Tuesday, March 09, 2004
Copyright © Las Vegas Review-Journal

Thirst for self-control drives franchising

Official says more people buy franchises, following desire to drive professional destiny

"It's booming because there has never been a more abundant pool of qualified, prospective franchisees. People that have the resources, whether it's home equity, the stock market has been good to them for years, people may have been downsized with buyout packages or other financial incentives. DON DEBOLT INTERNATIONAL FRANCHISE ASSOCIATION Photo by Clint Karlsen. Entrepreneur Media Chairman Peter Shea, shown Monday at the International Franchise Association expo at the MGM Grand Conference Center, said a favorable tax structure and natural attraction for risk-takers makes Las Vegas an apt locale for startups. Photo by Clint Karlsen. Click image for enlargement.

Las Vegas nourishes startup franchise businesses with its fast-growing and diverse demographics, favorable tax structure and natural attraction for risk-takers, the publisher of Entrepreneur magazine said Monday.

Drawing data from ratings and polls, the magazine has consistently ranked Las Vegas among the best cities in the United States for starting a new business.

"It's based on people coming into the area, it's based on the cost of living, it's based on your employment pool, the people that are available," said Peter Shea, chairman and chief executive officer of Irvine, Calif.-based Entrepreneur Media. "There's no doubt, the cost of living is less up here."

Shea, the sole staff member at Entrepreneur's exhibit booth at the International Franchise Association's 44th annual convention, has bought a custom-home lot in the master-planned Southern Highlands community and plans to establish residency in Nevada.

He also has a ski home in Park City, Utah, and beach home in Southern California.

"I pay taxes all over the place, so I might as well pay some up here," he said.

Shea said he would consider moving the magazine's headquarters to Las Vegas and paying his 80 employees the same wages, probably 20 percent more than they would normally make here, but it would mean breaking up families.

"All of those (factors) are put into the equation to find out who the No. 1 city is. I'm sure you follow it. The growth of small business here is phenomenal. There's always a trade-off. It's not Palm Springs (Calif.). It gets colder than you'd expect here in the winter and it gets hot in the summer."

Franchise businesses account for the largest employment base in Nevada, roughly 20 percent of the private work force, said Don DeBolt, president of the 30,000-member International Franchise Association.

A report from PricewaterhouseCoopers found that some 760,000 franchised businesses generate a total economic output of more than $1.53 trillion, or nearly 10 percent of the U.S. private-sector economy.

"It's booming because there has never been a more abundant pool of qualified, prospective franchisees," DeBolt said. "People that have the resources, whether it's home equity, the stock market has been good to them for years, people may have been downsized with buyout packages or other financial incentives.

"People more and more are saying, `I want to be the master of my own destiny. I don't want to be a slave to the stock market or some corporate hatchet man. I want to be involved in building a secure life for me and my family.' "

The average initial investment cost for 80 percent of franchises, excluding real estate, is less than $250,000, DeBolt said. Typical royalty fees range from 3 percent to 6 percent of monthly gross sales.

Franchisees should narrow their choices to industries of their interest or familiarity, he said. Among the more popular franchise fields are fast food, retail, service, automotive and restaurants.

They should conduct extensive research, using all resources available to them, which includes disclosure documents from the franchise company that show change of ownerships over the last three years.

"If you see a large changeover in ownership, ask yourself, `Why?' " DeBolt said. "The names and phone numbers of former franchisees are on the form. Get on the phone and talk to them. What were their expectations? What was their return on investment? Did the franchisor do what they said they would? Most important, if you had it to do over, would you buy this franchise again?

"Call 15 to 20 people. You have to do the research. That's so vital. There so much information available to you, it's almost your own fault if you make a mistake."

The quest for the perfect match between franchisor and franchisee works both ways, said Ken Lantis, chairman and owner of Lantis Fireworks, which has a Las Vegas office and does fireworks shows at Cashman Field.

"You have to be very selective," he said. "You have to pick the right person that goes along with our philosophy about safety and customer satisfaction. We want to help people, make sure customers are happy with the job and make money."

The association's convention drew about 2,000 franchise-related executives to the MGM Grand Conference Center for four days of seminars and networking. It ran in San Antonio last year and moves to Hollywood, Fla., next year.

Former President George H.W. Bush and former first lady Barbara Bush were keynote speakers Sunday.