Franchise Brokers Association BLOG

The below is a post from FBA Member, Andy Lamedman.  Andy joined the FBA in June of 2010 and has stood out as a true professional who upholds the integrity of the industry.  Thank you Andy for your insight and for sharing your experience.

Networking Pays… Big Commissions!

I have always believed in and heavily touted the power of networking.  And still do… even more so now as you’re about to find out.  For anyone that has ever wondered what the value of networking can mean to them, please continue reading.

Whether you go to a networking breakfast at 7:00 AM, or attend an evening cocktail mixer that starts at 6:30 PM, you’re investing extra time into your work day.  So why do it?  Here’s why:

A few months ago I attended an evening mixer and met a woman networking her business.  We engaged in the obligatory chatter and exchanging of business cards.  As is my custom, I followed up with a “nice to meet you email”, and my personal offer to learn more about her business in an effort to pass some referrals her way (I always start by giving).  I then put her name on my monthly “drip system” distribution list to begin sending her my newsletters and other e-blasts.

One day, out of the blue, I received a call from her saying; “Hi, remember me?”  Well, of course I do.  She indicated she would like to learn more about what I do, and how I could possibly help her find the business of her dreams. Unfortunately, she hastened to say, that she did not have the requisite finances to invest in such a venture.  However, she did say; she has a friend who might be interested in partnering with her as a financial investor to her “sweat equity” investment.  And so we began the process…

Fast forward now to the close.  We ultimately inked a deal where they are partnered in a Junk King franchise in Los Angeles, CA.  And, I received a commission approaching $30,000 at first blush, with much more to come on the back end based on the structure of the deal.

Junk King had wide open territory in Los Angeles County.  They sell their territories in blocks of 500,000 population sectors.  My clients purchased four-blocks totaling Two Million population.  We also negotiated the Right of First Refusal for the balance of Los Angeles County and the neighboring community Southeast of L.A. County known as the Inland Empire.  As they exercise that right and purchase additional territories, the Franchisor will continue to pay me my broker fee referral commissions (yes, we have this in writing).

Additionally, my networking pal (now client and friend) subsequently referred me to her neighbor who is about to be laid off from corporate America and receive a sizable severance package.  He too, is now looking to secure his future and we are taking him down the path to freedom, et cetera.

So, the moral to my story:  Networking Pays… Big Commissions! I met someone that had interest but no money.  She introduced me to someone with money.  They formed a partnership and closed a deal that paid me a sizable commission, with additional commissions yet to come as they develop their business.  Additionally, she introduced me to yet another lead that has potential to earn me more money yet again.  All of this from someone that I did not pay a nickel for in terms of “lead cost”.  This was a free lead… just from attending a networking event.

Further appreciation for closing this Junk King deal goes out to:

• Dennis Mulgannon, Franchise Development Director / Jung King:  Dennis is the consummate professional and was extremely easy to work with.  He’s efficient and very accommodating to both the client and broker requests.  Simply a joy to do business with.

• Tom Mc Donald, President / IRA Rollover Solutions: Within 45-minutes of the initial introductory call with my clients, Tom outlined his services and fees, took the application and credit card number from my client and was on his way to expediting the filing of  Articles of Incorporation with the State of California.  He also set up a 401(k) plan in the name of the new corporation for the client’s new business, secured a third party administrator for the 401(k) plan, and obtained the Federal Tax I.D. numbers, for both the Corporation as well as the new 401(k) plan.  Additionally, he handled all paperwork related to rollover funds making it easy and seamless for my client to gain access to his funds required to wire transfer to the Franchisor in a timely fashion.  Not only was Tom knowledgeable, efficient and effective, he pays a broker referral fee of $1,500, which is 50% higher than his competitors.

• Eric Riess, Legal Expert Extraordinaire / Greesnfelder, Hemker, & Gale, P.C.: Talk about a Master Class.  Eric provided the one-hour of free legal counsel we offer and within the first 30-minutes alone had fully educated my clients.  He answered their FDD questions, reviewed their Addendums to the FDD that had already been verbally negotiated with the Franchisor, and guided them on how best to structure their Joint Venture Partnership Agreement between the two of them.  

At the end of the day, all parties worked exceptionally well and in concert for the good of the ultimate result… putting a client in business!

Congratulations, Andy!

If you’d like to learn more about working with a franchise broker, click here

Final Meeting with Client and Franchisor

The next call we had with the Franchisor, my client came into the office.  He felt more comfortable with interactions in-person rather than over the telephone so I encouraged him to come back in.  He was pleased that I took the time out to see him in the office.  Once inside, we called the Franchisor for our final meeting.  We discussed the territory in detail and the adjustments that we made.  We went over the addendum changes again and confirmed that we were expecting the adjustments back from Eric Riess, our franchise attorney.   At the end of this meeting, my client and I discussed the transfer of funds to attend the next training.  The original training date was scheduled for October 11^th 2010, however the Franchisor indicated his trainer had a challenge with that date and needed to move the training to October 25^th, 2010.  We understood, however my client was extremely excited to start learning the materials.  He put in for the transfer and we made final arrangements to purchase his franchise.

