FRANCHISINGAUGUST 2008 YOUR GUIDE TO FRANCHISING

PAGE 3WHY FRANCHISING WORKS

PAGE 5FIVE THINGS TO LOOK FOR IN A FRANCHISE

PAGE 7FINANCING YOUR FRANCHISE

MSA’s extensive list of established and start-up clients speaks for the firm’s quality, professionalism and expertise.Whether you want to maximize your operational efficiencies, expand internationally or grow through franchising, rely on the seasoned professionals at MSA for straightforward advice based on your goals and the best interests of your company.

Contact Kay Marie Ainsley, Managing Director, at 1-770-794-0746 or Contact Michael Seid, Managing Director, at 1-860-523-4257.msaworldwide.com

CONTENTSForeword 2

Why franchising works 3

Spotlight on a unique franchise idea: Pet Butler 3

Successful International Franchise Enters D.C. 3

Established Concept in Seventh Consecutive Year of Growth 3

Understanding the franchise relationship 4

Franchising gives veterans a future 4

Top five things to look for in a franchise 5

Fitness franchising: Building a better America one franchise at a time 6

Entrepreneurial Passion: A one on one with Pat Croce 6

Financing Your Franchise 7

Preperation: The Secret to Franchising Success 7

FRANCHISING – A TITLE FROM MEDIAPLANETPublisher: Brian D. Aitken, +1 646.922.1413, brian.aitken@mediaplanet.com

Editor: Jon AlisterCo-Editor: Colin DeVriesCopy Editor: Anastasia NovozhilovaDesign: Jez MacBeanPrint: Washington PostPhotos: istockphoto.comMediaplanet is the leading publisher in providing high quality and in-depthanalysis on topical industry and market issues, in print, online and broadcast.For more information contact the Director of Business Development at +1 646 922 1412philip.thunstrom@mediaplanet.comAbout this section: This sepcial advertising section was written by Media-planet in conjunction with the advertising department of The WashingtonPost and did not involve the news or editorial departments of The Post.

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ForewordFRANCHISING

Today’s rapidly-changing economy presents both challenges

and opportunities for tomorrow’s franchise small-business

owners. But optimism remains strong in view of how well

franchises have performed during previous economic cycles.

Franchising is a method of distributing products and services

that involves a franchisor who lends its trademark and business

system to a franchisee who pays a royalty for the right to use that

trademark and system. Franchised businesses operate in every

state, the District of Columbia and in every Congressional Dis-

trict in the country.

GrowthIn a recent report the International Franchise Association’s Edu-

cational Foundation determined that the franchising sector of

the economy expanded by over 18 percent from 2001 to 2005,

adding more than 140,000 new businesses and 1.2 million new

jobs. Direct economic output of franchises grew by more than

40 percent to $880 billion in 2005.

Franchising now provides more jobs than many other busi-

ness sectors, including durable-goods manufacturing and fi-

nancial-activities. It is clear that franchising is a critical engine of

economic growth helping entrepreneurs realize their dreams

while building local businesses, one opportunity at a time.

OutpacedThe study also shows that from 2001 to 2005 franchised busi-

nesses outpaced the economy as a whole in growth of jobs,

payroll and output. In fact, growth in employment was three

times higher for franchised businesses than for the economy

as a whole.

The impact of franchised businesses goes far beyond direct

employment and payroll contributions. Franchised businesses

purchase products and services from non-franchised businesses,

and their owners and workers contribute to the growth of non-

franchised businesses. As a result, the total impact of franchising

was to provide 21 million jobs and $660.9 billion of payroll in

2005. Output produced because of franchised businesses grew

to more than $2.3 trillion in 2005.

Today, there are more than 900,000 U.S. franchised establish-

ments operating in many lines of business, including automotive,

commercial and residential services, quick-service and full-service

restaurants, lodging, real estate, retail products and services, and

business and personal services.

Franchises offer great advantages for those who want to be-

come small-business owners. With all of the sources available it’s

sometimes difficult to find the right information, so it is with

great pleasure that I introduce this special report which sheds

needed light on why

franchising works

and what you can

do to best prepare

yourself to join this

exciting industry.

BY MATTHEW SHAY, PRESIDENT AND CHIEF EXECUTIVE OFFICERINTERNATIONAL FRANCHISE ASSOCIATION

Matthew Shay, President and Chief Executive Officer International Franchise Association

BY COLIN DEVRIES & JON ALISTER

Fortunately, more unique and interesting

franchise concepts are surfacing today than

ever before. These concepts answer the

question: “What can I offer my customers that

they can’t get anywhere else?”

