(Editor's Note: This column is part of a series of columns by Matthew Cicci tracking his progress as he opens a fitness franchise. Check out previous columns in this series by going here.)
I sat in a large brand-splashed conference room next to an out-of-shape, middle-aged accountant from Raleigh, North Carolina, and a former IT professional from Boulder, Colorado, who could easily have passed for a young version of the Marlboro Man. Each of us had made the trip to Denver (on our own dime) to attend what is known as discovery day. Every franchisor does a discovery day. And, what seems exciting at first eventually turns into the most awkward round of speed dating ever.
Let me back up a little. Weeks before the discovery day, I had narrowed my list of potential franchise purchases to three. The final step was to travel to their corporate offices, meet their support team and visit an actual live operation. Here I could get a better understanding of operations, real estate, facility design, budgeting, staffing and essentially ask, "What the heck am I thinking?" Before this step, I was furnished with the notorious franchise disclosure document (FDD), a massive document disclosing pertinent information about the franchise company to the potential franchisee. By law, it includes at least 23 specific categories. Depending upon the size of the company, it can be more than 500 pages long. It's exhaustive, intimidating, impressive and a little draining. Like dating.
In a nutshell, discovery day is a 36-hour whirlwind of concept-specific information designed to provide potential franchisees with all the information needed to say yes. I met the entire franchise support staff, company officers, vice presidents, managers and custodial staff.
The agenda was tight. Every hour a different department head came in and presented his or her piece of the puzzle. It is worth mentioning that they were evaluating me just as much as I was evaluating them. Not everyone goes through discovery day and receives an invitation to purchase the franchise. When it was all over, like a four-year-old's birthday party, I was sent home with a headache, the need to rest and a pretty nice swag bag.
Before you are invited to discovery day, you have to have essentially shown your financial ability to purchase the franchise. Don't worry if you don’t have the cash in your savings account, though. Many financing options are open to you, but here are the options that I considered:
- Savings. If you have a significant amount of disposal income, then this is a great way to start as it lets you open your doors with little to no debt.
- Friends and family. Getting loans from friends and family is a common and usually necessary method for at least some of the start-up funding.
- Bank/Small Business Administration (SBA) loan. If you can get a loan through a bank, that is a great options, but bankers are still hesitant to give loans to new businesses in this financial climate. Most start-ups without two to three years of working history will need to go through the SBA instead. The SBA requires a great credit rating. Of course, the interest rate is really the issue with any loan. It can be as high as 15 percent to 20 percent, which is downright debilitating to a new business.
- Business line of credit. In my mind, a business line of credit is preferable to a loan in that you use it like a credit card. You only take as much as you need when you need it. Banks may not be as likely to offer such a product as new businesses are viewed as high risk, but if you are lucky enough to qualify, I recommend it.
Other creative financing options, such as a home equity loan, rollover for business startups loan and home equity line of credit, are available. You could also try crowdfunding, credit cards, retirement savings or investors, but the four I outlined are the most typical.
To secure a loan, you need to know the all-in franchise cost, which comes in two parts. The first part is the franchise fee itself. It's the first (and maybe biggest) check you write and can be anywhere from $5,000 to $95,000 or more. The second part is the actual start-up and working capital money needed to get open and through at least the first three months of operation. These expenses can include construction, marketing, payroll, equipment, pre-sale promotions and more. The cost for each will vary based upon geographic location, workforce, vendor management and landlord allowances.
Signing the FDD
After considering each franchise, the cost and financing options, I was ready to sign with a franchisor. The signing call, as it is called, was scheduled for Friday afternoon, and I sat in front of my computer ready to hit "confirm transfer" on my banking website. Having only second thoughts would have been nice. I had many times more than that. After all, it's not every day that I part with $29,900. It all went according to plan, however, and I received numerous calls and emails from the franchise team telling me to go out and celebrate. I sat in quiet for a few minutes to consider the work ahead. I had progressed from the Discovery Day dating process to the signing call engagement, and now I was married to a franchise.
Matthew Cicci is a freelance fitness writer and small business owner in the Chicago area. With more than 15 years of experience in the health and fitness industry, Cicci has operated businesses in the not-for-profit, commercial, franchise and residential fitness environments, including a regional fitness consulting position and managing an 80-acre residential complex in New York. Cicci has held several industry-wide certifications, has a bachelor's of science degree in management and studied under the master's program for exercise science at Syracuse University. He can be reached at [email protected].