and how long it generally takes to get the invoices paid. The company receives about 85% of the face value immediately and the balance less the discount fee when the account is collected. The discount amount depends on many factors but is generally between 3-6% for a pre-negotiated period of time and a fraction of that thereafter. The uniqueness of this alternative is that the business owner is not trying to borrow based on his own and his company’s creditworthiness but that of each one of the company’s customers. So while the company may not have good credit as long as the customers do, the company can leverage and borrow against their good credit! Most companies find that they no longer need a bookkeeper or office assistant and the salary they save easily pays covers the discount fee and more. Here’s a perfect example. Many years ago I met a woman who does home stereo installations for large box electronics stores, and works from an equipped truck. She was offered a contract that she needed $75,000 for to equip 2 trucks and hire two people but she didn’t have the money. What she did have was a $100,000 receivable from a national elec-
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Simply put: Every company has “receivables” from the people it sold products or services to.” tronics chain with obvious good credit. She factored her $100,000 and received $85,000 in 24 hours. This allowed her to take advantage of the new contract. She continues to factor all her receivables. Within 2 years of her original factoring she tripled her business all without creating debt or giving up control. It’s important to note that the Discount Fee is an expense not interest and is treated as such in the financial statements so after 3 years passed and she went to the bank for a real traditional loan she got one and at a great rate because her company had no debt. In any event, the discount fee is the smartest and most strategic expense a company can pay, and given and the results I’ve seen, it’s worth every penny. The owner is freed up to work “ON” their business and from that comes great new revenue generating ideas and a calmer life by being liberated from consistently worrying about finances. In fact, financial professional and bankers are proponents of factoring as it keeps their clients in business when they cannot.
For those of you still worried about the image or the stigma don’t be, your customers will never know a thing! If your company sells a product/service that generates accounts receivable then you have a hidden treasure of financing for your business and you owe it to yourself to learn more about it. Lori Karpman, considered one of Can-
ada’s leading experts on franchising and multi-unit business development models, is also the President/CEO of the multiaward winning consulting and legal services firm, Lori Karpman & Company (www. lorikarpman.com ). During her esteemed Lori has been a franchisor twice and the Master Franchisee of the Pizza Hut brand for the Province of Quebec. The firm’s clients range from the Fortune 500 brands to the local start ups. Lori is a prolific writer and sought after guest speaker and has been featured on television, YouTube and radio. Lori can be reached at lori@lorikarpman.com / (514) 481-2722
International Franchising
Franchisee’s Ongoing Obligations personal. The parallel has been drawn before, but in many ways the franchise relationship is much like a marriage. For most franchisees, the decision to join a franchise network is one of the biggest decisions they will make in their lives. Just like a marriage, once you sign on the dotted line you are committed, there is no easy way out and there is no guarantee the relationship is going to work. A good franchising relationship, just as a good marriage, requires mutual trust, respect and a commitment to perform ongoing obligations.
Is He/She Right For Me?
There are almost 10,000 franchise brands across the globe and international franchising is growing.
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here are almost 10,000 franchise brands across the globe and international franchising is growing. With over 73,000 franchise units in Australia, an annual turnover in the order of $131 billion dollars and employing more than 413,500 people there is no doubt that franchising makes up a significant portion of Australia’s economy. While statistics enable us to evaluate franchising from a national business perspective, for franchisees and franchisors the relationship is more
Many factors need to be considered when deciding which franchise network is right for you. No doubt you will have considered the strength of the brand, the depth of the franchisor’s experience, whether the franchise business will complement your lifestyle, and what you are getting for your investment. You will have met with the franchisor and its key people to ask many questions in respect to the general operation of the business and to determine whether you can envisage being tethered to that relationship for the next 5 to 10 years, knowing that the average life cycle of a franchise relationship is 7 years. In turn, the franchisor will have assessed your financial standing, business acumen, general suitability and whether you will be a good ambassador for its brand. You will have met with and spoken to other franchisees in the network to garner their impressions of the franchisor and the network at large. You will have asked many probing questions as to what
the franchisor is like to deal with, the efficiency of the systems, and whether individual franchisees are meeting their minimum performance criteria and financial hurdles. You will have undertaken due diligence on the franchise and the franchisor just as they have vetted you. Such due diligence will include seeking independent business and accounting advice as to the viability of the business, to ensure that the numbers stack up and to provide reasonable assurances that the business will provide you with the financial security you require and a reasonable return on your investment. You will also have sought specialist independent legal advice in respect to the franchise documentation to ensure that you are fully aware of all of your rights and obligations in respect to the franchise. A franchising specialist lawyer will determine if the documentation provided to you is compliant with the Franchising Code of Conduct (Code) and will guide you through the process while advising you on the pitfalls to look out for. You have been through the franchisor’s recruitment process and you have been approved by the franchisor for the grant of a franchise. You feel as though you are making an informed decision and you are excited about the prospect of your new venture and being your own boss, but with the comfort of the franchisor’s support and within the framework of the franchise system. Once the 14 day mandatory disclosure period has expired and you can sign the final documents the courtship is over and it is time to get to know each other better.
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expert advice
Bianca Sevastos, Senior Associate Baybridge Lawyers Australia
expert advice
Bianca Sevastos, Senior Associate Baybridge Lawyers Australia
The Commitment / Ongoing Obligations – Compliance with the system If you have an entrepreneurial spirit, a desire to be creative in your business, or if you have owned and operated your own business before, the franchising model as a business may not be right for you. As a franchisee you are bound to comply with the systems implemented, and as directed, by the franchisor. It is likely that the franchisor will have spent considerable time, effort and money developing the systems to create the greatest efficiencies within and throughout the franchise network having drawn upon their experience in running the business. While good franchisors are open to their franchisee’s suggestions as to any accommodations or efficiencies that can be made, it should be remembered that even if you think your way of doing things is better, you must still conform to the systems, policies and training provided by the franchisor.
