Business Management

Is Franchising For You?

When you buy a franchise, you are buying a salon’s blueprint for You provide the manpower and day-to-day dedication, and the franchisor provides the expertise on how to run the salon.

<p>PHOTOGRAPHY BY CLAUDIA KUNIN</p>Three months ago, Karen Benevento was a partner in a Connecticut advertising agency. Before that, she owned a children’s gymnasium center. Now she is the sole owner and operator of an i Natural Cosmetics franchise. This three-time entrepreneur says she has found her niche in life with i Natural Cosmetics. How did her life change so suddenly?

“I created an ad for a woman who had an i Natural store, and I thought the business was a great concept. There was an i Natural in the mall next to my office building, and I started going there almost every day for a service or to buy a product. Then the owner of that store called me and said the i Natural in Secaucus, N.J., was for sale, and she asked if I was interested.

“I was, so I sat in the Secaucus mall where the i Natural was located at different times of the day and week for about six weeks to see what traffic there was like. Then I figured out what my expenses would be. After all my research, I decided to just do it.”

Benevento, 27, is no stranger to the beauty business: She has been a licensed cosmetologist for nine years, and her father designed beauty salons for 35 years. Her brother, also a salon designer, just opened his own beauty supply and salon design business. Though she knows the beauty industry and has a business background from her previous career, she wanted to invest in a company with a track record that would also provide her with support while she got started. Benevento had been looking for a franchise opportunity and had investigated several franchises, including Subway Sandwiches, before she discovered i Natural.

On the other side of the country in Tucson, Ariz., Joann Burruss recently celebrated her fifth day in business as a Volpe Nails franchise owner. When Burruss and her husband, Clay, decided to relocate to Arizona from Now York in late 1993, Burruss started looking around for business opportunities. Having been a customer of Volpe Nails in New York for three years, Burruss was impressed with both the salon and the quality of nails Volpe created. One day, she and her daughter overheard two nail technicians discussing franchising opportunities with Volpe Nails. “My daughter looked at me and said, ‘This might be the opportunity you are looking for.’ I talked with Maureen Volpe, the owner, at length before we moved.”

Burruss moved to Tucson on October 1, 1993, and was soon visited by Volpe, who wanted to meet Burruss face to face. Burruss, who was now to the beauty industry, says Volpe helped her evaluate the Tucson market and locate a salon site. Burruss enrolled in nail school and graduated in mid-January 1994, just in time to prepare her salon location for a March I opening.

More and more people like Benevento and Burruss are choosing to become part of a franchise chain rather than open an independent business. According to the International Franchise Association (IFA), a new franchise opens every eight minutes of each business day. In 1991, says the IFA, 542,496 franchises offered products and services to consumers around the country.

Why have franchises become so popular? Because franchises have a high rate of success. The IFA cites a 1991 Arthur Anderson & Company study of 366 franchises that says only 3% of all franchise operations opened in the previous five years were no longer in business. In contrast, says the IFA, “a study by the U.S. Small Business Administration from 1978 to 1988 revealed that 62.2% of all new businesses were dissolved within the first six years of their operation....”

What Is A Franchise?

A franchisee buys more than the right to use a business name: She buys the benefits of the franchisor’s experience and the business’s formula for success.

Explains Gary Donson, vice president of Volpe Nails, “From the franchisee’s perspective, she’s avoiding all the mistakes we have made over the past 13 years. A franchisee saves time and money by joining up with someone who’s taken all the hard knocks. When someone wants to buy a Volpe Nails’ franchise, it’s because she’s sold on what we do. She wants our name, the technique we use, and our support to help her be successful.’’ Volpe Nails is a chain of 54 salons, 27 of which are franchises. The company plans to eventually convert all the salons to franchises.

When you buy a franchise, says franchise attorney Paige McMichael of Casella and McMichael in Bradenton, Fla., you are buying a successful business format: a standard location, design, equipment system, and operating procedure that ensure a certain degree of success for each franchise. Says McMichael, “A franchise owner has to tell what works for this business and why, what type of location is best, and what type of lease terms work and why. She has to have a good advertising scheme and a recognized name and trademark that a franchisee can rely on to bring in business.

“Most importantly, the franchisor provides an operating manual that covers how to operate the business from A to Z. The manual has to tell the franchisee what to do in the detailed, day-to-day sense, as well as provide a broad perspective on what she should do over a period of years.”

