Franchise Market Magazine - Spring 2007

12 FRANCHISING BASICS

38 FINDING MINORITY-FRIENDLY FINANCING SP R I NG 07

America’s Resource For Entrepreneurs and New Businesses

MARKET MAGAZINE

GROUPS FOCUS ON SERVING MINORITY ENTREPRENEURS JACKSON HEWITT TAX SERVICE® FRANCHISING FOR THE FUTURE

NON-TRADITIONAL FINANCING

the MULTICULTURAL FACE of FRANCHISING FRANCHISING IS ATTRACTING MORE WOMEN AND MINORITIES WITH ENTREPRENEURIAL OPPORTUNITIES THAT OFFER LOWER RISKS, GREATER REWARDS AND DESTINY CONTROL.

Contents SPRING 07

Franchise [MARKET MAGAZINE ]

16

Plans That Can

20

Groups Focus on Serving Minority Entrepreneuers

Drawing up a business plan is a productive endeavor that allows entrepreneurs to organize their thoughts on how a business will function, how well it will perform and how much money it’s going to cost.

The business community is realizing the potential of minorities in franchising.

28 6

Franchise

Spring 07

the MULTICULTURAL FACE of FRANCHISING

38

Minority-Friendly Lenders New programs are emerging to help minorities find capital and tax incentives are opening new doors of opportunity.

Franchise [MARKET MAGAZINE ]

45 42 Liquid Capital

59 The SBA Can

Publisher

A new concept in financial services.

Help You Start

51 Non-traditional 12 Franchising Basics What you need to know and where to learn it.

Financing Other options for acquiring franchise financing.

14 Franchising

56 Wirth

Sector Booming

Business Credit

Franchised businesses are expanding at a fast pace, while new franchise concepts are appearing in greater numbers.

Flexible equipment financing options for the small business market.

26 Jackson Hewitt Tax ServiceÂŽ How one company is nurturing untapped markets.

Franchise

Credit score and a business plan are the keys to getting traditional financing.

10 From the Minorities are becoming the majority.

8

Traditional Financing

Spring 07

58 SBDC Network Over 1,000 local SBDC offices extend entrepreneurial education to meet small business needs.

From sound advice to small business loans, the SBA can play a critical role in your start-up.

66 Closing Quotes Quotes from those who have been there, done that.

FROM THE PUBLISHER

Minorities are Becoming the Majority… in Business & in Franchising.

T

wenty years ago, we didn’t hear that much news about minorities starting their own businesses. But recently, it seems minorities are becoming the majority for two major reasons. One: many minority groups have grown to represent a larger segment of the marketplace, and two: more and more minorities are finding that owning their own business enables them to step over prejudices they normally encounter in the employment experience.

And maybe point number three: There are more groups of minorities than there were… not too many years ago. Women (still technically a minority group) top the list, but now people from many countries dot the landscape of entrepreneurship – people from Africa, Cuba, Mexico, South America, Japan, the Middle East, India, China, Korea, Russia, Indonesia, and others.

I know I used countries instead of ethnicities, but it helps to understand the expansion in different markets such as Florida (attracting Hispanics from Cuba) and California (attracting Hispanics from Mexico). And when you factor in that many women within these various segments are also becoming entrepreneurs, the figures are multiplied even further.

For those of you who haven’t been paying much attention, many of these segments have been maturing for years now. For instance, women CEOs now pepper the landscape of major corporations… like E-Bay, Xerox, Hearst Magazines, Ogilvy & Mather, and many more. Companies with black CEOs include American Express; Kmart; CNBC; Time Warner; and Merrill Lynch & Co.… Even Nike has had an Hispanic CEO. All these high visibility positions encourage minority entrepreneurs to launch into owning their own businesses.

Franchising makes even more sense for many minorities, as the business concept is tested and proven and their success is more assured. Minority owners have had great success in the service and food industries (like Jani-King, Dunkin Donuts, and others.)

Franchise [MARKET MAGAZINE ]

Editor Art Director Assistant Art Director Managing Editor Production Manager Contributing Writers

Robert Pitts George Byfield Mary Nason Michelle Jerla Diane Traylor Carolyn Heinze Jeannine Gage Jodi Daley Jennifer LeClaire Carol Brzozowski ______________________________________ Publisher

Robert Dallas bdallas@reni.net

Associate Publisher Research Manager Advertising Director

Brandon Moxam Cheryl Watwood Brandon Moxam bmoxam@franmarket.com Nicky Harvey Matthew Russell Kenna Rogers

East Coast Ad Manager Midwest Ad Manager West Coast Ad Manager

For Advertising Information: The Victoria Group Victoria Conte, President 401-421-7239 13victoria@cox.net ___________________________________________

Webmaster Advertising Director

Jay Hook Brandon Moxam bmoxam@franmarket.com

Internet Sales

Deanna Pearce dpearce@franmarket.com ___________________________________________

The International Franchise Association announced plans for a new initiative in 2006.

Called MinorityFran, the initiative is designed to help IFA-member companies recruit more minority franchisees into their systems.

Minority-owned businesses are growing at a rate seven times greater than all U.S. businesses, according to a 2004 report of the Minority Business Development Agency.

“It is imperative that franchised companies make a concerted effort to reach out to this growing segment of the population to remain competitive in the marketplace,” said IFA Diversity Institute Chairman Ronald Harrison.

So if you are a minority (and it is far more likely that you are), you are reading the right magazine. According to our research, when viewed as a whole, minorities are becoming the majority.

Franchise Magazine is published quarterly by RENI Publishing, Inc. 150 3rd Street SW, • Winter Haven FL 33880 Telephone: 863-294-2812 Fax: 863-299-3909 President & CEO Group Publisher Operations IT Services

Joe Jensen Jim Phillips Denise Harwell Jay Hook

_________________________________________________

Bob Dallas Publisher

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Spring 07

Information in this magazine is subject to change without notice. While every reasonable effort has been made to ensure that the information was accurate as of publication date, RENI and its employees, agents, clients and distributors shall not be liable for any damages arising from the use of or reliance on the information contained in this publication or from omissions to this publication. _________________________________________________

for starters

Franchising Basics:

What you need to know and where to learn it WASHINGTON, D.C.- Nearly 900 concepts started franchising over the last three years, according to a report released by the IFA Educational Foundation and FRANdata. The first findings of “The Profile of Franchising: 2006” study series found that the number of concepts was growing in 17 of 18 industry categories.

From 2003 to 2005, increases ranging from 67% in retail food to 4% in personnel services were discovered. Only the travel industry suffered a decline.

With the array of choices increasing, there should be something out there for every potential entrepreneur.

While a franchise provides a quicker and simpler path for would-be business owners, it isn’t risk-free and may not be suitable for everyone, says the International Franchise Association, which offers a free, online course, “Franchising Basics,” at www.franchise.org to aid potential investors in their due-diligence efforts.

IFA, the world’s oldest and largest trade group representing franchising, counts more than 1,000 franchisors, 8,000 franchisees and 400 suppliers of goods and services among its members. The free, online, educational tool explains how franchising works, provides questions potential investors should ask, outlines the laws and regulations that apply, and describes the advantages and disadvantages of the format.

Significant attention is paid to the franchise offering circular, which many

12 Franchise

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VetFran, which is available only through participating association member companies. To date, nearly 500 franchised small businesses in 45 states have been acquired by veterans through the program that is supported by more than 200 companies.

Percentage Change in Number of Systems 2003-2005 80% 70% 60% 50% 40% 30% 20% 10%

Sometimes running up to 200 pages in length, the disclosure document includes information about the franchise’s history and business model, terms of the agreement and financial statements. The association strongly encourages prospective franchisees to seek professional guidance to aid in understanding this document.

Importantly, it also lists recent litigation, contact details of some current and former franchisees, and information about franchise agreements that were recently terminated. Potential investors are especially urged to contact former franchisees to inquire if they were successful and received the support and services they were promised.

Another resource available to the potential investor is the Federal Trade Commission booklet, “The Consumer Guide to Buying a Franchise,” which helps the potential investor understand how to shop for franchise opportunities and know what questions to ask before investing. The government guide is available on the association’s site, www.franchise.org.

The guide includes a checklist potential investors should use to assess how much money they may have to invest, their ability to operate a business, and

Travel

Sports & Recreation

Service Businesses

Retail

Retail Food

Restaurants

Real Estate

Printing

Personnel Services

Lodging

consider to be the most valuable tool available to a prospective franchisee.

The circular is a document prepared by franchise systems to satisfy the presale disclosure requirements mandated by the U.S. Federal Trade Commission and the franchise laws of many states.

Maintenance Services

Fast Food

EducationRelated

Child-Related

Business Services

Building & Construction

Baked Goods

Automotive

0% -10%

their goals and expectations. Those interested in acquiring a franchised small business are encouraged to consult with professionals, such as accountants and lawyers, who specialize in the sector. Those professionals who are IFA members are featured on the association’s Web site under “Supplier Directory.”

Veterans interested in acquiring a franchise may be eligible for financial incentives via a special program called

VetFran has been recognized by the U.S. Dept. of Veterans Affairs with its Support Sector Champion Award for expanding business opportunities for veterans. To view a list of participating companies, with information on their discount packages and hotlinks to company profiles, visit www.franchise.org and click on the “Franchising for Veterans” link located on the homepage.

Finally, potential investors are encouraged to use their feet by visiting a trade show, walking around and examining the exhibits and asking questions.

Franchise systems come together from near and far to exhibit their offerings at these events where company representatives are available to answer questions potential investors may have.

Business Services, 5% Child-Related, 3%

forecast

Education-Related, 2%

Franchising sector booming, Fast Food, 20%

WASHINGTON, D.C. – Franchised businesses are expanding at a fast pace, while new franchise concepts are appearing in greater numbers, according to one of a series of IFA Educational Foundation-FRANdata studies about the sector.

“More industries are choosing franchising as a method of expanding their business,” said International Franchise Association President Matthew Shay, noting that the sector’s impact on the U.S. economy alone was recently determined to exceed $1.5 trillion - nearly 10% of the nation’s private-sector economy - and the source of jobs for

new research shows more than 18 million Americans.

Drawing from a database of nearly 2,500 franchise concepts, researchers found that the number of concepts was growing in 17 of 18 industry categories. From 2003 to 2005, increases ranging from 67% in retail food to 4% in personnel services were discovered. Only the travel industry suffered a decline.

