Todd Weiss C.F.A. – Franchise/Business Consultant & Life Coach

Franchise Consulting, Franchise Brokerage, Entrepreneur

Todd Weiss

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Archive for August, 2010

Never Use The Word “Busy”

How often do you catch yourself saying the word “busy”?  It’s a pretty common adjective used when telling others we have a lot going on.  In a previous post, I talked about the benefits of projecting positive energy, a key element essential to The Law of Attraction.  If you project positive energy, people tend to gravitate to you.  This can help cultivate rewarding and powerful relationships.  A few years ago I decided to eliminate (or at least tried :D ) the word “busy” from my vocabulary.  This may seem a little extreme, however, my belief is the word can project negative energy and diminish the ability to build lasting relationships.

More often than not, being busy is actually a good problem to have.  When I have a lot to do, I find I’m happy and productive; the days go by quickly with a sense of accomplishment.  The problem does not lie in the concept of being busy; it’s how your busyness is conveyed others.   Here’s an example.  Let’s say a friend calls while you’re working on a large project, you want to be sensitive to their needs, but are facing a deadline. You say, “I would like to talk, but I am really “busy” right now.” While it’s a socially acceptable response, and you mean no disrespect, the message subconsciously conveys negative energy.  In my opinion, “I am busy” could be interpreted to mean: I am over my head, or, I can’t handle the challenge, or even worse, you’re not important enough to talk to you right now.  This may seem a little harsh and a tad cynical.  In all likelihood not your intention, however, the message may be misinterpreted which creates the problem with the word.

This is why I chose not to use the word “busy”.  Looking back at the previous example, the problem still remains.  You have a deadline that needs attention and don’t have the time to speak with your friend.  How can you effectively communicate the time crunch without projecting negative energy?

Here’s a suggestion. Tell your friend their call is important to you, however, you have a task that requires immediate attention.  Ask them if it’s ok to call them back later when you can give them your full attention.  I find this simple technique to be effective and subtlety powerful.  It demonstrates both courtesy and responsibility while enhancing your relationship with the caller.  It’s much better than saying, “I am really busy”.

Effective communication can be the difference between gaining, or losing relationships.  The word “busy”, while harmless, can project a negative energy which is counterproductive when building relationships.  My suggestion is to eliminate the word.  If you are in jam and working on an important project, use the tactic we discussed.  It can be helpful in turning a potential negative situation into a positive.  As the saying goes, “It’s not what you say, but how you say it.”

Can I Get a Loan PLEASE!

A Frustrating Process

At least that’s what it feels like if you looking for a business loan.  The process can be frustrating for those ready and able to start a business.  But let’s keep it real.  Despite the negative propaganda (whoops) news you watch, hear and read about, banks are in fact making loans, albeit with more conservative credit standards.  Even before all of the financial chaos it was challenging to obtain financing for a new business.  Now banks are even more skittish, however, it’s tough to blame them as 2007 to 2009 saw a number of financing institutions like Lehman Brothers and Countrywide go bankrupt.  In time, things will ease up, as this is all part of a natural adjustment. The following video provides some information on the state and availability of bank financing.

If you’re in the market for financing there are two types of loans worth considering – the SBA 7 (a) loan and a traditional bank loan.  I decided to focus on these loans because they’re two of the more common types available, and I get a number of questions from clients regarding the differences between the two.  They have some similarities and a few differences.  Before getting into the details, let’s talk about the importance of having a plan and checking your credit score.  Without a plan and good credit, there is no point in shopping yet.

Before You Start Shopping – Have a Plan & Check Your Credit Score

In previous posts I discussed the steps necessary to obtain financing.  In today’s market, lenders are all about performance.  They want the prospective borrower to provide a detailed business plan describing how the business can pay back the loan.  If you’re looking for some guidance on that topic, click this link to read more.  In addition to having a plan, banks will pay close attention to your credit score.  Right now the magic number is 700 plus.  If you’re score is below that number, it will be difficult (impossible) to even be considered for approval.

If you’re not sure of your credit score, there are a number of free resources available on the web.  One helpful site is freecreditscore.com.  You want to be careful which service you use as multiple searches will negatively impact your rating.  If your score is below 700, I suggest speaking with your CPA and learn how you can improve it.  There are a number of services available that can do it for you, however, there’s a cost involved in doing so.

