Volume 02. January 2017
ISSUE 002
Price FREE
THE
Business Mind Practical and Preventive Business Acumen
It’s time... LEADERSHIP
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SALES
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MARKETING
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LEGAL
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ACCOUNTING
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ENTREPRENEURSHIP
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Editor In Chief Noel Bagwell Executive Legal Professionals PLLC Creative Director Devon Bagwell Contact hello@executivelp.com Address 3102 West End Ave, Suite 400 Nashville, TN 37203
EXECUTIVE LEGAL PROFESSIONALS PLLC, THE BUSINESS MIND DIGITAL MAGAZINE
THIS DIGITAL MAGAZINE CONTAINS ATTORNEY ADVERTISEMENTS. 2017
Issued: 1/15/2017
Price: FREE
Nothing contained herein should be considered an offer to provide legal services to any person or entity. No attorney-client relationship results from the provision or consumption of the material contained in this Digital Magazine. None of the material contained in this Digital Magazine should be considered "Legal Advice," nor should anything contained herein be substituted for the advice of a licensed attorney.
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The Business Mind CONTENTS
EDITOR INSIGHTS: It’s Time...
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Dessert First
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Four Essential Steps To Grow Like A Weed
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The Stink Of Fear
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Is Becoming A Franchise Right For You?
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Accountant Shopping For Franchisors
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The Virtual Franchise
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Systems For Franchises: Six Ways To Increase Survival Probability
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Five Things I’ve Learned As The Wife Of An Entrepreneur
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It's Time...
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Editorial by Devon Bagwell
It’s time: time to focus, time to plan, time to take that next step. As a self-proclaimed perfectionist I spend a lot of time weighed down in the minutia of the details. I’ll plan. I’ll procrastinate. I won’t take that next step because things just aren’t absolutely perfect. There’s a time for each of these things, but it’s important not to get caught in the loop of procrastination through perfectionism. As we begin a new year there are exciting new adventures to be had. It’s time to stretch our legs and take those necessary steps toward success. I encourage you to join me. Take the time to plan, to listen to experts, to make smart decisions. But don’t neglect the most important step...the first one. It’s time to start. This edition of The Business Mind has an in-depth focus on franchising. If you’ve ever considered franchising your business, investing in a franchise, or becoming a franchisee. This edition is for you. Packed with helpful tips and need to know information, you’ll be prepared to take that next step. Is 2017 your year? The steps you take toward your goal this year could lead to prosperity and success for the rest of your life. It’s time to build your legacy. Executive Legal Professionals, PLLC has committed to providing this quarterly digital magazine full of practical and preventive business acumen, free of charge. It’s our hope that you will share this with your employees, your clients, your prospects, and your networks.
BUSINESS MIND MAGAZINE JAN 2017
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Dessert First. BY: Noel Bagwell & Karsten Ferguson
World: Meet Karsten. I first met Karsten while teaching a business organization class at Ft. Campbell’s Boots to Business program — and my life is better for it. Karsten brings an optimistic and inquisitive perspective to life. During lunch one day, he shared his “Dessert First” philosophy with me. Since that day, I’ve often reflected on this so I’ve asked him to share it here for you today. - Noel Bagwell
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Karsten “Hype” Ferguson: “When I was a young child one of the things my mom would tell me before dinner was: ‘Save room for dessert.’ This, of course, meant no second helpings of potato salad or any of the other goodies she had prepared, no matter how simple the dish. I would then counter (as those who know me now, as well as then, would not be surprised): ‘Why would I have to save room when I could eat the dessert first?’ Years later, I heard Less Brown, one of the great public speakers of our time, say the same thing: ‘Life is short; eat the dessert first.’ I have always had a sweet tooth, but had not always wanted dessert after every meal. After deep reflection on this particular memory, I derived two main thoughts. First, you can treat yourself from time to time, as long as it is done in a responsible manner, because this is the healthiest way to reward yourself. Second, question: Why? Why do we do things, feel, speak a certain way, or even think in a certain manner? I ask the question, “Why,” just as I asked about the dessert several years ago, not to be defiant or disrespectful, but because it was an early exploration of the why behind everything. I wanted to care and to better understand the world. My inquisitive nature, like that of a child, hasn’t always been the easiest trait for some others to accept, but it has served me well in life. I greatly enjoy life and all of it’s wonders. The more I question, the more I see. This is why the word “why” has been the typical conduit through which I have brought greater depth into my life. What I ask of anyone reading this is: do you still ask, “Why,” or stop and try to figure things out that seem so trivial or routine to others? If not, why not?”
