Employees: Assets? Liabilities? BOTH!

Employees:  Assets?  Liabilities?  BOTH!

 

“It Happened So Slowly That We Just Didn’t Realize It”

 

Davis Kelly is a second-generation masonry contractor who learned the craft from his father.  Over the years, he and his teams have worked as subcontractors to some of the largest general contractors in town and have completed countless projects across a wide variety of industries.  To say that Davis was living the American dream was pretty accurate.  He was fortunate enough to make a good living doing what he loves.

In the past, he had reliable crews and many of the tradesmen had been with him for at least a few years.  Lately, though, it seems that there have been a lot of new faces around the jobsites either due to injuries or workers simply moving on.  Still, Davis looked forward to going to work every day – that is until his workers comp renewal notice arrived!

‘Unaffordable’ and ‘Vital’ Are Like Oil and Water — They Just Don’t Mix!

It’s never fun to receive bills in the mail but when Davis saw that his workers comp insurance was going up by 40% for the coming year, he was alarmed to say the least! Davis knew that members of his crews had minor incidents here and there – things like back strains and cuts – but since his jobs never fell behind, he brushed them off as normal incidents of the trade.

Davis contacted his workers comp provider to get details.  Because his employees logged seven workers comp claims over the past year, their scoring went from 1.0 up to 1.5 (which, cost-wise, was a BIG deal!).  It turns out that the insurer was invested in Davis’s business only enough to process the claims and pay the bills that came in without helping to manage or mitigate claims – and they definitely didn’t provide any type of education to prevent claims from happening in the first place.  Since each claims handler juggles several hundred claims at any given time, it wasn’t surprising that they couldn’t do more but Davis sure wished he had realized that sooner.  In a nutshell, his work comp carrier was an insurance provider but not an insurance partner.

Losing Money & Losing Sleep!

Davis painfully wrote a check for the 40% higher insurance premiums because he had to keep his company operating.  What became his new #1 priority was to find a true partner who could help to un-do some of the damage that had already been done.  To add insult to injury, Davis learned that because of the elevated rating from his workers comp carrier, his company was no longer eligible to put their name in the hat with many of the large G/Cs that they had worked with in the past.  Now, not only was he paying extremely high insurance premiums but the money that used to come in the door was now trickling away because they couldn’t win jobs.  Davis was losing money and he was losing sleep – lots of both!

Solutions Found Through Allies

Thomas, a friend, recommended a company called BBSI to Davis.  “My wife’s company works with BBSI and they are like Johnny-on-the-Spot in helping her with insurance things,” said Thomas.  “Then, when my company needed a partner to help us with some of the HR issues we were having, BBSI also had expertise in that area so we went with them and it has completely changed the way we manage our people and our business.  You should give them a call, Davis.  Maybe they can help you with this insurance mess.”

Davis scheduled time with BBSI.  He explained his company’s current situation and how they had gradually dug themselves into a hole because no one was actually monitoring claims, reaching out to them with periodic reports, or instituting any preventative measures on the front end.  BBSI explained that they would assign a Risk Manager who would work directly with Davis’s Risk Manager and their front line employees to strengthen the company’s risk management protocols.  BBSI also explained that their HR Manager would work with Davis’s team to strengthen their HR programs and compliance which would synergize different parts of the company so that everyone was singing from the same song sheet and working together toward the same – profitable – goals.

Comes The Dawn

Davis signed up with BBSI and their new-and-improved plan immediately began to take shape.  Davis’s company saw more efficient payroll procedures, stronger HR protocols, and increased risk management which meant that workers comp claims were dropping!  Suddenly, Davis found that he was able to invest a lot more time working with his team and building the company than spending so much time and energy holed up in his office worrying how the company was going to rebound.

Several months passed and Davis was beginning to see real light at the end of the tunnel.  Because of the programs that Davis instituted with BBSI, his company actually saved $40,000 over the course of the first year in top-line costs alone.