Financial obligations
The franchise agreement and disclosure document should set out all payments required to enter and exit the franchise, as well as any recurring payments required over the life of the franchise. Such payments will likely include a royalty fee and a marketing fee, either expressed as a percentage of the franchisee’s sales or as a flat fee, payable on a weekly or monthly basis. Additionally, there may be a requirement to upgrade the premises at your cost, pay a renewal fee at the beginning of any renewal term of the franchise, and attend any ongoing training and annual conferences. All of these costs add up to your cost of doing business and need to be factored into your business modelling at inception. Many franchisors do not provide any financial information or data as to the expected turnover of a particular franchise. The exclusion of any such information will mean that you will need to prepare your own cash flow projections and budget based on your own information and research. While, for franchisees, there is a certain element of comfort provided within the framework of the franchise model, it is important to remember
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A franchising specialist lawyer will determine if the documentation provided to you is compliant with the Franchising Code of Conduct (Code).”
that franchising does not provide a silver bullet to success. Just as in any business, there is a risk that the business may not succeed and you will need to ensure you can financially survive in the event the business fails.
Marketing Fund
Many franchisors operate a marketing fund whereby they collect a prescribed percentage of the franchisee’s sales, or a flat fee amount, to market and promote the franchise network at large. You should be aware that most franchisors are not obligated to spend the marketing fund monies to benefit your particular franchise. The use of the marketing fund monies can be a much contested issue among franchisees and is one of the major reasons for disputes between
franchisors and franchisees. Franchisees often feel as though the monies generated through the marketing fund are better spent elsewhere and that it only serves to benefit the franchisor in their efforts to sell franchises. That being said, under the Code there are very strict rules and regulations in respect to the governance of the marketing fund to keep the franchisor accountable. Within 4 months after the end of each financial year, the franchisor must prepare an annual financial statement detailing all of the fund’s receipts and expenses for the past financial year. The financial statement must then be audited by a registered company auditor, unless 75% of the franchisee’s in Australia who contribute to the fund vote otherwise.
Local marketing
In addition to your contribution to the marketing fund, the franchisor may also require its franchisees to conduct their own local marketing to promote the sale of the products and services sold by the franchise business. Some franchise agreements will stipulate that a certain percentage of the franchisee’s sales must be spent on local marketing and while the franchisor does not collect the monies and spend it on behalf of the franchisee, you may need to prove to the franchisor that you have spent the allocated amount on local advertising and complied with the obligation.
Minimum Performance Criteria
Many franchise agreements stipulate that the franchisee must achieve a certain set of minimum performance requirements which will either be articulated in the franchise agreement itself or in the operations manual. Such requirements may be as basic as “the franchisee must complete the store opening training program during the first year of operation” or be financial in nature such as “the franchisee must achieve gross sales of at least 95% of the previous year”. It is important that you carefully consider whether the minimum performance criteria are reasonable and achievable. Failure to meet the minimum performance criteria can result in further training costs and in worst case scenarios termination of the franchise agreement. If the minimum performance criteria
are contained in the operations manual and not the franchise agreement, you should request to see the operations manual before you enter into franchise agreement to ensure you are comfortable with its provisions.
Supply of Goods and Services
Most franchisors require their franchisees to purchase the goods and services sold in the business from the franchisor or a nominated supplier to ensure consistency of supply and quality throughout the network. Such arrangement will also provide the franchisor, and the network at large, with greater economies of scale or “buying power” which will result in a lower cost of goods and services to the franchisees and a higher profit margin. In turn, this arrangement may allow the franchisor to clip the ticket on the supply of goods and services down to the franchisee or to receive rebates from nominated suppliers. Under the Code, any rebates received by the franchisor must be disclosed in the disclosure document.
Operations Manual
Many of the franchisor’s systems and policies for the day to day running of the franchise will be set out in the operations manual. The manual is developed by the franchisor to set a minimum standard for franchisees and to provide a consistency of operations throughout the network. It is important that you understand that the operations manual is a living document which can be updated at any time by the franchisor and that a breach of the operations manual may also be considered a breach of the franchise agreement.
Records and audits
Most franchisors will require its franchisees to provide them with the records of the business including profit and loss statements and balance sheets on a monthly basis. Such records may also include any reports, sales information, invoices or bank statements as required by the franchisor. The franchisee’s obligation to provide these records is often a source of tension between the franchisor and franchisee. The franchisee may view the requirement to provide such informa-
tion as a breach of their privacy while the franchisor will want to assess the performance of the business and identify any areas for improvement. If the franchisor suspects that the records are not a true reflection of the sales of the business the franchisor will most likely have the right to inspect the records and have them audited by an independent auditor. You should be aware that if there is a reasonable discrepancy in the records the costs of such audit will be passed on to you as the franchisee.
Confidential Information
In essence, a franchise agreement grants the franchisee a licence to use the brand, trade marks, systems and any other intellectual property of the franchisor for the operation of the business for the term of the franchise. Franchisors are very protective of their intellectual property and will require its franchisees and any key personnel of the business to hold any such information in strict confidence which obligation survives the termination of the franchise agreement.
