PAID SEMINAR - How to Franchise Your Business (FEH 10/22) by iFranchise Group

How To Franchise Your Business

© 2022 iFranchise Group. All Rights Reserved.  The Decision to Franchise ◦ How Franchising Works ◦ Alternatives ◦ Quality Control ◦ Legal Aspects of Franchising  Marketing Your Franchise  Selling Your Franchise  Creating a Successful Franchise Strategy ◦ Structural Decisions ◦ Financial ◦ Organizational Development  Questions and Discussion 2 Wearegoingtotrytocoveragreatdealofinformation,soweareaskingthatyouholdyourquestionsuntiltheendofthesessionunlesstheyareonaparticularslide.

© 2022 iFranchise Group. All Rights Reserved.  More hands-on experience than any other firm ◦ Consultants with over 800 years of franchise experience ◦ 98 out of the top 200 franchise companies ◦ Offices in Chicago, Dallas, Los Angeles, Boca Raton, Miami Fort Lauderdale, Atlanta, Toronto, Dubai, UAE & Riyadh  More “senior level” experience ◦ Hands on experience at start up and established franchisors ◦ Former CEOs, CFOs, EVPs of more than 50 different franchise companies  Adia (now Adecco), Armstrong Tile, Auntie Anne’s, Dunkin Donuts, LINE X, Pearle Vision, McDonald’s, PIP Printing, Schlotzsky’s, Snap on Tools, Snelling & Snelling, and other national brands  The ability to bring more resources ◦ Faster completion ◦ Ability to provide assistance in several areas simultaneously  Breadth across four functional areas ◦ Strategic planning ◦ Quality control ◦ Marketing ◦ Organizational development  Franchise experience in 50+ countries  Four years in a row voted the #1 Franchise Consulting Firm in North America in an independent survey of over 900 franchisors  Numerous awards and publications 3

© 2022 iFranchise Group. All Rights Reserved.  A Premier fully-integrated public relations and digital media agency specializing in franchised businesses ◦ Public Relations ◦ Digital Lead Generation ◦ Search Engine Marketing ◦ Content Marketing ◦ Social Media Publishing ◦ Pay Per Click Advertising ◦ Website Design & Development  Both franchise development and consumer branding  Team with Hands-On Franchise Experience ◦ Real world experience with nearly two dozen brands ◦ Efforts have resulted in tens of thousands of franchise leads ◦ And many hundreds of franchise sales  Recent honors and awards: ◦ Top supplier from Entrepreneur five years in a row ◦ Best New Agency (Ragan & PR Daily Ace Awards) ◦ PR Agency Elite Mission: Fit to Own (PR News) ◦ Best Website Finalist (PR News) ◦ Best Media Relations Campaign Finalist (PR News) ◦ Best SEO Finalist (PR News) 4

© 2022 iFranchise Group. All Rights Reserved.  Considering franchising your business?  Franchising less than one year?  Franchising more than one year? presentation,Wearehappytosendyouacopyofthissoyoucanlimityournotetakingifyousodesire.Also,happytosendacopyofavideoandabookifinterestedinexploringfurther. 5

© 2022 iFranchise Group. All Rights Reserved.  FTC rule 436 cites three elements that legally define a franchise: ◦ The use of a common trademark ◦ The exercise of control or provision of assistance ◦ The collection of fees, royalties, mark-ups or other monies from the franchisees  If you have all three elements, you are a franchise, regardless of what you call it  Some state definitions vary, but are similar  Do not have to use the “f-word” 7

© 2022 iFranchise Group. All Rights Reserved.  Franchisee typically pays ◦ Franchise fee average about $25,000 to $45,000 ◦ Royalty range between 4% and10% ◦ Advertising range between 1% and 2% ◦ Franchisor will often sell product to the franchisee  Franchisor typically provides ◦ Initial training ◦ Operations manual and systems ◦ Ongoing supervision and support ◦ Other support services 8

© 2022 iFranchise Group. All Rights Reserved.  Restaurants only 25%  Retailers  Direct sales organizations  B-to-B Service ◦ Consulting ◦ Advertising ◦ Placement firms ◦ Internet related  B-to-C Service ◦ Law firms ◦ Medical practices and Spas ◦ Hotels ◦ Home Meal Preparation ◦ Senior Care 9

© 2022 iFranchise Group. All Rights Reserved. 11  Leverage Capital  Speed of Growth  Motivated management  Reduced risk  Few operational concerns  Higher quality  Organizational leverage  Must “share profits” ◦ Franchise unit will usually generate less profit than a profitable unit ◦ But far more profit than an unprofitable company-owned operation  Less Control  Good relations with franchisees take work  MYTH: Litigation

© 2022 iFranchise Group. All Rights Reserved.  Survey by independent industry source indicated that only 27% of franchisors had any litigation ◦ This includes large companies like McDonald’s and others who are targeted for frivolous lawsuits and lawsuits unrelated to franchising ◦ McDonald’s, with 30,000+ contracts had (2008) only six pending lawsuits. Big Target. Litigation rate of 0.02% ◦ Recent example:  A group claiming that the way they make chicken is unhealthy  Group suing them for making their children obese  Group suing them for beef tallow in cooking oil  A Group suing them for collection of tax on bottled water  One suit by a JV partner  One pending franchisee lawsuit from a franchisee who owes $3 million in unpaid royalties 12

© 2022 iFranchise Group. All Rights Reserved. Liability Type Well-Executed Franchising Company-Owned Growth Franchise Contract Liability X Employment Liability X Property Lease Liability X Equipment Lease Liability X Workers Comp Liability X Slip and Fall Liability X Vicarious Liability Usually not* You always have liability for your agents Can require third party to insure you against liability Yes – franchisee No Can insure against internally Yes Yes 13 * Not responsible for acts of an independent contractor (franchisee) relative to third parties. Exceptions are when a) you create an agency, and/or b) if you are negligent.