Now let’s talk about the loans…first the SBA 7 (a) loan

The SBA 7(a) Loan

An SBA loan is a term loan from a bank or commercial lending institution where the Small Business Administration (SBA) guarantees a portion of the loan to the bank to provide an incentive to lend to businesses.  The guarantee is to the bank, not the borrower and you will need to provide collateral like equipment, real estate or stocks and bond to secure the loan.   There are a few basic parameters for this type of financing.   The minimum loan amount for a 7(a) typically starts at $250,000.  If you are looking to borrower less, you will likely have to pursue a traditional bank loan.  The reason for the minimum has to do with cost of approving and servicing the loan.  While there may be exceptions, based on my research it’s very difficult to find a bank to go below $250,000, as the economics generally don’t make sense to the lender.  An SBA 7(a) loan is best suited for businesses with equipment like restaurants, dry cleaners, etc. as equipment can be used as collateral to secure the loan.  The pricing is standardized and the interest rate will be floating with a cap.  Based on a few discussions with friends in banking, the interest rates are currently in the 9% range.  If you’re looking to borrow less, a traditional bank loan will likely be the better option.

The Traditional Bank Loan

The difference between an SBA loan and a traditional bank deal is the bank is not getting a guarantee from the SBA for a portion of the loan amount.  Thus they will likely be more selective in their underwriting requirements.  While this may seem discouraging, a traditional bank loan can be more flexible in terms of the minimum loan amount and can provide flexibility particularly if you are moving in deposits, a likely requirement.  One benefit to a traditional bank loan appears to be the pricing.  Based on discussions with a few bankers I know, the interest rates are a little lower than SBA 7 (a) loans with interest rates in the 8% range.

So Which is the Better Option?

 

Depending on your needs either option can be attractive, however, based on price it appears the traditional bank loan is the better option.   Keep in mind, regardless of the direction you choose your best bet is the source that will provide the funds you need for your business.  If you have further questions on this topic, feel free to send an email to info@sunshineconsultingltd.com.

Sell A Franchise with Social Media?

The Social Media Shift

The franchise sales process has become slower as investors are more educated and methodical in their research. A major factor contributing to the slower pace is the increasing popularity of social media and networks. Investors now have more access to information, which can help them determine if a particular franchise is a good investment. In years past, the buying process was faster and more sales-oriented as candidates had limited access to information. Today’s customer is more informed and prefers to be educated, not sold. While a slower buying process can be frustrating for franchisors who need sales to grow their business, in the long run I believe the industry can benefit as a more informed buyer can be better prepared and have a higher probability for success.

Embrace the Concept – Take Action

Like any challenge, there is an opportunity. As candidates prefer to be informed, franchise concepts who learn to leverage the power of social media can help find better candidates, provide the information they’re looking for and in ultimately reduce the time frame to make an informed investment decision. The concepts who embrace this new form of marketing, learn how to effectively use social media will be better positioned for long term success. The following excerpt from an article written by Sara Wilson discusses the changing of the marketplace:

“The franchise industry’s success has been defined by uniformity and consistency, but with the advent of tools like Twitter, Facebook, and YouTube, even this century-old industry is being shaken up by social media. Indeed, as potential investors rely less on industry trade show and franchise publications for information and turn more to their social networks and blogs, franchisors are finding it necessary to invest more of their time testing out the social media waters. “Social media platforms are quickly becoming an important part of franchise companies’ marketing strategies, especially in a time of lower marketing budgets,” says Alisa Harrison, vice president, communications and marketing at the International Franchise Association” (IFA). Source – Click to read the article

Slow and Steady Wins the Race
There are a few common misconceptions that businesses have regarding the use of social media. The first is it’s a form of Guerilla Marketing that can be implemented quickly. I have seen several businesses simply open a Twitter and or Facebook page and start blasting various forms of advertising in hopes of immediate sales. The second mistake is that social media will replace traditional forms of marketing like print media, tradeshows, etc. Both are incorrect. The fact is social media is an enhancement of your marketing strategy and it must be implemented methodically. Don’t expect immediate results as it takes time to learn the tools, build a following and ultimately make sales. The nice thing about these technologies is they can be implemented at your own pace. If you’re unfamiliar with the different types of technology (YouTube, podcasts, Twitter, etc), it’s best not to rush into it before understanding how to use them, and have an objective or purpose.

Listen and Learn

Last fall, I listened to Paul Segreto’s Franchise Today Show (click here to listen). If you’re thinking about using social media, this podcast is a good place to start as it provides a solid foundation to help formulate your campaign. If your budget permits, you can hire a consulting firm to help you get started. While money may be tight, especially given the current economic conditions, think of it as an investment. When I started using social media, I worked with a coach who taught me the different tools and helped me put together a strategy. If you want to go about it on your own, there are a lot of helpful resources on the web. Here are a few tips to consider when building your campaign:

Integration: Remember, social media is part of your marketing platform. It’s not a substitute and thus should be carefully integrated with your overall marketing strategy. Once a lead reaches out to you to learn more about your business, your sales and support team will need to work closely with the candidate.

