The Franchise Factor at Work

The Franchise Factor at Work By JACQUELINE FOX Staff Reporter Two years ago Jeff Bresin was a special effects crewman, his wife Dana worked at a children’s social club. With a new baby on board, strikes in the film industry pending and a softening economy already taking a toll on their pocketbooks, the couple decided enough was enough. They wanted to run their own show, and they wanted to run it together. So, the Bresins pooled their resources, applied for a small business loan to make those resources stretch a little further, and bought a My Gym Children’s Fitness Center franchise from the Sherman Oaks-based Gym Consulting Inc. GCI is one of about 1,500 firms in the U.S. you can buy a franchise from. It offers non-competitive classes in gymnastics and other skill-enhancing courses to children between the ages of three months and 9 years. The facilities can also be rented for group birthday parties. As a small business, franchises provide a viable option for people who may not have an idea or product of their own to peddle, but still want to be their own boss. In many cases franchises come “pre-packaged,” complete with products, established operational procedures and training programs in place. For new business owners with little experience and limited resources, the system tends to make start-up costs cheaper than setting up a business from scratch and provides the assurance of an institutional history of what works and what doesn’t. But because the concept behind a franchise is that the consumer is looking for consistency, buyers have to also be willing to follow the company’s pre-established formula for success. That formula usually includes strict guidelines on how to hire, train and manage employees, where to set up shop, and, in many cases, even what color of paint you slap on the walls. “Franchising is certainly not meant for everybody,” says Steve Olson, president of Long Beach-based Olson & Associates, which helps emerging franchisors establish programs for their franchisees that foster growth and keep pace with market trends. “Franchises are not right for an entrepreneur,” said Olson. “An entrepreneur wants his own thing and should go that route. But they can be an excellent option for a small business for anyone who can keep to corporate guidelines.” And, said Olson, “for companies considering franchising their businesses, it’s the most successful expansion strategy in the world because you are able to effectively penetrate a market regionally, and you can do it more cheaply because it’s your franchisees who will be funding most of the expansion.” Franchises come in many industry categories, ranging from fast food to home health care to automotive repair, with the children’s and senior markets among the sectors most recently offering the fastest-growing business opportunities. Because work in the film industry was already becoming spotty, the Bresins began saving for a business of their own a few years ago. They also had a windfall from the sale of some stock they’d purchased together. So funding was not a big issue, and neither was choosing the type of business to go into. But weighing the pros and cons of a franchise over their own product or service, however, took a little work. “We were both very active and involved with kids. That was the easy part,” said Dana. “Then we had to run the numbers through on every detail for setting up our own gym, or buying a franchise. In the end, it was cheaper for us to go with My Gym. They got us from point A to point Z, and we were able to save money in the process.” Typical start-up costs for a My Gym franchise run between $120,000 and $150,000. Franchisees must have between $30,000 and $45,000 of their own capital and GCI will typically work to get them approval for SBA funding for the balance. As with any small business, being in charge also means being accountable. Corporate won’t step in and unlock the door for you if you have a sick child at home and not a single employee to cover for you. The hours can be brutal, especially in the first year when the focus is on establishing and building up the customer base. Dana puts in about 40 hours a week at the couple’s Northridge store, Jeff logs closer to 60. “I initially thought we’d run it together,” said Dana. “It hasn’t worked out that way.” And, even with a corporate success formula to use as a roadmap, results vary, sometimes with little or no explanation. The Bresins opened their gym in January 2001 and are just now breaking even on sales with about 250 enrollees well below the franchise firm’s average of about 475, according to Jamie Bertisch, GCI’s chief financial officer. Something else to consider about franchising is the fact that the parent company could be bought out down the line and potentially force franchisees to adhere to new guidelines and new corporate personalities. “You aren’t in control of the future of the franchise system,” said Olson. “You might be protected with your agreement, but you could have a whole new management team coming in and you might not like the direction of that organization.” And, the parent company usually collects monthly royalty fees off gross sales, ranging from 3 percent to 6 percent, so it takes the same bite out of the franchisee’s income regardless of how well the franchise is performing. On the plus side, when you buy a franchise you immediately buy an established brand something an entrepreneur can spend years trying to build for his own product or service. “With job security a thing of the past, many managers and ‘downsized’ former managers in the corporate and technology sectors are taking a hard look at their careers. They are looking for ways to use their business skills that will give them greater control of their futures,” says Don DeBolt, president of the New York-based International Franchise Association. “At the same time, consumers, abandoning the freewheeling spending habits of the ’90s, are looking for the value and consistency of established brands before parting with their money,” he said. “This combination adds up to an increased demand for franchised businesses, which offer the opportunity to own a small business that has the name recognition to attract brand-conscious customers.”