Boeing 737s aren’t the only things flying high at the Los Angeles International Airport these days. So are the sales at Cinnabon. That’s good news for Clarence Daniels, president and CEO of Concession Management Services Inc., a food and beverage business that operates outlets in five airports across the country.
Using a $200,000 bank loan plus earnings from his existing concession company, Daniels purchased a Cinnabon franchise at LAX in 1999 for nearly $280,000. The first year in business, the store earned $850,000 in revenues. Although the company suffered financially after Sept. 11, 2001, Daniels’ franchise is still riding high with $600,000 in sales, almost double the amount generated by the average Cinnabon found in shopping malls. And that’s just at one of two sweet and sticky shops that he owns at the airport. Daniels also has a second Cinnabon shop he acquired in 2002 for $75,000, not including the franchise fee. Sales at this store are about $400,000 a year. Between the two franchises, he has 12 employees.
When Daniels, 54, decided to become a franchisee, he already operated three food-related businesses at LAX. But the opportunity to be linked with a proven business concept known to millions of people in the nation was too sweet to pass up. “When we first opened our facilities at the Los Angeles International Airport, we had developed all of our concepts on our own so they were nonbranded and were not a part of a franchise system,” says Daniels, who worked for food companies such as Aramark and the catering unit of Marriott Corp. before starting his own business in 1992. “But what became clear to me fairly early on was that if I wanted to grow [my business] the way I intended to grow, I’d be better off being a part of a national brand that was familiar to people, that had an enforced operational standard and that had marketing materials that would help me drive sales.”
For Daniels, purchasing a franchise meant gaining a competitive advantage in business. And he’s not the only one looking to get ahead using this type of opportunity as leverage.
According to the International Franchise Association (IFA), a trade organization in Washington, D.C., there are more than 320,000 franchised businesses in the nation, generating more than $1 trillion annually. People wanting a piece of the entrepreneurial pie are buying into restaurants, personnel management firms, copy centers, and various other product and service-oriented businesses.
Currently, more than 75 industries operate within the franchising format, a system based on a contractual agreement between a franchisor like McDonald’s or Coverall Cleaning Concepts and a franchisee, an entrepreneur to whom the franchisor licenses its trade name and operating model. In return for the right to
operate under the franchisor’s name, the franchisee agrees to pay an initial fee known as a franchise fee — a cost that varies depending on the type of franchise selected — and an ongoing royalty payment to the franchisor. Royalty fees, which are a percentage of the franchise’s gross sales, typically fall within the 4% to 8% range, although some are higher depending on the level of service offered by the franchisor.To help prospective franchisees identify the right business, each year BLACK ENTERPRISE compiles a list of hot and affordable franchises for African Americans. This year’s list of 15 accessible franchises is based on a national survey of more than 80 franchisors who are members of the IFA and included such criteria as the current number of African American franchise units. We also broke down the listing by identifying the best franchisors that fall into three categories: those under $50,000, $50,000 — $200,000, and $200,000 — $500,000. Our survey was conducted by BE Research.
CONSIDER WHAT’S HOT
Some franchisors offer products such as doughnuts and tires, while others sell services like computer consulting and tax preparation. Some can be operated by a sole entrepreneur from home, while others require several employees in a separate outside facility. “There’s really a franchise for every budget out there,” says Don DeBolt, president of the IFA. “You can invest a few thousand dollars and obtain a commercial or residential cleaning service or you can invest up to millions of dollars for a Ritz Carlton Hotel. And then there is everything in between.”
No matter the type, size, or location, franchises are very popular business opportunities — some, of course, are more popular than others. But figuring out which ones are hot and which ones are not can be a challenge. To help make choosing a little easier, the IFA has identified six industries it calls “hot sectors.” These sectors include automotive (Meineke), business-to-business (Mini-Tankers-USA), marketing and advertising (ValPak Direct Marketing Systems Inc.), executive recruiting and staffing (Express Personnel Services), business services (Geeks on Call), and food (Ben & Jerry’s).
The IFA Website (www.franchise.org) lists a variety of franchises in each of these industries. The list includes detailed information about each company, such as start-up cost, franchise fees, support services, and financing opportunities. Prospective franchisees can also take free courses offering instruction on how to investigate franchises, as well as information about the pitfalls of the industry and the terminology involved.
DeBolt says each of these sectors has certain dynamics that make them popular picks. “Take the automotive industry, for example,” he says. “There are just a lot of possibilities in that area because people are not buying a new car every year. They’re servicing their car and maintaining it in whatever manner necessary to run that car a few more miles, and that includes all the things that go with a car.”
Since many people are leaving corporate America to start their own businesses, DeBolt adds that the growing number of start-ups and the services that are required to keep them in operation create more opportunities in the business-to-business, marketing and advertising, staffing, and business sectors.