Fast food, with nearly 500 concepts, represented 20% of the total, including many new franchises appearing to meet the demands of ethnic food tastes.

Retail and service business industries had new-concept gains of 11% each.

Entrepreneurs are creating new concepts with increasing frequency, the study determined. Over the past three years, nearly 900 concepts started franchising, 500 of those in 2005 alone. How big is big? Based on franchise systems with at least one operating franchised unit, onethird of all concepts had more than 100 units, and nearly half had more than 50 units. Significantly influenced by the growing number of new concepts in the past few years, 25% had 10 or less units.

The franchising sector has witnessed a trend of multiunit expansion in recent years, leading observers to expect that the percentage of systems with larger unit counts to increase in size. However, the study reported that no such increase occurred. The number of new concepts in recent years has led to a higher concentration of systems with relatively small unit totals. The distribution of franchised units across industry classifications, according to the study, occurred in a pattern similar to concept distribution: fast food (19%), retail and service businesses (11% each) make up the largest shares.

The strongest growth in the number of franchised units - in excess of 25% - was experienced in three industry categories: building and construction, child-related and service businesses.

IFA (www.franchise.org) is a 46-year-old trade group encompassing a broad membership of more than 1,000 franchise-parent companies, thousands of franchise small-business owners and operators, and hundreds of firms that supply goods and services to the sector.

PLANS THAT CAN Creating a business plan that results in getting financed

BY CAROLYN HEINZE

F

or some, drawing up a business plan is a tedious task requiring lots of research, lots of paperwork, and lots of staring at numbers. For others, it’s a productive endeavor that allows entrepreneurs to organize their thoughts on how the business will function, how well it will perform, how much money it’s going cost – and how long it will take to pay back the financial institution that lent you the capital. If you’re seeking financing, it’s best to adopt this latter philosophy.

Many franchisees finance their operations using their own resources, such as retirement funds or home equity.

When this is insufficient, they will often turn to third-party loans that are guaranteed by the Small Business Administration (SBA), offered through banks and other lending institutions.

In some cases, franchisees turn to non-SBA lenders, though these organizations tend to lend at a higher interest rate and often limit the items they will finance.

While you should provide a brief description of the business and your own professional background, this doesn’t mean that you are required to bombard potential lenders with stacks of paper detailing the history of the franchise operation, how qualified you are to run the business, or how exceptional the franchise concept is. Ultimately, lenders are interested in reading a clear, concise accounting of the cost of doing your

particular business and what sales you expect to achieve. The answers lie in the numbers.

Jim Anderson, a loan specialist at SCORE, a non-profit affiliate of the SBA in Santa Ana, Calif., preaches simplicity.

“It is best not to make the material too fancy, just understandable, businesslike and complete,” he advised.

“Does the borrower know who his customers will be, does he know the competition, are his financials credible and does he or she present themselves like professional business people?”

Sloppiness, therefore, is not an option.

Bernie Siegel, founder and president of lending assistance firm Siegel Capital LLC in Bala Cynwyd, Pa., notes that all lenders require a month-to-month cash flow projection for the franchise’s first year in business (some institutions

require up to three or even five years; before making your presentation, it’s best to verify the organization’s specific criteria). This report would include the numbers associated with rent expenses, advertising, franchise royalties, equipment and personnel, as well as projected sales. Even though they are projections, these numbers must be solid.

and those that are too pessimistic.

“Many prospective franchisees want to show how conservative they are,” Siegel observed. “They will show in the first year that, even after 12 months, they’re still not making any money. A lender will look at that and say, ‘How can I justify lending this person money if even he or she doesn’t think they can be profitable?’”

“Many of these numbers should come from discussions that you have had with your financial advisor - or that you have had with other existing franchisees,” Siegel illustrated, adding that average sales numbers listed in the Uniform Franchise Offering Circular (UFOC) is one way franchisees can obtain their figures.

A winning business plan, then, is somewhere in the middle: “I can tell it’s a winner right away if I look at the first year totals and, during that first year, that person is able to withdraw a salary, meet their minimal financial requirements, have enough left over to pay the loan payments, and to have some extra cushion above that loan payment,” Siegel said, adding that he likes to see a cushion of about 25%.

“For example, a company may report an average year of sales. Coming up with an estimate that is close to that average might be a very reasonable number to assume. Just picking number out of the air is where a lot of people get into trouble,” he said.

Realism and reason, for the franchisee that is preparing to meet with a lender, should be top priority, Siegel emphasizes, cautioning those seeking funding against being too aggressive with their financial projections. “If they claim they are going to become a millionaire before the ink is dry on the franchise agreement, a lender will look at that

GE Commercial Finance in Scottsdale, Ariz., lends to franchisees’ operating units nationwide, as well as start-ups.

While established franchisees would include “historicals,” such as past sales and expenses in their business plans, new franchisees are handled a little differently. Dave Russell, executive vice president in GE’s franchise finance department, explains that in these cases, the franchisor – as well as the franchisee – is analyzed.

“We would look at the performance of the concept, the concept statistics in terms of bringing people in and the protocol that they use to select operators,” Russell said.

Ultimately, lenders are interested in reading a clear, concise accounting of the cost of doing your particular business and what sales you expect to achieve. and determine that it’s an unrealistic business plan,” he said. “How comfortable can they be with someone who isn’t realistic?”

At the same time, a balance must be struck between ambitious projections

The franchisee’s background would also be examined, he said. Do they have prior experience in franchising? Did they work at one of the brand’s locations previously, in a position of responsibility?

What other entrepreneurial endeavors have they undertaken that might translate well into this venture?

FOR MORE INFORMATION: GE Commercial Finance www.cefcorp.com/franchise/index.asp

SCORE www.score114.org

Siegel Capital, LLC www.siegelfg.com

“Those are the things to emphasize,” he said.

Russell notes that GE also delves into the franchisee’s credit history. “To us, that is a big indicator for character.

Is this individual reliable in terms of repaying date? Are they timely?

Can we trust them with our shareholder’s money?”

Some franchisors will go to bat for the franchisee, and this can help to influence a lender in your favor.

“We’ve had instances where a franchisor has called us to say that they think this individual is a good bet,” Russell recounts. “Sometimes they will even go so far as to backstop the credit. That is a bit unusual, but it can happen. When we see that kind of sup-

port from the franchisor, it does carry some weight.”

Russell notes that his organization focuses on developing long-term relationships with its franchisees, and therefore seeks business plans that reflect a commitment to the business.

“One thing that has given us pause at times is if the individual’s business plan is to basically get out of the property soon,” he said. “We are relationship lenders. We have a long-term view of the industry, and we are looking for borrowers with the same commitment to the project.”

Fortunately for franchisees, the lending climate is competitive – especially for proven franchise concepts. “The comfort in financing people with start-up franchises is that a franchise system has demonstrated the ability to take the concept and make it a profitable business,” Siegel said.

The difficulty is when you are seeking financing for a new franchise concept: “If someone has only been in business as a franchisor for 10 months and none of their franchises have been open for two or three years yet, there is no demonstrated ability to do that yet. It’s not impossible to do a deal like that, but you must have very strong buyers or a very strong story,” Siegel said.

Carolyn Heinze (http://carolynheinze.blogspot.com) is a freelance writer/editor.

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groups focus on serving [ ]

BY JEANNINE GAGE

minority entrepreneurs

Lynette Sellers has a dream.

It is to run her own business – a hair salon, or a coffee shop perhaps. The type of business is not what’s most important; it’s to have something that is her own, to be able call the shots, to have employees to treat better than she’s been treated at so many of her dead-end jobs.

www.franmarket.com

21

“I

just want my own little corner of the world,” Sellers said, “to be able to make something out of nothing, to nurture it and make it a success – all on my own.”

Sellers shares this dream with many people. As an African-American woman, however, her dream may be harder to realize than for others.

The bad news is there are not many minorities in franchising – the route Sellers wants to take to having her own business. The good news is that the number of minorities in franchising is growing and the business community is realizing it is to its benefit to include the ever-more diverse population in its ranks.

“Looking at it from a business point of view, those companies that embrace diversity do better than those that say, ‘We don’t need it,’” said Miriam Brewer, director of diversity for the International Franchise Association.

IFA has started a Minorities in Franchising Committee and Diversity Institute to both promote and study the issues revolving around the topic.

Nearly 200 member companies of IFA have joined the Diversity Institute.

“These are companies looking to increase women and minorities,” Brewer said, “in all aspects of their business.”

stereotype that minorities just aren’t entrepreneurial material. But another problem is within the minority community itself.

While there are no hard numbers on minorities in franchising (a study is currently under way and will be completed this spring), Brewer estimates only 8% to 10% of the country’s franchisees are minorities.

“There’s a perception that it’s ‘out of my league’ among minorities,” said Phil Wilkins, who owns four McDonalds in Lexington, Ky. “We need more education out there to let them know it is possible.”

But experts agree, those numbers are growing.

Brewer agreed.

Jim Hammersley, director of the loan programs division of the U.S. Small Business Administration, said the number of loans guaranteed by the SBA to minorities has doubled since 2002. The percentage of loans going to minorities has increased from 26% to 33% in that same time period.

“We are definitely seeing an increase,” he said. “I think not only lenders but

“

“We have to remove the myth that owning a business is unattainable for them (minorities),” she said.

Wilkins decided in 1991 he wanted to own a McDonalds, but with just $10,000 in the bank and no experience, he was not ready. He continued working as a sales manager but also went to work at a local McDonalds for three years. He saved enough money, learned the business and

The most important thing for anyone, minorities included, is having a well-thought-out business plan.

the business community as a whole is realizing that you have to include everyone to be successful in a very competitive market.”

While the numbers are growing, they still remain relatively low compared to the population as a whole. There are several reasons why, experts say, including an old-fashioned

estimates show

only

”%

% 8 10 to

of the country’s franchisees

are minorities.

But experts agree, those numbers are

growing.

22 Franchise

Spring 07

“

...you have to include everyone to be successful in a very competitive market.

was awarded his own franchise. He said he was lucky to not face many prejudices as a young AfricanAmerican, but he realizes others do.

“It’s always challenging,” he said, “but you persevere through hard work and educating yourself.”

There were not a lot of resources available to minorities when he was getting started, Wilkins said, but now, anyone thinking about getting into the business should avail themselves of what’s out there.