© 2022 iFranchise Group. All Rights Reserved.  What are your goals? BE SPECIFIC! ◦ Certain levels of profits ◦ Sell company for a specific amount  What is your risk tolerance? ◦ How much are you willing to invest and re-invest? ◦ What other resources do you have to bring to bear? Conduct Cash Flow Analysis to See if You Can Reach Your Goals ◦ Example:  Goal = Sell company for $10 million at the end of five years  Two units in operation  Total Equity Investment in New Operation = $150,000  Total available capital = $200,000  Existing Free Cash Flow for Reinvestment = $100,000/year  Units Break Even in First Year  After that, Free Cash Flow from New Units = $50,000/year/each 1414

© 2022 iFranchise Group. All Rights Reserved. 15 Year 1 Year 2 Year 3 Year 4 Year 5 CapitalStarting $250,000 $200,000 $200,000 $250,000 $300,000 # Opened 1 1 1 1 2 investedCapital ($150,000) ($150,000) ($150,000) ($150,000) ($300,000) New Cash Flow 0 $50,000 $100,000 $150,000 $200,000 Existing Cash Flow $100,000 $100,000 $100,000 $100,000 $100,000 Units – EOY 3 4 5 6 8 Cash Flow $100,000 $150,000 $200,000 $250,000 $350,000 Value @ 7x CF $700,000 $1,050,000 $1,400,000 $1,750,000 $2,450,000 Terminal Value $450,000 in free cash flow by Year Six = $3,150,000 valuation ONLY IF NO INCREMENTAL OVERHEAD IS NEEDED TO SUPPORT

© 2022 iFranchise Group. All Rights Reserved.  This Example ◦ Would need to open 27 company units ◦ That would take about 12 years of reinvesting everything ◦ Total Investment = $4 million over that time frame  Cannot get there from here  Alternatives: ◦ Change Goal ◦ Change Time Frame ◦ Change Assumptions (structure, capital devoted, leverage, etc.) ◦ Raise equity to grow faster  If you are raising equity, factor in dilution ◦ If you will give up 50% of the company, you need to grow twice as big ◦ Run the numbers again 16 16

© 2022 iFranchise Group. All Rights Reserved. 17 Year 1 Year 2 Year 3 Year 4 Year 5 CapitalStarting $3,250,000 $1,100,000 $850,000 $1,250,000 $1,500,000 # Opened 15 7 5 8 10 investedCapital ($2,250,000) ($1,050,000) ($750,000) ($1,200,000) ($1,500,000) New Cash Flow 0 $750,000 $1,100,000 $1,350,000 $1,750,000 Existing Cash Flow $100,000 $100,000 $100,000 $100,000 $100,000 Units – EOY 17 24 29 37 47 Cash Flow $100,000 $850,000 $1,200,000 $1,450,000 $1,850,000 Terminal Value $2,750,000 in free cash flow by Year Six = $19,250,000 valuation. Divide by two to account for 50% ownership = $9.6 million selling price. AGAIN, ONLY IF NO INCREMENTAL OVERHEAD IS NEEDED TO SUPPORT

© 2022 iFranchise Group. All Rights Reserved.  With an influx of a little over $3 million ◦ Can jump-start growth and leverage off of that growth ◦ Will need to get to about 50 – 54 units ◦ Total investment $7.5 - $8 million ◦ But you are using investor money  Problem: Realistic valuations ◦ Valuing the existing business (4X 7X EBITDA) ◦ Year One Business Value = $700,000 ◦ Business Value after Equity = $3.7 million ◦ Sophisticated investor would want 81% ($3M/$3.7M) ◦ Would need to find an investor who would invest $3M for 50% ◦ Might try numbers again at $5 million and a 20% stake??? ◦ At some point, just not realistic  Capital availability even with realistic valuations ◦ Limited in today’s marketplace ◦ Control an issue 18 18

© 2022 iFranchise Group. All Rights Reserved. SystemNameFee Franchise= NameFee LicenseTrademark= SystemFee OpportunityBusinessorLicense= SystemName = DealershipDistributorAgencyJointVentureSalesRep System Name Fee 19

© 2022 iFranchise Group. All Rights Reserved. NameFee LicenseTrademark= • Less Regulation - Still a Franchise in NY •Lower fees •Do you have strong name? •No control over brand Advantages Disadvantages Often, this alternative is eliminated because the company does not have adequate brand strength, and, even if they did, they would risk losing their trademark if they did not exercise control. Moreover, it is important to note that the “control” element of the franchise definition is very easy to trigger. 21

© 2022 iFranchise Group. All Rights Reserved. •Less Regulation? - More at the state level •Lower fees •Do you have strong name? •No control •Create competition •Poor image Advantages Disadvantages SystemFee OpportunityBusinessorLicense= This can be a viable option for some, but the loss of the branding element is an issue that should be carefully considered. For example, what would happen to your licensed channel if a branded channel were to be introduced by your competitors? Will you have national accounts? Or a desire to create consumer brand loyalty? 22