Goal-Setting, Teamwork & Keeping Everyone’s Eyes On The Ball

The company as a whole set a goal of reducing workers comp claims for the coming year.  Days ticked by without any incidents…then weeks…and eventually months went by without any new claims being filed.  Not only were Operations and H.R. taking notice — the insurance company was also taking notice!  By the second year’s renewal time, the company’s insurance premium had dropped by 25%.  When their rating finally dropped below the magical 1.0, Davis’s company was again able to go after contracts that they were previously excluded from.

With company revenues on the rise and increased profits, Davis was able to reflect on the changes they had made.  One of the biggest wins for the company was that Davis and his employees were now paying more attention to safety.  The training that hiring managers received about how to hire and terminate employees – and how to hire better in the first place – has increased retention and cut the company’s onboarding costs significantly.  The icing on the cake is that the newly-instituted HR protocols helped to create a team environment and strengthen the company culture vs. the divisive us-vs-them mentality that had started to rear its ugly head.

By spending more time with clients and vendors, Davis was able to strengthen those relationships.  Three years into their retooling efforts, Davis’s company has increased revenues by 43%.  As he turns the lights off in his office on a Friday afternoon and heads toward the weekend, Davis realizes that the American dream is once again alive and well and living within his masonry company.

 

 

This article was contributed to the National Franchise Institute by Knight Hinman with BBSI  (303) 929-9946.


Brick & Mortar Franchise Success: Know The Costs or Pay The Price

N E W   B O O K !

Amazon #1 Bestseller

Brick & Mortar Franchise Success:  Know The Costs or Pay The Price

Failure is not an option — until it happens!  Then what?  The purpose of the book is to take the guesswork out of the entire development process so franchisees know exactly what it takes to get their new location open in the least amount of time, for the best overall price and, more important than anything else, without making costly mistakes in the process.

Miller dedicated her book to all the brave entrepreneurs who join the franchise ranks with dreams of opening a successful location.

Her new book hit best-seller lists on Amazon.com within 24 hours of release in both the “Franchises” category as well as the “Entrepreneurship & Small Business” category.

With a Foreword by Rick Grossmann and Michael J. Katz, Esq., authors of Entrepreneur Magazine’s Franchise Bible, “Brick & Mortar Franchise Success” provides roadmaps through the build-out process from calculating a realistic timeline for the project, hiring of the right general contractor, architect and attorney, through the physical reality of the construction process and getting the doors open for business.

Carolyn Miller’s no-nonsense approach to site intelligence and construction management reveals specific strategies that have saved hundreds of franchisees millions of dollars. Many new franchise buyers learn the hard (and expensive) way that setting up a new brick and mortar business is challenging and confusing. The average franchise buyer is in unfamiliar territory and historically many make costly mistakes, which can be the downfall of their business.

Franchising is the fastest-growing method of conducting business in the world. Why? Because it works! But don’t be fooled – success isn’t guaranteed and the stakes are a lot higher when leasing space and building physical locations.  “Over the course of a few decades in development with brands such as McDonald’s, Chipotle, and Red Robin just to name a few, I’ve seen millions of dollars wasted on fixing problems that, in many instances, could have been avoided altogether.”

Like most business owners, your primary goal is to operate a successful business.  You can’t actually do that until your location opens.  While you may know a little bit about a lot of things, the devil is in the details.  When you don’t know what you don’t know, especially when it comes to leasing space and building new locations, you could be in for a long, rough ride.  The reality of how much you don’t know (and what can happen next!) can be all-consuming. Enthusiasm, persistence, and dogged determination won’t be enough to save you.

Do not, Do Not, DO NOT sign a lease without reading this book!

Once a lease is executed, you are ‘officially’ a business owner – even if your new location never actually opens!  A lot of professionals with years of business experience assure themselves that there isn’t any part of the building process that they either don’t know or can’t figure out.  What they don’t take into account is the additional time that ticks away while they learn the ropes – and make costly mistakes in the process. No matter how much business experience and success you have had in past roles, if you are not well versed in all that is involved in getting your new location open, failure will find you!