“Seek out those companies that are really interested in including minorities,” he said. “Through programs at IFA and other places, there is a lot of information out there.”

Hammersly of the SBA said that while the organization does not have financial programs specifically targeted to minorities, they understand that minorities need more help getting started. To that end, he said, all of the district SBA offices have outreach programs aimed at educating minorities on small business. There are also Small Business Development Centers where all budding entrepreneurs can get help.

“The most important thing for anyone, minorities included,” Hammersly said, “is having a well-thought-out business plan. I cannot stress the importance of that enough.”

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”

Brewer said educating minorities about franchising is exactly why the Diversity Institute was founded.

“One of the things we found in terms of women and minorities is they may have the interest but have had problems raising capital and getting started because of a lack on information about franchising in these communities,” she said. “That’s why we want to get the information out there and make sure they know it’s available to them.”

As the population grows more diverse,

Brewer said, it is natural that companies will come onboard in welcoming minorities.

“It’s just good for their bottom line,” she said.

Hammersly said lenders are becoming more inclusive as well.

“We have a saying: There are only 500 companies in the Fortune 500,” he said “Meaning, you have to service small business as well. That will just naturally include more minorities.”

IFA offers mentoring, technical assistance, and a referral network with other associations such as the National Urban League, Brewer said. But not all of the assistance is for those wanting to start a business, there’s also information about recruitment for companies looking to diversify.

“We want to support companies that are trying to be inclusive,” she said. “We’re looking at diversity on all levels.”

resources for minorities in franchising: IFA www.franchise.org

SBA www.sba.gov

Own Your Business, Own Your Life!

21 Strategies To Become a Wealthy Entrepreneur,

by Phil Wilkins. www.philwilkins.com

Sellers, the dreamer, said she is glad to hear there is so much help out there in her quest to own her own business and will definitely take advantage of it.

“Our country is becoming so much more diverse,” she said, “I’m glad there are people out there willing to help make the business community that way too.”

–Jeannine Gage is a freelance writer in Ormond Beach, Fla.

since 2002 the number of

loans guaranteed by the SBA

to minorities has

doubled

the percentage of loans going to minorities has increased from

26% to 33% www.franmarket.com

25

JACKSON HEWITT TAX SERVICE®:

FRANCHISING FOR THE FUTURE How one company is nurturing untapped markets

BY JODI DALEY

According to a 2004 Selig Study, minorities in the U.S. hold $1.3 trillion dollars in purchasing power per year.

In addition, minority-owned businesses are growing at a rate seven times faster than other U.S. businesses.

And, at 1/3 the total U.S. population, minorities prove a powerful economic force.

This comes as no surprise to JACKSON HEWITT TAX SERVICE®, the nation’s second largest tax preparation service.

Jackson Hewitt® believes that “in order to be successful within the community, a company needs to be a part of and reflect the community,” says Richard Morris, Jackson Hewitt Vice President, Franchise Sales. So, when partnering with new franchisees, Jackson Hewitt actively seeks entrepreneurs with a strong business background who share this vision.

According to Kelvin Farmer, a franchisee in Fayetteville, NC, Jackson

Hewitt actively pursues one kind of franchisee: a good businessperson.

“They’re very open to diversity,” says Farmer. “When you work with Jackson Hewitt, they understand that franchises need to ‘image’ America.”

“Our franchisees are entrepreneurs,” says Sheila Cort, Jackson Hewitt Vice President, Corporate Communications.

“They have invested their time, money and talent in the business and we want them to succeed. It’s important for them to know that when they buy a Jackson Hewitt franchise, they are in business for themselves, not by themselves.”

As with any business endeavor, support is critical. According to the International Franchise Association Educational Foundation, three major barriers often prohibit minorities from owning and operating successful businesses: lack of information, knowhow and capital. For those interested in joining the Jackson Hewitt franchise system, the company has the programs in place to help them overcome these obstacles. “Friends will tell you it’ll never work,” says Javier Ledesma, a franchisee in San Marcos, TX. “The beauty of the company is that as long as you’re qualified, they let you build as big as you want. They’re open to everyone.”

In 1993, Marlene Franklin read an article in Black Enterprise magazine

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about low cost, up and coming franchise opportunities. In that Jackson Hewitt was highly rated and respected, and that Franklin was a CPA, the match seemed perfect.

When Franklin called Jackson Hewitt, she was greeted by not only a warm welcome but also tremendous support and opportunities. Franklin realized that developing a clientele on her own would take a good three to four years.

But, with Jackson Hewitt, she was able to benefit from an established national organization, marketing and advertising support and a proven system.

“The issue wasn’t taxes,” says Franklin, “it was clientele.” Well, it’s been 14 years and Franklin is still going strong with seven locations in the Houston, TX area.

Since Jackson Hewitt began franchising in 1986, it has grown to over 6,500 locations across the country and continues to dedicate itself more than ever to serve every segment of the population. The company’s efforts to expand have resulted in an inviting and open culture that welcomes any and all who are qualified for and interested in creating a successful tax business.

Back in the early ‘90s when she was an independent tax preparer, Robin Swarn of Berkeley, CA was drawn in by Jackson Hewitt’s technology and customer service. It was around this time

that the IRS had been pressuring any tax office doing over 300 returns a year to electronically file – or “E-file” – tax returns. Realizing that would mean a tremendous outlay of capital for new computers and software, Swarn examined her options and decided on Jackson Hewitt and its proprietary PROFILER® software.

“It was almost a turnkey package,” says Swarn. “I remember one rainy night when the support tech person flew in from the Jackson Hewitt Technology Support Center to set us up. The very next day we were doing taxes. In that first year we joined with Jackson Hewitt, there were times that business was so phenomenal that we would not go to sleep for two days in a row.” Today, Swarn’s seven locations provide tax services for a diverse and loyal clientele.

The same is true for Ledesma, who boasts a high retention rate of both customers and staff. “Return rates on clients are about 70% from year to year. Even our preparers – many of whom have been with me seven to eight years – are like family.”

That familial approach starts right at the top. Jackson Hewitt President and CEO Mike Lister has worked in almost every capacity of the tax business in his more than 30 years of expertise in the tax service industry. Personally and professionally, he is always accessible and open to franchisees. He travels extensively throughout the year, visiting locations and spending time with franchisees in different markets. He’s also very active building cross marketing relationships with companies to help drive more customers to the door.

In addition, both Franchise Service Managers – based in the corporate headquarters – as well as the fieldbased Regional Directors and Franchise Development Directors – all partner closely with the franchisees to help them build their businesses.

Since Jackson Hewitt began franchising in 1986, it has grown to over 6,500 locations across the country and continues to dedicate itself more than ever to serve every segment of the population.

Jackson Hewitt President and CEO Mike Lister

Perhaps this accessibility is just one reason that Jackson Hewitt continues to shine as the #1 Tax Preparation Company for the last 14 years in Entrepreneur magazine’s “Annual Franchise 500.” In 2007, Jackson Hewitt was also rated the #3 franchise overall, as well as #1 in low-cost franchise opportunities.

Even business partners and vendors have found Jackson Hewitt’s practices to be refreshing. Nancy D’Andrea,

President of Thomas Direct in Clifton, NJ and Debra A. Taeschler, President and CEO of the Grafica Group in Chester, NJ have worked with the Jackson Hewitt corporate office for five years. Both executives credit Jackson Hewitt’s success to the fact that its people understand the market and its diversity. ”They have a culture that encourages and welcomes women and minority-owned vendors. They’ll partner with you on a very high level to be best in class,” says D’Andrea.

Taeschler goes on to say, “Jackson Hewitt is not set in old ways.

They’re open and not a rigid, stagnant organization. They’re more organic, and always evolving.”

This evolution continues daily at the company. “Jackson Hewitt serves the workforce of America: the teacher, the retail worker, the police officer." says Cort. “So we have to listen and act on what’s needed from both our franchisees and customers in order to tailor our products and services to meet their needs.”

The bottom line is that the Jackson Hewitt commitment to “Become the Tax Preparer of Choice for the Workforce of America” SM has allowed the company to see, service and evolve with many of the diverse groups.

As for franchisees, Kelvin Farmer, who owns 16 franchises, puts it best. “When we all have a good year, we all celebrate together. And even when things get tough, you know that with Jackson Hewitt, it’s truly a partnership.”

... Jackson Hewitt understands that franchises need to image America.

– Kelvin Farmer, Jackson Hewitt Franchisee

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cover story

the MULTICULTURAL FACE of FRANCHISING

BY JENNIFER LECLAIRE

FRANCHISING IS ATTRACTING MORE WOMEN AND MINORITIES WITH ENTREPRENEURIAL OPPORTUNITIES THAT OFFER LOWER RISKS, GREATER REWARDS AND DESTINY CONTROL.

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eyi Lojede left his Nigerian home in 1997 with some technology skills and an American dream: business ownership. The African native worked for several companies for nearly a decade before he saw his dream come alive. Lojede and his wife launched Dove Tax Services in 2005, but after two years of long days and little profit he recognized the challenge. His dream didn’t have brand recognition.

Lojede didn’t give up on his business dreams. Instead, he turned to franchising.

Lojede started a We The People legal document preparation service franchise in Raleigh, N.C., last year to tap into the branding power of a larger corporation. We The People provides Lojede with marketing materials, television advertising and other support at a level he couldn’t afford to invest in for his tax business.

“Franchising was a better route for me,” says Lojede, who dipped into his savings and brokered a home equity loan to pay the $89,500 franchise fee. “It cost me more up front, but ultimately we make more profits through the franchise system than we did starting a business from the ground up.”

Like Lojede, more minorities are finding a fit with franchising. Although there are yet no hard

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MINORITY-OWNED BUSINESSES GREW MORE THAN FOUR TIMES AS FAST AS U.S. FIRMS... AND WOMEN-OWNED BUSINESSES GREW AT TWICE THE NATIONAL AVERAGE PACE BETWEEN 1997 AND 2002. statistics on minorities in franchising, U.S. Census Bureau data does show that minorities are starting more small businesses and their population is growing rapidly stateside.

According to the Bureau, minorityowned businesses grew more than four times as fast as U.S. firms overall between 1992 and 1997, increasing from about 2.1 million to 2.8 million firms, and women-owned businesses grew at twice the national average pace between 1997 and 2002.