If a salon is well-known locally but doesn’t have widespread name recognition, franchising is still an option. Says Donson, “If a franchisee is not in an area where our name is well-known, she is still getting our experience and support the savings of time and money it takes to get the business off and running, and the training and education we offer. She is buying a proven format.”

Who Buys A Franchise?

Some people choose to buy a franchise because they have a good business background but no experience in a particular industry. Others know an industry well, but don’t have a background in business. Still others have both and just want the experience and support a franchise offers.

Experience and support are exactly what attracted Bob and Rosie Rugen to Erika’s Naughty Nails in Chandler. Ariz. Rosie had always worked in the beauty industry, first doing hair and nails, then working as a salon receptionist and manager. “I felt I didn’t have all the tools I needed. They did. They had been in the nail business a lot longer and already owned four salons. I felt they had the background and experience that I didn’t.” says Rosie. “I know how to manage a salon and I’ve done hair and nails bolero, but I didn’t know all the things I needed to about owning and operating a salon. They did know, and they shared their knowledge with me.”

Lori Smith, who now owns her third Volpe Nails franchise (this one located in Liverpool, N.Y.), says she, too, likes the support offered by a franchise. “I don feel like I’m out here alone. If I have a question. I can call. They have a policies manual that’s always being updated with easier ways to deal with customers and employees. They are always teaching me new and better ways to run the business: They don’t just teach me how to do nails and take care of problems, but also how to run a business. They send me stud on motivation and the best way to pay employees.

“Sometimes I’ll talk to Gary [Donson] four or five times a day. If I need a product, I call and it’s here the next day. If my drill breaks, I send it in and he gets it fixed. I couldn’t imagine opening Lori’s Nails. I don’t think I’d like it,” admits Smith.

A Turnkey Operation

One of the advantages of opening a franchise is that the franchisee is provided with a turnkey operation. The franchisor helps you choose the site and negotiate the lease, tells you how to lay out the salon and where to order furnishings, provides information on what products you are required to use and what your opening inventory should be, and provides you with management and technical training.

For this assistance, the franchisor charges a franchise fee of 15,000 - $25,000, which pays the franchisor’s costs for his or her role in getting the franchise started. In addition to the franchise fee, the franchisee incurs the standard salon startup costs for salon furnishings and equipment, inventory and advertising.

“Our franchise fee is $15,000,” says Robert Geenberg, president of i Natural. “That includes plans for the store’s layout drawn up by our in-house architect and review of the lease by our in-house attorney. It also includes site approval, negotiation of lease terms, formal classroom training, and 3-5 days with our corporate trainer. The corporate trainer assists with the salon setup and suggests an opening inventory. We also provide suggestions on marketing programs and advertising promotions.”

Dallas-based Nails Now! owner Ira Bloom, who is currently setting up several franchises, saws Nails Now! franchisees will undergo extensive training. “We will have at least one principal and two managers go through an intensive training program in our company-owned stores. That training will last as long as necessary,” he says.

“Then we will have an extensive training program that will be held in their store. They won’t open until we feel comfortable that things are being done correctly. After that, we have a supervision team that will go out at least once a week to inspect the salon and provide support.” The franchise fee for a Nails Now! salon is $25,000.

Burruss says she counts her franchise fee as an expense for training and expertise. “I could never have opened the type of salon I have without having had someone here who knew what she was doing. I don’t think an individual can do a shop of this scale without expertise because there’s so much involved,” she says.

According to Burruss, Volpe and Donson traveled to Tucson to help with the salons grand opening. “Maureen Volpe oversaw everything and made sure the quality of work was high and that we were all doing what we were supposed to be doing. Meanwhile, Gary trained my husband on the computer system,” she says.

Before the salon opened, Burruss and her staff underwent three weeks of training. “The training covered technique, education on nail diseases and disorders, and salon policies. Part of our training also was going out and talking to people and giving them VIP cards for a free full set of nails.”

Once the franchise is up and running, the franchisees pay the franchisor a monthly royally fee, usually 1% to 6% of the franchise’s gross monthly profits. The royalty fee pays for ongoing operations support, advertising and marketing programs, and additional training. Some franchises include advertising in the royalty fee, while others charge a separate percentage.

The Pros and Cons of Owning A Franchise

The franchisees we interviewed did not have one complaint or regret about owning a franchise. When asked to compare the pros and cons of owning a franchise versus their own salon on issues of cost, expertise, support, and control, they could only sing the praises of franchising, Rosie Rugen came closest to having a complaint, and she only wished that she had more control over the salon’s decor. “The theme is green carpeting with yellow accessories. I’m not a green-and-yellow person. But I don’t think that’s a disadvantage Because someone else did all the buying and fixed the salon up for us. When you’re by yourself, you have to figure out what you want and where to go to get it,” she says.