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Four Essential Steps to
Grow Like A Weed
BY: Devon Bagwell Small business is hard. Sometimes it’s seasonal, sometimes start-up costs are more than expected, and sometimes growth requires sacrifice that is painful to the pocketbook. But trust us, it’s totally worth it. With steady and healthy growth of your business comes the achievement of your long term goals and dreams. Whether that’s financial security, traveling the world, or creating a legacy—growth is how you get there. A solid marketing strategy for small businesses is absolutely an essential part to stable growth. Here are four simple steps to begin building your strategy.
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Evaluate.
Take a step back. Revisit your business plan. (You have one, right?!) Think about your current target market. Are they bringing in enough revenue? Don’t forget the 80/20 rule: about 80% of your revenue probably comes from 20% of your customers. How can you focus on this high value market? Fire existing clients? Move locations? Expand your marketing efforts?
Prioritize.
Examine potential marketing efforts and prioritize by effectiveness and achievability. Can you expand your digital presence? Revamp your printed materials? Begin advertising in a new channel? Each area of marketing comes with it’s own expenses. Take time to prioritize what works best for your current budget and determine which efforts will give you the greatest return on your investment.
Measure.
Set specific goals. Don’t just think about them—write them down! Make hard deadlines and determine how you will measure the effectiveness of each marketing effort. If you don’t measure you won’t know what works.
Just start.
Pull the trigger. Meet those deadlines. Reach for the stars…and all those other cheesy motivational poster quotes. Don’t put it off. Another dollar earned today may lead to ten more tomorrow. Build. Go. Do. Now. Seriously, why are you still here?!
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BY. Noel Bagwell
Some admittedly inconclusive evidence supports the claim that humans can smell fear. Findings from a study published around 2012 suggest “that humans can communicate at least some emotions,” among them, fear, “by smell, which could prove useful in crowded places.” Regardless of what the science says, anecdotally, I can tell you fear has a smell, though perhaps one that is more metaphorical than literal.
The Stink
of FEAR
When a [prospective] client is sitting across a conference room table from me, telling me about their business’s legal concerns, I sometimes smell the stink of fear. When I am explaining the legal consequences of an unwise course of action a client has suggested taking, that singular aroma fills the room. When a [prospective] client has made mistakes it will cost a lot of money to repair, the fear funk is powerful enough to bring people to tears. All of this I have observed with my own eyes. There is a solution, a cleansing balm for the soul that restores courage and uplifts the desperate. Preparation. A plan. Foresight. Whatever your word for it — I like “readiness” — you need it in order to recover from or ward away that awful smell. Soldiers go into combat not without fear, but in spite of it. Why? They have a commander. They have a plan. The troops know the drill, so to speak.