“Many people are starting their own consulting businesses or whatever niche they have found, which is helping the business-to-business sector grow. Then there are a lot of new small businesses that can’t afford to have their own in-house marketing and advertising departments, which impacts that sector,” he explains. “The staffing and recruiting sector has had a pretty steady period of growth, simply because new businesses are being created all the time and need the appropriate staff to work with them. Sometimes they need [workers] on a temporary basis, which is where most of these franchise companies have specialized lately.”
Healthcare-related franchises are also on the rise, DeBolt says, noting two new franchises that provide services such as MRIs and home-based chemotherapy delivery. Another trend is co-branding, a practice in which existing franchise companies buy other complementary brands in their field and put them all under one roof. “A good example is Yum! [Brands], which owns Pizza Hut, KFC, and Taco Bell,” DeBolt says. “What these companies do is in many locations they will present two or more of these brands under the same roof, so if a group of friends [go out to eat and] one person wants pizza and another wants hamburgers, they don’t have to go to a place that only has pizza or only has hamburgers. They are able to go to a place that has all of them on the menu.”
MAKE THE CHOICE
Becoming a franchisee begins with deciding which franchise you want to operate. Start by taking some personal inventory. Determine what level of investment you are willing to make and possibly lose. No matter what venture you pursue, there’s always risk involved, so make sure you are in a solid financial position to make the purchase.
Consider your goals
. Do you want a small franchise or one that will afford you the opportunity to grow? For instance, commitment to growth was one of the main things Daniels looked for in a franchise: “I wanted to be with a company that had multiple brands available to it, so Cinnabon really did fit the bill for us because Cinnabon is owned by AFC Enterprises, [which also] owns Popeye’s Chicken and Church’s Chicken,” he says. “I felt that if I did a good job with Cinnabon [then AFC] had multiple brands that I could franchise.”
While
setting your goals, also evaluate your skills. Selecting a franchise that requires experience you already possess will ease your transition. But don’t rule out new areas as well. Most franchisors require training before your store doors will even open.When Jacqueline Harrison, 50, was looking for supplemental income to help finance her children’s college education, the last thing she thought about doing was cleaning office buildings. Harrison had nearly 30 years of customer service experience under her belt, so when her husband, Collis, suggested purchasing OpenWorks, a commercial cleaning franchise that offers carpet cleaning, floor care, and window cleaning services, she was a bit reluctant. “But whenever we would pick up a copy of BLACK ENTERPRISE,” she says, “we would always see the success stories of African Americans who had done really well with a particular franchise, so we decided to just do some checking up on it.”
After reviewing a mountain of materials, including the company’s Uniform Franchise Offering Circular (UFOC), a disclosure document that spells out all aspects of the investment opportunity, and interviewing a number of OpenWorks franchisees, the Harrisons put down $6,000 in personal savings toward the initial franchise fee of $11,500 in January 1999 and began operating out of their home in Rancho Cucamonga, California.
With their investment, financing of the remaining balance, and agreed upon 15% royalty, they received equipment, chemical supplies, and two weeks of training. By March of that same year, OpenWorks handed the Harrisons their first account — Tetra-Pak Inc., a warehouse that creates packaging for milk and orange juice cartons. One month later, the couple added GE Lighting as a client.
Since Jacqueline and Collis both worked full-time jobs at the time, they were slow to take on any new accounts for a year and a half. The $2,000 monthly income they earned was enough to build a college fund for their daughter, Jasmine, 19, and son, Collis, 21. The Harrisons divorced shortly after, and Jacqueline was laid off from her job at the San Bernardino County Sun newspaper, where she had worked 10 years as the manager of the customer service department. Jacqueline decided it was time to expand her customer base. “I was in a situation where I had to make a decision. I had no husband and no job, but I had a business, so what I decided to do was take my skills that I had learned over the years working with corporate companies and put those skills and energy toward my business.”
It worked. Harrison (who continues to share the business with her former husband) now has seven employees and nine accounts, including Coca Cola, National Envelopes, Kimco Staffing Services, McClane Food Distribution, and Talbert Medical Group. Last year she earned about $100,000 in revenues and anticipates generating about $123,000 in 2003.
FINANCING YOUR FRANCHISE
As with any type of business, financing is important when considering a franchise. According to DeBolt, about 60% to 70% of franchises require an initial investment of less than $150,000. Of course there are those franchises that command much more in terms of total start-up costs and the initial franchise fee, but there are several options you can use to mine the cash.
“Chances are if you have any capital, you can find a way to leverage that through Small Business Administration loans, family, and friends,” DeBolt says. “Some franchise systems have their own in-house loan programs, actually about one-third of them, but the rest of them all have relationships with financial institutions that know their franchise model and are more inclined to work with it.”
ENLISTING PROFESSIONAL HELP
For some people, making a choice about which franchise to purchase can be an arduous process. Of course, you don’t have to go it alone. There are companies that specialize in helping prospective franchisees identify their passions, interests, and strengths — and at no charge to the would-be entrepreneur.