One such franchise concept is Pet Butler, a pet

waste cleanup service with over 125 franchises in

27 states in just 30 months. According to Matt

“Red” Boswell, CEO of Pet Butler, it’s not only the

interesting concept but the unique turnkey busi-

ness model that is responsible for their growth in

what many consider a slow economy.

“We have broken down the barriers which keep

most people from business ownership,” Boswell

said. “We take the headaches and hassles out of run-

ning a business, allowing franchise partners to focus

on growing their business and making money.”

This concept, while certainly attractive to

pet owners, also provides an unusual

amount of ongoing support for their fran-

chisees. The key to success, Boswell says, is

the in depth support systems Pet Butler pro-

vides, which essentially eliminates operational bur-

dens such as billing/collections, routing, marketing,

and customer service. When considering how to be

successful in differentiating yourself from the com-

petition take into account how saturated the po-

tential market is and what, if anything, the franchisor

does to create a niche in the market. It may also be

helpful to keep in touch with current events, espe-

cially spending trends. In Pet Butler’s case, they no-

ticed spending on pets increased by $2.3 billion dol-

lars a year since 1997 and took the initiative to

creatively grow in this virtually untapped market.As

evidenced by Boswell’s concept, innovative business

systems coupled with a proactive response to cur-

rent

events can

mean enormous

growth and suc-

cess for franchises.

• For more informa-

tion on Pet Butlers

services and franchise

opportunities log on to

www.petbutler.com or call

1-800-PET-BUTLER.

SUCCESSFUL INTERNATIONAL FRANCHISE ENTERS D.C.

Yogen Fruz, a Canadian based frozen yogurt

concept, has recently launched its plan to open

in Washington D.C. , Virginia and Maryland.

The concept currently operates 1,100 units

across 20 countries. Their success has thrived

on providing healthy and nutritious products,

and was ranked the number one “Franchise in

the World” in Entrepreneur Magazine in 1999.

“We want to make Yogen Fruz accessible to

people all across the metro D.C. area. When

someone thinks about frozen yogurt they will

think about Yogen Fruz,” John Kane, Yogen

Fruz Master Franchisee for Virginia, Washing-

ton DC, and Maryland.

• For more information on Yogen Fruz,

including franchise opportunities, log on to:

www.yogenfruz.com

ESTABLISHED CONCEPT IN SEVENTHCONSECUTIVE YEAR OF GROWTH

Little Caesar Enterprises, Inc. built more do-

mestic units than any other pizza chain in

2007, while simultaneously being recognized

as the top value quick serve restaurant chain

in the U.S.* Last year, more stores were opened

by new franchisees than in any other year

within the last decade. Even with current eco-

nomic pressures, the world’s largest carry-out

pizza chain is growing and plans to open ap-

proximately 100 stores in the Washington DC

area in the next 10 years.

To learn more about franchise opportuni-

ties please visit www.LittleCaesars.com or call

1-800-553-5776

*”Highest Rated Chain – Value for the

Money” based on a survey conducted by San-

dleman & Associates, 2007.

Spotlight on a uniquefranchise idea: Pet ButlerAs a prospective entrepreneur you are likely trying to find a way tostand out in the business world. With many franchise conceptsproviding similar products or services it can be challenging to dif-ferentiate yourself and your business from the competition.

Why franchising works: Thepower of brand recognition

FRANCHISING

BY COLIN DEVRIES

Time and time again you will hear someone

order a “Coke” at a restaurant where they

only carry Pepsi. Or someone might ask you

to hand over a Kleenex from a generic box of tis-

sues, or refer to generic lip balm as Chapstick. This

phenomenon can be described as brand associa-

tion, when one brand has become so recognizable

it becomes synonymous with a type of product.

That same principal of brand recognition is one

reason that franchising is so successful. Con-

sumers are comforted by recognizable brands

and often are willing to pay the extra price for the

reliability, quality and reputation associated with

it. There are numerous other advantages to own-

ing a franchise, which explains why franchising

works so well:

• The products and methods are proven to work

and increase the chances of success for the fran-

chisee

• A franchisor offers a wide range of support to

the franchisee, not available if they started a

business independently

• Consumers are familiar with the company and a

certain level of quality and consistency, which is

mandated by franchise agreement

• Franchisor assists in marketing plan, site selec-

tion, training, and business operations.