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Entrepreneurs often know what they do, but struggle with the business of what they do–two very different things. Passion, the willingness to accept and take risks, effort, and determination are all essential to the successful entrepreneur. They won’t take you the whole way to your goal, though. At some point, you’re going to need a plan, and most entrepreneurs need a guide to help them create that plan. Your plan is your deodorant, your ward against the stink of fear. The fear might still be there, but there’s a layer of confidence-scented planning right on top, masking your fear, your desperation, and keeping you cool, confident, and in control. You’ve heard the adage, “Fake it ’till you make it.” You can’t do that if your proverbial pit stains are showing, if people can smell your fear. An important ingredient in your anti-fear deodorant, an essential element of your plan is sound legal counsel about the structure of your enterprise. I have a friend who is an Eagle Scout with six Eagle Palms, who taught me a fun saying: “Proper Prior Planning Prevents Pitifully Poor Performance.” Planning is essential to good performance. Entrepreneurs need a plan for their business–a business plan (preferably, a written one). Part of a good business plan necessarily includes ongoing access to sound preventive legal counsel for their business. If you don’t have a business plan that addresses your legal risks with appropriate preventive legal services, you will reek of fear every time legal issues arise in conversation. I have seen it over and over. That smell is unmistakable. If you reek of fear, make a plan. Don’t worry about making it perfect. Just have one.
Need help? Our preventive legal services can be an affordable, accessible part of your complete business plan.
615.669.6566
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Franchise Focus • Is Becoming a Franchise Right for Your Business? • Accountant Shopping for a Franchisor • Multi-Level Marketing & Virtual Franchises • Systems for Franchises: Six Goals to Increase Survival Probability READ MORE ABOUT FRANCHISING
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Is Becoming a Franchise Right for Your Business? BY: Noel Bagwell It’s About the Business of What You Do Deciding to start a franchise really does not depend on what goods your business produces or what kind of services it provides; rather, whether your business is franchise-eligible largely depends on how well you can instruct others to replicate the business of what you do. Many small business owners have a hard time separating what they do from the business of what they do. This might seem counter-intuitive, because “running the business” takes up so much time, and, unless you really enjoy things like recordkeeping, bill-paying, employee management, etc., small business owners are likely to feel like such things get in the way of actually doing what they love. My aunt and uncle, together, own and operate a business called Free Spirit Adventures, in Caldwell, West Virginia, near Lewisburg and the famous, historic resort, The Greenbrier,
in White Sulphur Springs. If Aunt Lynn and Uncle Bobby wanted to turn Free Spirit Adventures into a franchise, it probably wouldn’t be too difficult, relatively speaking, for them to do. This is because they intimately know their business, because they have been running it for years. Not only that, they have been successfully operating the business in a really tough business climate with minimal staff. Nevertheless, they have found a way that works to run their business even when the
economy is bad, their town is small, and tourism in their area is undependable (as it was, a few years back when The Greenbrier was facing bankruptcy, before it was bought and turned-around by Jim Justice in 2009). Free Spirit Adventures is a service business, offering bicycle rentals, shuttles, and vacation lodgings. They can also help you plan and organize fun adventure activities, like hiking, climbing, white water rafting, snow tubing or skiing (winter weather
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permitting), and just about any other outdoor your business has been profitable for a period fun thing there is to do in West Virginia south of time–usually more than three to five years. of highways 33 and 48 and east of highway If you cannot demonstrate a history of 19. That’s a big area and a lot of potential profitability in the business, others are unlikely business activities to cover. So, how can I say it to want to get involved with a business exactly would be relatively easy for my aunt and uncle like yours. If you’re losing money, they’re likely to turn such a business into a franchise? The to lose money if they do the same things you’re answer is: because whether or not you can doing, the same way you’re doing them. successfully franchise your business has little to do with If your answer is, “Yes, I can what you do, where you do it, demonstrate that my business or even when your business is has a history of profitability,” at its busiest time (many small (by disclosing business records Does your business have businesses are seasonal); rather, a demonstrable history of and such) then move on to successfully franchising your Question #2. If not, you profitability? business depends on an ability should contact ExecutiveLP™ to teach others to replicate your and an accountant; talk to us successful business model– and to your accountant about Do you like teaching how you do the business of establishing the kinds of others and explaing how what you do. record-keeping systems, legal things work? policies, and fiscal policies Evaluating Your that can help you create the Franchise Potential conditions for being able to I’m going to pose–and you can answer, “Yes,” to this question answer–a few quick questions. in the future. Depending on your answers, your business might be a good candidate for franchising. Here 2. Do you like teaching others and are five questions to ask yourself if you are explaining how things work? curious about franchising your small business: You might not necessarily have to teach 1. Does your business have a demonstrable people to ride a bicycle or climb a mountain history of profitability? or anything like that (even if that’s what your business does). Instead, you need to be able to Notice: I did not ask, “Is your business look at the business of what you do, and teach profitable?” That is not the question. Rather, others and explain to them how you do what the question is whether you can demonstrate you do in the ways that you do what you do.
