Michael: Hi, I'm Michael Senoff, founder and CEO of hardtofindseminars.com for the last five years I've interviewed the world's best business and marketing minds. Along the way I've created a successful publishing business all from home from my two car garage. When my first child was born, he. Was very sick and it was then. That I knew I had to have. A business that I could operate from home. Now my challenge is to build the world's largest free resource for online downloadable MP3 audio business interviews. I knew I needed a site that contains strategies, solutions and inside angles to help you live better, to save and make more money, to stay healthier, and. To get more out of life. I've learned a lot in the last. Five years and today I'm going to show you the skills you need to survive. Hi, it's Michael Senoff with hard2findseminars.com you know, I get a lot of questions from my hard to find seminar students about Franchise and who better to talk to about the subject of franchising than Art Hamill? I sent an email out to my entire list letting them know that I would be interviewing Art Hamill on the subject of franchising and the questions started pouring in. Anyone who presented me a question, please understand if I did not get to your question there was just not enough time to handle it. But what you have here is an hour of nothing but question and answers related to franchising. So in this one hour recording, you're going to hear questions from my hard to find Seminars.com students about franchise and art Hamill answering each and every one. I hope this is helpful. I wanted to do a section on franchising, especially after listening to it again in the course because it's an interesting subject and a lot of people are confused about franchising and they have a lot of questions about it. And I figured with your experience you'd be a great person to ask. So I sent out an email to my entire list saying I'm going to be interviewing business buying expert Art Hamill on the subject of franchising. I said if you help me out and submit some questions that you have about the subject, I'll list your name and your website and a little bit about what you do if you choose, and we'll ask your question to Art and hopefully get the best answers possible. Why don't you give a brief description of your experience with franchises specifically? I know from some of our previous recordings on my site@hardtofindseminars.com that's how you got involved in all this business buying is that someone approached you with, I believe, a burger bar in franchise.

Art: Yeah, pizza. Since we had good relationship with them, we ended up with a number of other ones, franchisees in California that didn't do well. They turned them over me. So I ended up with quite a few of them. Now, the thing you were talking about on Burger Barn was somebody came by, had sold me the pizza and franchise. He was staying at our Little Dicky Motel. He was talking about the fact we went to the franchise business. Seemed young and stupid at the time. I said, okay. So we ended up with three different franchises. We had a company called Continental Marketing Institute. This is back in the mid-60s, and we were outselling franchises. This is before franchising really got going, because there were no standard contracts. We didn't have government control. We didn't have all the things that you have today. So basically, I started out being a franchisee, and then we got involved in Burger Barn. The people were basically pulling the money out too fast on the East Coast. So we went back there and we bought the company. So we ended up owning the company that sold the franchise. So I went from franchisee to franchisor, which we did also for a period of time, I don't remember, for the Burger Barns. I think we started out with 12 and then built it up from there. That was back in the mid-60s. Nobody really had franchise packages. There were no franchise rules or laws. It was burn rate and pillage.

Michael: So people would have a restaurant and they'd say, hey, let's sell this whole idea as a concept. And they package it up and just sell it without any kind of regulation.

Art: And today they're still doing the same thing. And that's what the problem is with franchising. Because if you're going to buy a franchise, you're going to pay so much a month or whatever cost it's going to be, you better make sure you're with one that is successful. The thing that you have going for you today is you have the franchise agreement. And this is something that states require and the federal government requires that the company put out basically a franchise document that they give to all potential franchisees to spell out everything. And the thing you should always look for in there is the lawsuit section. And what happens today when somebody's having trouble or somebody isn't doing well with their franchise, instead of just closing up, what they do is go to an attorney. An attorney then will threaten the franchise company. To sue them. And as soon as you threaten them with a lawsuit and open the lawsuit, they have to put it in their document. It is very hard to sell franchises when you have two or three lawsuits pending. It's actually in your documentation. So they end up buying them out, you end up having to pay them off. And we used to always say this one thing in the franchise business, the average franchisee is yesterday I couldn't spell franchise, today I R1 and what happens is as a franchisor, you have to do a lot of things to assist your franchisee. And usually when you get to the end, the last thing they want to do is pay you. They're kissing your butt while they're going along. But as soon as you get to the point where you're helping them, you have a problem, they don't want to pay anymore. And the problem then legally is it may take you two or three years to get to court. If you don't continue to support them being there every month or doing whatever you're supposed to be doing, you're not only going to lose that franchisee, but you're also going to have spent tens of thousands of dollars supporting them in a losing thing. So there's a lot of good news and bad news whether you're a franchisor or a franchisee. The only thing I can tell anybody, become a franchisor or franchisee, do your homework.

Michael: We're going to get into. I'm just going to start rolling with the first question here. It's from Terrence Crow and his question number one is why even consider buying a franchise when one can buy an existing business? Are buying franchises really safer and more secure than buying an existing business?