© 2022 iFranchise Group. All Rights Reserved. •Less Regulation •Easier to sell •ABSOLUTELY NO FEES •Support provided for “free” •Must have product to sell •No revenues from service •Products can be “stepchild” •Dealer defections to: - better products - cheaper alternatives AdvantagesDistributorshipDealershipDisadvantagesor=SystemName Dedicated dealerships can have many of the same advantages as franchising. The biggest disadvantages are the need to pay for services out of the wholesale margins. CAUTION: Can create an inadvertent franchise after the fact, as happened with Mitsubishi v. To- Am. 23

© 2022 iFranchise Group. All Rights Reserved. •Less Regulation •Easier to sell •ABSOLUTELY NO FEES •Support provided for “free” •Must have product /service •Turnover is high •Increased training costs Advantages SalesAgencyDisadvantagesorRep=SystemName A “top-down” flow of revenues will avoid franchise laws. Again, be aware of the creation of an inadvertent franchise. 24

© 2022 iFranchise Group. All Rights Reserved.  Technology-based shared services ◦ Use an app to drive business ◦ Avoid franchising by top down fee structure ◦ Uber, Lyft, Airbnb  Certification programs ◦ Certification Mark, not a Trademark  TM/SM = Source of Product or Service  CM = Characteristics of a Product or Service ◦ Cannot be used as a TM by the owner of the mark ◦ Must be willing to offer to all who qualify ◦ Cannot have exclusive territories ◦ Can easily stray into a franchise relationship 2525

© 2022 iFranchise Group. All Rights Reserved. 26 LawsFranchise Opp.Business Laws Relationship Laws DealershipFair Laws LawsRep.Sales LawsSecurities FranchiseNY Law Franchise     Federal & 26 States TM License  New York Only Business Opportunity    26 States Dealer / Distributor    State / Industry Specific Sales Rep / Agent   35 States Joint Venture  State and Federal

© 2022 iFranchise Group. All Rights Reserved.  The decision should be goal driven ◦ Distance ◦ Speed ◦ Obstacles ◦ Risk tolerance  A Volvo or a Rocket Ship?  Don’t have to choose only one vehicle  Don’t decide to franchise (or whatever) ◦ Instead, decide:  Do I want to build a third-party distribution channel?  Do I want that channel to be branded?  If it is branded, do I want to control quality?  How do I want to be paid?  The law (or your lawyer) should never dictate your good business decisions 27

© 2022 iFranchise Group. All Rights Reserved. 29  Successful prototype  Credibility  Differentiation  “Sizzle”  Buyer appeal  Value Proposition  Affordability  Profitability TheKeyisCreatinga “Win-Win-Win” Scenario Clone?Sell? Succeed?R.O.I.? Market trends  Capital  Management  Teachability  Adaptability  Systemization

© 2022 iFranchise Group. All Rights Reserved.  The franchisee should make a return on the time they invest ◦ No different than if they were to go out and get a job ◦ Salary should be “market rate”  The franchisee should make a return on their investment ◦ No different than if they invested in a stock ◦ Return should be commensurate with what they would make if they were to make an investment of similar risk ◦ Ability to sell back their investment at the end of the term  Franchisees expect that they will need to build their business ◦ Will expect these returns in three years or less  Annual Cash-on-Cash R.O.I. at the unit level – our criteria ◦ 15% for Owner Operators ◦ 20% for Area Developers (who will support additional overhead)  Occasional exceptions 30

© 2022 iFranchise Group. All Rights Reserved. 31 CosttoOpenaNewUnit $ 150,000 Add a Franchise Fee $ 25,000 AddWorkingCapital $ 25,000 Franchisee Estimated Investment $ 200,000 Estimated Franchisee Revenue Year Three $ 500,000 Current Profit afterOwner’sCompensation $ 70,000 AdjustOwner’sCompensation +$ 15,000 One TimeOnly/CapitalInvestment +$ 5,000 Tax Minimization Strategies +$ 5,000 Shared Overhead +$ 5,000 Interest and Debt Service +$ 5,000 DepreciationandAmortization +$ 5,000 EstimatedFranchiseeProfit(adjusted) $ 80,000 DividedEstimatedProfitbyEstimatedInvestment $80,000/$200,000 Estimated Franchisee Return 40% SubtractRoyalties,Fees,&PriceAdjustments ($ 30,000)

© 2022 iFranchise Group. All Rights Reserved.  Perfecting the business ◦ If you have perfected your business, SELL IT! ◦ If you are standing still, someone is gaining ◦ McDonald’s in 1955  Quick vs. Slick ◦ If you are going head to head with more established competition and your business model is not highly differentiated – be sure to refine first ◦ More unique, the sooner you should franchise  Risk: Someone with a camera and a notepad  First mover advantage  Who was the first . . . ? 33

© 2022 iFranchise Group. All Rights Reserved.  Business plan/strategic direction  Legal documents and registrations  Operations manuals  Training program  Quality control mechanisms and systems  Effective marketing plan  Franchise collateral materials  Website and web-based marketing  Advertise  Design and implement a sales strategy  Staff an organization to implement the plan  Capital 43

If you don’t know where you are going, then any road will take you there. The Adventures of Alice in Wonderland

© 2022 iFranchise Group. All Rights Reserved.  You are entering a new business.  Goals drive your business. Start with support and cost structure.  What do you need to do to help your franchisees succeed?  Don’t rely on guesswork: The futureofyourbusinessisatstake.  Financial analysis is essential.  Reverse engineer your success. 46

