Entrepreneurial: Buying the framework and building a businessComments Off on Entrepreneurial: Buying the framework and building a business
Franchises appeal to owners as well as originators
Andrea Zimmerman used to have a hard time persuading her teenage sons to get their hair cut. Not anymore.
The Zimmermans were visiting her parents in Fort Myers, Fla., for Christmas two years ago when she decided her sons’ hair was too scruffy-looking for church. Knowing nothing about the shop, Zimmerman took the boys to Sport Clips, a franchise that caters to men and boys with sports themes, scalp, neck and shoulder massages and hot-towel treatments, all with no appointments.
“The boys came out and said, ‘Mom! That was awesome … Can we get our hair cut next week?’” Zimmerman recalled recently. “They loved it.”
Fast forward to a few months ago. Zimmerman and her sister-in-law, Annette, decided to buy a franchise and were trying to decide among them. Mike Accurso, an Eagan-based franchisee of a franchise coaching company called the Entrepreneur’s Source, was working with the women to find a suitable enterprise.
When Accurso asked if they knew anything about Sport Clips, the memory of the Christmas haircuts returned. The women looked into Sport Clips’ business model and philosophy. Annette Zimmerman, who had left the hair styling business several years ago to raise her children, agreed to hire stylists and managers while Andrea opted to handle the business, finance and real estate end.
These farm wives from Waseca, who had been saving money for years in anticipation of buying a franchise, opened their first Sport Clips store in Maplewood last month and are scouting locations in Roseville and Cottage Grove with plans to open 10 stores. They declined to disclose their investment.
“We’re the type of people who are, well, if we’re going to do this, we’re all in,” Andrea Zimmerman said.
Opening a franchise has become an attractive way to find work in difficult economic times, said Mike Rothman, commissioner of the state Department of Commerce. The number of franchisors, or companies that allow an individual franchisee to run a location of their business, registered in Minnesota increased from 899 in 2003 to 1,214 in 2010.
Minnesota is one of 14 states that require franchisors to register. The Department of Commerce charges each registrant $400 and reviews its contract language, disclosure, litigation and financial statements before agreeing to allow it to operate in the state. Franchisors must renew their registrations annually.
Each franchisor may have multiple franchisees, a number that the department doesn’t track. But Rothman said franchises provide “tens of thousands of jobs” for Minnesotans.
“For workers who are displaced by layoffs, the prospect of operating a franchise sometimes becomes more attractive,” he wrote in a statement. “We encourage all those interested in registering as a franchisor or operating a franchise to weigh the costs and benefits carefully, and visit our website or call our staff to learn more about state franchise laws and the franchise industry.”
Accurso explained, “Franchisors have to demonstrate that they have a process that works. They have a model that they have implemented maybe hundreds or thousands of times.”
Buying a business whose model is already successful is one thing that attracts so many to buy a franchise. It appealed to the Zimmermans.
“They just have incredible support so that we don’t have to reinvent the wheel,” Andrea Zimmerman said of Sport Clips. “They’ve already done all that background work for us, and they have a system to ensure that we succeed. We do have to be accountable, and I like that part of it.”
There’s a lot to consider before buying a franchise. Accurso asks prospective franchise buyers what they want a business to do for them and what they want to accomplish. He also asks about how hard they want to work, what their goals are for the next few years, whether they want professional or skilled employees and whether they want to sell a commodity or a service.
“I try to find a business that matches up with this person’s strength,” he said.
Buying a franchise can cost $20,000 to $300,000, including real estate, Accurso said. Franchisees must also pay royalties to the parent company on a regular basis.
Accurso said it costs $170,000 to $256,000 to open a Sport Clips franchise in Minnesota, including the franchise fee, startup costs and operating capital. Terms are for five years, and a royalty of 6 percent of sales reverts to the company.
Becoming a franchisor is a different story, said Steve Schick, director of business development for Franchise Source Brands International in Charlotte, N.C. A holding company, Franchise Source owns six franchise brands with 500 franchisees in North America and the United Kingdom.
“If the concept is viable enough to create a reasonable profit for the franchisee and the franchisor, then we can develop it,” Schick said. “One of the first things we do is an analysis to determine if there is enough of a win-win there for both parties.”
A franchise needs to be a replicable system in which franchisors award franchises to buyers for an average of 10 years, Schick said.
Franchisors must realize that once they sell their first franchise, they have given up their original business to be in the franchise business, he said. They must also provide sufficient training, support and accountability to franchisees, who might otherwise leave the business, making it difficult for franchisors to attract more buyers.
Robin Handy had weathered two layoffs by age 44 before he decided to become a franchisor. Handy, of Golden Valley, invested $275,000 of his retirement money in January 2011 to buy the master franchise for Heits Building Services of Minnesota from a New Jersey-based commercial cleaning company.
“I wanted to build something that was as debt-free as possible, so that when Day 1 rolled around, we were positive on cash flow,” Handy said.
He had worked in sales and management in the pharmaceutical and health and safety industries, and appreciated Heits’ commitment to avoid cross-contamination in commercial cleaning. Plus, his mother had owned a cleaning company for 20 years, so the business was familiar.
Handy has six franchisees in the Twin Cities and is working with two more.
“It starts out fairly heavy at first to have them follow the policies and procedures and then determine how quickly the franchisee is grasping it and when is the right time to let go of their hand,” Handy said. But he enjoys helping franchisees succeed.
“For them, it’s a risk,” Handy said. “They’re putting together their savings; they’re stepping out for the first time.”
Name of business: Sport Clips
Location: 3035 White Bear Ave N., Maplewood
Purpose/product: haircuts for men and boys in a sports environment; not your “grandfather’s barbershop” but a convenient, affordable, sports-centered environment
Website: haircutmenmaplewoodmn.com or sportclips.com
Size of facility: 1,200 square feet
Name of CEO/owner: Andrea Zimmerman and Annette Zimmerman
Latest annual revenue: not available
Number of employees: 6
Projected hiring: seeking stylists
What’s next: opening three more stores this year and looking at more sites
Name of business: Roshe Enterprises Inc., dba Heits Building Services
Location: 7575 Golden Valley Road, Suite 378, Golden Valley
Purpose/product: commercial cleaning — to provide clients a clean, healthy and aesthetically pleasing environment in which to work
Size of facility: 1,300 square feet
Name of CEO/owner: Robin L. Handy
Latest annual revenue: more than $300,000 in 2011
Number of employees: 5
Projected hiring: 1-2 more by the end of 2012
What’s next: Expand services to additional clients, and assist others in owning and operating a business.