Art: In the beginning anyway, this used to always be the going word. In other words, buy a franchise. You're going to have somebody to help support you and get you going when you're starting a business and you're probably better off. In other words, if a franchise is good, then you're going to start a business. Having your support is going to help you. You're going to have more of a chance of succeeding. Now, if you want to look at it from the standpoint of buying a franchise, which is basically a start up versus going out and buying an existing business, I can't imagine an existing business that would not be better than starting a franchise. You have to be careful of what you're reading. But yes, on the average, buying the existing business is much better.

Michael: What type of person would you say should consider buying a franchise? Employee student, someone over 55.

Art: It works in all those areas. If you're a person that needs to feel the support of someone else, in other words, you don't feel you have the ability to do that. You want to have a better chance of succeeding, which is what most franchise companies do have. Because of the support they give you and the proven technique, there's a good chance on a startup you're going to have a better chance of succeeding. But if you then take that again and compare it to what you do, say buying an existing company, I can't imagine you finding an existing company that would not be better than a startup franchise.

Michael: Alright, here's a question from Jim Bush of Alice Research Ltd. His website is www.alicealicebook.com and his question is While I'm significantly a smart guy when it comes to financial matters, I feel out of my field. Buying a franchise scares me partly because of the appearance of lots of fraud in the finance business. What is the status of the effectiveness of federal regulations to prevent fraud in the franchise business big and small? Where can I get the education will help me to evaluate new or less well known franchise opportunities? I feel there's a lot of information around if I were to take a McDonald's franchise, but not if I were to take on a Maid Rite franchise or a small 35 unit loose meat sandwich house operation in Illinois and Iowa.

Art: For example, the thing you have to realize, they're going to provide you with certain key information, they're going to give you a stack of stuff on the place and how well the franchise is doing. What you want to get is get to the point where you get the franchise document which will be 30, 40, 50 pages long, which spells out who the owners are, what their background is, how many times they've been to prison and all this other.

Michael: Are they going to offer that freely or is it something you're going to have to ask?

Art: They have to put it in there by law.

Michael: Will they make you sign a non disclosure before you get that?

Art: He signed a lot of papers. I don't know if they're non disclosures or not, but it doesn't make any difference. All this information is provided to you as part of the franchise agreement.

Michael: What if I wanted to find one of those disclosure documents for say a Subway? Could I get that in his public record?

Art: Probably because it's a government thing that the state has. Say it was the state of California, you wanted to have it. You could contact the state, probably the Department of Corporations, they would have copies of those but it's also not difficult to get one other word. You go to Subway and tell them you're interested in a franchise, they'll send you one. I mean, it's not hard to get those. Now, as far as fraud, the thing you have to realize, you have to do your homework. If you're buying a franchise, just taking it from the company standpoint, they're going to list the number of people that have franchises and you're going to say, I'd like to talk to some franchise owners. Well, if there's 30 of them and they refer three or four, fine, do that. But then do your homework. If they're in another state near you, I would go to either call them on the phone or go to see those people in person to see what their place looks like and how they're keeping it up. Because what will happen is you don't want to go to the people that are the goody goody people with the company. You want to go to the ones that are going to be unhappy or middle of the road that are going to give you a good story. Take your time and check it out because if you don't, you're going to end up screwing yourself on these deals. Now, as far as financing, whether it's franchising or whatever, always beware of financing. And the key thing, you can always look at financing. If somebody asks you to put up non refundable money in front, in other words, they're going to go out and try to get you financing for your franchise. And what it says in there, you're going to put up 10,000 or $20,000. But if it doesn't go together, you lose the money. It's non refundable. I can make a prediction. I've been doing this for over 50 years. If you find a company that is charging an upfront non refundable fee, I will give you odds as to how honest they are. I have never, never ever found one that was honest.

Michael: Is that legal to do?

Art: Yes, it is. Even though there are different laws in different states on doing certain things, there are ways that come around to ask you for an upfront non refundable fee. In fact, if you go back on the NBC white papers and things like that, every major network every year will have at least one expose on financing of different types. Orange county has always been a hotbed of fraud. Fort Lauderdale, Florida. If I ever see one from Orange county that's doing that, I see one from Fort Lauderdale, Florida. Scottsdale, Arizona. I mean, these people must all Live together or live in the same area, because that's where most of the fraud comes up. And every time I see one from that area, I back up against the wall. But the key thing is keep in mind if it's non refundable up in front, you're about to get screwed and you ought to go to somebody else.

Michael: Okay, great. Here's a question from Nick Harrison Art. How do you value the worth of a franchise which is being established in a virgin territory where the brand is not well known? In your opinion, is it adequate to research an area of similar size and then try to obtain turnover, net profit figures over say the last one, two or three years and use a suitable multiplier?

