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This episode is a business coaching lesson that explains the cons of franchising your business.

Results-Focused Training, Tools, and Workshops from Expert Business Coaches.

Featured Coaching Excerpt - Notes & Transcript, Part 1
  • Con #3: Government Compliance
  • Lesson Nugget: Because of government compliance laws, you must be very careful about the conversation you have with potential customers.

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-So if you're watching this, this is not supposed to be de-motivational speaking with Terry Powell. This is just real talk. This is the real stuff you need to know if you're going to grow or start a franchise here or learn how to start a business.

Now, comment number 3-- and this is one of my favorite ones. I know this will be your favorite one. Throughout my years of being a business owner, I have become fond of any type of government compliance.

-Yeah. Aren't we all.

-I love the letters, I love the fines, the fees, I love the big documents that are written by people who might or might not have unique ways of expressing their personality or lack thereof. And when you buy a franchise, you're going to have a ton of compliance. Am I right?

-Well the individual investing is not going to have that. But when you shift your business model to become a franchisor, you now fall into the realm of being part of the FTC, or Federal Trade Commission, requirements for franchising, which are the most extensive requirements, even beyond securities and exchange for stocks and bonds.

-And over the years, government has begun to regulate franchising more as part of the consumer protection laws to make sure people aren't out there selling snake oil, BS, or false things. So what's great as a potential franchisee, a potential franchise buyer, you're pretty safe when you read those franchising disclosure documents. That's accurate stuff.

-Absolutely.

-But as a franchisor, the person looking to sell these franchises, there's a lot of burden on you to be accurate, have a lot of information. Talk to me about-- even just at the most simple terms, if I called you and said, Terry Powell, I would like to buy a franchise. Talk to me about how government compliance even affects that conversation.

-Well, you have to be very careful about the types of things that you'll have as part of a conversation with an individual. You're not able to discuss details around income potential other than things that would be part of your franchise disclosure document. So there's a whole compliance issue that we need to train individuals that are answering the phone, engaging with potential franchisees-- because you can actually get into trouble before they become a franchisee because of the regulations. The good news is, that's all designed to protect the potential franchise investor. So it's there to help them be able to get the right information and not have somebody out there selling them on smoke and mirrors.

-What if I have a snowcone stand? Going back to the snowcone stand. And I am just selling some snowcones. People love it. People like me. I'm making a good profit. And I only decide to sell franchises in one state. One state. How often do I get to interact with the fabulous government officials on an annual basis?

-Well, regardless of how much you're going to expand your franchise, you have to meet all the requirements of the Federal Trade Commission to offer it anywhere. And if the state that you're going to expand it in or that you're located in happens to be a registration state, you're also going to need to meet those requirements, which will mean additional investments.

-States like California?

-States like California, New York, Virginia, Maryland, so forth and so on.

-So just to be clear, there is a lot of interaction with the government I get to have. And if I like interacting with the government, this is exciting.

-Well, the good news is, you don't have to interact with the government. They actually set the criteria, and your attorney gets to meet those requirements. And then we hear from the government when we don't meet them.

-See, I was hoping-- to me, this is a great way to meet your local Attorney General. What you do is you build a franchise, and you just don't comply. And then you'll probably get to meet him. He might come to your office. You get to go visit even federal prisons if you are false about how you do things, right? You can go to federal prison if you don't follow this?

-Absolutely. It's happened.

-If you want to do an interactive tour of a federal prison or meet the local Attorney General, there's all sorts of ways to meet people in charge by just not--

-And you can invest $300,000 to be able to do that.

-Yeah. It's like a vacation. Why go to Europe when you can go to a federal prison or interact with the Attorney General? OK. So moving on here. Moving on here.

Terry, the final thing I want to ask you about this is, there's obviously challenges to franchising. But it's not impossible. And so if I have a successful business, and I'd have a very profitable business-- let's say I operate at a 30% profit margin, and I'm doing well. Step one that you would recommend, your recommendation, unbiased. What's step one that I should take if I say I want to franchise? I'm motivated. I know about all the pros and cons, but I want to do it. What's step one that you recommend that I should take?

-Well, step one that we typically hear is they come to us and say they're going to do this. How much is it going to cost me? That's not typically the first thing you want to be looking at, is what it's going to cost. Because it don't cost you anything. You either are going to invest in it or you're not.

So the first thing I would recommend is you hire a coach that can help you franchisetise that business, meaning prepare it to be franchised. Because the more you learn about what's the difference between your model now and what you need to do to have it franchisetised will help a lot.

-Ballpark, what does it cost to hire a coach to franchisetise a business?

-Let's assume you devoted a year to getting your business ready to do it right, franchisetise it, and you hire a coach. You're looking at a maximum of about $22,000 to $25,000 investment over that year to prepare you. And it also will give you an opportunity to determine whether you really want to invest the other $300,000 to go to that step.

-I love this word "franchisetise." It's kind of fun to say. But I also like the idea that you could hire somebody who could even offer you guardrails as you're going through the process of becoming a business that could franchise.

-Exactly.

-Terry, I appreciate-- you're like a wealth of knowledge. It's almost overwhelming. I almost feel like I need to duct tape my head to make sure that my brain doesn't explode with all this new knowledge that I'm taking in here. But the great thing about Thrive is you can pause it, watch it again, take notes. But again, I appreciate you being here. The living legend himself, the godfather of franchising, Terry. Boom boom, pal. Can I get a boom?

-You can. Boom!

-Boom!

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