The reasons minorities are flocking to franchising are many. Risk-averse mindsets, a desire to break through a glass ceiling, and the response to mass corporate layoffs over the past two decades are prime attraction factors. At the same time, the franchising industry is reaching out to women and minorities more aggressively than ever before. The combination is birthing a more multicultural face in franchising.

Lower risk, greater reward The perception of lower business risks that come along with an established franchise brand name has been the traditional draw for entrepreneurs.

Franchisees are discovering that brand awareness is easier to attain when franchisors pool marketing resources and present the franchise as a unified front. Franchising’s reputation for success may be an even larger incentive for minorities, however, according to Steve Rosen, CEO of FranNet, a franchise consultancy headquartered in Carlsbad, Calif.

“Minorities seem more risk averse than non-minorities in my experience,” Rosen, says. “That makes franchising a perfect solution for minorities who really want to go into business for themselves. Franchising offers a proven system that helps ensure success.”

Indeed, according to a U.S. Department of Commerce study, less than 5% of franchise businesses were closed each year between 1971 and 1997. Compare that to a U.S. Small Business Administration study conducted from 1978 to 1998, which found that 62% of non-franchised businesses closed within the first six years of their existence, and one of franchising’s benefits become clear.

Busting the glass ceiling Franchising may also help women and minorities break through an invisible barrier often referred to as the “glass ceiling” that multiple studies show exists. About 70% of women and 57% of men believe a glass ceiling blocks women from climbing to the height of the corporate ladder in many indus-

“

tries, according to a study conducted by consulting firm Accenture.

Franchising may also be the answer for women who have been out of the workforce raising children and would rather re-enter the workforce by starting their own business than try to make up for lost rungs on the proverbial corporate ladder. Women can look

Franchising offers a proven system that helps ensure success.

–Steve Rosen

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”

LESS THAN 5% OF FRANCHISE BUSINESSES WERE CLOSED EACH YEAR BETWEEN 1971 AND 1997...

62% OF NON-FRANCHISED BUSINESSES CLOSED WITHIN THE FIRST SIX YEARS...

to role models like Anne Beilier of Auntie Anne’s, Debbi Fields of Mrs. Fields Cookies and JoAnne Shaw of The Coffee Beanery for inspiration.

FranNet’s Rosen recalls many minority clients who came to him for advice on starting a franchise because, no matter how hard they worked or how much profit they generated for their employer, they couldn’t rise to higher levels in the organization.

“Franchising is color blind and gender neutral, “ Rosen says. “Franchising says, ‘Your success depends on your skills and work ethic.’”

Udo Schlentrich, director of the William Rosenberg Center of International Franchising at the University of New Hampshire, says women are attracted to franchising because it allows them to be their own boss on terms that suit their family’s needs. Women are part what he dubs the “second-career population” that is looking for a better way to earn a living.

“Some women are cashing out their 401k to pursue a different lifestyle that lets them be in charge of their own destiny. Franchising is a strong option for them,” Schlentrich says. He cited a woman in his research who worked long hours for a major financial investment company. Instead of continually bumping her head on the glass ceiling, she decided to pursue a fitness studio franchise.

The instability of corporate America has also led more minorities into franchising, according to Schlentrich’s studies. In 1970, he says 98% his Cornell classmates wanted to be senior executives at large companies. Today, he continues, almost 98% of his students want to own their own business.

“People have seen their parents get laid off and want to have more control over their lives,” explains

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“

Many minorities start off with one store and then it mushrooms because the franchising gives them the tools to run the business and a brand to succeed.

–Udo Schlentrich

Schlentrich, who is also a member of the International Franchise Association’s (IFA) Educational Board. “Minorities are learning that if you pick the right franchise, you have an opportunity to become a successful entrepreneur much easier than if you start from scratch.”

Attraction by default As the population of the United States continues to diversify, Schlentrich predicts more minorities will catch the franchising bug. According to the Census Bureau, Hispanics are the nation’s largest minority group and have the fastest growth rate. In fact, Latinos are the leading force behind American population growth in general. The nation’s population grew by 2.8 million in 2005, with 49% of that growth coming from Hispanics.

”

immigrants are coming into the country who are quite familiar with franchises and decide to start their own.”

Schlentrich’s studies show that minorities who are entering franchising are engaging family members to help get the business off the ground.

Once the franchise sees growth, they open a second franchise.

“Many minorities start off with one store and then it mushrooms because the franchising gives them the tools to run the business and a brand to succeed,” he explains, “and they work hard to make it profitable.”

Franchising’s outreach To be sure, minorities are turning to franchising because franchising is turning to them. The industry in recent years has developed programs designed to attract minorities to franchising - and it’s working. The IFA is tackling what it sees a lack of awareness about franchising in minority communities. This includes a lack of knowledge about the opportunities in franchising, about how franchising works, and the cost of acquiring a franchise. Burger King, Blimpie, Choice

Franchisors actively reaching out to minorities:

Burger King, Blimpie, Choice Hotels, MaggieMoo’s, Jackson Hewitt Tax Service and many others.

African-Americans were the second largest minority, totaling 39.7 million, and Asians came in third with 14.4 million. Minorities, then, account for 33% of the U.S. population. However, the Census Bureau showed that Hispanics, African-Americans and Asians are also generally younger than whites, suggesting even faster growth of minorities in the years ahead - with or without immigration. Hispanics are expected to represent 25% of the U.S. population by 2050.

“Franchising is largely driven by demographic trends,” Schlentrich says. “The world is flat, but we are now seeing global business. Lots of

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Franchisors and minority franchisees are attracted to one another because it makes good business sense.

–Stan Friedman

”

Hotels and MaggieMoo’s are among the many franchisors actively reaching out to minorities.

Stan Friedman, senior vice president and COO for MaggieMoo’s International, an ice cream franchise headquartered in Columbia, Md., is working with the IFA to spread the word that minorities don’t have to be millionaires to get into franchising.

The IFA is educating minorities about private equity, tax credits, incentives and debt instruments that can help bridge the gap between an individual’s net worth and their entrepreneurial inclinations.

MINORITIES REPRESENT

32% of the

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“People want to do business with people who look like them. Forget about social or political implications.

The bottom line is franchisors are missing economic opportunities if they don’t reach out to minorities,” says Friedman, who serves on the board of directors of the IFA’s Diversity Institute Advisory Council.

“There are inner-city opportunities and redevelopment programs that can give talented minorities a chance to tap into underserved customer bases.”

Friedman sees the tide turning as the industry embraces minorities and minorities embrace the opportunities.

As the awareness increases, the response also increases, he said.

His passion is to give minorities permission to believe franchising is a possibility for them, and he’s putting that passion into practice at MaggieMoo’s. More than 20% of the company’s franchisees are minorities.

“We want franchisees who like to make people happy. There is no color to a smile. There is no gender to a smile,” Friedman says.

“Franchisors and minority franchisees are attracted to one another because it makes good business sense. Minorities are getting the message that they can satisfy their appetite for wealth and legacy by owning a franchise.”

Jennifer LeClaire is a freelance writer based in Hallandale Beach, Fla.

Minority –Owned Businesses: Exceed

4.1 million Generate

4.8 million jobs Create

700 Billion in gross receipts

profile SCORE Counselors Dish Out Some Good Advice to Aspiring Restaurant Owner An experienced chef, Jimmy Wu had long dreamed of opening his own Japanese restaurant and sushi bar. He thought his moment arrived when he had an opportunity to purchase an existing business in a trendy Southern California neighborhood. But Sam Engelman, a retired restaurant owner and SCORE counselor, thought otherwise.

“Sam recommended that I take things slower,” Jimmy says. “He said that because I needed to minimize start-up costs, I shouldn’t have to invest in an ongoing business that I was going to change anyway.”

The more Jimmy evaluated the location, the more he realized that his counselor was right. “Sam helped me avoid a lot of problems,” he says. “Buying that restaurant would’ve been like jumping into a hole. I might never have gotten out.”

Engelman put Jimmy in touch with a commercial real estate broker, and joined them in visiting potential sites. He also encouraged Jimmy to return during different times of the day and night to observe to observe customer traffic in the area. They also visited potential competitors nearby to evaluate their menus, ambiance and business patterns.

An empty storefront in Studio City appeared to offer everything Jimmy was looking for.

“I talked it over with Sam, then he guided me through the lease negotiations,” Jimmy says.

“With his help, I was able to save money on my start-up costs.”

Engelman and Ken Mann, another SCORE counselor, worked with Jimmy to ensure that Ahi Sushi could sustain its promising start in early 2003. They recommended techniques and technology for effectively managing cash flow and inventory, tracking labor costs, and planning extra expenses, such as advertising and improvements.

Three years later, Jimmy reports that Ahi Sushi is doing great.

“Our gross revenue is at or above what I had planned for the original location,” he says.

“Business has more than doubled, which is a good sign, since there are many other sushi bars in the area.”

Jimmy adds that his SCORE counselors deserve a lot of the credit. “It’s unbelievable how much they were willing to help, and all for free,” he says. “It’s a totally different experience from meeting other professionals who charge fees to simply listen. Sam and Ken have played a remarkable role in my business.”

For more success stories, visit www.score.org

ADVERTISEMENT

FINDING MINORITY-FRIENDLY

FINANCING DISCOVER SOURCES OF FINANCING, TAX INCENTIVES AND EQUITY INVESTMENT PLANS FOR MINORITIES WHO WANT TO START A FRANCHISE – OR A STRING OF FRANCHISES.

BY JENNIFER LECLAIRE

C

handra Smith’s loan application was declined – more than once.

The African-American schoolteacher went to bank after bank after bank in search of the financing she needed to get a Huddle House franchise off the ground.

Despite the discouragement of multiple rejections, a determined Smith refused to give up hope. She

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kept searching for a lender who would give her a chance to prove she could operate a successful restaurant franchise. Fifteen years after she first stepped foot in a bank, Smith secured a Small Business Administration (SBA) loan with a credit union in her hometown. A Huddle House she can call her own will open in the fall of 2007.

“ “Finding a lender was like being in a boxing ring. I just kept getting knocked down, but I kept getting back up again,” said a 50-year-old Smith with grit in her voice. “I’m going to be the best of the best. I’m going to be a millionaire doing what I’ve done for other people for years – cooking and cleaning.”

Smith is an inspiration to women and minority entrepreneurs who have franchising dreams but have been turned down for loans from conventional lenders. Indeed, funding remains the most significant challenge for this group, but new programs are emerging to help minorities find capital and tax incentives are opening new doors of opportunity.