Building new locations hasn’t changed much over the years. Because it happens thousands of times a day across the country, it’s easy to adopt the mindset of, “I can figure this out.” The truth is that you CAN figure it out – but how much will you spend or forego in the process?

Ignorance isn’t bliss — it’s EXPENSIVE!

Failure is not an option – until it happens! Then what? The purpose of this book is to take the guesswork out of the entire development process so you know exactly what it takes to get your new location open in the least amount of time, for the best overall price and, more important than anything else, without making costly mistakes in the process.

Whether you are an independent business owner or a franchisee, if you have plans to lease space to build your first (or your next) location, the book you’re holding in your hands will become one of the most valuable investments you can make!

To your success…

Purchase Your Copy Thru Amazon Here

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The #1 Lease Negotiation & Site Selection Mistake

The #1 Lease Negotiation & Site Selection Mistake

Every franchisee has one primary goal:  to operate a successful business.  They can’t actually do that until their location opens.

Leases are complicated and create tremendous financial exposure.  Finding the best properties and negotiating the best terms are two of the most important tasks that any business owner undertakes because of the far-reaching and long-lasting ramifications.

While there are a number of key things to do right when negotiating leases, far and away one thing stands out as the #1 lease negotiation and site selection mistake that business owners make:  NOT ALLOWING ENOUGH TIME!

It takes TIME to research the market and qualify all the possible sites or facility choices, then tour the properties which seem most interesting, and then compare them carefully. While timeframes vary by market, the normal time to do just this step is about a month, especially if you intend to allow time to hear back from Brokers and Owners on “unlisted” properties: those properties where a Tenant is in place, but could move out (or be moved out) if a replacement occupant is found.  Consider, too, the supply and demand factors that play a role with restaurant and retail locations.  Even then, these tasks are only the tip of the “time drain” iceberg.  Other tasks need to be factored into the site selection time-line.

Negotiations

Typically done with Letters Of Intent (LOIs) or Requests For Proposal (RFPs), negotiations with the Landlord can span weeks or even months if the landlord is a big company with a real estate committee that meets once a week.  Terms are battered back and forth like a tennis ball.  Perhaps bids need to be obtained for various items before either the Landlord or the Tenant will agree to certain work.  It is not unusual for things to seem to drag on forever.

Preparation of the Lease

Once the financial terms are agreed upon, a new round of negotiations commences: the principals, brokers and attorneys need to battle back and forth over the wording of the lease, and the “devilish-details” can easily bring up new issues of disagreement that need resolution.  This can easily take weeks.

Renovations

Once the lease is signed the premises often needs finishing or renovating, which can add additional months.  Rooms are never the right size, and even when they are, you may want a different style of floor plan.  If it’s an open floor plan, YOU want private offices, or vice versa.  Happens all the time!  I have seen offices installed exactly the way they used to be – before the most recent tenant ripped everything out to make an open floor plan.

Permits

Before renovations can begin, building permits must be obtained. This will take additional weeks – perhaps much longer if the municipality is “backed up”, and don’t forget it is common for plans to be rejected for one reason or another and require revisions, and then resubmission.

Architectural Plans

Need building permits? Then you need architectural plans! How busy is the architect and how detailed are the drawings?  This can easily take one to two months.  If the architect is busy it may be a month before he/she can START the work.

Bottom Line

Unless existing facilities can be found with the right floor plan and features, the process can easily take 9 months to a year – horror stories abound in the industry of it taking even longer.  Depending on the size and complexity of the transaction, six months to a year is a reasonable time frame to use when looking for new locations – and longer is necessary (perhaps another six months) if you will be building from the ground up.

The timeframe above assumes that experienced planners have been retained to guide the process.  Their expertise plays a significant role in proactively averting problems that might otherwise lead to unforeseen delays.