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3. Is your brand strong enough?
That’s the heart of a franchise–your business processes, replicated by others–and it starts with you teaching someone else how to do it “your way.”
Think about the franchises that most prominently stand out in your mind. Each of them has powerful branding. Does your If the answer to this question is, “No,” then business have a memorable brand, which clearly you’re going to need to either reconsider communicates what you offer to your clients or whether franchising is right for you or consider customers? If so, you may find it easier than hiring someone (or a group your competition to capture of people) who (1) intimately a larger share of the market understands (or can learn) for your goods or services your business, its processes, by franchising your business. and how to replicate your The relative strength of your Is your brand business model; (2) has the brand has a lot to do with how strong enough? skills to teach and explain to successful your franchise can others your business processes become. and how to replicate your Are you ready— business model; and (3) has Of course, with a strong financially, emotionally, proper incentives to stay with brand, comes strong brand and logistically the new franchise company protections, and that means —to change? until all your training materials securing and protecting your and training programs are wellIntellectual Property—your established and can operate trade name, your logo, your without dependence upon this slogan, and other marketing materials. Registering person or group. c o p y r i g h t s, trade marks, and service marks is an important part of protecting your brand, You absolutely are going to need a strong, welland ExecutiveLP™ can help. Download our drafted Executive Employment Agreement Menu of Services for pricing on ExecutiveLP™ to manage your relationship with that person Intellectual Property legal services. (or a vendor contract, if you’re going to be outsourcing this work to a firm offering such 4. Are you ready — financially, emotionally, services). For the work of drafting these and logistically — to change? essential contracts, you should contact a business attorney; this is not a project on which As I have repeated throughout this article, you want to skimp on the cost or DIY. choosing to franchise your business is a
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decision that revolves around the business of what you do, not just doing what you do, day-in and day-out, to earn a living. Starting a franchise company will mean you will be in the business of selling the franchise. Before, maybe you rented bicycles and vacation lodgings, organized ski trips, or sold widgets. Once you franchise your company, you won’t be doing those things; you will be selling the business model and branding for businesses that sell those things.
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Thankfully, now that the SEC has finally promulgated the rules for Title III of the JOBS Act, you have more options than ever before for raising capital for your new franchise company. You can raise up to $1 million through Equity Crowdfunding. If you don’t like the idea of getting into bed with strangers, you might want to consider a more traditional funding route– like raising money the old fashioned way, from friends and family or by taking out a business loan.
How will you afford Franchising might not be for Legal fees for starting a the costs involved in you if you really, really love what franchise company are often as you do, and if you can’t imagine much as (and sometimes more starting your new yourself doing anything else, than) $150,000.00, and you are franchise company? each day. If, however, you going to need a lawyer to assist love the business of what you you with developing basic do more than actually doing franchise legal documents (and whatever it is you do, and if you all the related work that goes love teaching and explaining to along with creating them); others what you do and how you do it, turning performing quality control with respect to your your successful small business into a franchise new company’s operations manual, potentially might be just the kind of career change you working with one or more consultants to would love. develop that important book; preparing legal documents for state registrations in each state 5. How will you afford the costs involved in in which the franchise must register to do starting your new franchise company? business; providing ongoing General Counsel legal services to the franchise company; and Starting a new franchise company involves both providing human resources legal support. high costs and proportionally high rewards. You ExecutiveLP™ provides all of these legal should expect to spend half a million dollars services, as a single package at an incredible or more just to get your franchise company value. started. This means you’re going to need to raise a lot of money.