Opening the financial door The International Franchising Association (IFA) is taking a hands-on approach to bridging the capital gap that prevents minorities from buying into brand-named businesses. The IFA worked with Allied Capital, the Metropolitan Business Collaborative and Business Loan Express to launch the Franchise Diversity and Development Initiative last year. The initiative’s goal is to help franchisors develop minority and women-owned franchises by identifying high-quality prospects, providing traditional and alternative financing programs, and providing technical support.

“This program is for minorities who have hit a wall when they tried to get operational funding,” explains Miriam Brewer, the IFA’s director of development and diversity initiatives. “Participating lenders will waive some fees, and those fees will go into a private equity account to fund grants for minorities who may not qualify for loans.”

FINDING A LENDER WAS LIKE BEING IN A BOXING RING. I JUST KEPT GETTING KNOCKED DOWN, BUT I KEPT GETTING BACK UP...

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Tax credits alone can mean the difference between a minority making a go of a franchise or continuing to work as a manager in someone else’s franchise.

There’s Federal Empowerment Tax Zones, Welfare to Work Tax Credits, and Youth Employment Tax Credits, among many others. The IFA is working to erase the mystique of securing tax credits by setting up this one-stop shop that offers A to Z financial information on programs for would-be minority franchisees, Brewer says.

Trained counselors will hold the applicant’s hand through the entire process.

advantage of tax credits and job credits,” says Greg O’Stean, vice president of the GE’s hospitality franchise funding group. “The brand name gives us a certain amount of comfort in doing the loan.”

Perhaps the biggest advantage of an SBA-guaranteed loan is longer payment terms. The SBA guarantees loans of up to $750,000 with a maximum loan maturity of 25 years.

While interest rates are negotiated on a case-by-case basis depending on the borrower’s credit, the SBA does establish a maximum rate that lenders can charge. Many small community banks are avid SBA lenders, as Smith found discovered in her quest to open a Huddle House.

The SBA will approve financing for the purchase of land or buildings, new construction or expansion, equipment, machinery or supplies.

The SBA will also approve loans to supply working capital or short-term seasonal financing.

Securing SBA loans Many conventional lenders consider the typical startup too risky. The SBA helps reduce the risk for the lender by guaranteeing up to 80% of the loan amount for entrepreneurs who may have solid business plans, but weak credit or management experience.

UPS Capital, CIT Group and GE Capital Solutions are among the banks leading the way for minority lending through SBA loans.

“We work with minority franchisees to structure loans in such a way to take

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START“ WE’RE ING TO SEE SOME EQUITY GROUPS EMERGE THAT FOCUS ON MINORITIES, BUT FINDING THEM IS STILL A CHALLENGE

”

Of course, a small business owner must have a personal capital investment in the company, prove the loan is of sound value and demonstrate how it will be repaid. If requirements are met, experts say, SBA approval can be completed quickly. Beyond a cash flow projection, the lender is looking for collateral that reduces risk. But the SBA can ease some of that pressure by acting as a sort of insurance policy for the lender.

Equity: The next challenge C. Everett Wallace, co-founder of the National Minority Franchise Initiative in Raleigh, N.C., says the growing number of lenders and initiatives targeting minority franchisees encourages him. In addition to the Franchise Diversity and Development Initiative, the Big Apple

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Franchise Initiative is holding its second annual Minority Franchise Buyers Conference in New York in May to increase minority participation in the franchising industry.

“Minorities and women don’t usually have access to the same relationships and information as others. We don’t know who we need to know to get the financing we need,” Wallace explains. “We’re starting to see some equity groups emerge that focus on minorities, but finding them is still a challenge.”

The New York City-based United Enterprise Fund (UEF) is a private equity fund that launched in 1999 with the aim to help make it easier for minorities to secure funding to grow their franchising vision. The UEF partners with minority restaurant operations in urban and low-to-moderate income markets. UEF has

funded franchises like Church’s Chicken, Cinnabon and RJ Gators.

The fund offers $1 million to $3 million to help franchisees expand, opening up a world of opportunity for forward-thinking minorities.

Sometimes forward-thinking means raising the brand flag in neighborhoods where others won’t go, Wallace says.

“One of the best opportunities for minority franchisees to find funding is to target underdeveloped neighborhoods and rural communities,” he explains. “More and more local and state governments are offering direct and indirect assistance to entrepreneurs who are willing to go into these communities.”

–Jennifer LeClaire is a freelance writer based in Hallandale Beach, Fla.

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Traditional Financing Credit score, business plan key to getting traditional financing

BY CAROL BRZOZOWSKI

Y

ou’ve got what it takes to buy a franchise: know-how, determination, passion for the product or service.

Everything, that is, except for all of the money needed to buy the franchise.

First the bad news: Those with poor credit need not apply for traditional financing.

Says Jim Hammersley, director of the Office of Loan Programs for the U.S. Small Business Administration (SBA), “There are some people whose credit history is not conducive to anyone being willing to loan them money, even with an SBA guaranty.”

Among its services, the SBA is a guarantor of loans made by private and other institutions.

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“F

ranchisors can give the borrower a thorough look at what’s involved in running a business, and some folks may decide they’re not cut out for it,” he says. “It’s a much better decision to make now rather than after you’ve put your life savings into a business and everything has evaporated.”

And consider this: More than half of all new small businesses fail within six years, with half of those failures occurring within the first two years, says Bruce Phillips, a senior economist for the National Federation of Independent Business Research Foundation, a small business advocacy organization operating in Washington, D.C., and all 50 state capitols (www.nfib.com).

Restaurant failure rates are faster, he adds.

Undercapitalization is the main reason businesses fail, says Hap Fairman,

a counselor with the Service Corps of Retired Executives (www.score.org) Chapter 429 in New Port Richey, Fla. He’s a specialist in financing and provides no-cost assistance in helping clients organize business plans and cash-flow projections.

He then presents the paperwork to lending agencies throughout the United States.

Here’s the good news: “When you are buying a proven franchise that has a recognizable name, it is easier,” says Wayne Looff, a senior business advisor with the Small Business Development Center in San Antonio, Texas (www.sbdcnet.org). “Franchises have less of a failure rate. There are a lot more franchises than chains out there than there were 10 years ago.”

Armed with a good credit score and business plan, the chances are favorable that one can obtain financing for a franchise.

There are two types of capital financing: debt and equity. With debt, funds are borrowed and repaid over time with interest. The lender typically a bank - has no ownership in the business.

With equity, money is raised by a business in exchange for a share of company ownership through stock shares or other facets.

Equity sources include angel investors – high-worth individuals seeking to invest in promising cutting-edge companies – and venture capital firms.

Each provides capital unsecured by assets to new private companies with rapid growth potential. On the flip side, such equity providers require a high rate of return on investment.

While some franchise companies will lend a new franchisee money, it’s rare and may not be on as favorable terms as with other sources, Phillips says.

Also consider franchisor and royalty fees when calculating expenses.

Lenders consider several criteria in determining risk factors:

A hard cash contribution. “You finance an average of 80 percent and produce 20 percent equity in cash,” says Rick Anderson, general manager of Franchise Finance, a Little Rock, Ark., firm that finances franchise operations through various options ( w w w. f r a n c h i s e - f i n a n c e . c o m ) .

“When you are buying a proven franchise that has a recognizable name, it is easier.”

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“It could be from stocks, bonds or home equity, but we don’t like people to borrow all of their down payment.”

Collateral. Typical banks look for 100%. “SBA lenders will take less, provided all else meets with their satisfaction,” says Fairman. “A lot of people don’t want to risk their house, but a bank’s attitude is, ‘If you won’t take the risk, why should we?’”

Good credit. The “good” definition varies with each lender, with the minimum generally ranging from 630 to 660, says Fairman.

Outside income. Anderson says that’s “the hottest thing” with lenders.

“Do you have a spouse or partner working in the same household who has outside income - regardless of the business you want to start - who can pay your living expenses?

They don’t want you betting the farm on this start-up business.” Fairman has clients produce a cash flow analysis with a cushion of three months’ expenses.

plan to sell yourself to the loan officer,” says Hammersley.

People err in writing business plans by omitting elements they took for granted when employed by another company, such as employer contributions to health insurance and Social Security, Hammersley says.

“They run out of cash and are forced out of business before it has a chance to take off,” he adds.

Anderson agrees.

“Unless you’ve been in that business, you don’t know what to pay your people, where to advertise or how much to charge for your product. You spend the first few years struggling to figure it out,” he says.

The SBA offers business plan software on its Web site (www.sba.gov).

Assistance also is available from Small Business Development Centers, which operate under the auspices of SBA’s Office of Entrepreneurial Development.

Management experience, especially in the type of franchise being considered. Banks generally frown upon a lack of experience, but franchises can be an exception, as many offer extensive training and support.

A business plan. “I can’t emphasize enough the importance of putting together a well-documented business

Business assistance also can come through economic development corporations, which help create jobs through conferences, professional development, research and other services. Information can be found through www.iedconline.org.

Fairman says a business plan should

Credit Score Factors

10%

• Payment History

10%

35%

15%

• Amounts Owed • Length of Credit History • Types of Credit Used

30%

• New Credit Applications

be brief and include information about the borrower, details about the company’s goods and services, goals, how money will be used, how the lender will be repaid, the borrower’s cash contribution, collateral, credit score, financial expectations, borrower’s management qualifications.

Also important are marketing plans, identified competition, competitive advantages, financial plans (such as income and expense projections), a copy of the lease or proposed lease and a copy of the franchise contract.

Lenders will typically respond in three ways to loan requests, says Looff, who works with start-up and existing businesses in preparing them to approach lenders for financing.

“They’re going to say they don’t finance or aren’t interested in that particular project, they’ll do it through a regular commercial loan, or they like the project but want an SBA guarantee,” he says.

Lenders usually decide when it’s appropriate for a borrower to contact the SBA, Hammersley says.

“If the borrower is able to qualify on a conventional basis, they don’t need the SBA,” he adds.

Fairman prefers bank loans over SBA-backed loans for their more favorable rates.

“However, the SBA does have certain advantages,” he says. “From a bank, you’ll probably get a five-year loan.

From SBA, you can get 10 years. So sometimes even though the costs are more, SBA becomes the only financially reasonable route to go.”

There are many states with programs similar to the SBA that do franchise financing for women and minorities as franchise companies seek to diversify, particularly in inner-city areas, says Phillips.