Art: Okay, here's what you're going to run into. Going into a new market is the most dangerous thing you can ever run into. Again, you can go to other areas that are similar size, similar demographics, similar people that are 5 foot 10 and above, whatever it happens to be that you're using. But you're still not going to know in a new area whether it really works or not. The chance of your making it is not very good. Now again, McDonald's has gone into all these areas, but when they were getting going in the beginning, they had areas where they failed. And what I always think of is Taco Bell. Taco Bell is worldwide now. They have thousands of places all over the country. But I remember when they first went into Texas. Now Taco Bell, Mexican food, right? If you go into Texas or you go into Florida, I mean, you have all the people that are Hispanic. Wouldn't they go to Taco Bell? Where are two places where they ended up going on their nose in the beginning? Florida and Texas. The problem is when you're going in a new area, you are really taking a chance. And again, if you're doing that and you're going to a pure new area, I don't know what benefits you're getting. Buying a franchise, you'd be better off going into that area if that's where you want to be. And buy an existing business that's already in business and making money, you're going to be better off and you're not taking that risk.

Michael: All right. He also has these two additional questions. Can you give an idea of how to value goodwill? And also when buying a franchise, are you prepared to pay a premium for uniqueness?

Art: Okay, now you're talking about goodwill. Goodwill generally is talking about the amount of value it's assigned to this site business above what the assets are. So if you had 100,000 assets, they wanted 200,000 for it. They would normally consider that 100,000 of it was a goodwill, blue sky, whatever the heck you want to call it. And what you're going to find is all of the franchises have magic multiples. And again, it depends on what they are. If somebody had a manufacturing company, it would be one multiple. If it happened to be a restaurant, it would be another multiple. In other words, there's no one multiple. So you have to be aware of business broker, because business brokers will come back and say it should be five times the net profit, whether it's a donut shop or General Motors manufacturing company, which means you're working with a business broker that typically doesn't know what the hell he's talking about. He or she, excuse me, don't want to discriminate here. So what you're going to find is unless you're going after an existing franchise, you're not going to have a multiple that you have to worry about. Now, there's nothing wrong with that. If you go to the franchise company and they're willing to sell you when it's startup, you should always ask them, say, are there any available that your franchise is like to sell? Because the worst thing will happen in talking to the person that wants to sell their franchise, as you'll find out what the bad news is directly from somebody, probably that's unhappy. And then the second thing is, why not go to the franchise company and say, how many stores do you own? They'll say, we have 10. Say, would you consider selling any of them? And I don't want your dog. I'd like to buy your best one if that's the way you want to go. But keep in mind, if you're buying an existing business and it's the best one the franchise has and they're doing, it's a McDonald's. I don't know what benefit you're getting from being with McDonald's. For less money, you can go down the street and buy another restaurant. You're going to have a management team. I mean, having a strong management team and an existing business is more important than having a franchise company 2,000 miles away that may help you. I'm just talking comparing A and B. I appreciate what you're doing here, Michael. I have never thought about franchising from the standpoint of what you're asking me.

Michael: Okay, well, this is great. This is coming from the public right here. All right, here's some more questions. One from Marco J. Robert, his website is tumizia.com www.t u m I z a.com here's my for Art Hamill, I'm a business development strategist working with small restaurant franchises and hotel motel franchisees. Question Now Art in my line of work, I often see folks who purchased restaurant franchises on sales pitch hike with the hopes of making the big bucks, only to end up losing their retirement savings. I really wish I could help them overcome the situation, but sadly, oftentimes when they come to me, they have already used up most of their resources and are on the verge of bankruptcy. Therefore, my the three part question is this. First, in general, do you recommend restaurant franchises? If so, when selecting a restaurant franchisor, what should a prospective buyer be looking for and what specific business qualities or experience should a buyer possess, either personally or as part of his or her team before venturing into the world of restaurant franchises?

Art: Let's put it this way. If you are a retired person or you're over 55 and you're using retirement funds, if you buy a restaurant, you have to really be stupid. I mean, stupid is the word. The failure rate in the restaurant business is horrendous. The chance of making it in a restaurant business is a little remote and almost none. And that's why you have such a high turnover. What happens is your clients probably are saying to themselves, well, I used to cook. I go out in the back, my wife would cook in the kitchen, I would go out and barbecue. So I'm not going to have any trouble with the restaurant. The same thing with bakeries. The woman is out there, she's baking pies all the time. So you're in this bakery business. What happens when you're in food businesses like that? The failure rate is tremendous. It's high. I don't care how good you are, the numbers speak for themselves. When you go for restaurants, restaurant franchise, whatever you want to say, what you're going to find is the failure rate is tremendous. It's overwhelming. And what you have to do is try to steer people away from restaurants and steer them into businesses that have a lower failure rate that aren't as tough. Back in the days when I was in the restaurant business, I used to think one thing for every thousand dollars of profit I wanted to make, I had to have one employee. So if I wanted to make 50,000 a year, I'd have to have 50 employees. If I wanted to have a restaurant made 200,000, I'd have 200 employees. You know what it's like to manage either 50 or 200 employees. You realize in the manufacturing business, if I had 100 employees, I'd be making over a million dollars a year. I'd have one manager. And what happens is a lot of people in the restaurant business own more than one restaurant and you're making peanuts, basically. Why? Because restaurants do not make as much. You don't pay your managers as much as you do in other type businesses. And what happens is you have more competition, which means what you have to do is try to get them out of that business and try to explain to them that their investment is going to be much safer. No matter how good they are making those barbecues out in the back of their house, the failure rate is high. Also, the work is a lot. You have to put a lot of work in. You have a lot of competition. If you think about it from a common sense standpoint, you have to really be stupid to go into that business. How do I know about stupid? I owned a number of them.