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Big Risks, Big Rewards
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credit, yet which none could have achieved alone. This puts me in mind of a franchise, because every time a franchisor sells a franchise to a franchisee, they’re passing on the torch of your success. That’s a beautiful thing, and it makes each person who is a part of that process better-off, more prosperous, and less vulnerable to financial hardship.
There are risks and costs to action. But they are far less than the long range risks of comfortable inaction. –John F. Kennedy
I believe JFK was right. The risk of doing nothing is far greater than the risk of doing something. Even if you have to raise and I once heard someone say, at spend half a million dollars to the end of our lives, we regret get a franchise company off There are risks and not the things we did, but the the ground, that is not such costs to action. But things we didn’t do. Maybe you a big problem, if you can use have built a successful small they are far less than that new franchise company business. Wouldn’t you regret to raise millions of dollars the long range risks not giving other people the over the next three, five, ten of comfortable opportunity to share in your or more years. That would be inaction. success, to work hard like you an investment worth making. did and achieve the same kind Whether you have a dream of prosperity? Wouldn’t you of making the world a better regret not seeing how big your place, or just making a buck, dream could grow, how far your business could franchise companies can bring you closer to go in the hands of others? your goals, and when you’re ready to take that leap — or just get some help preparing — When I think of franchising, I think of a race. ExecutiveLP™ is here to help. A single runner, dashing 100 yards or even running a marathon is impressive. When we start the Olympics, though, we don’t start with a marathon that has a single winner. We start with a global relay race in which one runner hands a torch off to another, who then hands it to another, and so on. Eventually, the Olympic flame is lit with a torch that has been passed around the world from runner to runner–an accomplishment for which they all can take
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JUST START.
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NEW YEAR. NEW MENU! Time to take that meeting. Share that idea. Lease that location. ExecutiveLP is here to help.
EXPLORE BUSINESS LEGAL SERVICES & PRICING
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Accountant Shopping for Franchisors: What to Look for When Getting Started So, you’ve been running a successful business and are thinking of franchising your concept and sharing the love. Or maybe you have a brilliant idea and would like to franchise right off the bat. Regardless of your business, there are some accounting distinctions in the franchise world that are different from a stand-alone company. As you shop around for an accountant to assist with your new franchise (and it is important to shop around, trust me), there are a few topics you may want to discuss to make sure your accountant will be able to accommodate your needs, and also grow with your business. Probably the most important requirement of a franchisor is the annual filing of your Federal Disclosure Document, or FDD. This document not only will provide franchisees
with information regarding site selection and build-out costs, but will also disclose a copy of your annual audited financial statements. In addition, you will only be able to sell franchises with a current FDD filing, which is due 90 days from the end of your fiscal year. If, for some reason (like a delayed audit), you miss your FDD filing, you will be prevented from selling franchises, which could be a major setback. This requirement presents a two-fold discussion for your accounting needs. First, you may want to discuss your FDD filing with your external CPA firm to make sure that primarily, they can prepare an independent audit of your financial statements, and also, they understand and are comfortable working with your franchise attorney to discuss FDD disclosure requirements. Depending on the state you want to sell franchises, there
BY: KERRI L. KUTLENIOS, CPA
may be specific financial ratio requirements that your auditor and attorney will review. In addition to your external CPA firm, you will want an internal accountant who can prepare timely monthly and year-end internal financial statements, and who can communicate with your auditors to coordinate the audit within your filing deadline. Your internal accountant doesn’t necessarily need to be a CPA, but should have a strong accounting background and be familiar with what your auditors will need to efficiently audit your books. Another topic you may want to discuss internally is your collection of franchise royalty, once your franchise locations are up and running. Your internal accountant should be knowledgeable of your royalty collection policy that is stated in your franchise agreement, and should be communicating with you regarding any late
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payments and the appropriate communication with franchisees regarding late fees. The collection and accounting of these payments should be applied consistently across your franchisees, which will most likely be an auto debit from their bank account. Management should constantly be aware of any late royalty payments, which may be an indication of a franchise in trouble. A third opportunity for helpful accounting assistance with your franchise is in the area of
potential franchise selection. Most likely, you will require potential franchisees to provide financial information to confirm net worth and liquidity. Your accountant can assist with both the most reliable information to request (hint: documents provided to or verified by a third party like the government or a financial institution), and also to interpret the information received to ensure they meet your franchise requirements. This may seem obvious, but in many ways you are selecting a business partner for the next
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20-30 years, and this process shouldn’t be rushed, no matter how tempting it may be to cash those checks. Hopefully the points above illustrate the importance and the benefit from a strong financial ally in your franchise venture. Your financial team can be much more than a necessary evil, and ideally will provide you with peace of mind and remove one responsibility from your increasingly crowded plate. Congratulations on your venture and best of luck!