Default and termination
In certain circumstances, the franchisor may terminate the franchise agreement automatically and without notice to you. Such circumstances are prescribed by the Code and apply only where the franchisee: • No longer holds a licence that the franchisee must hold to carry on the franchised business; or • Becomes bankrupt, insolvent under administration or an externally-administered body corporate; or • Voluntarily abandons the franchised business or the franchise relationship; or
expert advice
Canadian Franchising
expert advice
Bianca Sevastos, Senior Associate Baybridge Lawyers Australia
• Is convicted of a serious offence; or • Operates the franchised business in a way that endangers public health or safety; or • Is fraudulent in connection with operation of the franchised business; or • Agrees to termination of the franchise agreement.
In all other circumstances, if you are in default or breach of your obligations under the franchise agreement the franchisor must provide you with written notice that you are in default, set out the nature of the default and what you must do to rectify the default within a reasonable period of time. If the franchisor provides
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you with such written notice and you fail to rectify the default within the allotted time, the franchisor may have the right to terminate your franchise agreement.
Sale or transfer of your business
If you wish to sell your franchise during the term, the franchise agreement will set out the procedure that must be followed which will include seeking the franchisor’s consent. It is likely that the franchisor will have the right of first refusal to purchase the business which means that you must first offer to sell the business to the franchisor. Under the Code, the franchisor is taken to have given consent to the transfer if the franchisor
does not, within 42 days after the request was made, give to the franchisee written notice that consent is withheld and setting out why consent is withheld. In accordance with the Code, the franchisor may not unreasonably withhold consent to you transferring or selling your business. Notwithstanding, there are certain circumstances where the franchisor may withhold its consent which includes where the purchaser is unlikely to meet the financial obligations of the franchise agreement, or such transfer will have a significantly adverse effect on the franchise system, or the franchisee is in breach of the franchise agreement among others.
A good relationship between a franchisor and franchisee can result in a profitable, fruitful and rewarding outcome for both parties.”
Non-Compete
Most franchise agreements contain provisions that will preclude franchisees from setting up, operating or holding any interest in any competing business during the term of the franchise and for a period of time following the end of the franchise relationship. As the franchisee, you will have the benefit of the franchisor’s intellectual property, systems and know-how and the franchisor will want to be sure that you or any of its franchisees do not use such information to set up a business in competition with the franchise network. The “non compete” or restraint of trade provisions within a franchise agree-
ment are often confusing to franchisees. Several options may be provided in respect to the period of time (eg, twenty four months – twelve months – six months) and in respect to the geographical area (eg, 5km radius – 3 km radius – 1 km radius) in which you may not operate, or hold an interest in, a competing business following termination of the franchise agreement. Clauses drafted in this manner are called “cascading provisions” or “ladder clauses.” The purpose of such drafting is so that if a court determines that the period of time or geographical area stipulated in the restraint of trade provisions are unreasonable, the provisions can be read down so that the lesser period of time and smaller geographical area can be enforced. The enforceability of non-compete clauses is a bit of a grey area in the law. On the face of it, they are considered anti-competitive and therefore unenforceable. Notwithstanding, a court will enforce the provisions where it considers protection of a franchisor’s goodwill is necessary. Unfortunately, the only way to determine whether the restraint provisions provided in your franchise agreement are enforceable is to test it in a court of law.
preparations for mediation or to enter into direct negotiations with the franchisor to settle the dispute. Figures from the Office of Mediation Adviser indicate that up to 75 percent of mediations result in a settlement, which means that both parties are satisfied with the result and in many cases are prepared to continue the franchise relationship. If the dispute is not resolved through the mediation process, the parties may then need to consider taking further action through the court system.
Disputes
A good relationship between a franchisor and franchisee can result in a profitable, fruitful and rewarding outcome for both parties. Many franchisees have built significant wealth through franchising and as any good franchisor recognises, happy and successful franchisees are imperative to the overall success of the franchise network. As with any marriage, open lines of communication are key to an harmonious franchise relationship together with a strong commitment from both parties to uphold their end of the bargain by performing their respective specific duties and ongoing obligations.
Just as in a marriage, many disputes between franchisors and franchisees occur due to the lack of communication between the parties or differing expectations. Where franchise problems or conflict occurs, it is advisable that the parties first seek to resolve the dispute among themselves and if able have a lawyer or trusted advisor available to guide you through the process. Where disputes cannot be resolved informally between the parties, the Code provides that parties to a franchise agreement are required to first trigger mediation before going to court over the dispute. The dispute resolution provisions of the Code clearly sets out the procedure which must be followed including formal written notice outlining the nature of the dispute, the desired outcome of the dispute, and a timeframe within which it should occur. Should the dispute progress to a point where mediation is required, it is advisable to then engage a specialist franchising solicitor to assist in your
The End of the Relationship
Unlike a marriage, when you enter into a franchise agreement you know that the relationship with the franchisor has a set expiry date. It is important to have in your mind from the outset what your exit strategy for the business will be. It may be that you intend to build the business up and on-sell it mid-way through the franchise term or during the renewal term. You should remember that when the franchise term comes to an end, in most cases, you will not have the right to sell the business and you will not be entitled to an “exit payment” from the franchisor.
The Moral of the Story
Baybridge Lawyers is a special-
ist corporate and commercial law firm and a leading authority on all franchise related matters. They are seen as trusted advisors to many brands nationally and internationally. Phone: 02 9232 3511 Email: info@baybridge.com.au Web: www.baybridge.com.au
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expert advice
Canadian Franchising
franchisor in depth
School is Easy by Gina Gill
Class is now in Session Most tutoring companies would teach within their own facility, but School is Easy Tutoring offers their clients a service within their own home. The company provides a unique and personal experience that allows students and parents more freedom, as well as a sense of comfort.
