Betting On The Franchise

March 30, 2008
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GRAND RAPIDS — While Annette Hoffman oversees her three Curves outlets, her husband, Tim, tends to his two Biggby Coffee stores.

The business owners from Hudsonville say they’re happy to have taken the franchise route, which gives them the ability to set their own hours and control their own futures.

“We wanted to own our own business so that we could spend time with family, set our own hours and create a lifestyle to be able to do what we wanted to do and not be tied to a boss giving us money, but to create our destiny,” said Annette Hoffman, 28, who was a stay-at-home mom for her two children until she bought her franchises in December 2006. “Whatever you do is how you’re going to succeed.”

Lifestyle is a major consideration for people thinking about getting into business with a franchise, said Mark Pasma, owner of FranChoice, an Ottawa County company that helps people find franchise opportunities.

“A lot of it has to do with lifestyle,” Pasma said. “What I hear from most people is that they want control over their own destiny. They want freedom and flexibility. They want to be their own boss.

“A lot of people come in and say they want to buy a Subway or McDonald’s. But once we talk about the kind of lifestyle they want, that they’re going to be at the store from eight in the morning to 10 at night, that may not be what they’re looking for,” he added.

Buying a franchise takes homework, money and a clear idea of goals.

“It really is more: What is a franchise or business model that is going to fit what you want to do?” said Brian Mulder, owner of The Entrepreneur’s Source in Grand Rapids. “Do you want to escape corporate America or keep your job? Some people like to find something they can do on the weekend; some want a lifestyle.”

It can cost as little as $5,000 to north of $100,000 to buy a franchise, but he said companies with a good business model for a full-time income usually start around $75,000.

“The old adage is, you get what you pay for,” Mulder added. “It’s true in franchising, as well. Because of the Internet, there’s lots of businesses posing to be successful franchises. There are some companies out there you want to say away from.”

Mulder and Pasma both offer services to sort through the array of franchise opportunities. Pasma, who said he has owned six franchises, and Mulder, whose business is itself a franchise, both own Snap Fitness outlets.

They say bringing together the financing can be a challenge. Banks are cautious about lending money to franchisees, so most have to come up with the investment on their own, Pasma said. Tim Hoffman, 30, who spent 10 years in a computer business, said he was turned down by banks “numerous times” and finally resorted to his own home equity and 401(k).

“It is being tightened up, especially for folks who don’t have jobs,” Pasma said.

Mulder added that about a quarter of his customers are middle-aged baby boomers who pull money out of their retirement accounts or use early-retirement buyouts. There are brokers who walk franchisees through the process of tapping personal funding sources.

Franchisees also must understand the amount they will continue to pay the franchise owner for services such as marketing and training. Royalty fees can eat as much as 18 percent of profit, or may be paid as a flat fee. Another percentage often is assessed for national advertising. Some franchise owners collect their share by selling the supplies needed to run the franchise.

If the company lives up to its end of the bargain, the fees may be worth the cut into the profit.

“You just have to do a lot of due diligence with it,” said Nancy Boese, a consultant with the Small Business & Technology Development Center at Grand Valley State University.

The center offers help in establishing a business plan that helps small business owners walk through the financials, particularly the break-even analysis and monthly cash flow, Boese said.

Tim Hoffman said he spent several years investigating options before settling on a Biggby franchise in Wyoming in January 2007. He added the second one in Cascade Township in February.

“I liked the idea of a franchise because there’s a plan out there that you can follow. You can see how other stores have done; you’re able to talk to other franchisees that have done that concept already,” he said. “You can really have an idea of how well it’s going to do before you get involved.”

He said he spent an entire day at Biggby headquarters in Lansing, getting to know the company and its executives. “I got to go through that whole experience and really learn the system inside and out,” he said.

Annette Hoffman said her biggest challenge has been managing staff, while Tim Hoffman said marketing is his most important task. Between them, the Hoffmans employ 47.

Married for nine years, the Hoffmans have two children, Jason, 7, and Heidi, 4.

“I still work a lot of hours, but I choose when I want those hours to be,” Tim Hoffman said. “If I want to take off and go to my kid’s school play for an hour, I can do that. I very much enjoy that.”

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