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Franchise Ownership is Catching on with Veterans

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In three years since Air Force Col. Brian O’Rear launched his franchising business, HomeTeam Inspection Service, he seized the market share in Louisville, Ky., despite the existence of about 80 competitors, and hired a staff of mostly former servicemembers.

Things weren’t easy in the first year, but business picked up in the second. By the third year, it was a success. O’Rear had spent 22 years in the Air Force flying fighter jets and a stealth bomber, and he found franchising had one thing in common with military service: teamwork.

“We are dedicated to providing greater value for the clients, and to do that, it requires a team concept,” O’Rear says. “That’s something I understand. Our team offers a professional service, and it stands out.”

Franchising is catching on among military veterans, with roughly 66,000 veteran-owned establishments nationwide, says Beth Solomon, vice president of Strategic Initiatives and Industry Relations for the International Franchise Association (IFA) in Washington, D.C. In fact, in November 2011, the IFA, with President Barack Obama, launched Operation Enduring Opportunity to respond to the number of veterans leaving the service and in need of viable career options. The initiative set a goal to hire 75,000 veterans and military spouses, plus 5,000 wounded warriors, into franchises as team members or franchise owners. Since then, about 4,000 veterans have become franchise business owners, according to data collected by G.I. Jobs, Solomon says.

But is franchising the right step for you? You already have one thing going for you if you’re a veteran, Solomon says. As O’Rear found, there are commonalities between military service and franchise ownership.

“These franchise systems are extremely well-thought-out businesses that work,” Solomon says. “Franchisors don’t want the step of creative thinking on why they want to do something a certain way, such as using Thousand Island instead of mayonnaise. It’s the consistency of the product that makes it successful. This fits very well with the personality of the veterans, and military experience and skills learned have a natural application in franchising.”

Here are ins and outs of evaluating which franchising options are right for you and getting funding support to reach your entrepreneurial goal.

Focus on the dream, not the money, saysDina Dwyer-Owens, chair and CEO of The Dwyer Group. Based in Waco, Texas, Dwyer is a holding company of seven franchise businesses: Aire Serv, Glass Doctor, The Grounds Guys, Mr. Appliance, Mr. Electric, Mr. Rooter (Drain Doctor in the U.K. and Portugal), and Rainbow International.

“Get clarity about what business you want to own, and don’t worry about money,” Dwyer-Owens says. “Set a goal to be a franchisee. Don’t be overwhelmed.”

Then, she says, go through a process of elimination. Ask yourself: Which companies are members of the IFA? Which offer the best deals to new franchisees? What are your initial costs or fees? And what type of financing is available if you take the plunge?

Navy Lt. Isaac Hartsell is considering a motel or hotel franchise in 2013. He chose that industry because he’s looking for a business he can improve on, specifically the management, which would increase the business’ cash flow. Hartsell hopes “to put the right management in place, properly trained, allowing me to move on to even bigger and better business ventures.”

Hartsell is weighing AmericInn and Best Western International, based on their large numbers and entry-point capital investment requirements in Minnesota. However, start-up fees are hefty. For example, an AmericInn within an hour’s drive from Minneapolis might go for $1.4 million. “Lenders typically require experience and a 20- to 25-percent down payment,” Hartsell says. “So I would need to come up with $280,000 or bring in an equity partner. The franchise transfer fee is somewhere in the neighborhood of $2,000 to $5,000.”

Vet the companies and their offerings. Hartsell’s financial hurdles bring up a valid point: The start-up costs can be intimidating. That’s why you might want to consider franchise opportunities with low overhead, O’Rear says.

“I don’t have a physical office,” O’Rear says. “I have an office manager who does scheduling for us from home. My employees meet at the homes they inspect. It works out well.”

Evaluate franchisors for veteran-friendly deals, say Dwyer-Owens and Solomon. Some companies, such as Domino’s Pizza Inc., allow people to start as an employee and eventually become a business owner. And 468 IFA members, like those in the Dwyer Group, participate in the IFA’s VetFran program (www.vetfran.com). They offer financial incentives, training, and mentoring to veterans.

Dwyer-Owens’ seven franchising brands have initial franchise fees averaging $35,000. With a VetFran discount, fees drop about $5,000 to $30,000, says Dwyer-Owens. Potential franchisees also should figure in equipment costs, which can run up to $150,000. Although the Dwyer Group doesn’t finance the equipment, it has a leasing program.

Anago Cleaning Systems is a commercial cleaning franchise system, supporting more than 30 “master franchises” (owners of franchise territories) and 2,200 individual franchisees. The company also participates in the VetFran program, offering to veterans 15-percent discounts on the franchise fees, which start at $1,400 and go up to $39,000, depending on whether someone is buying an individual franchise or becoming a “master owner.”

Anago Cleaning Systems founder David Povlitz’s suggests seeking companies that offer intricate support structures. Anago provides each owner with an easy-to-follow system. “We’re always on call to help out and are inventing new things, offering communication, and [providing] support,” he says.

Also, keep an eye out for special offers. UPS, also a VetFran participant, waived its entire $30,000 franchise fee from Jan. 1 to June 30 for the first 10 qualified veterans who signed a letter of intent, says UPS spokesperson Rebecca Andrews.

“Since 2004, we’ve given over $1 million in discounts to veterans (including the waived fees this year), and we’re not looking to stop,” Andrews says. “We will continue offering the standard discount, and we have been so happy with the 10 veterans that we’re committed to another 10 for another year.”

Deploy multiple funding sources, says David Nilssen, CEO of Guidant Financial Group. “The financing environment is a difficult one, even more so for our service[members]coming back from war,” Nilssen says. “They have unique challenges. Some don’t have perfect credit. There are gaps in their financial profile because they’ve been away and not tending to those things.”

An advisor can offer guidance on tapping myriad funding sources. Guidant funds about 200 businesses in a given month, and 12 percent of the company’s clients are veterans, Nilssen says. Fifty-five percent of Guidant’s clients deploy multiple options at any given time.

What are some of those options? The Small Business Administration has many different programs, most of which are under the 7(a) Loan Program. But Nilssen doesn’t recommend going there “because those programs only provide guarantees to banks to make it more attractive for them to lend to you.” Instead, talk to someone to create an outline and analysis of your financial profile. Then you can look at unsecured credit or conventional lending options, equipment leasing, or peer-to-peer lending.

“There is funding available, but think about it earlier in the process, not later,” says Nilssen. “You may have to work a little harder to access credit. The more time you provide us, the more likely we can help you when the time is right.”

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