Michael: It just drives you crazy.

Art: You know, I'm just thinking back because it's been years, but I don't even know what possessed me to get in the restaurant business. I must have really been out of it at the time.

Michael: All right, here's a question from Gunnard Art. I run the website global-propared-cards.com I've been asked to buy a US franchise, one that is very well related to the prepaid credit card business. Being a Swede, do I have to register another company in the USA to be able to do this?

Art: I have no idea what the law is. What we do in California, we have a lot of this coming in where they set different laws up here in California for people coming in from the Far East. And what they're doing is if you invest a certain amount of money, say in California, in the business that you're coming in, it automatically gets you green card status and gives you a leg up on getting a permanent visa in the US There are things like that. You're going to have to check that out with the government. But you don't have to fly over here. Just go on the Internet, check on the US Government, and you'll find everything that you could possibly want listed.

Michael: Okay, great. Here's a question from. I don't know who, but here it is. There's no name here. Here's a real life question. Because I have a client who recently approached me about a franchise. Even though they may not have enough money in cash flow to buy a franchise, what type of person should not Buy a franchise, considering the patient's hard work, ability to lead, et cetera, attributes that a franchise needs in order to be successful.

Art: Well, if you're going in and you don't have much money, I take it you're going to have to bring a partner into something else. I hate to keep going back to the same thing, but there's a lot of existing businesses out there that are not franchises that you could get into with limited money that are making as much or more than your franchise will be making five years from now. Which means, although franchising is a great way to go, I keep hearing questions coming from people that maybe don't have enough money, maybe they don't have enough experience. Well, again, the franchise company does give you all this help up to a certain point, but it's not as much help as you're going to get by an existing company. You're going to have 40, 50 employees, employees there that all know what the hell they're doing. In fact, you as a new person buying that business will be the only one that's out in left field. And all I can tell you is 99 times out of 100, you are better off buying an existing company than going out after a startup franchise. Again, I'm not against the franchise business. I'm just comparing apples and apples.

Michael: Okay, here's a question from Richard Austin. His site is called www.dropdeadorganized.com and he publishes an online newsletter about estate planning, wills, powers of attorney, and how to protect family assets and business using some simple planning techniques. Good day, Mike. I'd be interested in finding out whether ART has any advice about business succession in the context of franchises. That is, are there any traps to watch out for as far as being able to, number one, pass on your interest in a franchise to your family on death, and two, sell your interest in a franchise business without restrictions.

Art: Well, although there are franchise laws that spell out what you have to have in there, you're going to find that most franchises have different rules on what they're doing. So what you're going to have to do is find out. You're going to have to get a copy of these different franchise documents and either you or have your attorney read them to see what they have to say, because the government really does not specify that the paragraphs have to be exactly this. But it boils down to one thing. You have to do your homework. You have to take your time, and when in doubt, don't do it. Find something that looks bad or looks too Restrictive. Who wants to go with a franchise that's that restrictive? You're not going to be able to be your own person. So the main thing is read that document. Or again, if you're new, I suggest you get an attorney to read it, tell you what the real story is.

Michael: Okay, here's a question from Petra Donovan. The website is www.softwareplatinumclub.com. the site offers an excellent comprehensive source for home and business software on the web, which includes Internet and desktop software. Mr. Hammel, my question is, would you recommend a high priced franchise such as a McDonald's, considering the high startup and expense ratio right out of the startup capital in returns for a luxury franchise name? And what would you, as a seasoned professional, as a franchise with little chance of getting beat up in the process, does that make sense?

Art: Sort of. It boils down to one thing. I don't care if it's Donald's or whatever. We keep talking about restaurants. There's a lot of franchises out there that are a lot safer than a restaurant business. In other words, there's a lot of franchises out there, because of the nature of what they're doing, have a lower failure rate on the average. So you can't keep looking at McDonald's of being the greatest because McDonald's also has failures. McDonald's also has problems. And the amount of money you have to put in McDonald's, you can put it also in another franchise that has the same success rate and maybe makes more money. Just because you hear about McDonald's and being so great, keep in mind it's still a restaurant. There are franchises out there, like in the computer business, things like that, that make a hell of a lot more money than McDonald's restaurant business.

Michael: Okay, great. Here's a question from Richard Osterud from El Salvador, Central America. His website is www.successtoolsonline. he tries to help other entrepreneurs. Art, if I'm really trying to get rich, why would I go out and buy a franchise and commit to pay someone else royalties for something that is so simple, that can be boxed and sold like cereal? Or would you recommend this as a learning investment to later start my own business and then franchise it?