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THE
Virtual Franchise BY: Noel Bagwell Once the public learns that a certain “business venture” is actually a scam, the scammers tend to either scurry like cockroaches into the shadows or reboot their scam under a different name or brand. You don’t hear that much anymore about “pyramid” schemes, because the schemers rebranded themselves as “Multi-Level Marketing” or “MLM” businesses. Now, even the “MLM” label is becoming toxic; so, the schemers and scammers are rebranding, yet again. This time, however, they’re using the term “Virtual Franchise”, which is dangerous, because using the word “Franchise” in connection with what is actually not a franchise business at all is materially misleading–an element of fraud. Try searching Google for “Virtual Franchise” Scam. As of the time of this writing, there is one company that dominates the first page of search results. Now, I’m not going to accuse any business of being a scam, per se, but I do want to talk a bit about what a franchise is, and–perhaps more importantly–what a franchise is not.
A franchise is not an independent contractor (an “agent”) who merely sells products or services on behalf of a person or business entity (the “principal”), or who recruits other people to do so. According to Black’s Law Dictionary (10th ed. 2014), a “Principal” is “someone who authorizes another to act on his or her behalf as an agent.” An “Agent” is “someone who is authorized to act for or in place of another; a representative.” Id. The relationship between a franchisor and a franchisee has important differences between a Principal-Agent relationship. In the context relevant to this article, a “franchisor” is someone who grants a commercial franchise. A “commercial franchise” is “a franchise using local capital and management by contracting with third parties to operate a facility identified as offering a particular brand of goods or services.” Id. A “franchisee” is the person or entity to whom a commercial franchise is granted. Words matter, because when one changes the words he uses, he conveys different meanings,
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All credit for this comic strip goes to xkcd. See this image in its original location at: http://xkcd.com/1772/ ideas, and impressions to whoever hears or reads his words. Fraud necessarily entails materially misleading the victim of the fraud; the chief way in which that is done is by intentionally or negligently using materially misleading words when discussing what a business does or the way in which it operates. When one refers to a business
as a “franchise”, even a “virtual franchise”, when it is not a franchise, such a reference is materially misleading. The most important difference between a franchisor-franchisee relationship and a Principal-Agent relationship is that, in the case
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of the former, the franchisee is an autonomous business that directly provides goods and services to consumers, whereas, in the case of the latter, an “independent contractor” serving as an agent merely offers goods and services on behalf of the principal. In effect, the “independent contractor” / agent is nothing more than a salesperson working on behalf of the principal. On the other hand, a franchisee is an autonomous business that licenses intellectual property from, uses a business model prescribed by, and may obtain some goods and services from the franchisor.
customers, who employ the employees, who have the contracts with the vendors and distributors, and who realize the profits of the business at the local level.