Learn more about using a Franchise Broker here.

Learn more about becoming a Franchise Broker or FBA Member here.

Discussing Franchise Territory Changes and Approving Agreement Modifications

I had my client come into the office to discuss the territory changes.  It seems his daughter had spoken with him as well and indicated that there were some bad areas in the territory he wanted to be in.  This was excellent because it was a consistent message to what I was telling him.  When we spoke I showed him the territory on the map and the extra areas I had carved out and requested from the Franchisor.  He agreed that the territory was great.  After all, we had negotiated a territory that was almost double of the size of what an average territory consists of with this franchise.  That meant my client has double the opportunity to make a great living with this franchise and that is what I aim for, giving the biggest advantage to my client up front while still being fair.

The attorney, Eric Riess, sent the modifications to the Franchise Agreement directly to the Service Team of Professionals.  Because the FDD was so fairly written, there were only a few things that he requested.  When the Franchisor received it, he said that everything Eric asked for was fair and that they would agree to our terms.  An addendum was created and added to the agreement.  By using our franchise consulting team, we got the client a bigger territory, a better royalty, an easy exit clause and extra protections in the case of business challenges.  It was a win for all parties and we were very excited to see the willingness of the Franchisor to help our client succeed.

Learn more about using a Franchise Broker here.

Learn more about becoming a Franchise Broker or FBA Member here.

Call with the Franchise Attorney

Our franchise attorney, Eric Riess, reviewed the Service Team of Professional’s FDD and found it to be a fair document and a good representation of the company.  He encouraged my client and I to do proper due diligence and gave suggestions on extra questions to ask the Franchisees.   Eric went through each of the items that he was going to ask the Franchisor for.  He explained why he requested them and was sure to check for understanding along the way.  The call went well and at the end Eric let us know he would be negotiating the terms directly with the Franchisor.

It’s incredibly important to have a knowledgeable franchise attorney that can review the FDD and make it work for both the Franchisor and my client.  Reviewing and revising the FDD should facilitate the investment in the franchise, not hinder it.

We called the Franchisor afterward and talked to him about any additional questions that we had.  We let him know that our attorney was sending the memorandum with the requested changes to him and asked that he review it.  One of the items on the memo was that the territory had not been defined yet.  Next, we would began discussing territory.

Reviewing the FDD with the Client

After receiving the FDD, and reviewing the document independently, my client and I had plenty to cover when he came into my office.  We went through the FDD together and talked about the items that we were going to ask the Franchisor and the franchise attorney to explain.  We looked through the financial statement and the Financial Performance Statement.

This is often called an Item 19 of the FDD (Franchise Disclosure Document); only about 20% of franchises publish a Financial Performance.   Some Franchisors will tell you that they are not allowed to discuss earnings information, this is not true.  A Franchisor IS allowed to present earnings in their FDD.  They are not, however, allowed to discuss earnings that are not written and published in that disclosure.  If a Franchisor has impressive earnings often they will publish and disclose that information.  And, if they do a great job, why shouldn’t they?  Many franchises avoid publishing earnings claims or financial performances because they feel the liability is too great if a Franchisee is not successful.  We always encourage Franchisors to publish earnings claims because they are incredibly useful and important to a prospective Franchisee.  Earnings is why they are interested in franchising in the first place.

At this stage of the process, we could have exercised our right to use one hour of complimentary accounting services provided through our membership with the Franchise Brokers Association, but we chose not to because my client had elected to have our attorney, Eric Riess of Greensfelder Attorneys at Law, negotiate the FDD.  Eric Riess is not only an esteemed franchise attorney, but also an Accountant of 25 years.   We sent Eric and his team a copy of the FDD to review.  We scheduled a meeting to go over the information with Eric, myself and our client.

Now it was time for the good stuff, calling the Franchisees in the system.  We went to the back of the FDD where it lists the names and contact information of all current and past Franchisees.  It was very important to me that we pick the right franchise for this client, so we made the joint decision to call all the Franchisees in the system and all the Franchisees that had left the system.  We went through one by one and spoke to the men and women out on the field operating the S.T.O.P. franchises all across America.

The results of this research were overwhelmingly positive.  Every Franchisee said the same thing: the system works!  They said that they were profitable within 3 months.  They said that the Franchisor was there to help them at every turn.  They said that they were pleased with the Franchisor and their decision to move forward with STOP.  They were all extremely nice and helpful.  Of course we didn’t reach all of them, but we certainly tried.

