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Tuesday, Nov 06, 2018
From Wall Street To Main Street: How To Make Your Mark As A Franchise Owner
The Great Recession of 2008 saw millions of Americans unemployed, financial institutions in bankruptcy and global markets in steep decline. Unemployment rates peaked at 10 percent and Americans lost nearly $16 trillion of net worth as a result of the financial crisis.
In the midst of all the chaos, however, Peter and Tamara Lobravico saw an opportunity to reinvent their careers and leave their hectic days on Wall Street behind. Pursuing the franchise route made the most sense for the Lobravicos, who had no prior experience in business ownership. As Peter explains, franchises provided a way for the new owners to gain a foothold in a different industry and would allow them to trade their capital for franchisor's industry expertise. Access to a corporate support system also made taking over a franchise a much easier transition.
The Lobravicos narrowed their franchise search to healthcare, specifically, senior care, not only because of the booming industry they were noticing, but also due to their personal experiences. Peter saw firsthand the need that arose after his father passed away from cancer, while Tamara witnessed how her parents struggled to care for her aging grandparents.
Now there were two courses of action to consider. Would they buy an existing franchise location or would they open a new one? While both options provide the security of tried and true plans and processes, they are actually two very different routes. Like buying an existing business, an existing franchise location comes with the benefits of a built-in customer base and historically successful cash flows. Opening a new franchise location does not include the existing benefits, but does offer the owner an opportunity to pioneer a new concept and in a likely untapped market.
For the Lobravicos, the decision to open a new franchise versus an established one came down to cost. Simply put, the pre-existing franchise businesses on the market at that time tended to be overvalued, mainly due to what’s known as “sweat equity.” This means that after all of the work put into building the business from the ground up, there seemed to be an inflated view of how much it was actually worth. It’s hard to put a price tag on blood, sweat and tears, something the Lobravicos now understand. Sweat equity and its likely distortion on a seller’s price is a common inhibitor of deals and one of the primary reasons we recommend working with a business broker or professional valuation expert when setting a price.
Once they decided on opening a new franchise location, the Lobravicos had some field research to do. Would they pursue a large or a small franchise? Favoring a more active role in their new venture, the Lobravicos decided to avoid large franchises. In their eyes, working with larger corporations offered little to no room for negotiations during the transaction process. For that reason, the couple was attracted to smaller, though well-established, franchises. This way they could negotiate the best business plan for themselves while also feeling confident in a proven process, corporate guidance and a working business model.
With hundreds of business opportunities on the market, the Lobravicos ultimately settled on opening an Interim HealthCare franchise in 2013 for several reasons. Founded in 1966, Interim HealthCare is the nation’s oldest healthcare franchise company and has an established footprint in a variety of business lines from respite care to nursing services and healthcare staffing.
“Interim [also] has a fantastic clinical team and we leaned heavily on the franchisor to provide the clinical support we needed,” Peter said. Recognizing they needed additional help, the Lobravicos hired a registered nurse with 35 years of experience to serve as their clinical supervisor.
Peter also shared that Interim HealthCare’s established history contributed to a smooth transaction. The franchise fee, somewhere around $45,000, was reasonable given the support the Lobravicos received from the franchisor and the fact that the fee covered the costs required to get the business up and running. Today, the franchise earns revenue in the seven figures, is on pace to grow 30-40 percent through the rest of 2018 and the Lobravicos are talking about opening a third location.
Owning a franchise can be a rewarding and financially fulfilling experience for business owners, but it starts with entrepreneurs performing due diligence. Drawing on their learnings as first-time owners, the Lobravicos recommend the following tips for entrepreneurs considering a franchise:
- Do your market research upfront. Franchises span a number of industries — but not every industry will generate a strong return on investment. Once the Lobravicos settled on an industry, they refined their search by looking for opportunities with low capital outlay and high profit margins. “After looking at trends in the healthcare space, we recognized a growing demand for senior care businesses due to the rapidly aging American population,” said Peter. Thorough market research and a look at evolving U.S. demographics can help entrepreneurs identify which industries are a sound investment and built to withstand any future financial crisis.
- Solicit feedback from other franchise owners. One major benefit new owners can take advantage of is talking to other franchisees before committing to an investment. “Anyone purchasing a franchise needs to keep in mind the franchisor's business model is simply to sell franchises and collect royalties,” Peter said. “Just taking the word of the franchisor is not smart because there could be misaligned interests.” By interviewing current owners, new buyers can gain insight into how well a franchise is performing, what the relationship with the franchisor is like and whether or not the franchisee is happy with their decision.
- Don’t be afraid to ask the hard questions. Whether these are asked directly in an interview or found on a franchise/franchisee satisfaction survey, the following are important questions to consider: How many franchisees have gone out of business? Has there been any litigation between franchisees and franchisors? If there was litigation, were franchisees promised something that wasn’t delivered, or was it the fault of the franchisee? Plus, any other questions that could reveal potential roadblocks or hardships should be considered.
For the entrepreneur thinking about switching careers, franchise ownership is an opportunity to break into an industry where he or she can truly be successful and have zero prior experience. With the support of the right franchisor and proper due diligence, that means new business owners can reinvent their careers in industries that matter to them.