© 2022 iFranchise Group. All Rights Reserved. 47 Goal Sell for $10M in 5 Years Average Selling 6.7 times EBIT Year Five Earnings $10M/6.7 or about $1.3M Average Royalties $30,000 per franchise Average Net Royalties $10,000 per franchise Need to sell $1.3M/$10,000 = 130 Franchises

© 2022 iFranchise Group. All Rights Reserved.  There are certainly a large number of neophyte franchisors who take a “Ready-Fire-Aim” approach ◦ Often rely on guesswork ◦ Or analysis of what comparable franchisors are offering to make major decisions  “Me-Too” is not a strategy – it is a recipe for disaster! ◦ Uniqueness is important to success, whether achieved through the business model, marketing, support, structure, fees, or marketing. ◦ Me-Too assumes that business economics are the same, support is the same, and that a new franchisor will simply differentiate themselves based on great franchise marketing ◦ But established franchisors often have many advantages not shared by newer franchisors ◦ So the Me-Too strategy that is taken by many new franchisors can actually be responsible for their failure 53

© 2022 iFranchise Group. All Rights Reserved.  The impact of a 1% royalty mistake ◦ If a single franchisee generates $500,000 in revenue ◦ 1% = $5,000 off the bottom line ◦ But franchisees will never tell you that they are paying too little and often inertia will keep the royalty where it is at for years 54 Lost revenue from a single franchise $5,000 Times 100 franchises opened $500,000 Times 20 years $10,000,000 Lost enterprise value at 10x earnings $5,000,000 Total Loss $15,000,000

© 2022 iFranchise Group. All Rights Reserved.  Structure ◦ Structure dictates support requirements and responsibilities ◦ Will (should) impact fees, royalties, targeted franchisee  Targeted franchisee ◦ Will dictate support requirements as well  Territory – 10% mistake is huge  Franchisor whose franchisees generate $500,000 sells 10 territories  At a 6% royalty, that franchisor is losing $300,000 a year …forever  Plus enterprise value of $3 million lost  Total Loss from 10 territories with a 10% error: $9 million+  Other fees and margins on product sales 55

© 2022 iFranchise Group. All Rights Reserved. AggressiveGrowth$ Time MustHireStaffinAnticipationofNeedandAdvertiseAggressivelyRoyalty&GrossMarginRevenuesFixedCosts=Salary+AdvertisingLossrelyononeofthefollowingtofundpayroll:1.Adequateinitialcapitalization2.Revenuesfromexistingoperations3.Franchisesales(aworstpractice) 56

© 2022 iFranchise Group. All Rights Reserved. Conservative Growth $ FirstTimeHire Second Hire Royalty&GrossMarginRevenues Onlyincrementalcostisfranchisemarketing and that can be a variable cost after a start-upallocation The Golden Rule: GrowNoFasterThanYourAbilityToSupportYourFranchiseesLeverageExistingStaffandMinimalAdvertisingLoss 57

© 2022 iFranchise Group. All Rights Reserved.  Many people think franchises have lower level of quality – just the opposite is true  The Quality Trade-Off ◦ More difficult to control ◦ Higher Caliber ◦ More highly motivated ◦ Longer term  Studies show franchisees outperform  Anecdotal evidence 59

© 2022 iFranchise Group. All Rights Reserved.  Intelligence  Capitalization ◦ Biggest reason for failure ◦ Can cause franchisees to cut corners  Work Ethic  Personality ◦ Experience in leading a team ◦ Tendency toward being an entrepreneur ◦ Honesty and ethics ◦ Philosophy and cultural fit ◦ Nature (Confrontational or adaptive) ◦ Compatibility (you are “married” for the next 20 years)  “Job Specific” requirements 61

© 2022 iFranchise Group. All Rights Reserved. 62  Straight A Student  Long tenure with job  Corporate job  Drives family car  Few tickets  Married  Looking for security  B or C Student  Moved from job to job  Owned businesses  Sports car  Lots of tickets  Divorced  “Never saw a rule he didn’t want to break.” EntrepreneurFranchisee

© 2022 iFranchise Group. All Rights Reserved.  Role as a sales tool  Role as a training tool  Role as a reference tool  Role as in reducing liability  Extension of the legal documents TheTableofContentsisaRequiredDisclosureItem 63

© 2022 iFranchise Group. All Rights Reserved. 6464  A good Operations Manual can help you avoid litigation  A bad Operations Manual can be a franchisor’s worst nightmare  Operations Manuals must provide you with adequate brand control but should not be too prescriptive – a fine line  Must avoid creating an inadvertent “agency” relationship  Must avoid potential areas of negligence or take great care when prescribing actions  Should cross-reference regulations and not cite them  Should be updated annually and reviewed by professionals and attorney

–65 I

– Charles Munger, Vice Chairman, Berkshire Hathaway told you not to panic! Everything will be just fine.

"Some people seem to think there's no trouble just because it hasn’t happened yet. If you jump out the window at the 42nd floor and you’re still doing fine as you pass the 27th floor, that doesn’t mean you don’t have a serious problem."

