Multi-Unit Franchisee Magazine Issue IV, 2012 | Page 62

“T HAT

Brand’ PERF ECT”
s

10 Tips for Sizing Up a New Brand

E

llen Hui, formerly a multi-brand franchisee in the
San Francisco Bay area, has turned her sights to
helping franchisors and franchisees improve their
operational efficiencies. And with her background in
banking, she’s also astute on the financial side. Here are her 10
tips on how to evaluate a new brand.
1) I start with the FDD and read it thoroughly. How
detailed is the Item 19?
2) I visit locations when possible of the brand I am buying. When I visit, I always walk and observe everything.
What are the customers buying? How clean is the store? Is
it properly stocked? How well are the employees trained?
Then I become a customer and buy something, or a few
things, and ask for help from the employees for suggestions.
I look for smiles. Are they genuine? My visit is important
if it’s a franchise store, and if it’s a corporate location I give
my experience more weight in my decision.
3) I call (and more often than not will meet with) operators in the area I am considering, as well as operators in
other parts of the country. Nothing can replace the face-toface time with an operator. It can be expensive, but if you’re
serious about your investment it’s better to be a few dollars
lighter here than in a partnership you might regret. Many
of the operators are willing to give you high-level details
of their financial performance. It’s a great opportunity to
compare how they are doing versus the financials in Item 19.
4) I attend a discovery day to meet the department heads,
possibly the CEO or COO, and there usually are other poregister). Also, she adds, many travelers
are wary about handing off their credit
card. Cashing out at the table not only
solves that problem, it saves time for
busy travelers.
A brand’s executive team and staff are
also a big factor for her. She looks for
“people I can tell are enthused about their
brands, where I’m not going to be stuck
with the same menu or product offerings.
For me, the franchisor should do that,
bring new products to their franchisees.”
Members only!

Army veteran Randy Merrill is looking
for a few good brands—as long as they’re
in his wheelhouse: sports, health, and
wellness. “I want something I can wrap
myself around and I’m comfortable with,”

60

Multi-Unit Franchisee Is s ue IV, 2012

tential franchisees there. What a great opportunity to get
their insights and find out what potential franchisees think.
5) How is their new franchisee training program? Does
the company have advisory boards for marketing? Operations? Supply chain?
6) Marketing fund. How much is it? How is it used? Does
any percentage of it come back to the operator for local area
marketing? If not, then it’s more money an operator has
to spend for coupons or flyers on top of the ad fund. How
much of the ad fund is for national advertising? How do
they spend it (TV, cable, radio, print)?
7) Something we should always plan on: the exit. For
whatever reason, if you can’t run your franchise any longer
(sickness, death, other unforeseen circumstances) and need
to sell, what is the personal royalty guarantee? Three years?
Five years? The life of the franchise agreement?
8) Early termination. You open your location and things
don’t work out, e.g., bad location, big changes in traffic patterns, the major employer in town goes dark, bad economy.
Is there a payout to the franchisor? How much is it?
9) Really give the brand a good hard look. How many
in the CEO position in the past X years? Is the brand privately or publicly owned? Bankruptcies (it works both
ways)? How will the brand stay competitive and relevant in
the coming years?
10) In reviewing financial statements, every number is
important. I find the COGS, fully loaded labor, and real
estate cost can be the deal breaker!

says Merrill, a former athlete who was
involved in fitness chains in Los Angeles
before returning to Atlanta, where he got
into tanning salons. He also wants his
brands to be membership-based.
“My career’s been in membershipdriven businesses,” says Merrill, who
operates 17 Solar Dimensions tanning
salons (not a f &