Art: If you're going to buy a franchise, get experience in the franchise business, I think that's a stupid idea. What you ought to do is if you want to go out and go into the restaurant business or whatever business you're talking about, you can go out and buy an existing company and you already have a team that knows how to make it work. All you have to do then is if you wanted to go to an attorney and a CPA and have them put the packages together to go franchise, you could do that. Also, if you check different websites that advertise businesses for sale, almost all of them every day have different companies where the owner is saying, I have 10 pizza restaurants over which you eat great franchise. And you might be able to follow up on that. Which means it gives you a chance to take over X number of whatever things you're going after as a base for your franchise and then start franchising. And again, you don't have to bail the person out that's selling the 10 restaurants or 10 businesses, give them a royalty and give them part of the company that you're forming. And that gives you a good base because you already have X number of businesses making money and you don't have to do such a good job of selling the franchise because it's been there a while. Believe me, I can tell you the benefit because in the beginning, years ago, we also had franchises that had no stores open and we were out selling franchises and brings back bad memory.

Michael: Okay, here's a question from John Urug of www.studiomonochrome.com. they're marketing consulting service that do a systematic approach to marketing based on results with lead generators, marketing tools, contact management systems, referral programs and joint venture strategies. Here's my question for Art. When purchasing a franchise, what is the compensation module back to the parent company? Are there different ones? I know there is a franchise fee, but how are the ongoing FE paid to the parent company? Are they a specific percent, a portion of revenue and what would the average ongoing fee or percentage be more?

Art: You ask the most general question in the world. If he would go out and just cross section, hit five or six franchises, get the information, he'd find that none of them are alike. Some of them charge you more money up front and they charge you less on a monthly basis, but most of them do have fees that you have to pay on a monthly basis. Now, if you run into one that doesn't have fees on a month monthly basis, check the detail of the franchise agreement and you'll find they're also not supporting you on a monthly basis. In other words, a lot of franchises are sending people out on the road every month or two to oversee what you're doing and to make sure you're following the rules and help you with any problems you have. If they don't do that and provide that they don't have to ask you for 5% or whatever it happens to be. But keep in mind, I can tell by your question you're going to be one of the people that once you get into that franchise, you're going to start to question why you're paying it. I can save your time because I'm going through the same thing. Why should I pay 5% a month or 8% a month, whatever it happens to be? What am I getting for this? And what happens is you make yourself unhappy.

Michael: You start getting resentful. Just human nature, huh?

Art: It's human nature, and I don't know what the percentage is, but I'd say the majority of people that get into franchising, that's the main thing that hangs them up.

Michael: So would you say if I contacted all the owners of franchises, a good majority have a hidden feeling that they can't stand paying the parent company?

Art: Yes. I can tell you from the standpoint of being a franchisee, I can tell you a standpoint of being a franchisor and having these people not want to pay you.

Michael: Do a lot of these franchisees want to break their agreements and keep their existing business of maybe change the name and stuff?

Art: Yeah. They'll say if you don't make your payments, we're going to get you out. You'll lose your franchise. We'll take down your sign. You won't be able to get the napkins and all the other things that have the name of the franchise on it. You'll find when somebody does, when you drive by and say, that looks like a McDonald's, it has golden arches. They didn't take the arches down. You can tell a name has been changed, naturally, and they usually don't follow up on it. In other words, they don't make you tear the arches down and stuff. But the thing is, if you've been cruising along and you're making 100 grand a year with McDonald's or something, you lose the McDonald's franchise, you're probably not going to be making 100,000 a year.

Michael: All right, well, this may lead into the next question from Alan Puckett of onguardfire.com Art, my question is, so many companies are choosing franchising without being firmly established first. I also think it decreases the originality of entrepreneurs in general. I've thought about the franchise route, but can you explain the advantages and disadvantages of franchising versus dealerships versus distributorships versus affiliates?

Art: Okay. When you start to get involved in dealerships, affiliates and all this other. A lot of companies have gone to that because there's less government control than you have in a franchise. The government I know over the years has talked about the fact that they're going to set up franchise laws to protect people going into dealerships and affiliations and all these other things. I am not aware of anything that they've been able to do in the area and still ties into franchising itself. There are people out there that give them licensing agreements and those are people basically don't want to have the control and don't want to have all these rules to follow. The reason other people go into franchising, they look at it as a way. It's like everybody wants to go public today. We're going to take this idea we have that doesn't make any sense, but we're going to go public with it and make billions of dollars. That's everybody's dream. What you're going to find with franchise, we have the same thing. How do you move that thing ahead? Use somebody else's financials. Okay, I want to have 10 units. I have one myself. I'm going to sell nine of them. I'm going to use most of your funds and your financial statements to basically expand it. I'm then going to take in money. I'm going to charge you X number of thousand in front once I sell you the franchise. I just want you to keep in mind if you go into the business, the money you take in in front, I guarantee you you will have spent all of it before you get that person in business. Because they're going to expect you to pick a location for them, a system with a lot of different things and the amount you take in, considering the person that sold the franchise to them and the other cost you have, you will not be in the black at that time. You'll be in the red. Then you have to wait X number of months to start collecting money. So although you think that you're going to eventually have a cash cow, it takes a while to get there. What I have found is even easier if you want to expand your operation. And again, I'm not against franchising franchising. All I'm saying is you can go out and get investors, invest with you, and then what will happen is a couple years from me, you'll have 10 restaurants, but you'll own all 10. You won't have one you own and nine franchisees that hate your guts and don't want to pay you. Again, although it looks good, I keep saying one thing. I don't think using A franchise to expand where you're going is the way to go. Not that I didn't do that myself 47 years ago.