The Franchisees that had left the system were almost entirely still in the same business.  They had used STOP to become good business owners and have a system to follow and then left when their franchise agreement was up.  All that we spoke to said that they were profitable.  Even the one that had closed his business for personal reasons indicated that he was grossing over $1 million a year and was successful at the business.  This was great information and absolutely exciting for my client and for me.  I love working with franchises that have a great track record.

Once we finished up with the calls, we scheduled our next appointment with the attorney.

Learn more about using a Franchise Broker here.

Learn more about becoming a Franchise Broker here.

Follow Up to the Call with the Franchisor

After getting off the call with the Franchisor, my client and I scheduled a next meeting to call Franchisees together.   The FDD was sent to both my client and myself.   We began reviewing the website and materials that the franchise provided.  The Franchisor overnighted the FDD (Franchise Disclosure Document) so that we would have it before our next meeting which was just a couple days away.

We received the FDD in perfect timing.  We immediately signed and sent back the receipt; we do this so that the franchise can stay compliant.   Franchises are required by the FTC to have a signed acknowledgment or “receipt” that identifies when the prospective Franchisee received the FDD.  The receipt must be sent back to the franchise and held for a minimum of 14 days before the prospective franchise buyer is even allowed to purchase the franchise.  The FTC does this to ensure the prospective Franchisee is given enough time to do their proper due diligence before making this life changing purchase.  From what you learned earlier in this case, you understand that all franchises are not created equal and some have a much higher chance of success than others.  Good Franchise Consultants can help you identify the difference.

Once received, I read the FDD and highlighted any areas of caution that I saw and wanted to bring up to the Franchisor and our franchise attorney.  This process only took me a few hours because I am skilled at reading FDDs and have been properly trained on what to look for in the FDD.  As a Consultant I do not give legal advice, our attorneys do that, however I do have the responsibility to protect my client and I intend to do that.   After reading the entensive document I was prepared for the next meeting with the client.

Learn more about using a Franchise Broker here.

Learn more about becoming a Franchise Broker here.

Investing in a franchise that allows you to work out of a home office has a great deal of benefits:  Managing your own time, a casual environment, flexible schedule, low overhead, quick start-up.  However, it is akin to any business or investment, it will take time, hard work, dedication and, before anything else, you’ll need to do your research and due diligence.

Via Inc.com, Issie Lapowsky addresses some of the basic misconceptions of starting a home-based franchise (or any home-based business for that matter) and the questions you need to ask when working with a Franchisor and choosing which one to invest in.

Some crucial points to remember:

• You will need to dedicate a great deal of time to grow your business.
• If your new venture replaces a full-time position, be sure to dedicate yourself full-time to your new business.
• Set-up a dedicated office space in your home.  The more office-like it is, the more in “work mode” you’ll be.
• Be sure to choose a franchise that not only offers you a home-based opportunity, but a business you LOVE and can be passionate about.  If you’re going to invest time and money, invest it in something you’ll enjoy.
• Make sure to have legal counsel.  An FDD is a large and complex document that holds a great deal of information on the company you are about to invest in and the expectations made of you as a franchisee.  Having a lawyer experienced in franchise law is the most valuable first step you can make in this process.  They’ll help you understand the implications of the FDD, and should make changes, if necessary, that are in your best interest.
• Never, ever forget to do your due diligence and your leg work.  A franchise consultant can help you with the due diligence and understanding of the pros and cons of each franchise.
  
• Engaging experts (a franchise broker, a franchisee of the system, a franchise attorney, etc.) is always a good move.

Investing in yourself, to run your own business with the support and proven systems of a franchise, is an opportunity to create excellent returns and a higher quality of life for yourself; just be prepared for your investment and understand what’s needed of you.

Would you prefer a home-based venture, or a business that got you out of the house?

If Eric Riess telling you to use franchise attorney isn’t enough, here’s an Ask Franny column from Blue Mau Mau on why it’s so important.

In this edition, an attorney is writing to ask some advice on representing his friend who is interested in franchising his business.  As Harold Kestenbaum so wisely puts it, “The last think you need to do is learn a complex area like franchise law, on the fly, at the expense of your friend.  I dare say that it would take you years to learn the ‘nuts and bolts’ of franchising.”

If you’re interested in buying a franchise, making your business into a franchise, or if you’re an attorney with a client interested in franchising, make sure to get connected with a reputable franchise attorney that has experience in the field, someone that knows their “nuts and bolts.”

Here’s a video of Eric discussing the goals of a franchise attorney and the benefits of using one.  Enjoy!