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Unemployable with Jeff Dudan
Franchise Friday: How Long It Really Takes to Open a Franchise With Jeff Dudan #166
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Jeff Duden
Welcome to Franchise Fridays on On the Homefront. I'm Jeff Duden and today we're walking through one of the most common questions people ask when considering franchise ownership. How long does it take to open a franchise? Here's a number to keep in mind. There are over 300 new franchise brands that launch every year in the U.S. that means more options, more opportunities and more variables. Whether you're in early research or already talking to brands, understanding the timing can help you avoid delays, plan better and move with confidence. Let's walk through it. Number one, the first step is the discovery process. You can expect that this will take 45 to 60 days for any brand that you engage with. This phase is designed to help you and the franchisor understand if the fit is right, you'll go through a structured process that typically includes a number of things. Introductory phone calls, brand presentations. Validation with existing franchise owners to determine their level of success and their level of satisfaction. Unit economics review. What is the financial performance of an average franchisee or a top third franchisee and what might that mean for you? If you can follow the plan, it ends with Discovery Day or Meet the team Day where you travel to the location or designated location and you get to meet the people that you're going to be working with. Sometimes you get to meet other franchisees, but it's kind of that final confirmation that these are the type of people that you want to enter into an agreement with. It's a very intentional process, it's very prescriptive and that's a good thing because the most important thing is that you get educated and you get a clear expectation about what the business is, is, and what you're going to have to do to be successful. This is the window where you can get clear on, support, other expectations and what ownership ultimately will look like day to day. Now, number two, once you've signed your franchise agreement, things start moving relatively quickly. If the business doesn't require a lease or a build out, meaning it's operated not from a physical location, but maybe from a mini storage or mobile business, you could be up and running in about 90 days. Most service businesses do not have a lease build out. If you do need a space to rent, it can be just a warehouse space or an office warehouse space where you're not actually upfitting the physical space for customers to walk into on a daily basis. Typically easier to find, very little construction. So that's not an impediment to opening quickly or service businesses. And here's what usually happens during that Time you will go through initial training. Many franchisors will have training to accomplish before you come to the initial training, maybe from a learning management system. There may be some pre sale activities that they ask you to do. You may go out and join associations or other things to prepare for the launch of your business. That can be done prior to initial training. Then you'll attend training which is where you will learn the key things that you need to do and how to do them. There's generally going to be a truck or equipment set up, especially if it's a service business. So you'll have to order the truck, it's going to have to get upfitted and then local marketing will begin during that time. So getting your web pages set up, making sure that all of the third party advertisers requirements are met so that you can as quickly as possible start generating business within your territory. And there's usually a grand opening and this is different for different brands. But there needs to be some thing that you're working towards, some date, some event that you're working towards so that you can introduce the business to your community. With you as the face of it, the franchisor will lay out these timelines and the milestones. If you stay engaged, this part can move fairly quickly, especially for a service business like we have here at Homefront Brands. Now if you need a physical location, if your franchise requires a retail space that customers are going to come into, your pre opening is going to be longer. So here's some of the things that get added. Number one site selection. Most brands will have a real estate company that they work with who will go out to the marketplace for conforming locations and will present them to you as a franchisee for you to determine if those are the spaces that you want to try to get a lease on and to operate your business. If once you find one, you will enter in a letter intent with the landlord or with the property owner that will basically describe the general terms of the agreement that will then be put into a lease and there will be a lease negotiation and legal review of that lease that will ensue. Once you need to build out the space, you're going to need to get permits and approvals from the local building authorities, whoever they are, and then of course contractor selection and executing the build out. So one big variable that you need to pay attention to is whether it is going to be first generation or second generation space. First generation space sometimes isn't even built yet, it's an out parcel or it's just dirt and they're going to be building a building and then they're going to give you a space within it and it's going to be what's called a cold dark shell, meaning it's not going to have any plumbing, electrical, any walls, insulation, and you will have to go in and do all, all of that upfit to create the space. To operate your business within a second generation space means it's been occupied before and it generally has walls and sheetrock and heating and air conditioning in it and electrical. And while you may may need to make modifications to the space, many of those elements are going to be able to use by you and it's generally a much shorter and much less expensive time to upfit those space. So first gen, again raw space, longer typeline, maybe nine to 12 months. And then second generation previously built out, it might be a three to six month build out there. Now that is not the total time because you have to factor in the time that it takes for you to locate the space, to go through letter of