Michael: Okay, here's a question from Paul Stevens. Art. What makes a business a good candidate for franchising? Are some franchises easier to finance than others? And how many hours do I have to be prepared to put in to get my new franchise on solid ground?

Art: I can take the last one first. People are always talking about 70, 80 hours a week to get the thing going. You're working at least twice as much as an all person is to get your franchise off the ground. Because if you don't put the time in, you have to hire extra people. Most people forget one thing. When you start something from scratch, you're going to run in the rich for a while. That means every Friday, when you have to make payroll, where do you get the money from, which becomes a problem? And also you're going to put in a lot of hours. You have to get the thing going. You may be able to back down later and get back to 40, 50 hours a week, but in doing that, it doesn't mean you reorganize the place. What it means is you've hired somebody additionally or maybe two people in addition, which cut down on your profit. You know, I've been out pushing seminars, as you know, Michael, for years on buying existing companies. So it makes it very difficult for me to say a lot of good things about franchising because they're all startups. Unless you buy an existing franchise, that's a different thing. Incidentally, as I hear the names of these different companies that you're mentioning, they all sound very technical. They all sound like people that I couldn't imagine going into franchise business. In other words, if somebody came to me with the names these sites have that you've been reading off, I would say to myself, why are they even bothering to go to franchising? They're too smart for this. They don't need this help. They may look at it. But if I were on the other side and I was their advisor, I'd probably be advising almost every one of the people you've talked about today to go out and buy an existing company and not think about, okay, great, I'm.

Michael: Not sure who this is from, but here's a couple more questions. What do you think of franchise expos? And how do you determine how big a market there is for a franchise product or service?

Art: Back when we first got started, we did not have franchise expos. The first one I went to I remember was downtown Los Angeles. We had a large staff of people. We were there selling franchises. And one thing you have is a franchise show. You're going to have to have a package that you have to give out. Some people may even ask you for copies of the franchise agreement, but we don't carry those with us. But if you ever want to go to a franchise show or any show like that, go out to the exit after about an hour and stand there and watch the people dump all of your material in the garbage can when they leave. There's nothing wrong with that if you have something like we give away equipment for a restaurant or something like that, try to get names so that our salespeople would have leads to follow up on or something like that, just so you get information. Because we found that just handing out the material did not give us anything. They just threw in the trash can.

Michael: When you were selling franchises, could you categorize the type of people who were approaching you? Were they uneducated or were they all kinds? Were some astute? And then what was the most effective way in selling them a franchise?

Art: They're all different types. We had people with IQs of 20. We had people with IQs of 150. We had some people with money, a lot of people without money. Most of the people coming in were dreamers. In other words, they weren't even close to being able to anything, even if they were very interested. Again, we didn't really make a study of it. It's just that if a person was in a certain category, didn't have enough assets or whatever, didn't appear to be too bright, we would not spend a lot of time on them. We're trying to build a franchise and also have people that weren't going to come back to us every two seconds with a lot of questions.

Michael: Okay, this leads into a question from Gerald Johnson of the www.small-business-marketing.net and he says, Art, I have three questions for you regarding the franchises. How do you determine what type of franchise to get into? Example is the how is it payoff versus investment, etc. Two, how would you go about putting together the financing needs for a franchise? And three, are there franchise opportunities that you see online as well as traditional businesses offline?

Art: You know, I have not gone out looking for franchises online. I don't know what to tell you on that again. I go online all the time, but I have not seen franchises being listed online. If they're doing it that way, it's just beyond me now as Far as finding it, what do you go into? I always try to tell people what you ought to do is consider going into something that you like, something you've done before, nothing you have a lot of experience in, but again, something you like. Now on the other hand, if you go out and decide not to buy a franchise and you buy an existing company, you don't have to have experience because you're going to have a management team there in place of people that are all knowing what they're doing. Now keep in mind, when you're buying a franchise and it's a start up, it's going to take you a while to get to the point where the employees know what they're doing and they don't make a lot of of mistakes and you're going to have turnover in the beginning because they don't like working for you or they don't like doing what you're doing. So the key thing is go out and find something that you like. And you know what's interesting? If you also use the same approach to look at businesses. You went out and said, okay, I'm going to look for a business making 100,000 a year. This is what I've told people over the years are 250,000 a year. I say to them, look, find a business making 100, 200, 300,000 a year, go out and look at all of them that make that much money. And then what you'll find is instead of only having one or two available, there will be 50 available of all different types. And I guarantee you almost every time you get into a business you never thought you'd get involved with, what you have to do is quit using the rules that people keep telling you about. What you have to do is do it this way, base it on the net. If you're going out to buy a franchise, you have a different thing. Because I don't care if you're buying a McDonald's or a Rocky Road franchise. What you're going to find is you don't know how well you're going to do. You're rolling the dice. You're hoping you're going to get up to whatever the level is, that maybe McDonald's is running or Rocky Road is running again. This is risky compared to buying an existing business while you're sitting there and you're saying to yourself, well, I'm going to look at franchise, I'm going to look at existing businesses. That's fine. Because if you look at both and you're very objective and you don't lie to yourself, you'll end up buying an existing business every time.