Be Patient: There are a lot of available tools to drive a social media campaign. Take your time and learn how to use them at your own pace. Social media is an organic process that takes time to generate results.

Create An Objective: What’s the purpose of your strategy? State it and focus on the objective. An example purpose can be:

“to increase the awareness of our brand and sell more franchises.”

Target Your Market: Think about your ideal franchise candidate. An example could be: College educated men or women, aged 37 and up, with sales and marketing experience. Focus your campaign in areas where your ideal candidate spends time on the Internet.

Have a Plan: Social media can drive interested candidates to your concept. You need to have a system in place to respond to their inquiries and take them to the next step if they desire.

Let’s Get it On
The franchise sales market has slowed along with the rest of the economy. This does not mean there is not opportunity for concepts to expand their brand. There are a lot of qualified candidates who have the ability, the resources and the desire to own there own business. They’re LOOKING for the right opportunity and social media and networking is a powerful tool to help them find you. As I stated previously, it takes time to formulate a campaign and it needs to be carefully integrated to within your overall marketing strategy. Be patient, learn how to use the different tools available and have fun. When used properly, social media can significantly improve your business.

Three Special Steps……That’s How it Goes……

Most people who are interested in buying a franchise start the process with a Google search for info on specific concepts.  Since food and coffee are part of our everyday lives, when we think “franchise”, we generally think of food and coffee concepts like McDonalds, Subway, Dunkin Donuts, etc.  While these are all successful businesses, there are other options out there that may be more suitable depending on your personal interests.  It’s estimated there are over 6,000 different franchises available in the United States today.  Almost every industry has a franchise model actively seeking motivated people to invest in their system.  If you are serious about franchising, you don’t want to limit your options.  Rather than researching concepts, your best bet is to start by asking yourself the following questions:

How much income do you need to support your lifestyle?

Think of it this way, if you were looking for a new job, what is your salary requirement?  The process in franchising is the same approach.  The concept must be able to generate the income needed to support your lifestyle.  The first step is to determine the income you need from the business.

What is a suitable investment level?

There’s no sense researching concepts until you know what you can afford.  If you’ve ever purchased a home, chances are your first step was to get pre-approval for a loan.  Once you figured out what you can afford to invest, you search for houses or condos in that range.  If you are looking at a franchise, it’s a similar process.  Determine a suitable investment level, and then target your search for franchises within that range.

When do I want to open my business?

I generally advise clients to start the formal due diligence process if they want to open within six months or less.  It typically takes between 30 and 45 days to determine if a franchise concept is right for you.  Depending on the type of business (retail, food, etc.) it may take some time to find a location and build out the space.  If your time frame is a little longer, its best to wait before formally engaging talks with a franchise.

Owning a franchise can be a fun and exciting experience.  It’s normal to want to seek new information.  If you’re curious, by all means start looking at different concepts to get a feel for what’s out there.  Focus on the types of businesses you like.  Don’t spend time seeking the details until you’ve addressed the above questions.  This will save time, frustration and help you target specific opportunities to help achieve the ideal lifestyle.  You want to keep your options open.  A targeted approach can help achieve your goals.

Respect?….. Just a Little Bit?

”If you have some respect for people as they are, you can be more effective in helping them to become better than they are.” –John W. Gardner

So let’s paraphrase…by respecting others we become more effective in HELPING them become better. I thought that quote was a good intro to a post about building profitable partnerships with employees. By the way, if you happen to be a franchisor, you can substitute “employee” with “franchisee”, as the relationship is essentially the same.

Successful businesses are built by people. They’re the most valuable assets of an organization and the challenge for management is to keep them motivated, productive and happy. It requires a delicate balance between oversight and encouragement. The following excerpt written in HR magazine explains their importance:

“Human Capital (HC) simultaneously represents the single greatest potential asset and the single greatest potential liability that an organization will acquire as it goes about its business. While there are other intangible assets, HC is the only intangible asset that can be influenced, but never completely controlled, invested in wisely, or wasted thoughtlessly, and still have tremendous value. These distinguishing features are what make HC unique, and also what makes it an elusive asset.” Source – Click here

My Father once taught me the importance of respecting people. When you’re part of a business, the individuals are the glue that holds everything together. The key ingredient to maximizing the value of an organization’s human capital is to treat people with – RESPECT. The following excerpt written by John Reh says it best:

“Remember that as a manager you only get work done through others. If you show them respect, they will out produce their peers and make you look good. Treat them as interchangeable cogs in a wheel and the opposite will happen.” F. John Reh, Source – Click Here

You get more with honey than vinegar. While that may seem to over-simplify the challenge, most problems have simple solutions. Think about an experience at work when a manager was condescending in their approach. How did you feel? Were you inspired and motivated? Chances are you felt angry and maybe even vindictive. Not exactly the right mindset a manager is looking to instill to improve productivity. In fact there is a much better way…think the Golden Rule.