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Those who seek SBA help have three options: Basic 7(a) Loan Guaranty: Aimed at start-up and existing small businesses, it provides financing through commercial lending institutions to qualified small businesses otherwise ineligible through normal lending channels. The SBA guarantees up to 85% of the loan.

It includes a Wall Street Journal Prime Rate, which fluctuates quarterly or monthly. Financing is guaranteed for various general business purposes.

Certified Development Company (CDC), a 504 loan program: Intended for small businesses needing both land and buildings. The program provides long-term, fixed rate financing through CDCs, private, non-profit corporations developed for communi-

ty/regional economic development.

The project includes a private-sector loan with a senior lien and a CDC loan funded by a 100% SBA-guaranteed debenture, with a junior lien covering up to 40% of the total cost and a minimum 10% equity contribution from the borrower.

“The CDC issues a debenture backed by the loan and sold into the financial markets at a fixed rate. They pay semiannually just as a treasury security would and are very attractive to investors,” notes Hammersley.

Microloan, a 7(m) Loan Program: Aimed at small businesses and not-forprofit childcare centers requiring small-scale financing and technical assistance for start-up or expansion.

The program provides short-term loans of up to $35,000 made or guaranteed through the SBA and delivered through specially-designated intermediary lenders, non-profit

The SBA offers business plan software on its Web site (www.sba.gov) organizations experienced in lending and technical assistance. Loans provide working capital or help to purchase inventory, supplies, furniture, fixtures, machinery or equipment.

Those getting an SBA-guaranteed loan in the 7A program should pledge collateral, Hammersley says.

“We believe if you are going to ask the taxpayers to help guarantee your loan, you need to have all of your assets tied up as well,” he says. “A loan may or may not be approved if it is thinly capitalized, the borrower has limited management experience and other factors.”

Phillips advises to partner with other professionals - such as an accountant and attorney - in putting together a finance plan for a franchise purchase.

“You should even talk to some franchisees within the same industry and in the same company to see how they are doing and whether they are successful, even if it means being a little bit forward,” he says. “It’s your money, and this could be your livelihood.”

–Carol Brzozowski is a freelance writer based in Coral Springs, Fla.

non-traditional Financing Sources Other options for franchise finance

BY CAROL BRZOZOWSKI

B

ruce Phillips, a senior economist for the National Federation of Independent Business Research Foundation, used to teach a small business finance course at Georgetown University and likes to tell this joke: “We used to say 90 percent of new firms were started by the 3 F’s - family, friends and fools. That’s where the money comes from.”

Kidding aside, Phillips says it’s always better to finance a business from one’s own cash reserves before borrowing in the marketplace.

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“It’s better not to borrow if you can help it because if things don’t go as well as you hope, you’d rather not spend the next 15 years paying the debt off,” he says. “Sometimes, unfortunately, that does happen.”

Another reason why people turn to non-traditional financing sources is that they may not qualify for traditional bank financing, perhaps due to a low credit score.

Or perhaps they do, but they need to obtain their typical 20% cash contribution to the effort from their own reserves.

There are several non-traditional methods for financing a franchise, each with benefits and drawbacks.

Credit CreditCardsCards “Very risky,” points out Hap Fairman, a counselor with the Service Corps of Retired Executives (SCORE) Chapter 429 in New Port Richey, Fla. “If you go past a certain point, they slap on a high interest rate. You don’t even have to be late on payments; you just have to be using too much.”

But Wayne Looff, a senior business advisor with the Small Business Development Center in San Antonio, Texas, has seen cases where using money from credit cards has worked.

“I have had some people finance a business like that because it was a good project and they were able to pay that credit card debt off fast,” he says.

He concedes that it only works if people are cautious.

“With the blink of an eye, your credit card interest rate can go up to 25 percent, so you must be really careful

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with that,” he says. “I had a client put $120,000 on credit cards and wanted the bank to refinance it. In most cases, the bank will not. That particular business is out of business today.”

With the blink of an eye, your credit card interest rate can go up to 25 percent, so you must be really careful with that.

Friends and and FamilyFamily Friends “A good way to go,” says Fairman.

To protect the relationship, the borrower must treat family and friends as they would any other lender, including drawing up a business plan that includes how they’ll benefit, he adds.

“Friends and family are entitled to know whether a bank would loan you money or not,” he says.

Looff agrees.

“You also have to explain the risk factor,” he says. “Maybe your parents have a lot of confidence in you and will tell you to pay the money back when you can.

“Others are going to want a return on their investment, because it is a risk.

They could put it into a traditional money market account and make five and a half-percent interest now. What’s going to entice them to give you the money if they’re not a close friend or family member or they don’t believe in your project? Even if they do, there’s risk.”

Rick Anderson, general manager of Franchise Finance, a Little Rock, Ark., firm that finances franchise operations, cautions that a person is not establishing him or herself as a business with a credit history by borrowing from family and friends.

“You don’t have a business loan, so if you ever wanted to grow, you are starting at ground zero with banks,” he says.

Home Equity EquityLoans Loans Home “One of the best financing options there are,” says Fairman. “It’s possible to get a home equity loan at as much as a half-point below prime and with no closing costs. Compare that to an SBA-backed loan, which is going to be anywhere from two to two-and-a-half points over prime, and the normal closing costs could be a couple thousand dollars or more, plus a fee of one to three percent. Either way, you’re using your house as collateral.”

It’s possible to get a home equity loan at as much as a half-point below prime and with no closing costs.

Home equity loans can have benefits and drawbacks, Anderson says.

have no collateral and have pledged their home equity.

“A lot of people were using home equity loans for every bit of their loan because the rates were really low after 9-11,” says Anderson.

“It’s not a business loan, and it’s 100 percent collateralized by the lender.

The home equity lender will give you the low rate because if you don’t pay it, they just take your house.”

“So many people have done that over the last couple of years and then come back to us and say they didn’t get enough and need working capital. They are tapped out. They

Anderson advises his clients to save their home equity.

“You might have to pledge your home

as collateral, but that’s a different risk than using home equity,” he says.

In using home equity loans, Looff points out that if a person is unable to make the equity payment out of the business, “all of a sudden you have your regular cost plus your equity loan and you don’t have the money to pay for it, so there’s a risk of losing your home.”

401(k) 401(k) Fairman is not big on tapping into a 401(k).

“It costs quite a few thousand dollars of legal fees, and your 401(k) owns the business. You realize the risk - you are jeopardizing your retirement,” he says.

Yet using a 401(k) to finance a business has become popular, Anderson says.

While there are some firms that will convert a 401(k) to obtain money, Anderson recommends against it. He says he only favors it when cashing in some of it for a 20% down-payment.

“That’s not a business loan; you are just cashing out a 401(k),” he says.

“Secondly, you may want to save some of that money for unforeseen problems - streets get torn up in front of your store or you have an employee theft problem.”

Looff says there are ways to borrow against a 401(k) when one is young and has time to accumulate the amount again.

“When you are 50 years old, you have a shorter period of time to do that, and the age factor comes into it,” he says. “Are you willing to take the risk with that?”

www.benetrends.com

We can’t think of much better investments for people to make with retirement plans than investing in themselves.

Len Fischer has plenty of clients willing to take the risk. He’s had clients in their late 60s dip into their retirement plans to start a business. On the contrary, younger people may not have enough money in a retirement plan to provide an adequate benefit, he says.

“We can’t think of much better investments for people to make with retirement plans than investing in themselves,” Fischer says.

That’s why Fischer started BeneTrends (www.benetrends.com) in 1982 to assist people in investing in franchise operations by using their 401(k) and other types of retirement plans without taxes, penalties or debt service.

Fischer’s company sets up for clients a corporation, and the corporation establishes a retirement plan.

“We then have them transfer their funds from their former 401(k), individual retirement account, tax shelter, or annuity into the new retirement plan, and they then direct that those funds be invested in the common stock of the their own company,” Fischer explains.

“The monies go from the retirement plan into the new corporation, then the corporation issues stock back to the retirement plan. The dollars are then in the new corporation for the franchisee fees, the build-out fees, salaries for the owners and the normal expenses any new business will have.”

BeneTrends also submits each plan to the Internal Revenue Service, making full disclosure.

“We’ve done almost 3,000 of these plans and, in each one, the IRS has individually approved each plan,” Fischer says.

The advantage of the approach is that it finances a franchise without debt, Fischer points out.

“When you start up a business, the less debt and the lower your debt service, the greater your probability of success or the quicker the time comes when the business runs into the black,” he says.

There are other uses for the program, Fischer says. One is when parents use retirement funds to help their children get into business. Another is to use it as a way of getting equity capital for an SBA-backed loan.

“Generally, the SBA requires you put in 20 percent to one-third of the funds down from equity capital,” Fischer says. “The SBA will accept these funds for that.”

Carol Brzozowski is a freelance writer based in Coral Springs, Fla.

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spotlight BRINGS FLEXIBLE EQUIPMENT

FINANCING OPTIONS TO THE UNDERSERVED SMALL BUSINESS MARKET Wirth Business Credit is a first-of-its-kind BtoB franchise operation that offers a unique opportunity for entrepreneurs who are adept at building and fostering relationships with other business people.

Wirth franchisees focus on providing local small business owners with flexible equipment lease financing options, an expedited application and approval process, and a direct connection to a national funding source for equipment ranging from $5,000 to $250,000. Local equipment vendors also benefit from the opportunity to refer their customers to a preferred financing vendor.

AN OPPORTUNE MARKET According to the Equipment Leasing Association, approximately 80 percent of the nation’s 24.7 million small businesses lease equipment. “Leasing is ideal for small businesses because it helps owners to manage cash flow and preserve cash for inventory, marketing and other expenditures that help them grow,” explained Wirth President Mark Hooley.

Traditional commercial lenders like banks often are reluctant to provide financing for start-up businesses or those without impeccable credit, or they may require significant down payments. Many small businesses owners turn to family or friends for loans, which can strain relationships. Or they max out personal credit cards or use home equity loans, which can be expensive and risky alternatives.

“The small business market needs Wirth’s services, and we are the only ones offering a comprehensive franchise approach to small business equipment financing,” Hooley said.