Marc Kiekenapp, executive vice president of FranchiseBuyer L.L.C., says when people call his consulting service they are confused and overwhelmed. “What we offer is kind of a matching service and matching qualified candidates to the company that they best profile for…that profile is based on their lifestyle, what they can afford, investment level, and skill levels,” he says. “We assist them in the process of weeding through thousands of franchises down to the ones that are the best fit.”
Consultants spend four to six hours with each prospective franchisee to gauge what they like and dislike, as well as educate them about the franchising system. If preliminary conversations reveal that the person may be a good fit for a franchise, he or she is then given eight to 10 businesses to do what Kiekenapp calls “window shopping.” That list is cut down to two or three companies. The prospects are then sent to the respective franchisors to either make a sale or discontinue the process, and the franchisee doesn’t pay for the service. If a deal is made, the franchisor pays the consulting firm.
DeBolt encourages prospective franchisees to use this type of service and recommends similar companies, including Entrepreneur Source and FranChoice, all of which can be found on the IFA Website.
“They are the tools you can use to help you make a decision,” he says. “Nothing obligates you to do anything with these companies beyond talking to them. On the other hand, you may want to spend your whole investigation process working with them.”
| Five Franchises Under $50,000 | |||||
| Company | Type | Black- Owned Units |
Domestic Franchise Units |
Start-Up Costs |
2002 Average Sales/Units |
| Soft-Temps 1280 N.E. Business Park Place Jensen Beach, FL 34957 772-232-0103 |
Computer Services | 4 | 34 | $3,985 — $4,985 | N/A |
| West Sanitation/Aerowest 3882 Del Amo Blvd., #602 Torrance, CA 90503 310-793-4242 |
Commercial Cleaning | 16 | 72 | $5,000 | N/A |
| Tax Centers of America 1611 E. Main St. Russellville, AR 72801 479-968-8012 |
Tax Preparation | 7 | 191 | $8,950 — $13,500 | $4,500 |
| OpenWorks 2777 E. Camelback Rd., Ste. 350 Phoenix, AZ 85016 602-224-0440 |
Commercial Cleaning | 29 | 380 | $11,500 | $60,000 |
| Liberty Tax Service 4575 Bonney Rd. Virginia Beach, VA 23462 757-493-0694 |
Tax Preparation | 54 | 919 | $38,050 — $49,400 | $50,000 |
| SOURCE: BE RESEARCH | |||||
| Five Franchises: $50,000 — $200,000 | |||||
| Company | Type | Black- Owned Units |
Domestic Franchise Units |
Start-Up Costs |
2002 Average Sales/Units |
| Mini-Tankers USA Inc. 4739 University Way N.E., #1620 Seattle, WA 98105 877-218-3003 |
Business-to-Business/ Fueling Services |
4 | 30 | $14,100 — $64,000 | $422,700 |
| Geeks on Call America Inc. 814 Kempsville Rd., Ste. 106 Norfolk, VA 23502 757-466-3448 |
Computer Services | 6 | 75 | $37,350 — $89,150 | $91,053 |
| Sign-A-Rama 1801 Australian Ave. South West Palm Beach, FL 561-640-5570 |
Business Services | 10 | 450 | $120,000 | N/A |
| Express Personnel Services Oklahoma City, OK 73162 405-840-5000 |
Staffing Services | 11 | 407 | $140,000 — $160,000 | $2.5 million |
| Cottman Transmission Systems L.L.C. 2nd New York Drive Fort Washington, PA 19034 215-643-5885 |
Automotive Services | 11 | 370 | $170,000 — $186,5000 | $553,741 |
| SOURCE: B.E. RESEARCH | |||||
| Five Franchises: $200,000 — $500,000 | |||||
| Company | Type | Black- Owned Units |
Domestic Franchise Units |
Start-Up Costs |
2002 Average Sales/Units |
| Total Car Franchising Corporation 642 Century Circle Conway, SC 29526 843-347-8818 |
Automotive Services, Fueling Services |
5 | 277 | $50,000 — $500,000 | $100,000 |
| Ben & Jerry’s 30 Community Drive South Burlington, UT 05403 802-846-1500 |
Food | 4 | 268 | $129,500 — $316,000 | N/A |
| Golden Krust Caribbean Bakery Inc. 3958 Park Ave. Bronx, NY 10457 718-583-0360 |
Food | 64 | 65 | $135,150 — $325,851 | N/A |
| Meineke Car Care Centers Inc. 128 South Tryon, Ste. 900 Charlotte, NC 28202 704-644-8194 |
Automotive Services | 18 | 828 | $180,000 — $365,000 | $449,973 |
| Cinnabon Inc. Six Concourse Parkway, Ste. 1700 Atlanta, GA 30328 770-353-3047 |
Food | 25 | 447 | $251,500 — $340,000 | $155,000 — $1.18 million |
| SOURCE: B.E. RESEARCH | |||||