Let’s Talk About Franchising and How One Company Made It Big
By Lucia Regan
Carwash owners are entrepreneurs. Entrepreneurs live to create and build businesses. So it is natural that a carwash entrepreneur would think about franchising–either to build one from their own successful carwash units or to purchase one from a carwash franchise.
Whether you are considering becoming a franchisor (seller) or a franchisee (buyer), it is useful to know what you will need to get you to your goal. The initial “to do” list should begin with a well-documented and proven business, a substantial amount of money to invest, a very good franchise attorney, and an experienced accountant.
The Basics
Right now there are almost 12,000 full-service carwashes in the United States, and most of these carwashes are privately owned and operated. In comparison, there are a small number of carwash franchises.
Franchises are regulated by the Federal Trade Commission. The disclosure document that franchisors give to prospective buyers is the Franchise Disclosure Document (FDD). Fifteen states have additional laws regulating franchises. When franchises first developed more than 50 years ago, there were great successes and costly failures. California and the other states codified franchise disclosure laws, similar to state securities laws, which required the franchisor (seller) to fully disclose all of the necessary facts to the franchisee (buyer).
This is a huge topic, and for the sake of the reader, we will focus on the franchisor part of the business and one carwash that made it big in the franchise business.
Image courtesy of Cactus Car Wash
Frank and Linda Lynch opened the first Cactus Car Wash in 1996. Like many carwash owners, their intent was to provide an “outstanding carwash experience.” They were like many carwash owners today. They had a great product. It was successful. They weren’t considering franchising. But Cactus fever caught on, and savvy customers who saw a great business opportunity changed the future for the Lynch family.
Lennox D. Bundy II, CEO of Cactus Car Wash, explains. “The Lynches had 40 years of experience in the customer service business with nightclubs in Scotland and the United States. Initially, their goal was not franchising the brand; however, over the years many of their customers inquired about franchising a location of their own. Cactus moved into the Atlanta market in 1998 with its second location. Cactus Car Wash is headquartered in Summerville, South Carolina.
Mr. Lynch’s customer service experience shaped the design of the facility by offering customers a gourmet coffee bar in a spacious lounge with free Wi-Fi and a large television. For the Lynches, these types of services were essential to keep as part of the franchise structure. For anyone interested in creating a franchise, the challenge and the success is to replicate the product and the service at the same level as the original carwash. This is why a franchisor builds a well-documented business plan that includes the advising of land purchase, equipment and supplies, as well as specifying the marketing and customer service experience.
Image courtesy of Cactus Car Wash
What does it take to purchase a franchise?
A great place to start is at the company website. In the case of Cactus Car Wash, here is the financial information that we have permission to publish.
“Investment:
Initial franchise fee: $30,000
Royalty: 5.5% of gross revenue
Expected startup costs: $1,850,000 – $2,855,000 (excluding real estate costs)
Term: 20 years, with 10-year renewal term
Protected territory: Exclusive territory granted to each franchisee
Multiple unit development: Available on a case-by-case basis
Services:
Pre-opening: Extensive hands-on and classroom training program for Owners and Managers, site selection assistance and business plan assistance
Grand opening: two weeks of on-site assistance
After opening: ongoing training and consultation
Operating manual: comprehensive guide to developing and operating your Cactus Car Wash
Financing information: Please note that although we do not offer financing, we have developed strong relationships with lenders interested in working with our franchisees.”
Considerations
Two organizations are extremely helpful to anyone considering franchising: theInternational Association of Franchises and the American Association of Franchisees.
The bottom line for the carwash entrepreneur is to own a successful business. But choosing to invest as an owner/operator of one or a few stores or developing a franchise organization depends on budget as well as personality and business preference and style. As a sole proprietor, you have all the stress and all of the glory. As a franchisor you become more focused on helping and guiding the success of the franchisees. It is a different job in the same business.
Customer service is a very big challenge for the franchisor. Joe Kelly of ancvehiclewash.com explains, “A consistent level of quality customer service is difficult to maintain, and quality enforcement is challenging.”
Do your homework. Research the idea of creating a franchise or even buying a franchise, and then research some more. This is a complicated and expensive business venture no matter which side of the table you are on. Be sure to look at every aspect of the business before you proceed.
Government Regulations
According to the FTC, “Fifteen states have franchise investment laws that require franchisors to provide pre-sale disclosures, known as a Franchise Disclosure Document, to potential purchasers. Thirteen of these states treat the sale of a franchise like the sale of a security. They typically prohibit the offer or sale of a franchise within their state until a franchise offering circular has been filed on the public record with, and registered by, a designated state agency. These state laws give franchise purchasers important legal rights, including the right to bring private lawsuits for violation of the state disclosure requirements. We encourage potential franchise purchasers who reside in these states to contact their state franchise law administrators for additional information about the protection these laws provide.”
The fifteen states are California, Hawaii, Illinois, Indiana, Maryland, Michigan, Minnesota, New York, North Dakota, Oregon, Rhode Island, South Dakota, Virginia, Washington, Wisconsin