© 2022 iFranchise Group. All Rights Reserved. StakeholdersDiscussionswithKey Review existing material, forms, documentation& preliminaryDevelopoutline Determine gaps in Onsitedocumentationcurrentobservationofunits&documentationSubjectInterviewMatterExpertsIdentify Subject Matter Experts for gaps Draft material to cover identifiedallgaps Edit all material into common style & “voice” Revise first draft of Operations Manual based on client input responsibilityAssign for contentResolvecreationBestPracticesConflicts 66

© 2022 iFranchise Group. All Rights Reserved.  Faster growth requires formal training programs ◦ For your staff ◦ For franchisees  Focus on training the trainer (your franchisee) ◦ Franchisee will train their staff ◦ Should have tools to do so  Video pushes QC to lowest level of organization  On-line training decreases costs, increases quality, and can decrease liability ◦ Customized by employee ◦ Document what is reviewed and test scores ◦ Lowers on-site training time and costs for both the franchisor and the franchisee 67

© 2022 iFranchise Group. All Rights Reserved.  The FTC rule ◦ Disclosure document with 23 items ◦ Disclosure fourteen days prior to sale ◦ Final Franchise Agreement seven days prior ◦ Financial Performance Representations ◦ Consistency with Franchise Disclosure Document 70

© 2022 iFranchise Group. All Rights Reserved.  State regulations ◦ 14 registration states ◦ Regulate advertising ◦ Business opportunity states ◦ Determining applicability (even definitions vary – NY) 71

© 2022 iFranchise Group. All Rights Reserved.  Laws vary from state to state ◦ Franchisor’s state of incorporation ◦ Franchisor’s domicile ◦ Franchisee’s residence ◦ Territory covered ◦ Where discussions take place  Track these variables closely  Check with your attorney when in doubt 72

© 2022 iFranchise Group. All Rights Reserved.  States having franchise registration or business opportunity laws  Must be registered prior to soliciting franchise leads  Submission of advertising materials ◦ CA, MD, MN, NY, ND, RI, SD, WA  Submit all advertising to your attorney in any event  Relationship and state specific laws ◦ Termination ◦ Non-compete ◦ Escrow ◦ Other 73

States having franchise registration laws only States having business opportunity laws

• New York, Oklahoma and Rhode Island require the FDD be provided to a prospective franchisee at the earlier of (i) the 1st personal meeting held to discuss the franchise or (ii) 10 business days before any agreements are signed or any monies paid (including fully refundable deposits).

• Six States require registration of advertising prior to use. (CA, MD, MN, NY, ND, WA)

Franchise Legislation Within the US 2021 WACA NDSD MN WIIL INMI NY AV MD RIUT NETX GAFLSC NC CTMEKYIALA OH OK HN HawaiiAlaska

• Many states also have State Relationship Laws that impact issues such as franchise termination or non renewal. Your franchise legal counsel can advise you on relevant issues involving these states.

States having both franchise registration and business opportunity laws

• Georgia and South Carolina provide an exemption if the franchisor has filed a State trademark registration.

• Connecticut, Maine, South Carolina and North Carolina provide an exemption if the franchisor has obtained a Federal registration of its trademark

•Notes:Within Indiana, Michigan and Wisconsin, registration is effective immediately upon the application being filed. Oregon regulates franchises but no filing is required there.

• Check with your franchise legal counsel for additional details and updates which are available.

Legend:States having no franchise or business opportunity laws

• Florida, Nebraska, Kentucky, Utah and Texas require a simple exemption filing. Once that is filed, a franchisor can begin to offer franchises.

• Michigan and Oregon require the FDD be provided to a prospective franchisee 10 business days before any agreements are signed or any monies paid (including fully refundable deposits).

© 2022 iFranchise Group. All Rights Reserved.  Cannot provide Earnings Claims unless in Item 19 ◦ No information on sales ◦ No information on earnings ◦ Limited information on expenses (costs as a percentage of total costs are ok) ◦ Start-up costs are included in Item 7 and must be disclosed  Advantages and disadvantages ◦ Must be appropriate ◦ Sell faster? ◦ More or less litigation?  50% choose not to do Earnings Claims ◦ For good reasons, bad reasons, or bad information ◦ Selling franchises in the face of no FPR 75

© 2022 iFranchise Group. All Rights Reserved.  Rescission ◦ Return fees paid ◦ Make good on franchisee’s investment  Fines – both civil and criminal ◦ Up to $11,000 per violation for the FTC Rule ◦ State fines of up to $100,000  Attorney’s Fees  Damages  Litigation costs and distraction  Barred from selling franchises  Disclose violations for 10 years  Private rights of action at the state level  Government enforcement  Personal liability  In some states, constitutes Class 4 felony (jail time!) 76

© 2022 iFranchise Group. All Rights Reserved.  Start locally, then regionally ◦ Cluster support ◦ More effective franchise advertising ◦ Consumer advertising economies ◦ Brand building ◦ Buying economies  Don’t expand faster than your support capability ◦ Quality control is key ◦ Nothing sells franchises as well as happy and successful franchisees ◦ Three hour drive time 78

© 2022 iFranchise Group. All Rights Reserved. Different franchises require us to target different types of franchisees –affecting the media and message used for effective marketing.  Identify your prospect as narrowly as possible ◦ Survey Competitors  Background  Hot Buttons  Media ◦ Survey Top Franchisees  Characteristics of top performers  Are we selecting the right lead generation strategies?  Is the advertising message appropriate for our targeted franchisee profile?  Are we targeting the right prospects and using the right media based on our development strategy? 79

© 2022 iFranchise Group. All Rights Reserved.  Name Recognition ◦ 40% say joining a “known brand” is not vital ◦ 40% would prefer a known brand, but are open to newer concepts  70% or more will visit the corporate office…100% should visit yours  Only 10% are looking because of job loss in a normal economy ◦ In today’s world, however, that number may be 30% to 40% depending on the nature of your franchisee  80% will talk to your franchisees…100% should talk to your franchisees 80