Michael: Okay, here's a question from Henry Godreau. He turns contractors who dream of owning successful businesses into business managers that make a business successful. His website is hg Associates.com Art, what happens if I purchase a franchise and it doesn't turn a profit for me? What kind of recall do I have against the franchise itself?

Art: Well, we talked about this before. What happens is you really have a hard time selling a franchise if you have a number of lawsuits logged in your franchise agreement that you have to hand out. So basically, what's happened last 20, 30 years anyway, attorneys know this. So attorney will then threaten you with a lawsuit to file it, knowing that you have to put it on your document and it will screw up your chances of selling franchises. So they're basically after a settlement. So in case you're not doing well, most of the franchise will end up buying you back out because they can't afford to have your logged on.

Michael: Will they buy you at the full value?

Art: Oh, that would be a dream, buying you out the full value.

Michael: So you're still going to take a loss.

Art: That's right. And even if you went to court and you were suing, you're going to find that the court is going to allocate what you get based on how much you were at fault. And I want to tell you something. The franchise companies double document everything. The first thing you're going to have is a location. They're going to come out and talk to you about location, but you sign off on it. So if you pick a crummy location, it's your fault. It's not the fault of the franchise company. And also, if you don't hire the right people, if your product is not consistent, I mean, they're documenting this as they go along. They have a very good case. The only case you have is a potential lawsuit. But the thing is, if you have to go in there and you're worried about the fact that if you don't make it, who's going to be at fault? Well, you are. You bought that franchise, you obviously didn't do a good job and you're losing it, okay? That's what happens on this planet. You go into a business, you screw it up, you take the loss. There's not going to be a big brother there that's going to bail you out. I'm not going to say it, never in the franchise business. But with franchisees, they're the ones that screw the damn thing up most of the time. Why not? Because they're not nice people. Because they don't have the experience or they don't have enough money. Most people don't understand what it's like to run in the red. They don't realize that it's going to take X number of weeks or months or years to get that damn business in the black. In the meantime, you have to put cash in continuously. With most people, they use up all the money they have getting into the business and then they're in there struggling, they're picking out second thumb in their houses, they're selling their kids into slavery. Whatever it takes. There's nothing tougher on this planet than starting a business, including when it's a franchise.

Michael: Okay, great. Here's a question from Steven Ingram. Mr. Hamel, thank you for sharing your life's work. I actually have two questions. One, how does the cash flow compare between a franchisor and the typical manufacturing business if both are roughly equivalent size? And two, how do you feel about acquiring franchises versus manufacturing companies?

Art: I'll take the last first. I was in the franchise business 40 some years ago. I've been in the manufacturing business now for probably almost 40 years. Once we found out how tough it was in the restaurant business, we basically ended up getting in manufacturing. Plus, I'm also an engineer and I was thinking to myself, this is stupid. In order to make a million dollars a year, I need 20 restaurants. I have 20 managers. In order to make a million a year at a manufacturing company, I only need one manager and I have a company making a million dollars a year. The failure rate of manufacturing company is infinitesimal compared to the failure rate of restaurants or most franchises. We go after manufacturing companies that bet around, well, they make a million dollars. But again, even if you bought one making 500,000 or 200,000, if they've been around a few years, you're going to find a failure rate within that region is little remote and none. They just don't fail very often. And if you're buying an existing business, the thing you have to realize you have a management team that's been running that thing for years. When you get in there, if you don't show up, the company will do a lot better. Why? Because everybody knows what they're doing. So what you have to do and what I do, I stay away. In other words, I do not exercise a lot of control over the managers. Why? The managers been running this thing for 10 years. Also, when you buy a business that's in the range of maybe a million dollar net and 10 million in sales, you're paying your managers 150, 50 to 200,000 a year. You know how often managers call you that make that much? It's also the same in any manufacturing company. You're paying a manager of a manufacturing plant comparable to say a restaurant size volume wise, you're paying your manager manufacturing company a lot more money. And when you pay a lot more money, I hate to say this, but you do get a better quality of person. Again, not that people don't make a lot, don't have the same quality. It's just that they have the skill, they have the ability and they get paid more. They're working. If you go out and look at manufacturing, the only thing you're going to say is God, it's confusing trying to analyze this versus analyzing a little fast food restaurant type thing. Because you can see everything in the fast food business. The manufacturing business is tough to analyze. So you may need help doing that. Don't worry about it. Because if you go out and say you're going to buy the fifth one or the tenth one, you look at even manufacturing, by the time you get to the 5th or 10th one, you will have knowledge beyond anything you ever imagined. Why? Because they're all the same. And the first one will be a little confusing, second one a little less. And by the time you get to the one you buy, you say, my God, I'm a genius now.

Michael: Okay, great. Here's a question. I don't know who this is from. Michael Art. Good morning. I purchased Art's program in May and have listened to it at least five times. I have also went through the material as well. It is a very comprehensive, detailed course and I have enjoyed it very much. My question is about financing. Right now I have found a company that is very exciting to me and it is in an industry that is experiencing tremendous growth. The purchase price is quite high. 4 million US and we would have to attract investors to help finance future growth for the sake of speed versus financing through profits. I'm working on a business plan to put together and just kind of lost with respect to where to go from here. I think the ideal investors would be individuals who are looking for a three to five year return on investment. So my question number one, what would you take for the next step? There is no possibility of vendor financing as this industry does not lead to this. Two, how, as a general question, do you keep the momentum going so that a person is not caught up in all the Details keeps moving forward. Thank you for your time.

Art: Okay. I don't know what kind of business he's buying, but up until about 25, 30 years ago, we got involved with investors. We financed assets. And the great thing about manufacturing companies is the average manufacturing company has lots of assets. They have the equipment, we have the inventory, we have the accounts receivable, which is easy to finance. And so even in those days, I didn't have to put a lot up when I was buying these companies, and I used that in assets. Now, when you start to get new investors, even though we have investors available that will each invest over a million dollars, the problem we have is I didn't come up with a formula 25 or 30 years ago. We were trying to go into Mexico. I was trying to buy companies down there. And the problem was no US Banks would touch any of the assets. In other words, I had all sorts of real estate and all sorts of things in the companies I was buying. And the bankers all laughed at me. And I then had to go back to the people. I'd go into the seminar to ask them to invest, which they did, which surprised me that they would do that. That's where we basically got our first investors. And from that 25, 30 years ago, we have all sorts of people that come forward now that are willing to put this money up because we have a perfect track record. We have no failures in business. The businesses we buy are idiot types. But the key to your success is going to be that business plan before you go out and you can start to talk to anybody. You have to have a business plan that makes sense. And again, if you're trying to raise $4 million, you better have a business plan that looks like $4 million. Don't put together some piece of crap and try to go out to people and impress them. What you're going to have to do if you haven't put together a business plan before, is have someone else who specializes in that put it together for you with all the information required in the business plan. And then all you talked about, the investors looking for a return over three to five years, the amount of your company that you're going to give up, say it's an equity thing. In other words, you're going to trade stock of your company for whatever money they put in. You're going to find that you should go five years. Five years is a standard. If you only go three, you're going to end up giving up too much stock because the average investor is going to look at it five years and say, okay, this is the return. I'm going to get over a five year period. So in order for me to average X number of dollars a year, I need so much over a five year period. So when they look at that, you give up less stock. Some people, I don't know where they get this from, will put three years in there. And then the customers say, okay, what am I going to get over a three year period? Because not per year, they're looking at what the total is going to be. So you should end up doing fine. But the key is the business plan. I have people come to me all the time that don't have a business plan. And I'm sure they tell their grandkids, hey, Grandpa could have been a multi, multi millionaire. He had gotten the financing on this great idea. I always tell the grandchildren, when grandpa tells you that, tell me he's full of crap. Unless he can give you the business plan. Grandpa will always come back and say, well, I never put the business plan together, but I could have, would have, should have. If you don't put the business plan together, and I can tell you from my experience, because we have finance that hell of a lot of companies, you don't put together a business plan, you don't do a good job, you don't get the money. If you have a good business and your finances make sense on it and your business plan makes sense and you need over a million dollars, if you can't finance it, if you can't get investors, you're doing something wrong. We have financed things all over the world. We're not geniuses, you know, but all we do is we go after good things. We go after things that don't have high risk. We go after the idiot type. In fact, Michael, we haven't met, but I'm getting balls back part of my head. And you know why? Because when you have businesses and by the kind I buy, people have a tendency to feel sorry for you and they pat you on the head saying, it's too bad because now that I'm getting older, people say, how come you're getting bald? I said, it's from people patting me on the head. That's funny for doing that to you. You wouldn't think it was funny.

Michael: Yeah, that's right. All right, thanks so much.

Art: Thank you.

Michael: All right, talk to you later. Hi, this is Michael Senhoff with hardtofindseminars.com and that is the end of this question and answer session with Art Hamil on the subject of Franchising. If you're interested in getting Art Hamill, please go to the link below on the description of this recording and it will take you to more descriptions and more information about Arc Hamill's business buying system. If you'd like to call and order direct, contact me directly at 858-274-7851. It's Michael with MichaelSinoff's hardtofindseminars.com and another bonus tip. How would you like to turn your $28 book or ebook or even a concept in your head into a $3,900 information product? I'll provide you the secrets on how to do this. If you'd like a completely free 30 day trial of my system for turning your simple book or even just a concept in your mind into an information product that you can sell for $97$197 or even as much as $3,900 or more. This system includes a whole range of. 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