The Golden Rule

“Do to others what you would like to be done to you”

I once had the opportunity to listen to Greg Nathan, a psychologist and international expert on franchise relationships. (Check out Greg’s site by clicking this link). Greg covered a number of different topics but the essence of his message was that for a successful system, there needs to be mutual respect and understanding of all parties for the partnership to be successful. That’s what people really want, and if they get it, you’re on the path to success.

Mentorship

There are a number of ways a manager can help build respect within the organization. Think back and remember some of the people you’ve worked for in the past. What were some of the attributes of your favorite manager? Chances are they were encouraging; they were strict, but fair. They gave you the freedom to do your task, but still held you accountable. When you struggled, they provided guidance and mentorship. When you weren’t putting out your best effort, they reminded you, coached you and perhaps provided some discipline to get you on track. When I think about the best managers – the best word to describe them would be “mentorship”.

Actionable Ideas

If you’re a manager, or simply a sole operator, you still need to work with others to achieve your objectives. If you’re experiencing challenges or simply looking to improve your skills, here are a few suggestions to help.

1. Treat others with respect – Don’t be condescending or demeaning. People don’t like being “talked down to”. That creates resentment. Respect them as people. They’ll appreciate it.
2. Be a teacher and a coach – If someone does something wrong, don’t chastise. Give them the benefit of the doubt. Most people might not be aware certain behaviors or actions are inappropriate. Use the breakdown as a teaching moment. People tend to appreciate guidance and instruction. It will go a long way towards building respect and trust.
3. Be a Leader – Lead by example and show a willingness to go the extra mile. Provide vision help and guidance, especially when times are uncertain. Keep a level head.
4. Go the extra mile – Avoid the “do as I say, not as I do.” No task is beneath you. Show a willingness to do what needs to be done.
5. Give a sense of belonging – People want to be a part of something. Remember everyone’s task is important to the organization. Remind them they’re valuable to the organization.
6. Be Thankful – You can never say thank you enough. Show genuine appreciation of their efforts.

A lot of these tips are common sense. It’s our nature to over think problems, when the solution is actually quite simple. Keep in mind, you need your employees to be successful. They’re a valuable asset that can quickly become a liability if mismanaged. Think about mentorship and respect. Be a leader and a teacher, and always show appreciation for their efforts. Applying these core values will go a long way towards building a successful organization.

Show Me the Money!!! – Tips For A Conservative Lending Market

Ok I’m ready to start my business and need some financing…here’s a tactic that probably won’t work….

A Different Market

I love that scene… and I think it represents the leverage borrowers had between 2000 and 2007 when lenders were begging to make loans. Unfortunately their credit standards, or lack thereof, led to the recent fallout and now it’s the borrowers doing all the begging. If you’re in the market for a business loan, the process can be discouraging, especially with all the media outlets constantly talking about “a financial crisis”. So let’s start with two questions…Is there a financial crisis and are banks making loans?

While some may disagree, in my option the answer to the first question is No (there was a crisis and it’s over, despite what you see on TV or read in newspapers). For those who think there still is a financial crisis click this link ⇒ “The Great Depression”. While we were almost at the point, things could have gotten all worse. We’ll leave that topic for another post. The answer to the second question is Yes, banks are making loans. (despite what you see on TV or read in newspapers).

A Lender Wants to Be Paid Back!!!

The key distinction between then and now, is banks have gone back to good old-fashioned credit analysis. Yes, they’re actually trying to make sure, within reason the money they lend gets paid back.

This concept fell by the wayside between 2000 to 2007. During this period lenders were overly aggressive, mainly due to a concept called securitization. This is a process where pools of loans are packaged and sold as securities to institutional investors. When the demand for securitized assets was strong, lenders placed more emphasis on their ability to sell the loan, versus the ability of the borrower to pay back the proceeds. When the securitization market collapsed, lenders were stuck holding loans of poor quality that they couldn’t sell. When the loans started defaulting, financial institutions like Lehman Brothers, Bear Stearns, Countrywide Financial, et al failed. The net result was one of the worst financial crises since the collapse of Long Term Capital Management in 1998.