If, for example, a franchisee organized as a limited liability company (“LLC”) opened up a fast food restaurant as a Wendy’s® or Burger King® in a building owned by the franchisee, in theory, that same LLC could end its agreement to be a franchisee and continue operating a fast food restaurant out of the same building.
Calling an “independent contractor” a “virtual franchise” or “virtual franchisee” or whatever does not make them more than an independent contractor, an agent of the principal, basically an arm’s-length employee or representative of the business / employer / principal. Furthermore, doing so is materially misleading, and might be an element of fraud. Calling an “independent contractor” a “virtual franchise” or “virtual franchisee” might even be an element of fraud.
The branding (and supply of branded materials or brand-specific goods) is part of–actually, the essence of–the franchise relationship, but the actual business–the people involved and the type of goods or services provided–is separate and autonomous, to varying degrees, from the franchise. Franchise companies sell franchises– branding, systems, access to distribution networks, etc. Ultimately, it’s the franchisees who sell whatever goods and services are offered under the franchise’s brand; it’s the franchisees who bear the lion’s share of the legal and financial liability for the success of their business; and it’s the franchisees who receive payments from the
In a contrasting example, if a business engaged an independent contractor to be its sales agent, the very essence of that relationship is that the agent acts on behalf of the principal, not on the agent’s own behalf. The agent acts as the principal, and represents the principal to the principal’s customers.
A wise businessperson would do well to be extremely cautious, skeptical, and wary of any business that engages in Pyramid / Multi-Level Marketing / MLM / or structuring of their business relationships–even if they’re called something else that seems innocuous, like a “Virtual Franchise”. Under federal law, franchisors have to meet certain legal requirements, including offering a Franchise Disclosure Document (“FDD”) to franchisees. If you don’t receive an FDD, odds are you’re not dealing with a real franchise, and the business might be a scam.
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Let's get coffee Are you in the Nashville, TN area? We’d love the chance to sit down and chat over coffee! Getting to know our local business owners ensures that we are providing content that is beneficial to you. We’d love to pick your brain, talk business, and get to know you a little better! SCHEDULE OUR COFFEE DATE
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Systems for Franchises: Six Goals to Increase Survival Probability BY: Noel Bagwell In 1998, a study performed by a graduate student at MIT’s Sloan School of Management found over 72% of the new franchise systems (i.e., franchise companies), in a statistically significant sample of franchises founded between 1981 and 1983, ceased to franchise by 1995. Notice, nearly three-fourths of new franchises failed within 12-14 years. Most new franchisors engage in policies problematic to their very survival. The aforementioned study found that, while age and size are relevant to consideration of whether a franchise is likely to succeed, “franchise systems … which are structured to economize on agency costs are more likely to survive than franchise systems which are not structured to economize on agency costs.” What does it mean to be “structured to economize on agency costs”? Essentially, it means that the relationship between franchisor and franchisee is designed, ordered, and implemented in a way
minimizes the costs of an agency relationship while maximizing the benefits of said agency relationship. How is that done? Primarily, franchise companies can be structured to economize on agency costs by creating, developing, and implementing proprietary systems and processes that achieve specific goals. The key to longevity is targeting the appropriate goals, and then creating & implementing the correct systems and processes to achieve those goals. Of course, it goes without saying that all of this design & planning is useless without efficient, effective execution, but that is a better topic for a different article. To improve the probability of their survival, prospective franchisors should focus on six goals when creating and developing systems and processes to structure their franchise to economize on agency costs. That’s a mouthful. Let’s just summarize, Buzzfeed style:
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1. Do not permit passive ownership of franchised outlets. 2. Require relatively high levels of franchisee cash involvement (i.e., start-up cash investment). 3. Establish and enforce industry experience requirements for prospective franchisees. 4. At least at first, concentrate your operations in a relatively limited geographic area (e.g., one state or clearly delineated region). 5. Keep it simple. Minimize the complexity of tasks for which franchisees will be responsible. 6. Do not use master franchise agreements (contracts which grant the
rights of development of the franchise to an individual whose purpose is to recruit, train, and oversee the operations of individual franchisees in an area).