On the issues of cost, control, expertise, and support, these franchise owners were equally split. A franchise owner incurs more expenses and has less control over her operation, but she gains the benefits of the experience of the franchisor and other franchisees on what works and what doesn’t. In addition, she enjoys ongoing support and training. The costs and areas in which a franchisee gives up control come as no surprise. Everything is outlined in the franchise agreement and other legal documents that the franchisee has ample time to review.

In addition, main franchisees are attracted to a business because of their experience as customers or employees. Smith was a former employee of Volpe, the Rugens did contractor’s work for Erika’s Naughty Nails, and Benevento and Burruss were former customers of i Natural and Volpe, respectively.

Ultimately, says Benevento, there’s not a lot of difference between owning your own salon and owning a franchise. “Either way you have to have good business knowledge as well as people skills. This appealed to me because I’m on my own. There are certain guidelines I have to follow, but no one’s breathing down my neck if I don’t do something exactly the way they want me to,” she says.

Is owning a franchise for you? If you don’t mind higher costs and less control in exchange for expert backing and support, franchising may be for you. However, if you prefer to have control over each aspect of your business, opening your own salon maybe your best bet. The best franchise owner is someone who likes knowing that, though she is in business for herself, there is a network she can turn to for advice and support. And, as most business owners will attest, there’s nothing better than knowing you’re not all alone.

Thinking About Franchising Your Salon?

Do you already own a successful, growing salon that has several locations? Are you interested in growing your salon business even further? Franchising a salon takes a lot of time and money on the part of the franchisor, so before you jump in with both feet, here are some things you should know.

When you franchise a salon, you are selling the blueprint to your salon’s success. Most likely, your salon’s operations can be formatted. But can what you do be formatted? Explains franchise attorney Paige McMichael, “If you’re an entrepreneur who likes to operate everything hands-on, you may be very talented when your business is under your control. But to franchise, you have to be able to reduce what makes you successful to a very structured and detailed written package.

“You have to tell franchisees what works for this business and why, what type of location is best, and what type of lease terms work and why. You have to have a good advertising scheme and a recognized name and trademark that a franchisee can rely on to bring in business,” says McMichael. You also need a detailed operations manual that tells franchisees how to run the business.

Your business “blueprint” includes everything from the type of clientele to the inventory tracking system you use. The most important aspect of your blueprint is your business’s niche in the marketplace. For i Natural Cosmetics, the formula for success is based on the company’s exclusive product line and highly visible locations, says company president Robert Greenberg. Gary Donson, vice president of Volpe Nails, credits his chain’s success to the company’s rigorous technician training program and its strong operations support program. Nails Now! founder Ira Bloom credits the interest in his franchises to a successful business format that combines low-priced services with a high-end atmosphere and a detailed operations manual.

The franchise industry is strictly regulated by federal and state governments, and there are many pieces of information to gather about yourself and your business, forms to fill out, and documents to prepare. And that’s just to satisfy the government. You will also spend much time formatting your business.

Says Bloom, “It took me almost a year of talking to attorneys, going to the International Franchise Association meetings, and reading all the materials put out by the government. You have to use an attorney. You have to have documentation on everything.”

The initial cost of franchising your business can be high. “Do your homework and make sure you have at least $40,000 to $50,000 for attorney fees,” says Bloom.

Donson projects the costs to set up a franchise are even higher. “It can easily cost from $100,000 to $150,000. We spent around $45,000, and that was five years ago,” he remembers.

Your costs will depend on how much assistance you need to help you do your market research and prepare the documentation. You can have a franchise attorney do all the information-gathering and document preparation (some will even write your operations manual); or you can do your own research and use the attorney to prepare the documents and ensure you are in compliance with regulations.

While establishing a franchise is hard work, franchising your business opens new avenues of opportunity. Says McMichael, “It lets you expand your business without having the time or economic obligations of running that location hands-on. As a franchise owner, you have obligations, but not all the direct responsibilities of operating the business.”

Bloom puts it another way: “I’m really good at putting a business together, but I hate the daily running of it. By franchising my salon, I have all the time in the world to improve and expand the concept. It also allows me to penetrate the market at a much faster clip than I could otherwise do.”

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