© 2022 iFranchise Group. All Rights Reserved. Source: Franchise Update 81 Franchisor Marketing Dollars by Media Percentage of Total Expenditures: 2011-2022 60%50%40%30%20%10%0% Internet/Digital FranchiseWebsite SocialMedia Print MarketingDirect TradeShow RelationsPublic In MeetingsMarket TV/Radio Brokers Other includingKnowDon'tor(notbrokers)2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

© 2022 iFranchise Group. All Rights Reserved. Source: Franchise Update Source of Franchise Leads by Media Percentage of Total Leads Received: 2011-2021 80%70%60%50%40%30%20%10%0% Internet/DigitalOpportunityFranchiseYourWebsite Print Referrals ShowsTrade P.R. EmailMktg. DirectMail TV/Radio Brokers Unknown Other 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

© 2022 iFranchise Group. All Rights Reserved. Source: Franchise Update Breakdown of Expenditures on the Internet/Digital 2016-2022 83 70%60%50%40%30%20%10%0% OpportunityFranchiseSites BusinessOtherMedia PPC SEO MarketingEmail NetworkingSocial TargetRemarketing/Trailing AdvertisingSocialMedia CreativeDigitalAsset AdvertisingSponsoredContent/Native 2016 2017 2018 2019 2020 2021 2022

The Franchise Sales Pipeline

© 2022 iFranchise Group. All Rights Reserved. Average Closing Costs (Media Dollars Per Sale Excluding Broker Fees) Source: Franchise Update $14,000$12,000$10,000$8,000$6,000$4,000$2,000$0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 $7,000 $8,200 $13,000 $8,565 $9,451 $9,142 $6,301 $7,558 $8,571 $8,984 $10,500 $12,138 $9,270

© 2022 TopFire Media All Rights Reserved.  Most franchise companies do not have an unlimited marketing budget  Circumstances will be very different ◦ Goals ◦ Budgetary restrictions ◦ Geographic focus ◦ Profile of your franchisee and your customer ◦ Quality of existing websites and materials ◦ In house resources and their capabilities ◦ Competitors  Need to allocate resources based on an integrated lead generation strategy  A canned approach will not work 86

© 2022 TopFire Media All Rights Reserved.  A focus on visual appeal alone can be a disaster  Too many websites lack ◦ Optimized content ◦ Mobile friendly designs ◦ Organic traffic ◦ Substance over flash  Develop a plan to increase unique visitors, convert traffic, and improve franchise lead rates. ◦ Responsive design with mobile in mind ◦ Create effective calls-to-action ◦ Longer amount of time spent on site ◦ You need a website design that converts traffic (conversion modeling) ◦ Improve franchise lead capture rates 88

© 2022 TopFire Media All Rights Reserved. ““Thebestplacetohideadeadbody isonthesecondpageofaGoogleSearch.”  75% of users never scroll past the first page of search results  There are over 170 million Google results for the word “franchise”  Google is more than 65% of all online search ◦ Google’s algorithm — a closely held secret ◦ The algorithm changes up to 500 times a year ◦ Google’s goal: Deliver fresh and relevant content to the searcher  Ranking factors fall into four basic categories ◦ On-Page coding ◦ On Page content ◦ Inbound Link Authority ◦ Social Media Signals

© 2022 TopFire Media All Rights Reserved.  Strong positive SEO correlations ◦ Internal links ◦ Number of words ◦ Number of keywords in body ◦ Presence of keywords in external links ◦ Presence of keywords in internal links ◦ Number of images and videos ◦ Blog posts and press room ◦ Social media integration  Negative correlations ◦ Keywords ◦ Advertising (even AdSense) 90

© 2022 TopFire Media All Rights Reserved. Coding ContentMediaSocialDevelopLinks Assessment 91 • Google’s Algorithm changes constantly • It searches for “fresh” content • It searches for “relevant” content • Your competitors are optimizing while you do not driving them to the top

© 2022 TopFire Media All Rights Reserved.  It never hurts to get a second set of expert eyes on your online marketing presence! ◦ Website Performance ◦ SEO Keyword Rankings ◦ Social Media Presence ◦ LinkedIn Profile ◦ PPC Advertising Campaign ◦ Online Reputation  Prioritize your efforts based on results and budget 92

© 2022 iFranchise Group. All Rights Reserved.  Franchise marketing is very different from consumer marketing  Franchise marketing is highly regulated  The Five Sales ◦ Go into business for yourself ◦ Buy a franchise ◦ Invest in your industry ◦ Invest in your specific franchise ◦ The timing is right  Be sure to have your attorney and registration states review all materials 93

© 2022 iFranchise Group. All Rights Reserved.  Unique process unlike any sale ◦ Quit your job ◦ No more benefits, paid vacations, 401ks ◦ Put your trust in someone you have never before met ◦ To invest your life’s savings ◦ In a business in which you have no experience ◦ And to which they are making a “lifetime” commitment  And, oh, by the way, I can’t tell you how much you may make 95

© 2022 iFranchise Group. All Rights Reserved. 96 A good concept +The Right +MarketingMessagePlan +Adequate marketing budget +Good sales technique = leads = meetings = franchise sales Some studies have indicated the average new franchisor will sell:  An average of 9, 11, and 13 franchises in their first three years  Median sales of 4, 5, and 6 sales in their first three years