intent, to negotiate the lease and ultimately to get that signed. So depending on your market, depending on the requirements of the business that you're going to operate and the availability of sites, it will determine greatly on how long it will take for you to actually get into business and start generating revenue. Financing options and timelines. How long does it take to get funded? If you're not writing a check and most people don't, then you're going to have to consider a few different options to fund your business. Number one, SBA loans. The government backs up local banks or national banks and guarantees part of the loan to allow the requirements to be a little bit lower. SBA loans generally take 60 to 90 days. There is an SBA Express loan that is, I mean by name should be a little bit quicker. And then there's traditional SBA loans. It's going to depend greatly on the complexity of your situation and because it is an exhaustive and extensive process to go through, especially if you're complicated and you own other businesses and a lot of assets. That's why generally you're going to use a third party SBA loan processor who's going to help you through the process. And the SBA is really very common, especially for first time business owners. Kind of what it's made for. So great place to look there. Now there is something called a robs where you can roll over your retirement funds without penalty. And I think that's a rollover for a business startup These can often be completed in 30 days. And again, these are a little bit complicated and it's critical that you follow very carefully the IRS guidelines when you do this. So you must use a third party administrator for these. So there are a handful of companies that will work with you to set up the company to make sure all the paperwork is filled out and then also charge you an ongoing monthly fee just to make sure that the everything is compliant. When you're doing a robs and you're rolling over out of your retirement funds into a company that is then going to be the owner of your franchise. So very important to use professionals when you're doing that. Of course there's HELOC or margin lines, home equity loans, or just borrowing against stock portfolios that you have very fast, especially if you have all those things already set up. So very quick, quick access to cash. Sometimes people will use a HELOC or a margin line to pay the initial franchise fee while and use that as their cash infusion while they're pursuing one of these other types of franchising. And then of course, if you have a good relationship with a local bank or a regional bank, you can get a traditional loan for a business. Now they won't have your financial results on which to loan by, so they're probably going to look for other collateral, whether it be a home or stock accounts or cash accounts or something. So it's going to depend a lot on your relationship with that bank. You know, sometimes bankers, if you're on here, no offense, they love to give you money when you don't need it. So the loan against assets that you already have. But ultimately, you know, local banks in, in the right situations are a really good way to get access to a very beneficial loan for you to open a franchise. And of course there's always cash, it's the quickest route. But strategically you might not want to put all your cash in the business and you might want to use other people's money and work that into the operating cash flow of the business. Now do you keep your job or don't you keep your job? Some franchisees choose to keep their job during this process and it can definitely help to reduce financial pressure during the first phase of ownership. Even though, you know, focusing on a new business is really important. But when you're going through the funding process to qualify for some of these loans, you might want to make sure that you don't need to keep your job, at least through the qualification process while you're pursuing some of this Financing so that you can qualify with your cash flow. Then whether you leave your job and join the business when it's possible, it's really, those are, those are questions that you will need to answer and you know, make, make good decisions there. I'm, I'm big about going all into businesses and making sure that I understand everything about a new business that is important so that, so that I have the greatest chance for, you know, hitting the plans that I need to hit with the business. Look, number five, market timing and seasonality. This is kind of interesting. So there are businesses that are seasonal, especially if it's an outdoor business. Let's say you're in lawn care or pressure washing and you're in a very cold climate in the winter. Look, nobody needs their grass cut in the winter. When you're up, up and up north. When you're in Wisconsin, they don't need to cut it. So think about when you want to launch your business. You might want to, you might want to enter into your franchise agreement in November and December. You might want to come to onboarding and training in January or February so that when the spring starts, you're right into the busy season and you've got your best chance to enter the market. Now I think what people do though is they, they misunderstand the timeline because there are a lot of pre marketing activities and networking activities that you need to be doing. So you might want to get in, you know, do your franchise agreement in October so that you can then get all your ducks in a row and start some of your pre marketing activities over the winter. Make all the connections that you need to make, do all of your referral marketing, all of your business meetings, start going to your BNI meetings and your chamber meetings so that when and then you can time your advertising, spend appropriately with the season for whatever business you're in now. Training, timing your launch around these realities can make a meaningful difference in early performance and not opening kind of into the trough of a year. That being said, sometimes if you wait too long for a franchise, you'll miss your territory. So you got to balance all of these things out. If it's a good brand, these territories are going to be sought after and you know, you just have to, you have to decide how important is it for you to get the territory in the brand that you want versus trying to time it up carefully. Now, personal tax considerations, that's another thing