Small Business Resources

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Topic Author
gusan
Posts: 31
Joined: Thu Dec 14, 2017 12:23 am

Small Business Resources

Post by gusan » Wed Feb 05, 2020 11:19 pm

Hi All,

Me (46) and DW (41) have been looking at starting a small business so that one of us can get out of corporate rut. As we work through the various details I wanted to reach out to this well informed community for suggestions on resources or forums that help small businesses get off the ground. Also any advice on financing i.e. best experience with SBA lenders etc. We are looking at a franchisee model in the educational field and while there is support from the franchiser we also want to do our additional due diligence and learn from the experience of others.

Thank you.

smitcat
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Joined: Mon Nov 07, 2016 10:51 am

Re: Small Business Resources

Post by smitcat » Thu Feb 06, 2020 2:09 pm

gusan wrote:
Wed Feb 05, 2020 11:19 pm
Hi All,

Me (46) and DW (41) have been looking at starting a small business so that one of us can get out of corporate rut. As we work through the various details I wanted to reach out to this well informed community for suggestions on resources or forums that help small businesses get off the ground. Also any advice on financing i.e. best experience with SBA lenders etc. We are looking at a franchisee model in the educational field and while there is support from the franchiser we also want to do our additional due diligence and learn from the experience of others.

Thank you.
A pretty wide open set of questions:
Here are some resources....
- SBDA
- SCORE
- Local college classes
- Local business groups
- Local BBB
- Some Unemployment offices offer the core 4 classes

"financing i.e. best experience with SBA lenders etc."
What do you want to know? We have experiences with a few of them.

"We are looking at a franchisee model in the educational field"
- start up or buy existing?
- how will you validate model?
- How are you determining lifestyle as owners?

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Hayden
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Re: Small Business Resources

Post by Hayden » Thu Feb 06, 2020 3:24 pm

There are lots of resources. To get started, contact you local SBDC and SCORE.

betablocker
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Re: Small Business Resources

Post by betablocker » Thu Feb 06, 2020 3:33 pm

I own a small business that verges on medium ($10-$15m) and I would first do a lot of due diligence on the franchise. There are some good ones but there are a lot of rip offs. Another angle is to buy an existing non franchise business. This isn't easy either. You can search bizbuysell or try to network with local business brokers or intermediaries (lawyers, accountants, etc.). The entire baby boom is about to retire so that's an option. Read the eMyth Revisited, Traction or Scaling Up, Straight Talk Simple Numbers, Big Profits, and anything by Brent Beshore at Permanent Equity. If you do start or buy a business join your local entrepreneurs organization. In the meantime find anyone in your network who has started or bought a business and buy them coffee, lunch, dinner, anything and pump them for info. If you want to stay small don't educate yourself but if you want to grow the business you have to grow yourself. It is really hard but best thing I ever did. Most corporate transfers don't understand what it takes to struggle through so be cautious. Usually people who will sacrifice almost anything to not work for other people are the most successful. Good luck! Feel free to private message me as well.

Topic Author
gusan
Posts: 31
Joined: Thu Dec 14, 2017 12:23 am

Re: Small Business Resources

Post by gusan » Thu Feb 06, 2020 8:19 pm

Thank you betablocker, hayden and smitcat - great suggestions, not familiar with SCORE so we will look into it.

1. We are looking to open a net new location
2. I have a friend who has been running the business successfully as a franchisee for the last 12 years with the same brand
3. I have talked to the local area franchisees and they have been very forthcoming and shared a lot of good insights and provided a bunch of information and perspectives on the financial models we have prepared

For SBA, just wanted to get perspective on success with loan rates etc. Which banks are aggressive and will fund with 10% down versus more. We are going with a franchisee system as financing is easier in that case and we are in a HCOL area.

Couldn't agree more with this "Usually people who will sacrifice almost anything to not work for other people are the most successful."

smitcat
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Joined: Mon Nov 07, 2016 10:51 am

Re: Small Business Resources

Post by smitcat » Fri Feb 07, 2020 10:06 am

gusan wrote:
Thu Feb 06, 2020 8:19 pm
Thank you betablocker, hayden and smitcat - great suggestions, not familiar with SCORE so we will look into it.

1. We are looking to open a net new location
2. I have a friend who has been running the business successfully as a franchisee for the last 12 years with the same brand
3. I have talked to the local area franchisees and they have been very forthcoming and shared a lot of good insights and provided a bunch of information and perspectives on the financial models we have prepared

For SBA, just wanted to get perspective on success with loan rates etc. Which banks are aggressive and will fund with 10% down versus more. We are going with a franchisee system as financing is easier in that case and we are in a HCOL area.

Couldn't agree more with this "Usually people who will sacrifice almost anything to not work for other people are the most successful."
FWIW _ we have done this a few times ourselves so here is some feedback....
"1. We are looking to open a net new location"
- There is always difficulty in projecting both revenue and costs on a new startup , it may seem easy but it is not

"2. I have a friend who has been running the business successfully as a franchisee for the last 12 years with the same brand"
- If it is a very good friend and they can tell you the bad with the good that is great. If they are an occasional friend please use caution as there answers may be tailored more to you questions than you would like. FWIW - we are unaware of any educational centers which have low turnover and a reasonable ROI with a single unit in oar area. Areas are different so yours may be fine but that leaves your DD to be fairly local

"3. I have talked to the local area franchisees and they have been very forthcoming and shared a lot of good insights and provided a bunch of information and perspectives on the financial models we have prepared"
Please try and secure total ROI after all costs and financing, please try and secure closure and turnover rates for units in the FF. Please search well for "problems with XXX franchise" ,,, please search well for "lawsuits and Bankruptcies for XXXX franchise". ...please try and obtain some tax filings for some of these friends places for the past 3 years. etc

"For SBA, just wanted to get perspective on success with loan rates etc. Which banks are aggressive and will fund with 10% down versus more. We are going with a franchisee system as financing is easier in that case and we are in a HCOL area."
A few points:
- Most educational franchises have low start up costs and avoiding loans would be be a solid choice
- Current SBA rates (without property) are at or about 5% for affixed term of 10 years after you pay the SBA fees
- I believe the current SBA fee is about 2.5% but have not checked this past year ($2,500 for every $100,000 loaned)
- you will also pay an application fee and an appraisal fee when you get into the loan apps a bit, ,to start the process if free.
- your interest in the 10% down could be a concern, but the answer is not as straight as it might seem, does that 10% cover FF Costs, added equipment, SBA fees, working capital , deposits , etc?
- we have worked with a few banks with the SBA loans , do you have one you would like feedback on?
- The SBA will look at a few things that I hope the Franchisor has already briefed you on....they include some of these:
your net worth
your education
your background check
your experience in the specific business
your detailed business plan
the franchisors record
the ratio of projected cash flow to service the debt (typically 125% or more after 1st year)
there are more as well - process takes between 8 and 12 weeks best case

Summary on SBA - fine if you need it but arranging personal financing is much less expensive and much easier.

Topic Author
gusan
Posts: 31
Joined: Thu Dec 14, 2017 12:23 am

Re: Small Business Resources

Post by gusan » Tue Feb 11, 2020 11:51 pm

Thank you for the detailed reply and great points. Do you have any feedback on LiveOak Bank?

smitcat
Posts: 4843
Joined: Mon Nov 07, 2016 10:51 am

Re: Small Business Resources

Post by smitcat » Wed Feb 12, 2020 9:33 am

gusan wrote:
Tue Feb 11, 2020 11:51 pm
Thank you for the detailed reply and great points. Do you have any feedback on LiveOak Bank?
We are involved in a transaction with LiveOak bank at this time - as the seller.
Since we are the seller on this I have little direct contact with the bank but here is what we have seen so far:
- they do everything remotely (we are in the NE)
- the buyer had a plus for education and experience in the field
- they were not at all a problem with valuation/appraisals
- buyer secured a great fixed rate for 10 years / SBA loan / no real estate
- same fees for SBA guarantee / application and appraisals as many others
- full background check, net worth ratio , credit rating and 3 years tax returns
- they will be closing remotely as well
- like all of the banks we have seen some of their requirements seem fairly useless and time consuming

What else might be helpful for you?

smitcat
Posts: 4843
Joined: Mon Nov 07, 2016 10:51 am

Re: Small Business Resources

Post by smitcat » Wed Feb 12, 2020 12:13 pm

smitcat wrote:
Wed Feb 12, 2020 9:33 am
gusan wrote:
Tue Feb 11, 2020 11:51 pm
Thank you for the detailed reply and great points. Do you have any feedback on LiveOak Bank?
We are involved in a transaction with LiveOak bank at this time - as the seller.
Since we are the seller on this I have little direct contact with the bank but here is what we have seen so far:
- they do everything remotely (we are in the NE)
- the buyer had a plus for education and experience in the field
- they were not at all a problem with valuation/appraisals
- buyer secured a great fixed rate for 10 years / SBA loan / no real estate
- same fees for SBA guarantee / application and appraisals as many others
- full background check, net worth ratio , credit rating and 3 years tax returns
- they will be closing remotely as well
- like all of the banks we have seen some of their requirements seem fairly useless and time consuming

What else might be helpful for you?

One other thought - you did not indicate how close these friends are in the same business.
Please keep this in mind - very often current franchisees can get a referral fee.
In some cases those referral fees are in the multiple 10's of thousands of dollars.
Some also get some residuals and future fees if the new franchisee expands.

Topic Author
gusan
Posts: 31
Joined: Thu Dec 14, 2017 12:23 am

Re: Small Business Resources

Post by gusan » Wed Feb 12, 2020 12:56 pm

Thank you, LiveOak does a lot of work with the Franchisor I am working with but it seems their rates might be on the higher side versus couple others I have just started talking to. We are looking to try and do a deal with real estate if possible. Living in a HCOL area, it is going to stretch us if we can pull it off but will be much better 5 years down the line.

In terms of the friend, yup - you are spot on in terms of referral fee. He is going to make a bunch there so I do take things he says with more than a pinch of salt. However, I have found another guy who run the business close to where I stay and I have met him multiple times and he has shared pretty much everything other than opening his books to me. He has nothing to gain by sharing that info and has gone through my FF line by line and shared his actual expenses, the 2.5 years it took him to get to capacity etc. Another key factor is all franchisees in my area are at capacity, so that is also encouraging. The biggest unknown is, we are moving from corporate to being a business owner and how well we do that transition and run the business will be key. At least that is under our control :).

smitcat
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Re: Small Business Resources

Post by smitcat » Wed Feb 12, 2020 1:35 pm

gusan wrote:
Wed Feb 12, 2020 12:56 pm
Thank you, LiveOak does a lot of work with the Franchisor I am working with but it seems their rates might be on the higher side versus couple others I have just started talking to. We are looking to try and do a deal with real estate if possible. Living in a HCOL area, it is going to stretch us if we can pull it off but will be much better 5 years down the line.

In terms of the friend, yup - you are spot on in terms of referral fee. He is going to make a bunch there so I do take things he says with more than a pinch of salt. However, I have found another guy who run the business close to where I stay and I have met him multiple times and he has shared pretty much everything other than opening his books to me. He has nothing to gain by sharing that info and has gone through my FF line by line and shared his actual expenses, the 2.5 years it took him to get to capacity etc. Another key factor is all franchisees in my area are at capacity, so that is also encouraging. The biggest unknown is, we are moving from corporate to being a business owner and how well we do that transition and run the business will be key. At least that is under our control :).
A few thoughts.....
"LiveOak does a lot of work with the Franchisor I am working with but it seems their rates might be on the higher side versus couple others"
Maybe and maybe not - I know you will likely not believe this but the rate itself is not really a big key. The difference between 4.875 and 5% is not really much compared to all the fees and costs that are mostly the same. What really costs is if you get into these deals and the bank involved will not complete the deal or cannot loan the total amount due to some valuation, experience . ratio etc (they call them KPI's I think).
Now if you loan against your retirement account and/or remortgage your home the % can drop by 1.75 - 2.0% and the fees can be many 10's of thousands of dollars less and the terms can be extended - that would be significant.

"We are looking to try and do a deal with real estate if possible."
- Use caution , commercial real estate is on a bubble in many areas right now.

"the 2.5 years it took him to get to capacity etc"
_ a 2.5 year ramp for an education Franchise is not typical, you might mean a business related to an educational only business. Even then ramps are not typically that long.

"Another key factor is all franchisees in my area are at capacity, so that is also encouraging."
- The pattern is that when capacities are overloaded many Franchises come in and built up in that area increasing supply. Over time the supply outweighs the capacity and the curve swings the other way with pricing and capacities. We have seen this exact pattern ebb and flow a few times over the 20+ years in various parts of the country.

"we are moving from corporate to being a business owner and how well we do that transition and run the business will be key"
- Only you know the answer to this. We have found that the key is to be a good business person and not necessarily an expert in the exact product/service that you supply. In your case you can hire educators to do an excellent job for your business but you really need to be on top of the business aspects.

WJW
Posts: 254
Joined: Fri May 23, 2014 10:07 am

Re: Small Business Resources

Post by WJW » Wed Feb 12, 2020 2:25 pm

I would be very wary of a franchise. More than a few friends have been badly burned by them. The franchisor and the franchisee often have opposing interests.

Personally, I would start with a job at one of the franchises to see how things really run at no risk. Then you can decide if the day to day is for you, or if you can open one on your own without a franchisor.

Having been a small business owner for 20+ years, I can tell you that the grass is not always greener. There is something to be said for the deep pockets of the corporate world when it comes to salary and benefits.

smitcat
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Joined: Mon Nov 07, 2016 10:51 am

Re: Small Business Resources

Post by smitcat » Thu Feb 13, 2020 9:17 am

WJW wrote:
Wed Feb 12, 2020 2:25 pm
I would be very wary of a franchise. More than a few friends have been badly burned by them. The franchisor and the franchisee often have opposing interests.

Personally, I would start with a job at one of the franchises to see how things really run at no risk. Then you can decide if the day to day is for you, or if you can open one on your own without a franchisor.

Having been a small business owner for 20+ years, I can tell you that the grass is not always greener. There is something to be said for the deep pockets of the corporate world when it comes to salary and benefits.

"Having been a small business owner for 20+ years, I can tell you that the grass is not always greener. There is something to be said for the deep pockets of the corporate world when it comes to salary and benefits"

Another view FWIW - we have been small business owners for 20+ years as well. Wish we had started sooner, almost everything about being a small business owner is better than our past corporate jobs.
YMMV

WJW
Posts: 254
Joined: Fri May 23, 2014 10:07 am

Re: Small Business Resources

Post by WJW » Sat Feb 15, 2020 6:30 pm

smitcat wrote:
Thu Feb 13, 2020 9:17 am
Another view FWIW - we have been small business owners for 20+ years as well. Wish we had started sooner, almost everything about being a small business owner is better than our past corporate jobs.
YMMV
A franchise?

Full disclosure: I never had a corporate job but owning a small business is not necessarily easy.

And a franchise; I would equate to a corporate job with the risks of owning a business.

smitcat
Posts: 4843
Joined: Mon Nov 07, 2016 10:51 am

Re: Small Business Resources

Post by smitcat » Sun Feb 16, 2020 8:44 am

WJW wrote:
Sat Feb 15, 2020 6:30 pm
smitcat wrote:
Thu Feb 13, 2020 9:17 am
Another view FWIW - we have been small business owners for 20+ years as well. Wish we had started sooner, almost everything about being a small business owner is better than our past corporate jobs.
YMMV
A franchise?

Full disclosure: I never had a corporate job but owning a small business is not necessarily easy.

And a franchise; I would equate to a corporate job with the risks of owning a business.
We have owned each.
I was in a corporate job for many years - more than in our own business.
I found the corporate job much less attractive in just about every way.

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