BACKED AND SUPPORTED BY A VETERAN FRANCHISOR Wirth is a division of Winmark Corp., a publicly traded company with a portfolio of more than 800 franchised retail locations under four brand names (Play It Again Sports®, Once Upon A Child®, Plato’s Closet® and Music Go Round®) across the United States and Canada. The company also has a subsidiary that focuses on equipment leasing and financing for medium to large-sized businesses. “With this distinct combination of expertise in equipment financing and supporting hundreds of small business owners, we understand the crucial role of cash flow for small businesses and the value that lease financing offers,” Hooley said.

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Wirth franchise operators are supported with a national sales team that pursues preferred vendor relationships with national equipment vendors and national franchisors. The qualified leads are given to Wirth franchisees so they can pursue financing relationships with local equipment vendors and business owners.

However, most financing transactions are originated through Wirth franchisees’ own connections with local vendors and small businesses owners, as well as bankers, accountants, lawyers and others who serve small businesses to develop a referral network.

NO LEASING EXPERIENCE REQUIRED No prior leasing experience is necessary to start a Wirth franchise, explained Hooley. “If you’re good at networking and building relationships in a business context, you can build a Wirth business with your innate skills and our extensive training and resources.”

Wirth franchise owners are prepared to enter the market with a comprehensive training program that lasts more than a week. During that time, they learn the basics of leasing and financing as well as marketing and sales strategies, plus receive hardware and software training and business planning support. Franchise owners also receive ongoing support with marketing materials, real-time sales support and national sales conferences.

LESS INVESTMENT UPFRONT, MORE EMPHASIS ON LOCAL SERVICE A key draw for many Wirth franchise owners is the prospect of owning a franchise operation that does not require a significant upfront investment in a storefront, inventory, staff and other complexities inherent with many franchise opportunities.

Wirth owners also see the opportunity of providing local business owners with face-to-face service for their financing needs. “Wirth offers the best of local customer service coupled with the strength of a national financing operations. Franchisees are part of a direct funding source, which is important to vendor partners,” Hooley said.

“Some Wirth franchise operators are small business owners themselves or they have worked extensively with small businesses and understand the challenges they face,” he added. “They see Wirth as a great business opportunity for themselves and a gratifying opportunity to help other small business owners clear financial hurdles so they, too, can succeed.”

SBDC success

ASBDC NETWORK

Association of Small Business Development Centers

Small Business Development Centers Established through a public/private partnership by Congress in 1980, the Small Business Development Center program is the most comprehensive, efficient and effective business assistance network in the nation. The mission of the SBDC program is to help new entrepreneurs realize their dream of business ownership and existing businesses remain competitive in the complex marketplace of an ever-changing global economy.

Over 1,100 local SBDC offices extend entrepreneurial education to meet small business needs, through free individual counseling, training and research assistance while serving over 700,000 clients THINGS TO KNOW annually, creating over 74,000 SBDC in-depth new jobs, and clients* generated generating over $6.1 billion in $500,000,000 in new sales combined new tax revenues for Go on the the federal govWeb and visit asbdc-us.org ernment and state governments .

ASBDC Mission Statement The ASBDC (Association of Small Business Development Centers) represents the collective interest of America’s Small Business Development Center

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Network. ASBDC seeks to improve the SBDC national network by promoting, informing, and supporting the work of all state SBDC programs.

ASBDC members as a national network deliver nationwide educational assistance to strengthen small/medium business management, thereby contributing to the growth of local, state and national economies.

Chocolate Empire Company Client Profile Martha Flechas, owner Assisted by the SBDC in Miami

•SBDCs help small businesses increase sales. SBDC in-depth clients* generated $6.1 billion in new sales in 2004.

• SBDC clients’ sales grow faster.

Small businesses that received SBDC assistance experienced sales growth of 18.5% between 2003 and 2004 – compared to 6.6% for businesses in general.

•SBDC clients create more businesses. More than 60% of all pre-venture SBDC clients started 16,140 businesses.

• SBDC clients find out where to get money. SBDCs helped clients obtain an estimated $2.6 billion in financing in 2004.

Small business owners and aspiring entrepreneurs can go to their local SBDCs for free, face-to-face business consulting and at-cost training on writing business plans, accessing capital, marketing, regulatory compliance, international trade and more. The SBDCs are a partnership that includes Congress, the U.S. Small Business Administration (SBA), the private sector, and the colleges, universities and state governments that manage SBDCs across the nation. * Source of Statistics: SBA; and the “Economic Impact of Small Business Development Center Counseling Activities in the United States: 2003-2004,” by Professor James J. Chrisman of Mississippi State University

When Martha Flechas came to the United States in 1997, she made it her personal goal to own a company. Toward this end, in June 2003, she began attending classes put on by the Small Business Development Center at Florida Atlantic University. Miami Office.

At the same time, she discovered the art of producing different sorts of chocolate products from someone with whom she attended church. Among the products she imagined selling: chocolate souvenirs for all occasions.

Today she does just that, as owner and operator of her own company, Chocolate Empire, Inc. While taking SBDC classes to increase her knowledge of small business operation, Martha met with Certified Business Analyst Nancy Orozco. During their first meeting, Nancy advised her to concentrate her marketing and manufacturing efforts on just one of her current products, the chocolate souvenirs. This allowed Martha to focus her efforts on growing her business more efficiently.

Sales have steadily increased, and now Martha has two private investors willing to provide the financial injection her business needs to move to a commercial location and grow.

INSIDE SBA

THE SBA CAN HELP YOU START Congratulations on thinking about starting your own business. Each day thousands of people across the United States exercise their independence by creating small businesses.

Small Business Administration and its partners can help at every stage of turning your entrepreneurial dream into a thriving new business. expand your business, obtain government contracts, recover from disaster, and have your voice heard in the federal government..

You can access the SBA help online 24 hours a day at www.sba.gov or visit one of their local offices for assistance. You can find your local office at our Web site or by checking the government pages of your phone book.

HELPFUL WEB INFO SBA www.sba.gov

SCORE www.score.org

You can use SBA resources to help organize your thoughts on what type of business you want to open.

W

hether your target market is global or just your neighborhood, the U.S. Small Business Administration and its partners can help at every stage of turning your entrepreneurial dream into a thriving new business.

If you’re just starting, the SBA and its resources can help you with loans and business management skills. If you’re already in business, you can use the SBA’s resources to help manage and

SBA resources include district offices in every state and territory, nearly 400 offices of SCORE – Counselors to America’s Small Businesses, and more than 70 Small Business Development Centers (SBDC) primarily located on college campuses. These professionals can also help you with writing a formal business plan, filling out loan applications to finance your business, managing and expanding your business, finding opportunities to sell your goods or services to the government, recovering from disaster or acting as advocates for small businesses with Congress and regulatory agencies.

The SBA also has programs for helping special audiences, such as women and veterans become small business owners.

Small Business Development Center www.sba.gov/sbdc/index.html

SBA Business Plan Help www.sba.gov/starting_business/index.html

Business.gov 24/7 access to the critical information businesses need from the federal government: www.business.gov

Services for Women Entrepreneurs: www.sba.gov/women

Franchise Startup Info: www.sba.gov/starting_business/startup/franchise.html

Franchise Registry: www.franchiseregistry.com

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SMALL BUSINESS SUCCESS

REQUIRES PLANNING Most new business owners who succeed have planned for every phase of their success. Thomas Edison, the great American inventor, once said, “Genius is 1 percent inspiration and 99 percent perspiration.” That same philosophy also applies to starting a business.

SMALL BUSINESS DEVELOPMENT CENTERS Small Business Development Centers, in coordination with federal, state, local and privatesector resources, including funding through a cooperative agreement with the SBA, meet the needs of small businesses and promote economic development in local communities by helping create and retain jobs.

SBDCs provide services such as development of business plans, manufacturing assistance, financial packaging assistance, contracting assistance and international trade assistance. Based on client needs, SBDCs tailor their services to meet the evolving needs of the local small business community.

As the SBA’s largest non-finance program, SBDCs meet the counseling and training needs of nearly 1 million start-ups or existing business clients annually.

For more information, visit the Web site at: www.sba.gov/SBDC

First you’ll need to generate a little bit of perspiration deciding whether you’re the right type of person to start your own business.

START BY EVALUATING YOUR STRENGTHS AND WEAKNESSES. Are you a self-starter? It will be up to you – not someone else telling you – to develop projects, organize your time and follow through on details.

How well do you get along with different personalities? Business owners need to develop working relationships with a variety of people including customers, vendors, staff, bankers, lawyers, accountants and consultants. Can you deal with a demanding client, an unreliable vendor or a cranky staff person?

How good are you at making decisions? Small business owners are required to make decisions constantly, often quickly, under pressure.

Do you have the physical and emotional stamina to run a business? Business ownership can be challenging, fun and exciting. But it’s also a lot of hard work. Can you face 12-hour workdays six or seven days a week?

How well do you plan and organize? Research indicates many business failures could have been avoided through better planning. Good organization – of financials, inventory, schedules, production – can help avoid pitfalls.

If you haven’t already done so, after you’ve answered those questions you’ll need to decide what type of business you want to start, and where it will be located. Do you want a home-based business? Want to buy an existing business? How about opening a franchise of a chain business? Each type has advantages, and SBA’s professionals can help you sift through it all.

For more information on types of businesses, see page 63.

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Business.gov WRITE A BUSINESS PLAN. After you’ve thought about your business, the next step is to develop a business plan. The business plan is a formal document explaining in some detail your plans to develop a financially successful business. It’s vitally important for two reasons:

MARKETING • Discuss the products and services your company will offer.

• Identify customer demand for your products and services.

• Identify your market, its size and locations.

• Explain how your products and services will be advertised and marketed.

• Explain your pricing strategy.

FINANCIAL MANAGEMENT • Preparing a business plan forces you

to think through every aspect of your business. If you need outside money, your business plan will be one of the first things the lender or investor wants to see.

• A business plan serves as an

assessment tool for the owner.

A comprehensive business plan is not done on the spur of the moment. It can be a long process, and you need good advice. The SBA and its resource partners, including Small Business Development Centers located on many college campuses, and SCORE, Counselors to America’s Small Business, have the expertise to help you craft a winning business plan.

You can find the nearest SBDC at: www.sba.gov/sbdc/.

The nearest SCORE chapter can be located at www.score.org.

You can also find business-plan help on the SBA’s Web site at www.sba.gov/starting_business/index.html.

GOOD BUSINESS PLANS CONTAIN: INTRODUCTION • Give a detailed description of the business and its goals.

• Discuss ownership of the business and its legal structure.