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F
ounded in 2002, School is Easy Tutoring, once known as Academic Advantage Tutoring, started in the greater Vancouver area in British Columbia. It started its first franchise in Victoria in 2009 and has awarded 2 more franchises since then. It is the largest tutoring agency in the Lower Mainland and has spread throughout British Columbia. The company has all of the legal documents in order and is ready to go across Canada. Founder and director Susan Cumberland, brings a variety of expertise and skill to the company. She has a Bachelor Degree in secondary education and a Masters Degree in educational leadership and counseling. Cumberland also has a TESOL certificate (Teaching English to speakers of other languages). Cumberland has past experience in one on one tutoring and has fourteen years teaching and administration experience.
We pride ourselves on Integrity.”
The Product
School is Easy offers more than the typical tutoring lesson; it has specific programs for different areas of learning and preparation and provides certified teachers as tutors. The tutors offer quality assistance with career, academic and personal goals consistently set in mind. The company focuses on home tutoring in all subject areas for grades 1-12. It also specializes in study skills, special education, French Immersion and ESL (English as a Second Language). The company has tutoring for some University courses, SAT examinations preparations, challenging gifted programs and home schooling assistance.
The Industry
The tutoring is a consistent industry that is ever growing with more people attending university. Global Industry Analysis, a US research firm, discovered that more parents are able to afford education for their kids and the global market is forecasted to grow 88 per cent by 2016. “The tutoring industry is booming and is driven by the Asian immigrant popula-
tion coming to Canada. Asians come to Canada with a very strong academic work ethic and it’s causing the bar to be raised for University entrance,” explained Susan. In 2009 Statistics Canada showed that 40 per cent of people aged 25 to 39 with at least one parent born outside of Canada, were University graduates, compared with 29 per cent of those with two Canadian born parents. According to the Canadian Franchise Association, the number of tutoring franchises has doubled since 2007. Susan assures that School is Easy provides a different experience and customer service. “We pride ourselves on integrity. We never try to sell more than the student needs. We have a pay as you go program,” explained Susan. “Every child’s learning is dynamic and depends on many factors. Some students will be
able to focus and succeed more quickly. Another student might have distractions in their life and might need more hours of tutoring.” What makes School is Easy Tutoring unique is their drive to help others. They reach out to students within the community to help them achieve goals and create a better situation for their clients. They also go above and beyond and give back to those less fortunate. The Vancouver based company raised $500 in supplies for an orphanage in Yang Dong County, China. Susan and her family visited the orphanage in July 2012 to personally delivers the supplies, while also providing assistance.
Becoming a Franchisee
“We are seeking outgoing, self motivated individuals who take ownership of their business and are accountable for their own outcomes. This person must be
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franchisor in depth
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franchisor in depth
School is Easy
School is Easy is a proven system with a brand name that is spreading fast.”
energetic, ambitious and must have excellent communication skills,” said Susan of who would fit School is Easy Tutoring’s franchisee profile. Franchisees should have a background in education and obtain an understanding of marketing. “Most important of all, they must have a passion for our brand and they must absolutely love to market the business. They must strive for excellent customer service. It is also helpful if the franchisee is optimistic, has realistic expectations, family support and has the financial ability to start up a business,” she continued. There is a low start up cost of $9,900 for a territory, which is currently only within British Columbia. A territory covers an area with a population of 180220,000 people. A second territory costs $8,900 and third territory costs $7,900. Franchisees should possess $25,000 in working capital and the company allows
an investor to make money the moment they start tutorial assignments. The start up provides franchisees with exclusive territory, training, initial marketing materials, shared marketing initiatives, proprietary software, ongoing business coaching, use of 1-877-ITSEASY phone number, 30 teacher packages, 30 student success guides, student information packages in 4 languages, website with SEO and SEM, as well as as a detailed operations manual. “We provide up to 20 hours of training at our corporate office. We provide an in depth operations manual and most recently we have added a mandatory marketing accountability program,” said Susan. “In the beginning we will contact you every day, then every two days, then every three days and then finally once a week. You will need to report your mar-
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keting activities to us every week.” There is also ongoing telephone and email business coaching and training available. Conference calls between franchisees are provided for owners to discuss their successes and strategies. School is Easy is a proven system with a brand name that is spreading fast. By becoming a franchisee, an investor is immediately associated with a wellestablished name within the community. Now that the franchise will begin
growing across North America, the value of an investor’s business will start to increase. Marketing strategies are provided and previous successes and challenges are shared with franchisees. The company tracks all of advertising and determines which marketing tactic is bringing in the most inquiries, and then communicates this information to franchisees. “You will need to report your marketing activities to us every week. The most important lesson we have learned: A great system and service is of ‘no use’ if no one knows about it. Local marketing is the biggest and most important factor that will determine the number of registrations coming in. Then, a commitment to customer service will keep them coming back,” explained Susan. www.schooliseasy.com
expert advice
David Wimer, David Wimer Advisors LLC
LEGAL ADVICE
Every Franchise Owner Should Take for Their Family
W
hen you are a franchise owner, there are some unique complexities for your spouse and heirs. Your business (and family) relies on terms of a license agreement, which must be addressed in the event of a business transition. A large part of our practice is working with the franchise owner, their family members and spouses to protect from the negative financial effects of sudden, unpredictable events. In our work we have identified eight steps every franchise owner should take to protect their family, in the event you are absent and they should need to confront that unplanned crisis.