The concept of franchise interdependency, in

which franchisors strive to preserve their logo,

service mark, and operating system through fran-

chisee management, is a major component in the

success of the system.

Aside from the proven brand and operating

system, franchisors often offer ongoing support

for their franchisees. Typically, this support begins

before the franchise location even opens its’ doors

through in-house training programs. This initial

training coupled with the ongoing marketing,

training and software support sets franchisees up

for success in this competitive market.

Even in times of economic hardship the fran-

chising industry has maintained its resilience.

“Franchising is countercyclical in many ways to

the rest of the economy,” says Michael Seid, co-au-

thor of Franchising for Dummies, “and has proven

to be very resilient over the past 55 years since

modern franchising was born.

“We are already seeing signs that, in a few

months, franchise sales will again be robust, as for-

mer employees become new business owners

under a franchise banner.”

With proven techniques that continue to inno-

vate and grow, the success of franchising is limit-

less. Utilizing a rigid business format with tested

methods, brand recognition, quality assurance,

and a vast support network the industry will con-

tinue to thrive and make the dreams of fran-

chisees a reality.

Understanding thefranchise relationshipBY COLIN DEVRIES & JON ALISTER

The relationship between the franchisor and

franchisee is a codependent one. This

codependency often relies on the fran-

chisor providing marketing support, ongoing

back office support, assistance finding a great lo-

cation, and training for the average investor. In

return, the franchisee is expected to make in-

vestments, stay loyal to the franchisors business

style and of course, turn a profit.

A franchisee is expected to invest by paying an

initial franchise fee, legal and accounting fees,

building and rent costs, equipment, and adver-

tising fees. Franchisees also pay royalties, which

are often four to eight percent of a franchisee’s

total sales.

While these costs may seem great, they are ac-

tually often less than if one were to start an in-

dependent business, based on the higher returns

franchises typically earn.

As of July 2008, all franchisors are required to

provide the Franchise Disclosure Document

(FDD) to potential franchisees in order to explain

obligations, financing, restrictions, and financial

performance. Financial performance is essential

for franchisees to understand the potential profit

margin and overall fiscal wellbeing of the fran-

chisor.

“Franchisees need to perform due diligence

when looking at potential franchise opportuni-

ties,” said franchise attorney Brian Schnell, of Fae-

gre & Benson LLP. “That disclosure document has

critical information about that franchisor which

franchisees need to make an informed invest-

ment decision.”

New laws imposed by the Federal Trade Com-

mission (FTC) have made it difficult for all fran-

chisors to produce the FDD, however. Schnell

warns this could be a bad sign. “Everybody was

aware of the July 1st deadline, and if they haven’t

met it was there a good reason or not? And what

does that say about the franchisor’s ability to

meet other deadlines?”

BY COLIN DEVRIES & JON ALISTER

Every year over two hundred thousand ser-

vicemen and women enter the civilian

workforce, often with astounding leader-

ship experience. To assist with the transition, 346

companies have signed on for the International

Franchise Associations VetFran program which

provides incentives for honorably discharged

veterans to open their own franchises.

Franchisors, such as Dunkin’ Brands, offer qual-

ified veterans a considerable discount on initial

franchise fees — often by as much as twenty per-

cent. Other incentives offered to veterans in-

clude financial guidance and, in some cases, even

lower royalties.

GrantsSupplementing company offerings are grants,

provided by the IFA Education Foundation, to

veterans for business development, education,

training, and technical assistance.

To date, nearly 1,100 franchises have been ac-

quired through the VetFran program and have

helped veterans successfully make the transition

into the civilian world of business.

Franchising givesveterans a future

FRANCHISING

Prompt & Professional Responseto Due Diligence:It’s natural for every franchisee to go

through an interview process with each

company they are interested in pursuing.

Typically, franchisors will have lots of

questions about the franchisees back-

ground and credibility, and franchisees

should have just as many questions

about the franchisors performance and

outlook. Both franchisors and franchisees

should expect prompt and professional

responses to all research questions. Fran-

chisees should beware of companies

that appear agitated by requests or that

do not provide a prompt response.