that has to do with timing. So do you have any personal situations coming up, any major life events? Do you have travel Extended big anniversary trip coming up, we're going to be away for a month. Or do you have weddings in the family that are going to take you away and take your eye off the ball? Kids, graduations, work transitions, all of these personal things can affect the focus and energy that you can put on your startup business. And it's really critical that when you're learning a business for the first time that you are paying attention and you're following all of the protocols and instructions of the franchisor as quickly as possible. So if you've got something that's going to take your eye off the ball for a month or two, you might want to consider that in your timing. And then of course there's the tax calendar. End of year openings may allow you to leverage certain elements of the tax code and like accelerated depreciation, section 179 or amortization. So. Or if you've got some carry forward losses or carry forward gains from a previous year, you really need to look at your tax situation and it might be better for you to, instead of waiting till February or March when you're really, you know, you're going to finish your job out, you're going to take a little bit of time off and say, well, I'm just going to enter into the franchise agreement next February. Number one, it might not be there when you go get it. And then number two, it might have been better to close in December and maybe and be able to for the tax treatment of the initial franchise fee or maybe even purchase a vehicle that would qualify for some accelerated depreciation or any number of other things that your tax advisor can help you with. Although I will tell you, CPAs and financial planners are ones that always kill deals. And I think it has to do with their aversion to risk. And I think financial planners, they don't want you to take their money and invest in a business because they don't make money when you do that. So they're not willing to wait on when you sell the business to give them even more money. So that being said, you will need to get tax advice if you're thinking about year end timing for investing in your business. Here's another thing, and this is something that if you're new to franchising or if you're starting to investigate a franchise business that you won't know in franchising we have some 15ish registration states and these registration states require us to file our annual updated federal disclosure document or franchise disclosure document and we file it with the states and then they have to come back and approve it so that we are authorized to work in. And if you are in one of those states, there are states that generally take a long time, and I mean months. It could be the franchise industry refiles generally in April at some time, usually within 120 days of the end of the year you have to file. So beginning middle of April you're going to see the refilings coming in. And until the state approves that document, then you're not authorized to award franchises in that state or even have discussions. So let's just say you're in a registration state and you're in March or you're in April and you're like, well I'll just sign it in May, there's no big rush. Well, it could be that you want to sign in May because you want to open in June or July or August. But what if the state doesn't return the documents to the franchisor? And I've had it go all the way into August or September or October before certain states have sent these back. So you need to really be aware of that, especially if your timing is critical and especially if you're, if it's important to you to hit some sort of either personal timing or seasonal timing or even just to get the territory locked in that that is best advantageous for you. So again, whoever you're working with at the brand, make sure you understand what their expectations are around refilings. Of course for any personal things that is fully up to you. But then for any year end tax things, talk to a tax professional who understands the business structure and startup scenarios and see what would make the best sense for you. Okay, so all that being said, in summary, how long does it take if you're working with a home based or mobile franchise and you're ready to go and you're committed and you have no obstacles personally or professionally on your end, you can be operating within 90 to 120 days. That would be maybe a 45 to 60 day discovery process. And then you've got pre opening initial training truck setup of another 30 to 60 days and you could be easily operating within 120 days. For a home based or mobile type business. If there's real estate involved, you probably better think with lease. With site selection and lease, you know, generally you're going to see 9 to 12 months for location based business and it could be longer if you can't find a space that's ideal or you can't get a lease worked out. It really depends a lot on availability of spaces that are suitable for you and with budget for you. So it comes down to how clear your goals are, how fast you can make these decisions, and the strength of the team at the franchisor who's supporting you, walking you through these steps all the way. So if you're serious about franchising, timing matters, pay attention, get the facts, lay it out and lay out a plan and work that plan and don't guess your way through the process. I hope this has been helpful for you, especially if you're new and you're looking into the franchise industry so that you can understand these various factors that will impact when you want to get into business. The sooner that you know, the better decision that you can make and take advantage of some of these, some of these opportunities that go on throughout the year to make sure that it, it lines up with what you're trying to accomplish. If this has been helpful for you, please like subscribe, share it with a friend, send it to somebody that needs to hear it, and again, you can subscribe to on the Homefront podcast Franchise Fridays to get more franchise information from me, Jeff Duden right here. And if you're exploring franchise ownership right now, head on over to homefrontbranch.com we'll walk you through the process and you will know more by virtue of talking to us. We very much look forward to it. Thanks for being here. I'm Jeff Duden and I'll see you next time on Franchise Fridays.