© 2022 iFranchise Group. All Rights Reserved. Concept&ValueProposition AssistanceOpening Offer/StructureMarketingPlanMessage&MaterialsAdvertisingExpenditures SalesProcessSelectivity Training SupportCommunication Validation The Franchise Sales Cycle Pre-Sale Post-Sale 97

© 2022 iFranchise Group. All Rights Reserved.  First lesson of franchise sales: Nobody ever “sold” a franchise  Psychology of “the award” ◦ Two way street, you must qualify ◦ If you do qualify, you are special ◦ You must follow our rules  This psychology must permeate your thinking and your technique -- we are not salesmen, we are facilitating an award  “Buy” vs. “Invest” in a franchise  “Franchise Support Center” vs. Headquarters or “Director of Franchise Development” vs. “Franchise Salesman” 98

© 2022 iFranchise Group. All Rights Reserved. Value Proposition:  Proven systems  Established brand  Advertising economies  Operating economies  Shared knowledge  Support services provided 99 This assumes that most people looking to buy a franchise are logical in their approach….. ….which is often not the case.

© 2022 iFranchise Group. All Rights Reserved.  Chooses an industry that best suits their background and lifestyle  Checks overall financial investment and financial return of the franchise concept  Undertakes thorough due diligence…carefully reviews the FDD and Franchise Agreement  Determines if they “fit” with the franchise culture  Compares the franchise offering to competitors  Follows the above steps prior to arriving at the decision to purchase the franchise 100

© 2022 iFranchise Group. All Rights Reserved.  Some people buy franchises on emotion (spouse, job, home, car, etc.)…do not follow a logical path  A candidate’s research is often imperfect ◦ May not even read the Disclosure Document  They are motivated: ◦ To be the boss and be independent ◦ Anticipated Financial Return ◦ Fun and excitement 101

© 2022 iFranchise Group. All Rights Reserved. 104 ReceivedLeadandQualified Full or Mini Brochure Sent to Candidate CompletedReceivedCIRF Review Candidateof’ s ReferenceCIRFChecksDISCLOSUREInterviewPersonalandofFDDDecisionCredit/CriminalChecksCompletedisMadeonCandidate ’ s Approval PRELIMINARYApprovalisGranted Franchise or Site Selection Agreement is SignedDiscussionScheduledInterviewPersonalFollow-upwithCandidate Discovery Day

© 2022 iFranchise Group. All Rights Reserved.  Important concept to understand when measuring hiring decisions, advertising and marketing related expenditures –Present Value of a Franchise (PVOF)  Should use this principle in decision-making  PVOF = Net Present Value of franchise fees, royalties, product/equipment sales, advertising fees, and other revenue, less any direct expenses, discounted to today’s dollars  The sale of a single franchisee paying 6% royalties on AUVs of $500,000 can result in $600,000 in revenues, plus advertising, product purchases, increased buying power, etc. 105

© 2022 iFranchise Group. All Rights Reserved.  Be selective  Hire the best you can afford  Maintain personal involvement  Let brand maintenance and the potential for franchisee success be your guideposts  Train your sales staff  Measure everything  And, most of all, be sure a standard process is in place for handling each prospect 106

© 2022 iFranchise Group. All Rights Reserved.  If the concept does not work, do not franchise  Use franchisee success as your capacitor of growth  With those caveats, franchise sales are a natural result of a well executed sales and marketing strategy  The number of franchises you sell will not be a result of “averages” but instead a result of marketing expenditures. 107

Publicity Print ShowsTrade MailDirect Internet Referral Face-to-Face/Discovery DayCloseLead 12 weeks Brokers What If It Is Not Working -- Diagnosing Sales Problems High lead costs could mediaindicateselection---SalesCouldproblemsindicateproblemsUrgencySettingAgendaClosingSkillsFew confidencelackcouldleadsindicateofbroker Low PoorcouldconversionsindicatemarketingmaterialsCouldIndicateConceptProblemsLowconversionscouldindicatepoorsalesskillsorpoorvalidationInshort,closeanalysisofvariousmedia-specific,marketing,andsalesstatistics,canbeindicativeofwhereproblemsmayexist,allowingforappropriatecorrectiveaction.

GenerationLeadFranchiseTechniqueProcessSalesItselfConceptFranchiseFranchiseMarketingMaterials& • High unit investment • Financial performance • Look and feel • Franchise structure • Value proposition • Franchisee validation • Media Selection • Media Mix • Message • Ad Spend • Target Audience • Timing • Target Audience • Materials Used • Message • Inadequate differentiation • Design Quality • Production Quality • Lead handling • Follow up • Effective Process • Sales Skills • Salesperson Motivation • Sales Tools • Staffing v. Goals • Bad/No P.R. • Low unsolicited inquiries • Losing sales to competitors • Repeat objections not overcome • Prospects go dark after validation • High lead costs • Low close rates • Message confusion • Few qualified prospects • Low quality lead sources predominate • Bad/No P.R. • Low unsolicited inquiries • Losing sales to competitors • Repeat objections not overcome • Lose sales to market leader • Low application rate • Low application rate • Low discovery day rate • Low close rate • Long “time to close” • Variances in salesperson close rates • Un- or under-worked leads • Few broker leads • Evaluate design/construction model • Comparative financial analysis • Evaluate unit economics/ops • Contract comparison • Marketing comparison • Phone interviews of franchisees • Franchisee satisfaction surveys (web) • Evaluate real estate portfolio • Survey “lost” sales Sales Factor Potential Problems Symptoms Diagnosis • Historical vs. norms • Media specific analysis • Performance vs. competitors • Message vs. competitors • Franchisee or competitor surveys • Review for best practices • Message based on surveys • Application rate vs. norms • Historical vs. norms (close, speed, etc.) • Salesperson vs. salesperson • Historical vs. past performance • Develop sales process map • Mystery shop sales force • Leads per salesman • Sales per salesman • Broker validation calls Marketing and Sales Audit Process