Why Should You Care About the Past? Because it Impacts the Present

Why is it important to understand about how the market collapsed? Well, think about the current mindset of today’s lender. They have long memories and those fortunate enough to survive the collapse are now cautious, or…overly-cautious. It’s a lot easier to say no as they don’t want to make a mistake. If you’re in the market for a loan, the key in getting an approval is to provide detailed information explaining how your business will generate the cash flow to pay the money back. This can be achieved by providing a detailed business plan. If you are looking for some guidance on writing a business plan, click this link and visit this website.

“The more you know and the better you know it, the more likely and willing you will be to make a loan that will be successful” Darrell Johnson, CEO FRANdata

What today’s lender is looking for?

In today’s environment, a lender is looking for performance. I recently heard Dan Johnson, who is quoted above speak on Paul Segreto’s Franchise Today radio show. A lot of what Dan talked about is common sense. Today’s lenders are looking for borrowers who can demonstrate how their business

will be able to make their loan payments. When you are asking for money, you need to be armed with data and be prepared to answer detailed and challenging questions as to why your business can succeed.

Writing a business plan takes time and research. A good plan can mean the difference in getting your loan approved. Before you start writing, I suggest speaking with your CPA and a few other business owners who can help identify the strengths and weakness of your business model. I’ve helped a number of people write business plans, and if there is one piece of advice I can provide is to have thick skin. Don’t get defensive or be offended when faced with difficult questions. Remember, banks are looking for PERFORMANCE and WILL challenge the viability of your business as well as your ability to execute your plan. That’s their job. Be prepared to support your argument with FACTS, not EMOTIONS. Here are a few questions to consider to help you get started:

Determine your unique selling proposition (USP) – What product or service do you offer and how do you differentiate yourself from the competition? Why is your product or service necessary? What is the demand? Quantify it. Will it increase and why?

Define your target market and your plan to acquire customers – Be specific. Who is your ideal customer? Is your target market large enough to support your business? Provide details as to how you plan on acquiring customers. What is your marketing strategy? I would recommend speaking with a few marketing professionals and have a detailed marketing budget in your projections.

Know Your Competition – How long have they been in business? Are they making money? How do you plan on differentiating yourself from competitors? This is especially important if you’re purchasing a franchise business. If you’re investing in a Great Clips franchise, you’ll want to research local hair salons and comparable franchises like Supercuts, Fantastic Sam’s and Sportsclips. Competition can be a sign of a healthy market provided you can determine your location isn’t saturated.

Know Your Unit Economics – Unit Economics are measurable statistics that are used as a means of comparison to track the performance of your business. It can take some time to determine what stats to monitor. Established benchmarks in your cash flow projections to show the amount of revenue needed to break even. Some relevant units to consider could be:

- The cost to open your location including, leasehold improvements, securities deposits, monthly rent and CAM charges. Describe your ideal location as well as rental ranges needed to be profitable. What is the ideal size of your store? How many square feet do you need? Too little or too much space can be a huge difference.
- Benchmarks to determine break even (I need $10,000/month in sales to cover expenses)
- Estimated expenses including rent, payroll, marketing, utilities to operate your location. Have statistics to support your estimates.

A Detailed List of Sources and Uses of Capital – How much money do you need to buy the business? I have worked with a number of franchise buyers who were first time business owners. Remember it can take up to 18 to 24 months for some business to become profitable. You will need to factor the working capital to fund the business while it’s growing. You will also need to have money set aside to cover living expenses. A bank will want to review your personal financial statements, tax returns and run a credit report. In today’s market, they will want to see a FICA score of 700+ to even be considered. In addition, they will likely want you to have collateral like real estate, equipment or stocks and bonds to pay the loan back should the business fail.

Seek Counsel
As I mentioned previously, speak with your CPA and hire a qualified attorney specializing in business law. They can help you with your business plan, structure your ownership entity and help determine if business ownership is a suitable option for you. Don’t do everything yourself to try and save money. The cost of good advice is little compared to your overall investment and can save you in the long run.

The Next Step
Despite all the hysteria in the news about a “financial crisis”, the worst is over. The market is going through a natural adjustment that will recover in time. While this can be discouraging, it’s a natural part of the economic cycle. If you’re looking to finance a business, today’s lenders are looking for performance.   If you’re ready to get started remember to write a solid business plan. Do your homework and consider the tips we discussed. Don’t get discouraged. Writing a good business plan takes a lot of time and research. The good news it will serve you well in the long run and leave you better prepared for success.