• List the skills and experience you bring to the business.

• Discuss the advantages you and your business have over competitors.

• Explain your source and the amount of initial equity capital.

• Develop a monthly operating budget for the first year.

• Develop an expected return on investment and monthly cash flow for the first year.

• Provide projected income statements, balance sheets for a two-year period.

• Discuss your break-even point.

• Explain your personal balance sheet and method of compensation.

• Discuss who will maintain your accounting records and how they will be kept.

• Provide “what if” statements addressing alternative approaches to problems that may develop.

Business.gov provides 24/7 access to the critical information businesses need from the federal government.

Business.gov is managed by the SBA in partnership with federal agencies providing business-oriented programs and services. You can find links to accurate information on how to comply with federal rules and regulations; all the government forms you’ll need; and tax information from federal and state tax resources, including forms and assistance. Business.gov has thousands of forms issued by more than 40 federal agencies.

You’re just a computer click away from help 24-hours a day at www.business.gov

OPERATIONS • Explain how the business will be managed day-to-day.

• Discuss hiring, personnel procedures.

• Discuss insurance, lease or rent agreements, and issues pertinent to your business.

• Account for the equipment necessary to produce your goods or services.

• Account for production and delivery of products and services.

CONCLUDING STATEMENT Summarize your business goals and objectives and express your commitment to the success of your business.

Once you have completed your business plan, review it with a friend or business associate or SCORE counselor or Small Business Development Center representative.

When you feel comfortable with the content and structure, review and discuss it with your lender. Remember, the business plan is a flexible document that should change as your business grows.

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WOMEN BUSINESS OWNERS Women entrepreneurs are changing the face of America's economy.

The SBA serves women entrepreneurs nationwide through its various programs and services, some of which are designed especially for women.

There are women’s business ownership representatives in every SBA district office to help women access all

of SBA's programs and services, including loan guaranties, federal contracting opportunities, training, counseling and more. These local representatives can also provide information about other local resources available for women entrepreneurs.

Another valuable tool available for women business owners and entrepreneurs is the Women's Business Center Program, funded in part through a cooperative agreement with the SBA. Located across the country, approximately 100 WBCs provide training, technical assistance, counseling and mentoring specifically to women, especially those who are socially and economically disadvantaged.

Mindful of the special needs of women entrepreneurs, the centers offer their services at convenient times and places.

In addition, some centers provide child care, and many provide their materials in Spanish and other languages, depending on the unique needs of the communities in which they are located.

Many classes offered by the centers are either free or charge a small fee. And often there are scholarships to help those who need them.

If you can’t get to a Women’s Business Center, the full range of services is available through the SBA’s Web site for women entrepreneurs, which provides access to all of the SBA's online services, including its extensive library of information, training courses and electronic tools designed to help small businesses. This site also contains information about the services available in local communities.

It can be accessed at: www.sba.gov/women.

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WHAT TYPE OF BUSINESS DO YOU WANT? FRANCHISING Franchisees have been active particpants in the SBA's small business loan program for many years.

There are primarily two forms of franchising: 1) product/trade name franchising 2) business format for franchising.

In the simplest form of franchising, while you own the business, its operation is governed by the terms of the franchise agreement. For many, this is the chief benefit for franchising. You are able to capitalize on a business format, trade name, trademark and/or support system provided by the franchisor.

But you operate as an independent contractor with the ability to make a profit or sustain a loss commensurate with your efforts.

There are more than 3,000 franchised businesses. The challenge is to decide on one that both interests you and is a good investment. Many franchising experts suggest that you comparison shop by looking at multiple franchise opportunities before deciding on the one that's right for you.

Some of the things you should look at when evaluating a franchise: profitability, effective financial management and other controls, a good image, integrity and commitment, and a successful industry.

If you are concerned about the risk involved in a new, independent business venture, then franchising may be the best business option for you. Remember that hard work, dedication and sacrifice are key elements for success.

For more information visit the SBA Web site at: www.sba.gov/starting_business/startup/franchise.html

or visit the Franchise Registry at www.franchiseregistry.com or call your local SBA office.

HOME BASED BUSINESS CONSIDERATIONS Going to work used to mean traveling from home to a plant, store or office.

Today many people do some or all their work at home. Garages, basements and attics are being transformed into the corporate headquarters of the newest entrepreneurs – the home-based business person.

Working under the same roof where your family lives may not prove to be as easy as it seems. It’s important to work in a professional environment.

One suggestion is to set up a separate office in your home to create this professional environment.

Getting Started Before diving headfirst into a homebased business, you must know why you are doing it. To succeed, your business must be based on something greater than a desire to be your own boss. You must plan and make improvements and adjustments along the road.

Ask yourself these questions – and remember, there are no best or right reasons for starting a home-based business. But it is important to understand what the venture involves.

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Ask yourself: • Can I switch from home responsibilities to business work?

• Do I have the self-discipline to maintain schedules?

• Can I deal with the isolation of working from home?

• Am I a self-starter?

FINDING YOUR NICHE Choosing a home business must be approached carefully. Before you invest time, effort and money.

Ask yourself: • Does my home have the space for a business?

• Can I identify and describe the business I want to establish?

• Can I identify my business product or service?

• Is there a demand for that product or service?

• Can I successfully run the business from home?

LEGAL REQUIREMENTS A home-based business is subject to many of the same laws and regulations affecting other businesses.

Some general areas include: • Zoning regulations (including certificates of occupancy). If your business operates in violation of them, you could be fined or shut down.

• Product restrictions. Certain products cannot be produced in the home. Most states outlaw home production of fireworks, drugs, poisons, explosives, sanitary or medical products and toys.

Some states also prohibit home-based businesses from making food, drink or clothing.

• Copyrights. Protect thoughts and original writings, recordings, broadcasts.

• Federal self-employment tax • Immigration Act. Verifies the eligibility of new employees.

• Adequate insurance. Covers liability, property, business interruptions, key persons, autos.

• Workers’ Compensation

Be sure to consult an attorney and your state’s department of labor to find out which laws and regulations will affect your business. Additionally, check on registration and accounting requirements needed to open your home-based business. You may need a work certificate or license from the state. Your business name may need to be registered with the state. For home-based businesses, a separate business telephone and bank account are normally required.

Also remember, if you have employees you are responsible for withholding income and social-security taxes, and for complying with minimum wage and employee health and safety laws.

If you’re convinced that working from home is for you, it’s time to create your business plan. The SBA and its resource partners, such as SCORE and SBDCs can help make the process easier.

CHOOSING YOUR BUSINESS STRUCTURE You may operate your business under one of many organizational structures generally chosen for liability and tax reasons. The most common organizational structures are sole proprietorships, general and limited partnerships, C and S corporations and limited liability companies.

Each structure offers options appropriate for different personnel situations and

INSIDE SBA

which affect tax and liability issues. If you’re uncertain where to start, contact the SBA first and you’ll be referred to the proper source.

SOLE PROPRIETORSHIP One person operating a business as an individual is a sole proprietorship. It’s the most common form of business organization. Profits are taxed as income to the owner personally. This rate is usually lower than the corporate tax rates. The owner has complete control of the business, but faces unlimited liability for its debts. There is very little government regulation or reporting.

GENERAL PARTNERSHIP A partnership exists when two or more persons join together in the operation and management of a business.

Partnerships are subject to relatively little regulation and are fairly easy to establish. A formal partnership is recommended to address potential conflicts, such as, who will be responsible for performing each task; what, if any, consultation is needed between partners before major decisions, etc. Under a general partnership each partner is liable for all debts of the business. Profits are taxed as income to the partners based on their ownership percentage.

LIMITED PARTNERSHIP Like a general partnership, this is established by an agreement between two or more individuals. However, there are two types of partners.

• A general partner has greater control in some aspects of the partnership. For example, only a general partner can decide to dissolve the partnership.

General partners have no limits on the dividends they can receive from profit so they incur unlimited liability.

• Limited partners typically receive a share of profits based on the prorated amount on their investment, and the liability is similarly limited in proportion to their investment.

“C” CORPORATION A “C” corporation is a legal entity made up of persons who have received a charter legally recognizing the corporation as a separate entity having its own rights, privileges and liabilities, apart

from those of the individuals forming the corporation. It’s the most complex form of business organization and is comprised of shareholders, directors and officers. The corporation can own assets, borrow money and perform business functions without directly involving the owners. Corporations are subject to more government regulation and have the advantage of limited liability, but not total protection from lawsuits.

SUBCHAPTER “S” CORPORATION This is a special section of the Internal Revenue Code and permits a corporation to be taxed as a partnership or sole proprietorship, with profits taxed at the individual, rather than the corporate rate. A business must meet certain requirements for Subchapter C status.

Contact the IRS for information.

LLCs and LLPs The limited liability company is a popular business form. It combines selected corporate and partnership characteristics while still maintaining status as a legal entity distinct from its owners. As a separate entity it can acquire assets, incur liabilities and conduct business. It limits

liability for the owners. LLC owners risk only their investment, not personal assets. The limited liability partnership is similar to the LLC, but it is aimed at professional organizations.

[ CLOSINGQUOTES ] Quotes From Successful People

“

Nothing will work unless you do.

The ultimate measure of a man is not where he stands in moments of comfort and convenience, but where he stands at times of challenge and controversy.

—Maya Angelou

–Martin Luther King Jr.

One of the things that my parents have taught me is never listen to other people's expectations.

I find my greatest pleasure, and so my reward, in the work that precedes what the world calls success.

–Tiger Woods

–Thomas A. Edison

I don't dwell on success. Maybe that's one reason I'm successful.

–Calvin Klein

Ya gots to work with what you gots to work with.

–Stevie Wonder

Imagination will often carry us to worlds that never were. But without it we go nowhere.

When one door closes another door opens; but we so often look so long and so regretfully upon the closed door, that we do not see the ones which open for us.

–Carl Sagan

–Alexander Graham Bell

A person who never made a mistake never tried anything new.

–Albert Einstein

My motto was always to keep swinging. Whether I was in a slump or feeling badly or having trouble off the field, the only thing to do was keep swinging.

–Hank Aaron

Either you decide to stay in the shallow end of the pool or you go out in the ocean.

–Christopher Reeve

I don't know the key to success, but the key to failure is trying to please everybody.

–Bill Cosby

66 Franchise

Spring 07

As long as you’re going to be thinking anyway,

think big.

–Donald Trump