What sets a franchise apart from an independent “mom & pop” shop is its standardized, scalable approach to operations. Economies of scale are only accessible to franchise companies structured to economize on agency costs. Hiring a franchising consultant could be a wise decision, if you are struggling to envision systems or processes franchisees can execute. Such consultants typically have experience taking your day-to-day operations and distilling them into processes and systems that can be replicated and executed by franchisees. This process is absolutely essential for a successful franchise company. Be in the 28% of survivors. Follow the guidelines above, and, if necessary, consult a franchising consultant for additional help. One last word
of caution: not all franchising consultants are created equal. Make sure you are hiring a seasoned professional with a proven track record of success. Be prepared to ask tough questions, obtain a list of verifiable references, and then follow-up on those references before hiring. Finally, have your business attorney carefully review and suggest any necessary changes to the consultant’s contract for services. The right prior planning can make all the difference between being in the quarter of franchise companies that succeed and being part of the majority of failures in the franchising industry. Don’t cut corners. Build the right team, design the right systems, execute them efficiently and effectively, and prepare to reap prodigious rewards.
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The Business Mind Magazine // ISSUE 02
Five Things I’ve Learned as The Wife Of An Entrepreneur BY. Devon Bagwell
PASSION. They have it. Don’t squash it. True entrepreneurs have passion. Alright, that’s an understatement. Entrepreneurs have an OVERABUNDANCE of passion. That idea that hits them during dinner can easily turn into an all-nighter— sketching out an idea and fleshing out the plan to make it happen. When an idea is in its infancy it is like looking at a mouthwatering chocolate fudgy brownie. The entrepreneur’s mouth waters and they highly anticipate taking that awesome first bite. So, no matter how well-intentioned, the first negative comment or objection can be like replacing all the sugar in that brownie with salt—sapping all the moisture from their mouth and drying up
The Business Mind Magazine // ISSUE 02
their motivation like a mouth full of sand. Love them, support them, and push them to answer all the questions, but keep the negativity off the table. If there is an objection that must be answered, be sure your presentation is constructive and encouraging.
PATIENCE. Yeah, they don’t have it. There are so many small steps that one must take to reach the summit. But when you can already see the top, it’s hard to slow down and keep from tripping over the rocks at your feet. Help them keep their eye on the summit – that is what makes their passion rise and they will in turn, inspire everyone else around them.
DETAILS. Ain’t nobody got time for that. As I said before, entrepreneurs see the summit. They have a bird’s eye view of the
product/ser vice/business that they want to gift to the world. There is great value in this zoomed out perspective. A great leader must always have a destination in mind. Details will come later and may be something you have to take on in order to keep the passion alive. No worries- just learn to surround yourself with people who specialize in what you or your spouse don’t want to do. Delegate and keep reaching for the summit.
RESULTS. Just start. Me? Oh yeah, I’m a planner. Business plan? Yes please! Let’s figure out all the possible scenarios and run the numbers. To the entrepreneur, that allnighter where he sketched out his idea was his planning session. He’s ready to hit the ground running and reach that summit before anyone else. To his credit, my husband is the most logical man I know. He thinks things through and focuses on the big things. Even if everything isn’t all planned
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out and all the answers haven’t been found, he’s ready to start. Start with the big things, the things you know have to be done. Figure out the rest as you go, otherwise you’ll waste valuable time and someone else will beat you to the punch.
LOVE. Through it all. No matter what successes or failures may come our way, no matter how much money is (or isn’t!) in the bank account, he must always know that he is the light of my life. He’s my inspiration and motivation to keep going even when I don’t see the finish line. That’s not to say that there won’t be times when I chase him with a frying pan and other times when we (read – “I”) cry it out, but we are partners through it all. Our successes and failures are met together.
Photograph by. Roberto Nickson
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The Business Mind Magazine // ISSUE 02
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DAY II :
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