This article was contributed to the National Franchise Institute by Craig Melby with LeaseSmart    (561) 886-8645


Risk Mitigation for SBA & Franchise Lenders

Risk Mitigation for SBA & Franchise Lenders

 

YOU’RE APPROVED! These are two of the most exciting words for a new franchisee to hear and for a lender to say. After painstakingly digging into the details, weighing the risks, crunching the numbers, and figuring out ratios, this milestone is the jumping off point that sets new wheels in motion. The Happy Dance begins!

 

Unfortunately, sometimes those wheels can drive naïve franchisees right off a cliff!

 

The money that was borrowed to get their business open is often eaten up (even gobbled up) by costly mistakes they had no way of knowing even existed:

 

  • The set-up of their company was done according to advice from well-intentioned friends or family members who may not have realized the tax ramifications. If the intended corporate structure does not match the actual registration, the Tax Man will cometh! Regardless of what the money was originally borrowed for, Uncle Sam will take his cut off the top (and seldom is that ‘just a little off the top’). What remains may not be enough to actually get the doors open. As the lender, how will you get paid back?

 

  • The Franchise Agreement has been signed – and now, so has a lease. Without realizing the role that local zoning plays in areas such as permitted uses and utility requirements, this poor franchisee unknowingly gifted $75,000 of your money to its landlord because they didn’t know what they didn’t know. With a signed lease comes the ties that bind. “I’m sorry” or “I didn’t know” won’t grant this franchisee a do-over. With a $75K haircut, will this franchisee make it? As the lender, how will you get paid back?

 

  • A different franchisee to whom you loaned money decided that boiler-plate legal jargon in the landlord’s standard lease was standard practice and proceeded to sign the lease without proper legal representation. As luck would have it, a critical ‘out’ clause (like the inability to secure a liquor license) was conveniently missing from the landlord-friendly lease. This franchisee will still open its doors and operate the business, but with significantly lower sales because they are prohibited from serving alcohol. Will the lower sales still cover overhead costs and the monthly note on the loan you have with them? As the lender, how will you get paid back?

 

The list of possible ‘what ifs’ can stretch a mile long. The dollars associated with those ‘what ifs’ can easily stretch into the tens of thousands. The dance is not so happy now and if I were the lender, I would be shaking in my shoes!

 

“When there is a $5,000 mistake on a franchise project, the

franchisee has a problem. When there is a $100,000 worth of mistakes

on a franchise project, the lender has a problem.”

 

A significant portion of lenders’ due diligence comes from the very important question of ‘How will I get paid back?’  This is such an important question that it is often asked several times while running through various scenarios.

 

Despite all of the number crunching and due diligence that goes into approving smart loans, few lenders take the time to qualify borrowers about their knowledge and ability to actually get the doors open. This is super scary because the build-out of their location is likely the biggest reason the franchisee needs your money in the first place.

 

Yes, it is true that established, national brands often play more of a hands-on role with their franchisees in these key areas. With new concepts hitting the scene almost daily, there is a critical gap in the assistance that new and emerging franchisors are able to offer to their franchisees. It is not a matter of wanting to, the fact of the matter is that they have not grown large enough to be able to bring these resources in-house. This leaves franchisees to figure much of this out on their own. All the while, everyone’s fingers are crossed:

  • The franchisor’s fingers are crossed because if the franchisee fails, it is not only a very public failure with consumers, it also gets reported to the FTC and becomes a disclosure to future prospective franchisees;
  • The franchisee’s fingers are crossed because their life savings, their future income potential, and their livelihood are on the line – not to mention their family’s safety and security;
  • As the lender, your fingers are crossed because you are really hoping that the intelligent person who brought a business plan, financial statements, and past business experience to the table is wise enough to know their construction limitations and will seek the help they need.