GenerationLeadFranchiseTechniqueProcessSalesItselfConceptFranchiseFranchiseMarketingMaterials& • Unit investment • Financial performance • Look and feel • Franchise structure • Value proposition • Franchisee validation • Real estate model • Media Selection • Media Mix • Message • Ad Spend • Target Audience • Timing • Target Audience • Materials Used • Message • Inadequate differentiation • Design Quality • Production Quality • Lead handling • Follow up • Effective Process • Sales Skills • Salesperson motivation • Sales Tools • Staffing v. Goals • Value engineer design and construction process • Suspend sales and work on business model, support, franchisee training • Retain design firm, consumer marketing firm, or PR firm as appropriate • Revise franchise business structure • Provide incremental value or reposition concept • Communications plan, FAC, address survey specific concerns • Improve real estate process • Develop third-party financing programs • Develop formal marketing plan based on survey results • Alter marketing mix to focus on higher quality lead sources • Alter message based on survey results • Increase advertising expenditure based on goals • Optimize website and PPC campaigns • Develop and measure benchmarks; rotate bottom 10% quarterly • Rewrite, redesign, and reprint materials as appropriate • Develop or revise standard sales correspondence • Rewrite and redesign web pages as appropriate • Add technology improvements (auto-responders, sales software, etc.) • Develop additional promotional tools (video, etc.) • Develop and map effective sales process • Train sales staff and provide guidelines to non sales staff • Replace poor sales personnel • Benchmark and measure performance • Alter compensation • Evaluate external resource opportunities (FSO, LQS, software solutions) • Add sales professionals, support staff, or both • Proactive broker programs Sales Factor Confirmed Problem Potential Solutions Problem Resolution – Phase Two

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Franchise Program for Aggressive Growth Approximate Development Activity Schedule MO 1 MO 2 MO 3 MO 4 MO 5 MO 6 MO 7 MO 8 MO 9 MO 10 MO 11 MO 12 Discovery & Benchmarking Initial Planning Session Strategic Planning Financial Sensitivity Analysis Franchise FranchiseFranchiseTrainingStateDisclosureAgreementDocumentRegistrationProcessOperationsManualTrainingProgramsVideos&LMSContentPrimaryResearch/ProfilingFranchiseMarketingPlanDevelop/PrintBrochureMini-BrochureFranchiseSalesVideoWebsiteOptimizationSalesTraining&ManualImplementationStrategyImplementationConsulting OrganizationalFranchiseQualityLegalStrategyDocumentsControlMarketingDevelopmentCoordinationLegal The iFranchise Group does not provide legal services but instead works through outside legal counsel

Franchise Program for Moderate Growth Approximate Development Activity Schedule MO 1 MO 2 MO 3 MO 4 MO 5 MO 6 MO 7 MO 8 MO 9 MO 10 MO 11 MO 12 Discovery & Benchmarking Initial Planning Session Strategic Planning Financial Sensitivity Analysis Franchise FranchiseFranchisePrimaryStateDisclosureAgreementDocumentRegistrationProcessOperationsManualResearch/ProfilingFranchiseMarketingPlanDevelop/PrintBrochureMini-BrochureWebsiteOptimizationSalesTraining&ManualImplementationStrategyImplementationConsulting CoordinationLegal OrganizationalFranchiseQualityLegalStrategyDocumentsControlMarketingDevelopment

Franchise Program for Conservative Growth Approximate Development Activity Schedule MO 1 MO 2 MO 3 MO 4 MO 5 MO 6 MO 7 MO 8 MO 9 MO 10 MO 11 MO 12 Discovery & Benchmarking Initial Planning Session Strategic Planning Financial Sensitivity Analysis Franchise StateDisclosureAgreementDocumentRegistrationProcessOperationsManual CoordinationLegal We can modify our programs to meet the needs of any company getting into franchising. Our fees can range from $20,000 to $200,000+.StrategyLegalDocumentsQualityControl

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© 2022 iFranchise Group. All Rights Reserved.  Consulting and legal costs vary based on franchise company’s situation: ◦ Desired speed of growth influences services needed ◦ Ability to do work internally  Do not go into franchising undercapitalized ◦ Legal fees: $15,000 to $35,000+ ◦ Consulting and Development: $20,000 to $200,000 ◦ Organizational expenses: $10,000 to $20,000 ◦ Franchise Marketing: $8k - $12k per sale (six months) ◦ Personnel: varies widely  Can bootstrap growth  Can spend hundreds of thousands 118

© 2022 iFranchise Group. All Rights Reserved.  Franchising is a means of duplicating success, not creating success  Thrives by creating win-win situations  You must be selective  Franchising is a new and different business  Is not the right solution for every business  Provides one of the most powerful business expansion models ever developed 119

www.ifranchisegroup.com7089572300 Additional information from iFranchise Group: • Speak to our consultants about specifics • Copy of these slides • “How to Franchise” Video • “How to Franchise” Book • Digital Franchise Marketing Assessment