No one likes to think about the jeopardy that sudden and unpredictable crisis can place on your business, finances and family. We know firsthand that as franchise owner/operators you must.
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Minimize family liability exposure. While you may need to be personally liable for some or all of your business debt, do everything in your power to keep family members from becoming personally liable, too. We recommend: a. Make every attempt to avoid having your personal guarantees convey to your spouse or other family members. Your attorney can help you here. b. Carry life and disability insurance sufficient to cover all personal guarantees and at least 2 years of your income.
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Have a family or estate attorney. You need to have an attorney whose sole responsibility is to look out for your family in a crisis. For instance,
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a business attorney will have primary responsibility to look out for the business. There is always the possibility of conflicts of interest. A family or estate attorney may be better suited to address both family members and business matters and how each would be affected by sudden crisis. An attorney with knowledge of franchise law may also be of use if the crisis is one which affects the licensing rights of heirs and spouses. Know your Franchise Licensing Terms. Consult with your attorney to see what occurs in death, divorce or disability. We have reviewed many Franchise Licenses for leading brands of hotels, fast food restaurants, automotive repair and business services. We have seen wide variations in terms of transferability, depending upon the brand. It is extremely important that your family know precisely – if this happens, what happens next. Seasoned owner/operators also know how the Franchisor has behaved in times of crisis. Your local or regional franchise coop may be able to share how certain situations have been handled in the past, so that you know what you/ your family can expect in a crisis. Your Franchise License may also require certain owner/operator or legal responses depending upon the situation. Topics may include transferability and rights of information or privacy. Our
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point here is: The Franchisor is a critical party to be included in your family’s decision-making. We find that open communication in times of crisis is essential to any successful business transition.
ficult times require informed decisions, and having business context for making the right decision is critical. If you keep it all to yourself, surviving the crisis without your insight may be impossible. Consider inviting your spouse to regularly attend a quarterly or annual financial meeting to listen, so that they know what is happening. Your spouse needs to preserve assets and protect your family in event of your unplanned absence. Allow your spouse to get to know your senior management, business attorney, CPA, and any other key business advisors you may have. If something happens to you, your spouse will have to rely on these people to work through the business transition. Those relationships do not have to start from scratch.
Create a Business Protection Pack – You should maintain separate copies of: a. All legal business documents b. All monthly, quarterly, and annual financial statements c. All tax returns d. Bank statements e. Employment contracts for key employees f. Your succession plan (i.e., who you want to manage the operations of your business if you are no longer there) g. Contracts with key vendors h. Contracts with key customers i. Insurance coverage: health, life, disability or long-term care j. Computer passwords, bank passwords, safe combinations These documents should be kept up-to-date regularly and in a safe deposit box at a local bank where your spouse/heir and your family attorney can have immediate access.
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Share the existence of the Business Protection Pack with your personal financial planner. The importance here is easy access and insight from a key family professional that is providing advice to your family/heirs. Critical documents such as are outlined above are essential to seeing the big picture. Many financial planning brokers provide cloud storage as a value-added service. For instance, we know Ameriprise® offers a free, easy-to-use cloud service for its client investors.
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When you are a franchise owner, there are some unique complexities for your spouse and heirs.”
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Include your intentions for your business assets in your Will. Your Will should specify not only who gets what with respect to ownership in the business, it also needs to spell out what responsibilities each heir may or may not have.
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Put a Power of Attorney in place. The PoA needs to make clear what role your spouse or other heir(s) will have with regard to the business. This PoA, or a separate one, also needs to discuss the handling of any medical issues requiring the input of others. Again, your Estate Planning Attorney is best at having these types of documents developed that fit your family business situation. While you, as a franchise owner, cannot totally insulate your family from the impact of a business crisis, we believe you owe it to your family to take what steps you can. Our experience has shown that well over half of the serious business problems related to death, disability or divorce that we deal with regularly would have been avoided if the franchise owner/operator had just taken the time to put these recommendations in place.
Keep your spouse informed. Real problems tend to occur when a franchise owner dies or becomes disabled. Generally we find 85% of the franchise owner’s wealth assets are tied up (illiquid) in the business. Most importantly, the business generates 100% of the family cash flow. Your spouse (or other primary heir) has a need-to-know on a regular basis, how the business is performing in the event of a crisis. Dif-
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David Wimer is Founder and Managing Principal of David Wimer Advisors, LLC where he works with privately-held, family businesses to navigate business transitions and prevent financial crisis. He is the author of INSIGHT: Business Advice in an Age of Complexity.
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expert advice
Canadian Franchising
franchisor in depth
Sherpa Kids
International Expansion
To be a part of this exciting franchise opportunity locally in Australia or overseas contact: Phone: Vicki Prout on 61 8 3854 4886 or 61 439 803 078 vicki@sherpa-kids.com.au www.sherpa-kids.com.au
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John Miles, Dawn Englebrecht and Vicki Prout
with Local Engagement As Chief Sherpa at Sherpa Group, Vicki Prout is well placed to spot a great franchise model when she sees one.