 

The Risk Mitigation Tool That Lenders Are Adding to their Toolbox

 

Lenders ToolboxIn two days and for a fraction of the cost of one mistake, the National Franchise Institute’s ESSENTIAL COMPETENCIES program is an insurance policy that helps to mitigate a lender’s risk on loans that fund the building of new locations.

Borrowers include the cost of this program into their loan;

As an incentive, some lenders are rewarding borrowers with a more favorable interest rate for participating in this program and significantly increasing the likelihood of success

 

Click Here for a pdf About This Vital Program

 

Franchising is the fastest-growing method of conducting business in the world. Lenders love franchising! Lenders really love successful franchise loans.

 

When costly mistakes are prevented on the build-out side, franchisees significantly increase their chances of success and they are in a much better position to meet their loan obligations. The franchisor, the franchisee, and the lender all start toe tapping, gearing up for the Happy Dance.

 

Sessions are scheduled every six weeks in Denver and are limited to a maximum of 25 people!  The ideal timing for the Essential Competencies program is after a Franchise Agreement has been signed but before the search for real estate begins (and DEFINITELY before a lease is signed!).

 

Click Here for Program Dates, Details and to Register


A Tale of Two New Franchisees

A Tale of Two New Franchisees

PHOTO - two restaurateurs

Entrepreneurs who choose to become franchisees enter the industry with a double dose of excitement because statistics prove that ‘it’s only a matter of time’ until they begin to see success and start making money.

 

While the franchise model continues to prove itself across thousands of different concepts and brands, the success of individual franchisees lies largely in their own hands.  Before a new franchise concept can operate, it first needs to open. While the paths may be similar, each journey can be very different.

 

 

Take, for instance, two restaurant professionals who recently signed Franchise Agreements:

Operations Experience

Corporate Experience

This entrepreneur had been working in QSR and fast-casual restaurant concepts for years. The goal was to learn the ropes and eventually become a franchisee. This person knows operations inside and out and worked hard to make their dream a reality. Fast forward a number of years and this person achieved their goal: They signed a Franchise Agreement to own and operate their own restaurant franchise. This entrepreneur has a degree in marketing and been a business professional for the past 15 years.   For ten of the past fifteen years, this person worked on the corporate side of three different multi-unit restaurant franchise concepts, each time crafting marketing campaigns that were very successful. After much consideration, this person also signed a Franchise Agreement to own and operate their own restaurant franchise.

 

So which new franchisee is better prepared for the road ahead and more likely to open a successful restaurant? Toss a coin!  Most people are shocked to hear that the outcome of such a major career decision comes down to a simple coin toss.  Surely that can’t be possible – right?  To a surprising extent, it is.

 

Because of each one’s past business experience, both will likely be successful once their restaurants are open. The tipping point will come down to how much development experience each one has (or learns) once the Franchise Agreement has been signed but before real money starts flying out the door. Whoever is well versed in calculating development timelines and realistic costs, in understanding all of the intricacies and the ‘right’ resources that go into getting their restaurant built, and whoever effectively manages the timeline, resources, and on-site challenges once the clock starts ticking will definitely have a more successful restaurant opening.

 

The task of getting the doors open is an important component of franchise success and yet many newer franchise professionals don’t realize just how much is involved until the tally of costly mistakes becomes painfully obvious. Many are left weary, financially strapped, and scared.

 

This scenario plays out across the board for concepts that operate from brick and mortar locations: restaurants and breweries, fitness concepts, beauty and healthcare/wellness concepts, entertainment concepts, you name it.

 

Doctors, dentists and orthodontists are becoming franchisees of chiropractic, men’s health, and dental concepts.  Professional athletes are in the game too.  Each knows their craft very well but few are familiar with the build-out tasks of getting their locations open.

 

If you or someone you know is joining the franchise ranks, NOW might be a great time to look into the National Franchise Institute’s Brick & Mortar Franchise Success program.  A great concept, a proper plan, the right knowledge, and experienced resources will make all the difference so your success extends beyond simply getting the doors open but building your legacy (and your bank account) in the process!

 

To your success…