Web Exclusive: Is Franchising For You?
but there are advantages, too.
Sounds easy: Join a parent company - make millions.
But following through on the decision to franchise is not as easy as it looks for many of today's contractors. When the brand names move in, and you don't want to move out, it's time to take a closer look at the risks and rewards of franchising.
Mike Ciaramitaro is a franchise owner of five companies of Dwyer Group (parent of Mr. Rooter) and a recent winner of the group's "Entrepreneurial Excellence in Mentoring" award.
"I saw the advertisement for franchisees and I bought a Mr. Rooter in 1990. I saw the opportunity and knew this was the time to really get into this, to really expand," says the 48-year-old Ciaramitaro, whose Detroit-based Mr. Rooter boasts 18 trucks and nearly $4 million in revenue for 1999. "I knew you had to be part of something on a larger scale. And obviously it was the right decision, because what's happened in the 1990s has just been fantastic."
Secrets Of SuccessSecrets Of Success: Like many contractors, Ciaramitaro didn't attend a four-year university. He started work for an independent drain-cleaning company after a brief stint in the military after high school, and received all his training on the job. He bought his first plumbing company, A&J Sewer Cleaning, in February 1972 with only two years under his belt, but he eventually sold it to his brother-in-law.
In 1983, with only $2,000, Ciaramitaro bought a $1,800 truck, and used the leftover $200 to build everything to where he is today. His next business, Rid-A-Leak Basement Water Proofing, was in great shape when Mr. Rooter - a full-service plumbing franchisor supporting more than 200 U.S. franchises - came to town. What's an independent to do?
"Believe it or not, I saw what was going to happen with the industry, and how everything was going to be 'big business.' I almost predicted what was going to happen before consolidation started," admits Ciaramitaro.
Having owned a pizza franchise as well in the 1970s, Ciaramitaro already knew the advantages of owning a franchise. As a Mr. Rooter owner, advertising is taken care of on a national level. About 2 percent of his advertising dollars go to the parent company, which then generates national accounts for franchisees. It also gets deals set up with several vendors selling materials, trucks, equipment and even insurances, explains Ciaramitaro.
"Business overhead is set up nationally to where a franchisee's buying power on the whole is cheaper than an independent would get."
Parent company support and training is also an added plus. Franchisees must remember, though they are in business for themselves, they're not by themselves. The power in franchising is that all-important brand name recognition. Customers buy what they know. They may have never called your shop, but with a brand name your service and quality is already trusted. Franchises replicate and unify service, price, uniforms, trucks and training nationwide. You won't be alone when deciding on the correct real estate or market area. Franchisors have already been through those initial stages of building a business from scratch, everything is already in place - and they're there to help you start strong.
"The parent company wants you to make it," says Ciaramitaro. "If you're successful, they're automatically successful, too."
So with all the "rights" in place for taking a step toward ownership, why do so many contractors think franchising is "wrong" for them?
What's The Catch?Prospective franchisees tend to be their own worst enemy, according to Ciaramitaro, who also purchased other Dwyer Group companies Mr. Appliance Corp., Aire Serv Heating and Air Conditioning and Glass Doctor Corp. Since most independent contractors don't even make 5 percent profit, they wonder how they will ever pay that amount in royalties to a parent company.
They also fear the start-up costs for entering into such a partnership. But Ciaramitaro says those fears are unfounded.
"I've seen people start a franchise with as little as $15,000 in capital, and in three years make six-figure incomes," he says.
Franchise charges and start-up fees can vary. If a franchisee chooses to start the business out of his home, it allows him to have a lot less overhead during those crucial first few months. On average, though, it takes between $75,000-$125,000 to do it right. That price includes trucks, storefront, advertising, necessary equipment and working capital to get you through the year.
Royalties are a percentage of your gross sales and are paid on a weekly basis, so you don't really pay anything until you activate your company and start making revenue.
In fact, the only downfall Ciaramitaro could think of has to do with the attitude of the franchisee. There are procedures to follow from the home office and obligations to meet - such as a required quarter-page Yellow Pages ad. So if you're an individual who likes to do things "my way or the highway," you better think twice about franchising.
The key to franchising is to ask questions and visit the parent company's headquarters before making a final decision to franchise, Ciaramitaro says, who didn't take that leap too lightly.
"People really need to investigate the parent company. Do a background check on the industry, and make sure it's what you want to do and pursue," he states. "Someone who wants to make his own decisions and do his own thing, whether right or wrong, may not find franchising a value," warns Ciaramitaro.
Many independents may also fear the loss of identity. Call it pride, call it ego, but it's a bit of a kick to have your name on business cards, uniforms and shiny new trucks. Some people may be attached to that syndrome, but if your objective is to become financially secure and build a business, does it really matter what the name is?
Financing Your FranchiseAll-around franchise expert Michael Kiick knows it takes money to make money. But he urges prospective franchisees not to let that first step overwhelm them.
This "analysis paralysis," as Kiick calls it, has people thinking past an opportunity, and toward losing everything.
"People psyche themselves out. They fear 'What is going to happen to me if I fail?'" says Kiick of the all too familiar fears of franchising.
In the 1970s, there were not nearly as many avenues to raise capital as there are today. According to Kiick, more than 80 percent of all first-time business owners acquire their finance packages by using "the crib, the pillow or the couch" method of financing - which translates to approaching everyone you know.
Your immediate family constitutes the crib. Mom and dad, cousins, relatives - you never know until you've tried. The pillow is similar to the crib, except it means turning to your spouse, in-laws and their relatives. Finally, the couch has you approaching friends, colleagues and potential investors. They might succeed along with you, but may not have to participate in day-to-day operations.
Also, more and more parent companies are offering finance options. See if they'll offer to co-sign a loan, enter a joint venture agreement or allow a delay in the royalty stream.
The United States Small Business Administration set up a program in 1953 to promote small business by guaranteeing long-term loans to those who qualify. And your state's Department of Commerce may have special programs set up to augment federal loan funding.
Surfing the Web may also get you funding. Searching under the keyword "franchise financing" will give you a list of various companies willing to set you on a financing plan. But always remember: If it sounds too good to be true, it probably is.
Still, success is not always a given. Even the best management minds in the world won't survive without the following things:
- The ability to own and operate your own business.
- The ability to finance that business.
- The staying power to ride out the first year.
- The real estate location and market area to find an audience.
His Mr. Rooter will be offering people opportunities to learn both technical and management skills to create ownership positions for them. This in turn creates long-term people by offering them a career in the industry, not just a job with benefits, says Ciaramitaro.
"We're finding more people knock on our door for a job because of the constant, larger work flow. They know we're not here for a year or two, then out of business like some independents," Ciaramitaro explains.
He received Dwyer Group's "Excellence in Mentoring" award for his work in creating future franchisees. And following the gut instinct that helped him move on to become a multi-franchiser, Ciaramitaro is going under the assumption that growing franchise power is here to stay.
"I'd rather be safe and say big business will stick around, than say it won't last and three years from now not have a business left."
Recommending FranchisingA 1997 survey by the Franchise Times shows that most franchisees are satisfied with franchising. With the average franchisee taking home a salary in the six figures, it's easy to see why 75 percent would recommend franchising to others.
Reasons cited were: