Category: Training and Coaching

8 Key Costs To Consider When Opening A Restaurant

Posted on by Franchise Strategist

8 Key Costs To Consider When Opening A Restaurant
By Gary Occhiogrosso – Managing Partner – Franchise Growth Solutions

Two of the most frequent questions I’m asked at a seminar, workshop, or when teaching a restaurant development course at New York University are; “how much money do I need to open a restaurant, and how do I get the money?” This is the first installment of a two part article answering those questions.

Before we can address how to fund your restaurant, we need first to understand what we’re building and its cost. The type of restaurant you’re opening will determine the amount of money you need. In addition, the kind of restaurant will affect the type of funding and who may have an interest in investing or supplying a loan. Additionally, you’ll need to evaluate how much of your own money you need to provide. That’s because part of the process necessary to convince an investor, banker, or private lender is that you’re genuinely committed to the project. You know the expression, “put your money where your mouth is”  

For the sake of this discussion, let’s say you’re opening a fast-casual restaurant. Not a franchise but an independent concept that you have developed on your own. This type of project may require a conventional business loan or an SBA loan. In many cases, investors other than family and friends may not be interested in investing in a brand new concept with no track record of success. It becomes further complicated if this is your first foray into the restaurant industry.

Fast-casual restaurants typically cost between $250,000 and $400,000 to “turn the key” and open the doors for business. The various costs associated with opening a restaurant will range depending on factors such as location, size and condition of the space, everything from security deposits to the reserve capital you’ll need to carry possible shortfalls the first few months you’re open.

 Investment Costs to Consider

* Professional fees: This is usually necessary to set up your business entity, whether a corporation or LLC. Also, you’ll want to have a lawyer review any lease you may sign to rent a space where you will construct your new restaurant.
* Security deposits: This may be one to three months of rent paid to your landlord. In addition, many utility companies require deposits to set up electric, water, and Internet connections.
* Equipment: The cost for all of your kitchen equipment. Items include hoods, grills, ovens, stoves, stainless steel prep tables, shelving, hot tables, cold tables, a Point of Sale (POS) system, and a walk-in refrigerator. In addition, small wares, things like scoops, ladles, fry baskets, flatware, dishes, glasses, and other small items you need to prepare your menu and serve your guests. Now let’s move to the front of the house. Additionally, you’ll be looking at furniture and fixtures, countertops, workstations, tables, chairs, decorative shelving, and other items. These are the items you use in the front of the house to create the environment that will best suit the concept you’ve created. 
* Leasehold improvements: In most cases, this will be your most significant expense. Leasehold improvements are generally construction costs for electrical installations, hood venting, plumbing, heating, and air-conditioning. These items are referred to as “the mechanicals.” And let’s not forget building one and, in many cases, two ADA-compliant bathrooms. Also, installing the proper ceiling, flooring, millwork, painting walls, and other elements that we typically think of as construction. On a side note, you can take advantage of opportunities due to the abundance of restaurants that have closed during the pandemic. These empty restaurant spaces are referred to as “second-generation restaurant spaces.” You can save thousands of dollars if you find and secure a space that was formerly a restaurant. In many cases, you will find the mechanicals have remained in the building. These second-generation restaurant spaces help to reduces your cost if you don’t need to install a hood, venting, plumbing, electrical, and restrooms.
* Signage: Properly identifying your restaurant will mean you will need to sign for your storefront. Also, consider that you may need lighted signs in the windows and other signage throughout the restaurant.
* Start-up inventory: This is probably the most extensive inventory order you’ll ever place. This initial order is for food, paper, beverages, and other supplies you’ll need in your restaurant daily. You’ll replace these inventory items as you use them, but when you first start, you’ll need to stock your restaurant from scratch with every single thing for the first time.
* Grand Opening Advertising: This is an item that most restaurateurs neglect. You’ll want to launch your restaurant by making a big splash in the neighborhood. To do this, you need the proper budget for social media, print, and other forms of advertising & marketing so you can get the word out.
* Reserve Capital: As I mentioned earlier, you will need to reserve cash in the bank. This reserve cash is required to meet shortfalls that may occur when you first open your new restaurant. You may not break even for months. Therefore, it would be wise to be prepared to cover payroll, inventory, utilities, and other costs incurred as you operate.

Understanding the actual cost of opening your restaurant is vital. An investor or bank will want to see that you’ve applied critical thinking to the project by taking time to evaluate the start-up cost honestly. In addition, you will need to prepare a business plan and projections to secure bank financing or satisfy an investor. Properly evaluating the required investment will lead to accurate budgeting these key startup costs.

So now that you have an understanding of cost, you should be prepared for a banker or investor to inquire how much of your own money you’re willing and able to invest into your business. In many cases, the SBA, private lenders, or conventional loans through a bank will require that you supply somewhere between 15% and 25% of the total amount necessary. As an example, if you project a cost of $400,000 to open your new restaurant, you will need between $80,000 and $120,000 in cash. Your cash investment demonstrates to the bank or investor that you have “skin in the game. “I have never seen a bank or investor finance a new restaurant 100%.
Now that we’ve covered the investment information necessary to open a new restaurant, we’ll tackle the second question in our next article. We’ll dig into funding methods such as a conventional business loan with a bank, an SBA loan, a private investor, and of course, family and friends.

About the Author:
Gary Occhiogrosso is the Founder of Franchise Growth Solutions, which is a co-operative based franchise development and sales firm. Their “Coach, Mentor & Grow Program” focuses on helping Franchisors with their franchise development, strategic planning, advertising, selling franchises and guiding franchisors in raising growth capital. Gary started his career in franchising as a franchisee of Dunkin Donuts before launching the Ranch *1 Franchise program with it’s founders. He is the former President of TRUFOODS, LLC a multi brand franchisor and former COO of Desert Moon Fresh Mexican Grille. He advises several emerging and growth brands in the franchise industry. Gary was selected as “Top 25 Fast Casual Restaurant Executive in the USA” by Fast Casual Magazine and named “Top 50 CXO’s” by SmartCEO Magazine. In addition Gary is an adjunct instructor at New York University on the topics of Restaurant Concept & Business Development as well Entrepreneurship. He has published numerous articles on the topics of Franchising, Entrepreneurship, Sales and Marketing. He was also the host of the “Small Business & Franchise Show” broadcast in New York City and the founder of FranchiseMoneyMaker.com
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FRANCHISE YOUR BUSINESS TODAY: www.franchisegrowthsolutions.com

DO YOU NEED A TAX ID? HOW TO OBTAIN AN EIN

Posted on by Franchise Strategist

After four years of life in the outlaw motorcycle subculture in NYC, Tom got a haircut, took a shower and landed a respectable job in the New York Subway system. After more than 13 years in the subway Tom became frustrated with the bureaucracy and politics.

DO YOU NEED A TAX ID? HOW TO OBTAIN AN EIN
By TOM SCARDA, CFE Founder of FRANCHISE ACADEMY
🔑Education 🔑 insight 🔑 inspiration – Have you been working from home and don’t want to go back to your office? Have you tasted freedom and want out of the corporate rat race? We should talk. No Sales, No Kidding.

After you incorporate or form an LLC, the IRS will issue a federal tax ID to your small business. This tax ID is also known as an employer identification number, or EIN.

What is an EIN? Let’s take a closer look at this federal tax ID, key areas where having an EIN may benefit your business, and how to obtain an EIN if you were not already issued this tax ID.

What’s an EIN?

An EIN is essentially a social security number (SSN) for a small business.

This tax ID is nine digits long, similar to that of an SSN, with a primary purpose of legally identifying your business. Entrepreneurs may use their SSN or an EIN on paperwork pertaining to their company. Some entity formations, like sole proprietors, use their SSN for business tax purposes. Incorporated formations, like limited liability companies (LLCs), have the choice to use their SSN or an EIN.

More often than not, incorporated businesses will use their EIN. This is because an EIN is slightly less sensitive than an SSN. As such, business owners may choose to use an EIN in lieu of an SSN. Choosing this tax ID acts as a safeguard to ensure the safety of their personal identity. It also helps to keep entrepreneurs in compliance with U.S. tax laws.

How Do I Know I Need an EIN?

There are several aspects of small business where it’s necessary to file for an EIN. Here’s where this tax ID can benefit your company.

Opening a business bank account. Having a business bank account allows small business owners to keep their personal and professional finances separate. Most U.S. financial institutions require a certified copy of an EIN prior to opening a business bank account. An EIN also makes it easier to establish a business credit profile, separate from the owner, and build business credit.
Forming an LLC. If you have already formed an LLC, then you were issued an EIN — and may skip ahead in reading. However, if you are planning to form an LLC keep in mind that the IRS will issue you an EIN. You will also need to obtain an EIN if you choose to incorporate as another entity formation, such as incorporating as a corporation or forming a partnership.
Hiring employees. Here’s where an EIN benefits both employees and the business owner. If your business plans to hire employees, it is a requirement to obtain an EIN. This allows the IRS to track your business and ensure it collects payroll tax. On the flip side of the coin, once a business has been incorporated the business owner is technically considered an employee. As such, you will need to obtain this tax ID — for future employees within the business as well as your own status within an incorporated business.
Besides the aforementioned three bullet points, EINs may benefit businesses in even more ways. You will need to obtain an EIN to establish pension, profit sharing, and retirement plans. This tax ID may also be used when filing annual tax returns. In the event you decide to change your organization type, filing Form 8832 Entity Classification Election will ensure your entity is able to retain its EIN, even if its legal structure has changed.

How Can I Obtain an EIN?

Obtaining an EIN is a fairly straightforward process. You can apply for an EIN online, through the mail, by fax, or even over the telephone with the help of MyCorporation’s trusted team of professionals.

Before you begin the filing process, however, please note that you must determine if your business is eligible for an EIN. The principal business must be located in the United States or its U.S. territories. The true principal officer or general partner must also possess a valid tax ID. This may be an SSN, an EIN, or an individual taxpayer identification number (ITIN). Finally, if your small business is not already incorporated or formed as an LLC then it must file to incorporate as a legal formation for their organization.

The Value of Having an EIN

Having a tax ID allows you to take your business to new, exciting heights while remaining in compliance with tax laws. As an added bonus, once you obtain an EIN you have it forever because EINs do not expire.

Conduct your due diligence prior to filing for an EIN and reach out to a legal professional prior to filing if you have any questions. Once you obtain your EIN, remember to treat it similar to that of an SSN. Keep this ID in a safe place to protect it and use it in areas required by your business.
Deborah Sweeney is the CEO of MyCorporation.com which provides online legal filing services for entrepreneurs and businesses, startup bundles that include corporation and LLC formation, registered agent services, DBAs, and trademark and copyright filing services. You can find MyCorporation on Twitter at @MyCorporation.

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About Tom Scarda:
Tom is now a nationally recognized small business and Certified Franchise Expert (CFE), motivator and dynamic speaker. Tom has authored three books: Franchise Savvy, The Road to Franchise Freedom and The Magic of Choosing Uncertainty: How to Manage Change, Embrace Fear and Live a Fulfilled Life.

30 years ago, searching for his inner drive, Tom left college and submerged himself in the motorcycle underworld in lower Manhattan. This made his mother worry. It was the first time Tom chose uncertainty over the status quo.

After four years of life in the outlaw motorcycle subculture in NYC, Tom got a haircut, took a shower and landed a respectable job in the New York Subway system. After more than 13 years in the subway Tom became frustrated with the bureaucracy and politics. So he quit his job and left his pension behind to pursue his dreams of business ownership. This also made his mother worry.

In 2000, he purchased a smoothie franchise, which he built into three units and sold five years later for a considerable profit. He was the #1 franchisee of the year in Maui Wowi Smoothies in 2002. He purchased a second franchise in 2006 called Super Suppers and failed miserably in that franchise concept. The lessons he learned from failure is what makes him such an expert. Tom has owned and operated both franchised and non-franchised businesses and has years of knowledge and wisdom to share with you.

An Overlooked Franchisor Recruitment Strategy

Posted on by Franchise Strategist

After having been in the franchise industry for many years, I have not seen enough emerging and mid-sized franchisors emphasize in detail, how it analyzes, identifies, and determines the territory a franchisee will be granted.

An Overlooked Franchisor Recruitment Strategy

FRANCHISING,
Ed Teixeira is Chief Operating Officer of Franchise Grade and was the founder and President of FranchiseKnowHow, L.L.C. a franchise consulting firm.

By Ed Teixeira
VP Franchise Grade, Author, MA Economics, Industry Partner Stony Brook U. and member of Advisory Board Pace U. Lubin School of Business.

To grow a franchise system a franchisor must have qualified franchise leads that can turn into viable franchise candidates. This is a fundamental truism of franchising, whether a franchisor generates their own leads, uses lead gen portals, or receives franchisee prospects from other sources. However, acquiring franchise leads is only a part of the franchise development process. A franchisee prospect needs to be sufficiently impressed with a franchise opportunity before proceeding to the next steps in the process.

To achieve this objective the usual approach employed by franchisors is to cite the market demand for the franchise’s products or services, franchisor training and support and providing a financial performance representation in an Item 19 disclosure. However, these benefits exclude one of the most critical requirements of any business, especially a franchise, the quality of the market territory the franchisee will acquire as part of their franchise investment.

After having been in the franchise industry for many years, I have not seen enough emerging and mid-sized franchisors emphasize in detail, how it analyzes, identifies, and determines the territory a franchisee will be granted. Although this subject is typically covered at the early stages of discussions between the franchisor and a franchisee prospect it has been my experience that the franchisee market does not receive enough focus by some franchisors. While the type of territory whether open, protected, or exclusive is an important factor for a prospective franchisee the market potential is equally important.

1. Franchisors should devote more resources and place more attention on how they identify and define a franchisee market and present this information at the earliest stages of the franchise process. This strategy may require a franchisor to invest additional resources into defining franchisee markets.

2. Avoid utilizing surface metrics to define a market. For example, a home care franchisor may use the number of residents over 65 to define a market, yet will that indicate how many of this market segment can afford to pay for home care services? The same concept relates to children’s services. Two markets with a comparable number of school age children should be analyzed to determine whether family incomes are available to pay for those services.

3. Invest in using a reputable market research firm with credentials to identify an ideal market profile. Franchisors should have a detailed franchisee and market profile. It is not necessary to describe all the details regarding the territory but rather to emphasize the importance that each franchisee has a quality market.

4. A number of franchisee prospects have a pre-determined choice of territory based upon where they live or their gut instinct. There are franchisors that readily accepts the choice, however if the franchise fails due to poor sales this issue will not be raised. Franchisors should not accept a franchise candidates’ preference for a territory unless the decision is based upon careful analysis.

Franchisors should devote the resources and focus upon the importance of a franchises market potential and present the franchisee market as a major feature of the franchise opportunity. This should be introduced at the beginning of the franchise presentation process including brochures and on the franchise website.

About the Author:
Ed Teixeira is currently the VP of Franchise Development for Franchise Grade.com. He’s had the opportunity to spend over 35 years in the franchise industry as a franchise executive and franchisee. Ed has an MA in Economics from Northeastern U. His franchise experience has included the retail, manufacturing, home health care, medical staffing and GPS fleet tracking industries. EWd has done international licensing in Asia, Europe, and South America and was a contributor to Forbes Magazine. He’s been qualified by the International Center for Dispute Resolution as an international franchise expert. Ed is a faculty member of LawLine.com I have Lectured at Stony Brook University Business School on the subject of Franchising. Been interviewed by the Wall Street Journal, Forbes, Bloomberg, Franchise Times, Franchise Update, New York Newsday and Long Island Business Review. He wrote and published The Franchise Buyers Manual a comprehensive book for people considering investing in a franchise. In 2004 Ed wrote Franchising From the Inside Out an overview of the franchise industry. He have established numerous franchise concepts for independent business owners and with my affiliates do international franchising. Ed has been designated a franchise industry expert by The Business Broker Press. Am a member of the Advisory Board Pace University Lubin School of Business and Industry Partner Stony Brook University.

Strategy – The Most Successful Franchises Know Their Competitors

Posted on by Franchise Strategist

Knowing which franchises, are a threat to your franchise growth and development requires diligence and having the proper information. No franchise program is so unique it is impervious to competition.