Strong Training Programs:Some prospective franchisees may

have had prior franchising experience

and may not need much training. How-

ever, for the majority of prospective

franchisees, training is imperative to

successfully operate a companies’ fran-

chise. Prospective franchisees should

be on the lookout for franchises that

offer operations, payroll, marketing and

business training as well as general on-

going training and support.

History of Litigation:With over 900,000 franchised estab-

lishments in the United States alone,

there are bound to be lawsuits. One

consideration should be the ratio of

lawsuits to franchise locations. A global

franchise may have a hundred lawsuits

pending every year while a small fran-

chise operation may only have ten.

However, when broken down, those

100 lawsuits from the global franchise

may only represent one lawsuit per

hundred franchises, while the other

franchise concept may have one law-

suit for every ten franchise locations. It

is important for the prospect to care-

fully read the Franchise Disclosure Doc-

ument (FDD) to see how the franchisor

has dealt with these issues.

Financial Strength:Surprisingly, the financial situation of a

franchisor is often overlooked. It might

make sense for those franchisees, without

a financial acumen, to have an account-

ant review the franchisors FDD to ensure

they are making a sound investment.

Attitude of the existing franchisees:In a great franchise almost all of the

franchisees will be happy with their

present business as well as their

prospects for the future. Prospects

should take the time to meet with ex-

isting franchisees and assess their de-

meanor. A few revealing questions for

existing franchisees are: Are you happy

with your financial results? Did you re-

ceive adequate training? Do you re-

ceive ongoing support? And, what

about your relationship with the fran-

chisor would you like to see improved?

If a franchisor satisfies these five pre-

cursors then the franchisee has likely

found a strong all around franchise op-

portunity. As long as the opportunity

is what the prospective franchisee is

looking for on a personal level, they

should be able to achieve success with

that concept.

Top five things to look for in a franchiseThere are thousands of questions every entrepre-neur has when considering which franchise opportu-nity to pursue; we’ve narrowed down the top fivethings to look for in a franchise.

BY JON ALISTER

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© 2008 Tasti D-Lite LLC All rights reserved 0708FD018

FRANCHISING

BY JON ALISTER

Entrepreneurs interested in opening a

franchise often have a difficult time

choosing where to invest their money,

time, and career. One way to ensure

you make the right choice is by invest-

ing in a concept that reflects your pas-

sions, personal interests and financial

goals. If you’re passionate about health

and fitness, you may want to look into

the highly successful industry of fitness

franchising.

Every day hundreds of Americans as-

pire towards a healthier lifestyle by

signing up for a gym membership, per-

petuating the growth of this $14.8 bil-

lion dollar industry. With over 40 mil-

lion health club members nationwide,

it’s no surprise that Entrepreneur mag-

azine ranked fitness as the fifth hottest

franchising trend in 2005.

One of the most innovative fitness

franchises on the market today is Ex-

treme Boot Camp: an intense outdoor

physical fitness program designed to

provide fitness enthusiasts with an out-

let to be their own boss. This concept is

suited for both the personal trainer look-

ing to secure a steady stream of income

as well as the experienced entrepreneur

looking to diversify their portfolio.

Currently, this concept exists solely in

California. However, according to Extreme

Boot Camps’ President Danny David,

there is an aggressive campaign to grow

this franchise both domestically as well as

internationally: beginning immediately.

The key to this franchises’ growth is

the tailored approach it takes to sup-

port each franchisee on an individual

basis. According to David, “we take

some of the most talented personal

trainers and teach them how to run

their own business. That’s everything

from day-to-day operations to the im-

portance of marketing, and marketing

frequently. Sure, some of our fran-

chisees’ are experienced entrepreneurs

and don’t need the help, but the sup-

port is always there if they ever do.”

Fitness franchising: Building a betterAmerica one franchise at a time

Entrepreneurial Passion: A one on one with Pat CroceBY BRIAN AITKEN

Passion is the driving force behind many

successful businesspeople, but what role

does passion play in franchising? Ac-

cording to successful entrepreneur Pat Croce

it’s imperative that aspiring franchisees “take

action on their passion.”

First, and foremost, it’s necessary to deter-

mine what that passion is. For some, that may

mean investing in a coffee franchise in pursuit

of their life-long devotion to the perfectly

roasted espresso… for others, though, it may

be to have more free time to spend with fam-

ily, or even just to be their own boss.

According to Croce, the next step is to “do

what successful people do, not what they say.

Then set out to do it better, but don’t waste

your time reinventing the learning curve.”