V
icki’s background and subsequent rise in the world of global franchising is a unique story. After joining the Navy and with over a decade of serving the Navy and her country, Vicki decided she would enter the small business arena. Starting with a pet food delivery company, buying a local promotional products business, then taking the step of developing that in the UK for four years, and then moving on to become the International Development and Marketing Director for Cartridge World. It was in this position that Vicki gained invaluable insight into the world of franchising, growing the Cartridge World franchise from 436 stores to over 1600 stores in 42 countries. Building from principles learnt in the defence force and over 15 years’ experience in the franchising sector, Vicki established Sherpa Group in 2009. The company draws on Vicki’s in-depth understanding of relationship building, team orientation, franchise recruitment marketing, brand development, strategic development and implementation, and has seen her earn accolades including as FCA National Chair for Women in Franchising as well as being voted SA Franchise Woman of the Year for a record four years. With hands on experience and a wealth of knowledge to draw upon, Vicki has experienced franchising at all levels and is well versed to the challenges faced in business expansion. Sherpa Group were tasked with the role of completing an Australian market entry analysis for New Zealand based franchise, sKids – Safe Kids in Daily Supervision to ascertain the feasibility and viability of bringing this well-known Kiwi company to Australian shores.
Focusing on North America, Sherpa Kids International are looking for State Masters in the USA and Area Developers for Canada and are looking for people who can build upon the worldwide success of Sherpa Kids.” With the knowledge that she gained from this analysis about sKids and knowing its growth potential, using the famous ad slogan from Remington back in the 1970’s, Vicki says, “I liked it so much I bought the company.” In reality Vicki became the major shareholder AU, and has since become
equal director with Dawn Engelbrecht from sKids NZ for the international rights – operated, staffed and resourced from her local offices in Adelaide.
Sherpa Kids Australia
Vicki explains, “I proudly became the Master Franchisor for Australia in July 2011 and worked part time building the model and completing all required documentation, whilst at the same time ensuring that Sherpa Group continued to thrive. “It was hard work combining and juggling the two roles but also exciting and extremely valuable to my consulting work as I was living through the advice that is given to my clients, every day. This has made me a stronger consultant as I experienced the ebbs and tides of the franchise journey every day.” Twelve months after combining the role of consultant and franchisor, the first Sherpa Kids franchisee was on board and the business has since grown.
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franchisor in depth
Canadian Franchising
franchisor in depth
Sherpa Kids
Vicki continues, “Numbers tell half the story of what we’ve achieved in our first two and half years in a market with entrenched competitors in both the commercial and community sectors. “Launched mid-2011, we have representation in eight countries and support 22 Australian franchisees, three Area Developers and 25 on-site outside school hours care service (OSHC). Customers from over 600 families currently send 1000 children to us for 2600 sessions per month. “Between 2012 - 2013 the business doubled in size and will double again by the end of 2014. “The other half of our story is showing you how we achieved this success so quickly. We chose the business model of franchising to change the OSHC provider landscape. After preparatory research we could see the Australian market was stale and unprepared for the launch of the National Quality Framework reforms in January 2012. Franchising was the answer.” Sherpa Kids is values driven. If you love the business and you agree to do your best to follow the tried and tested rules for running an OSHC business, they: • grant you the right to run a copy of the business • show you what you need to do • give you the tools to do the job • support you in your efforts to do it.
In return franchisees pay a fair price for the brand, goodwill, extensive training and operational support and should aim for a healthy return on their investment from as little as $35,000 plus GST for a greenfields territory. The franchisee purchases an area known as a cluster - approximately 8 - 10 primary schools. “Choosing local people as our franchisees is part of our success and ultimately their success. Our group is extremely multi-cultural and all diverse with their own attributes.” Sherpa Kids have working mums who’ve experienced or witnessed firsthand the problems associated with a lack of quality after school care through to ex-lawyers, practising accountants and recently teachers have joined the network. “Many take an interest in the business that is larger
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With Master Franchisors already in place in the UK, Ireland, South Africa, Australia and New Zealand, Canadian Franchise magazine was able to speak with each Franchisor to discover why Sherpa Kids is so unique.” than the balance sheet. We are, after all, working with children and families. Local franchisees are best placed to engage with local stakeholders, from the school principal to the fresh fruit merchant. Local franchisees empower the brand at a local level, where their customers live. They develop trust, which grows market share. They are the true community citizen” says Vicki. Vicki had the realisation during her research that many people were receiving their Certificate III in Childcare and then some growing bored in the industry. “Sherpa Group has coined the phrase ‘HUMAN AGRICULTURE’ by this we mean WE GROW PEOPLE . We constantly adapt this adage and ethos
with Sherpa Kids via our business model. We are providing people the opportunity to potentially grow and enhance their own personal development and if they wish own a business in an industry they are extremely passionate about. Our staff, our franchisees staff can work within the business day to day but at the same time are trained in elements such as marketing, finance and business skills they can utilise throughout their working career.” We wish to be known for the service that serves its community. Not be known for the number of services we have! Our brand has a massive heartbeat this is underpinned by local heartbeats and little people heartbeats!
Worldwide Focus
Over the next 12 months, Vicki and business partner Dawn Engelbrecht will be building on the development of Sherpa Kids International as this adds value to the existing business partners by strengthening the global brand. Focusing on North America, Sherpa Kids International are looking for State Masters in the USA and Country Masters for Canada and are looking for people who can build upon the worldwide success of Sherpa Kids. With Master Franchisors already in place in the UK, Ireland, South Africa, Australia and New Zealand, Canadian Franchise magazine was able to speak
with each Franchisor to discover why Sherpa Kids is so unique.