Proven business modelsFranchising provides aspiring entrepreneurs

with proven business models to choose from,

so there’s no need to reinvent the learning

curve. However, as Croce states, “it’s important

to be persistent and patient. There’s going to

be rejections, objections and frustrations in

every business venture.”

When pursuing their passions, franchise en-

trepreneurs need to consider what they value

most in life. For many, it comes down to two

things: creating a game plan for success, and

acting on that game plan with conviction.

Best-selling author and entrepreneur, Pat Croce.

Revolutionary franchise concepts like

this thrive in a constantly changing world.

Not only are their fitness programs con-

stantly changing based on advances in ki-

nesiology and nutrition, but their execu-

tive team is constantly looking for new

streams of income for their franchisees.

Regardless of which business oppor-

tunity you pursue David suggests you

look into a concept built upon principles

you believe in, with realistic financial goals

and a work environment you love. For

many entrepreneurs, that environment

exists in the fitness franchising industry.

Benefits include

the use of pre-tax

dollars to invest in

your business, elimi-

nation or reduction

of outside debt,

cash to pay ex-

penses including

salaries and a qualified

retirement plan to build

long-term wealth.

able lender if they don’t provide finan-

cial assistance themselves.

Use Your 401(k) or IRA FundsAsset reallocation is another approach to

funding your new endeavor. The assets

in your 401(k) or other retirement plans

can be used to invest in a franchise; tax

deferred and without penalty. This is

based on the same techniques and pro-

vision of the Internal Revenue Code used

by large pension funds. One such pro-

gram is Benetrends’ Rainmaker Program.

The first step to using these funds is to

establish a separate qualified retirement

plan for your new company. Next, money

from your current plan is rolled over, fol-

lowing IRS guidelines, into the company’s

new plan. The money that exists in the

new plan is invested in your company

the same way large pension funds make

investments in other companies.

To take advantage of 401(k) self re-

liant business funding, the new plan re-

quires some annual administration to

comply with tax code and pension reg-

ulations. These services are available

through third party administrators or

other financial professionals.

history. Surprisingly, mortgages will

not count nearly as much as other

loans when lenders review the fran-

chisees’ credit history.

This is because people tend to pay

their mortgage before all other bills, so

lenders will be looking for late pay-

ments or defaults on secondary loans.

When it comes time to provide collat-

eral, a home and other personal assets

will be necessary to provide the lender

with full recovery in the event of a de-

fault loan.

Before reaching out to commercial

lenders or turning to home equity, fran-

chisees should look into what their

franchisor has to offer. Often, fran-

chisors can help franchisees find a suit-

There is a pretty common mis-

conception that entrepreneurs

can borrow all the money re-

quired to start a small business. In re-

ality, almost every franchisee will re-

quire an initial cash investment; like

investing in a mortgage this is typically

in the range of 20 to 30 percent of the

initial startup costs. This initial sign of

good faith is undeniable reassurance

to the franchisor as well as the lender

that the franchisee is committed to the

success of the business.

Credit and collateralAnother requirement for financing is

credit and collateral. Every lender will

be looking for proof of a strong credit

Opening your own business is an enormous invest-ment, fortunately, franchising eliminates some of therisk but you still need significant financial backing.While it is possible to finance a franchise soley utiliz-ing existing capital, most franchisees are required toreach out to financial institutions for assistance.

BY JON ALISTER

FRANCHISING

Preparation: The secretto franchising successBY JON ALISTER

As with any business oppor-

tunity, franchising requires a

great deal of due diligence

and preparation. Franchising

expert, Jim Amos, says “the

most important thing a po-

tential franchisee can do is re-

search. It’s very important to

talk to the right people, read

the right things, and make

sure you’re comfortable with

what’s being asked of you

and what you stand to gain in

return.”

DisclosureBefore a potential franchisee

ever gets to the point of re-

searching a franchises’ disclo-

sure documents they need to

honestly assess what they want out of this business and what they are willing

to do to achieve those goals. Once you’ve done that, Amos suggests talking

to the franchisees of the system you’re considering.

“Be honest with the franchisor and franchisees you speak with. Tell them

what you’re good at, what your skills are and what your long term goals

are.” Amos also suggests being honest with yourself: consider how much

capital you are willing to invest in a franchise and if you’re ready to take on

that initial risk and commitment in order to make those long term goals

come to fruition.

Jim Amos, CEO of Tasti D Lite

Financing Your Franchise