John Geers, Sherpa Kids UK
“Sherpa Kids England was incorporated in October 2012, operating two After School Clubs in the London Boroughs of Barnet and Redbridge and opening a third in the London Borough of Harrow in April, after a recommendation received from the Head Teacher of one of the original two, just six weeks into operation. “There are millions of working parents in England who do not have the flexibility in their working hours to drop their children off and collect them from school at the times when schools open and close. During the school holiday period they are either forced to take time off work or pay for expensive child-minders. Breakfast, After School and Holiday Clubs provide a cost effective solution for parents because of the economies of scale that come with looking after children in a group setting. “Sherpa Kids England has an offering unique due the fact that our operating model is a combination of best practice from several countries under the Sherpa Kids banner. In practice this means that the standards of care and the experiences planned for the children by Sherpa Kids greatly exceeds that required by law in the UK. Furthermore, 2014 will see UK legislation relax standards even more – thus making the Sherpa Kids model a clear leader when it comes to quality out of ours school care.”
Dawn Engelbrecht, sKids – Safe Kids in Daily Supervision NZ
“Safe Kids in Daily Supervision (sKids) started in 1996 and I took over with my business partner Bev in 2006. We were originally franchisees in the system (Bev since 1998, myself since 2000) so we had a clear vision of what the brand could do and where we wanted to take it. As of today we have 55 franchisees operating at 118 locations in New Zealand. “There is an increasing need for both parents to bring in an income and most working hours do not accommodate school hours which tend to be a shorter day (i.e. 9-3) and parents want to know that the people looking after their children are well trained professionals who put their child’s needs first. “Our strength is that we are local providers offering a local service on-site at their local schools backed by a National Support office. “We ensure that there are a variety of planned activities each day for the children to participate in as well as healthy afternoon tea and homework time and have recently launched two new services; sKids Active which is a sports based life skills programme and iHub which is out of school care designed for tweens so our focus over the coming months will be to grow these services across the country.”
Genevieve Allen - Sherpa Kids SA
“As one of only a few female franchisors in South Africa, I want to lead and inspire other women to take up the chal-
lenge of running their own businesses. After working in the education industry for 20 years, I have a passionate commitment to learning in South Africa. “As such, I was keen to join this tried and tested franchise business and offer an out of school hours programme that works. Sherpa Kids aims to establish quality onsite OSHC programmes throughout Southern African primary schools. These programmes are structured, engaging, fun and educational with an emphasis being on stimulating child care and not passive child minding. Sherpa Kids brings South African parents internationally benchmarked, structured and standardised offerings for before school care, after school care and care during school holidays. Sherpa Kids has licenced, fully accredited sites in Australia, New Zealand and the United Kingdom that are successful stimulating child care systems that have been running for over 15 years.”
John Miles – Sherpa Kids Ireland
“Following months of research I quickly came to the conclusion that the Out of Hours School Care market in Ireland was at best fragmented and at worst nonexistent. This definitely, for me, was the business opportunity I had been looking for – the chance to be the first mover in a fragmented market offered the challenge and potential rewards that I craved. “My first hurdle to jump was to answer the question of branding – how was I to take full advantage of this situation in the shortest possible time frame? It would take years to build up a recognised brand and the processes and procedures of running a business involving childcare looked onerous. I searched instead for a proven provider operating in another country and that is when I came across Sherpa Kids. It provided me with everything I required – a recognised international brand, set up support, business support and a whole set of rigorous process and procedure guidelines. “On my return to Ireland after meeting with the team in Adelaide I was good to go and feel extremely confident at this early stage of development that I have been provided with the tools and ongoing support that will be the cornerstone of a brand new service in the Irish market www.sherpa-kids.com.au place.”
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franchisor in depth
Canadian Franchising
expert advice
Wayne Maillet, Consultant Franchise Specialists
Franchise Specialists
When Taking the road to Entrepreneurship and Franchising A year ago a good friend asked me to assist her in researching an independent distribution business that was for sale. It was a business that had been established for 10 years, had 6 long term employees, several long –standing clients and was profitable.
I
assisted my friend in reviewing the financial statements. The business would be able to support 100% financing and still provide her with a $100,000 salary. She could take the equity in her home and leverage this for the financing. The owner was retiring and was prepared to stay on as a consultant for 1 year to ensure a smooth transition. It sounded like an ideal opportunity. A lawyer was hired to draft the purchase and sale agreement. The lease agreement and other documents were reviewed. Negotiations went back and forth regarding the details of the loan payment. After much discussion, the seller was willing to provide a 5 year loan but if the sales dropped to a certain level, loan
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payments could be deferred until cash flow improved. The terms were good and yet after one and half years of negotiations and substantial legal bills my friend could not move forward and walked away from the deal. She decided that entrepreneurship was not for her. When I asked her why, she stated that she was simply not willing to take the risk. Over the years I repeatedly see people who are looking to get into business for themselves who spend considerable time and effort doing due diligence and research but in the end simply do not move forward. Some, I come across a few years later still looking at opportunities but still unable to make the final commitment. They are looking for a business that has no risk. Such a business does not existing. The road to entrepreneurship is one that offers many appealing benefits. • There is a pride in building something of your own. • You can control your destiny, are able to have greater flexibility with your time. • With hard work can build substantial income. • Once your business is established you will have greater flexibility to create a work/ life balance. • You can built up an asset you can sell or leave for your children.
And yet despite all of this, many cannot overcome the element of risk. The economy is at best, unpredictable. You may be faced with an economic slowdown that could seriously impede your business success. There is the risk of the market and possible saturation of competitors, making it hard to win over and keep customers. There is the uncertainty of getting involved in an industry that you are not familiar with and dealing with a potentially steep learning curve. During this learning you will inevitably make mistakes that could be costly. There are the challenges of dealing with managing employees while still learning a new business. Finally, there is the financial risk. Entrepreneurs must in most cases be willing to loose everything. As a new business owner you must have sufficient funds to carry your personal living costs, the business start-up costs and initial working capital needs until the new venture begins to turn a regular profit. A miscalculation in your financial projections could leave you substantially short and in possible financial ruin.
All successful franchises are based on systems. Clearly defined procedures that are duplicated will produce consistent, reliable results and experiences for the customer.�
It is for these reasons that franchising has been so popular for entrepreneurs. With a well positioned franchise you can minimize your risks. Franchising offers the following benefits. Becoming a part of a brand. You can start your business with a customer base already established. Today’s consumer is brand driven. They want to go where they know what to expect. If they see a name over and over again they begin to have comfort with that company and will frequent that place of business. It results in disproportionate market share. This market share is often taken from the independent. Brands help to attract customers. Having access to systems. All successful franchises are based on systems. Clearly defined procedures that are duplicated will produce consistent, reliable results and experiences for the customer. Systems include operating standards which define quality. Rather than spending time learning through expensive trial and error you can capitalize on
expert advice
Canadian Franchising
expert advice
Wayne Maillet, Consultant Franchise Specialists
the experience of the franchise system and all of the franchisees that have come before you. Ability to work with a proven business model. There is an old philosophy that if you want to be successful then watch and copy successful people. Imitate them. Likewise, watch what unsuccessful people and don’t follow their example. This eliminates you learning the business through trial and error. Working with a proven business model can save a startup operation a considerable amount of money and frustration. Costly mistakes like choosing the wrong equipment or suppliers are avoided. Working on the business rather than in the business. Business involves a lot of details. For example, an independent restaurant owner will spend a considerable amount of time developing menus and keeping the menu fresh, implementing marketing strategies, monitoring the competition, making sure the business is in compliance with all the laws and food safe procedures. With a franchise you have the support of a franchisor that will often do these functions, thus freeing up your time. Rather than doing research and development you can spend your time implementing and building relationships with the customer. You are able to focus your energies where they can have the biggest impact to your immediate bottom line. Mass purchasing power. In business one needs to be managing carefully costs. A franchise allows one to take advantage of volume buying of inventory and supplies by pooling the purchases of multiple locations. This often results in stronger bottom lines. Advertising on radio and/or television would not be practical or cost effective for an independent, yet is easily attainable when belonging to a franchise where franchisees pool their financial resources together. Support - on your own but not alone. When you are the owner of your own business it can be lonely at the top. If you have a challenge or operations issue, you simply can’t pick up the phone and call your competitors to see how they would deal with the situation. Within a franchise there is the opportunity to talk to others that have had the same challenges and get open feedback and ideas. The franchisor has a vested interest in the
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There is an old philosophy that if you want to be successful then watch and copy successful people. Imitate them. Likewise, watch what unsuccessful people and don’t follow their example.” business and brand and they will be more than glad to help. You have access to support that you would not have otherwise. All of these advantages combined contribute to reducing the risks of getting into a business. Many failed businesses could have been avoided if they had not had to learn through trial and error. You stack the probability of success in your favor with a recognized brand, buying power and a proven business model. Having the programs, systems and tools to be successful will not give you guarantees, but sure go a long way in providing comfort and minimizing the risks. A franchise may provide you with the needed confidence to finally take action on your dream of becoming an entrepreneur and having your own business.
Wayne Maillet is a leading Canadian franchise management consultant with over 25 years of practical experience in all aspects of franchise operations. Respected within franchise circles, he brings a realistic, practical understanding of business and franchising. Wayne Maillet has spoken across Canada, including lecturing at Queens University, written several articles and is often quoted as an authority in franchising. He mixes practical experience with an academic understanding, having earned his Bachelor of Business Management Degree from Ryerson University and was recognized for outstanding academic achievement in management and enterprise development.
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Brian Wieters
PILLAR TO POST
CONTINUES BREAKING RECORDS
Pillar To Post, North America’s largest home inspection franchise, continues its record breaking expansion across the continent in 2014.
A
fter welcoming 50 new franchisees in 2012 and 70 new franchisees in 2013, Pillar To Post has already welcomed over 40 new franchisees in 2014 with a goal of 100 new franchises opened by the end of the year. With new territories opening up in Canada over the past month, interest in Canadian Pillar To Post opportunities is on the rise. Pillar To Post is actively seeking new franchisees throughout Canada, but specifically in Calgary, AB; Toronto, Mississauga and Windsor, ON. Pillar To Post continues to provide its franchisees with industry leading support as can be seen by our Top 50 ranking by Franchise Business Review and our Best of the Best ranking by Entrepreneur Magazine. Be The Boss Canada has also ranked Pillar To Post among their top 100 franchises and we have received the Be The Boss Canada seal of approval as an Approved Franchise in 2014.
For more information: Contact Brian Wieters brian.wieters@pillartopost.com. Video: www.youtube.com/pillartopostinc Twitter: twitter.com/thepillartopost Facebook: www.facebook.com/ pillartopostusa Website: www.pillartopost.com
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About Pillar To Post Founded in 1994, Pillar To Post is now the largest home inspection company in North America with over 400 franchisees, located in 47 states and 8 Canadian provinces. The company has added 70 new franchisees in 2013 and expects to add 100 new franchisees in 2014; long-term plans include adding 500-600 new franchisees over the next five years. Pillar To Post was ranked the No. 1 home inspection franchise in Entrepreneur magazine’s 2013 Franchise 500®, the world’s first, best and most comprehensive franchise ranking, and earned the distinction of being ranked in Franchise Business Review’s Top 50 in the Large Franchise category for 2013, an award based on overall franchisee satisfaction.
For more information: www.pillartopostfranchise.com
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