The Most Successful Franchises Know Their Competitors

FRANCHISING,
Ed Teixeira is Chief Operating Officer of Franchise Grade and was the founder and President of FranchiseKnowHow, L.L.C. a franchise consulting firm.

By Ed Teixeira
VP Franchise Grade, Author, MA Economics, Industry Partner Stony Brook U. and member of Advisory Board Pace U. Lubin School of Business.

A sign of a successful franchise system is knowing your competitor’s franchise offering. When speaking with top performing franchisor executives regarding their success, a common response was how well they knew their competitors. This knowledge was the result of hard work on the part of the franchisor and its franchisees. It means that each competitor is carefully analyzed which identifies their strengths and weaknesses from a competitive standpoint. It requires knowing how the key components of your competitor’s FDD compares to your FDD.

Knowing which franchises, are a threat to your franchise growth and development requires diligence and having the proper information. No franchise program is so unique it is impervious to competition.

The most effective and productive way to know how your franchise compares to competitors is to use data from Franchise Grade. There are two types of competitors that franchisors should know: direct competitors; who represent franchises in their own business segment and indirect competitors; which represent franchises in a related segment. For example, among children’s franchises, children’s fitness and enrichment programs could represent direct and indirect competitors of each other.

The first step towards knowing your competitors is to identify franchises that most closely compare to yours. You can do an analysis of their FDD’s which is time-consuming or use our website to search our index of thousands of franchise systems, all indexed and analyzed to make your research easier.


This product allows you to understand:

* How you compare to top franchise competitors in the key performance areas

* Which areas of your franchise you need to improve on.

* The parts of your franchise program that you will want to emphasize and promote to candidates.

* What areas sets you apart from your competitors such as fees, territory, franchise term, etc.

* If you use a third party like Franchise Grade, for a detailed analysis you will have the advantage of objectivity. This is important to prospective franchisees.

Franchisors compete with other franchisors for the same investment dollars. It is vital that a franchisor is aware of their competitors and how their franchise compares to them. This process is needed to construct a successful franchise marketing strategy. Any franchise expansion strategy should follow the lead of the most successful franchises. Be sure to know your competitors and find the data to help you promote your investment value to stand apart from them.

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About the Author
Ed Teixeira is currently the VP of Franchise Development for Franchise Grade.com. I’ve had the opportunity to spend over 35 years in the franchise industry as a franchise executive and franchisee. I have an MA in Economics from Northeastern U. My franchise experience has included the retail, manufacturing, home health care, medical staffing and GPS fleet tracking industries. I’ve done international licensing in Asia, Europe, and South America and was a contributor to Forbes Magazine. I’ve been qualified by the International Center for Dispute Resolution as an international franchise expert. I am a faculty member of LawLine.com I have Lectured at Stony Brook University Business School on the subject of Franchising. Been interviewed by the Wall Street Journal, Forbes, Bloomberg, Franchise Times, Franchise Update, New York Newsday and Long Island Business Review. I wrote and published The Franchise Buyers Manual a comprehensive book for people considering investing in a franchise. In 2004 I wrote Franchising From the Inside Out an overview of the franchise industry. I have established numerous franchise concepts for independent business owners and with my affiliates do international franchising. I’ve been designated a franchise industry expert by The Business Broker Press. Am a member of the Advisory Board Pace University Lubin School of Business and Industry Partner Stony Brook University.

TWO REASONS YOU WILL NOT BE GRANTED A FRANCHISE LICENSE

Posted on by Franchise Strategist

When I was vetting my smoothie business, my dad said, “who is going to buy frozen drinks in the winter in New York? The funny thing is, consistently, we sold more in the winter than we did in the summer.

TWO REASONS YOU WILL NOT BE GRANTED A FRANCHISE LICENSE

By TOM SCARDA, CFE
🔑Education 🔑 insight 🔑 inspiration – I help people escape the corporate rat race and control their own destiny through business ownership. 516-322-1435

Thinking that talking to a franchise company is like a timeshare presentation.

If you invest in a franchise, you are buying a business, but they are not selling one. Speaking with the franchisor and performing due diligence is like dating. If you hope to be sold something, you’ll be disappointed, or you’ll waste some time, and your right franchise will break up with you because of your awkward or bad behavior.

Top franchise systems view the vetting procedure as a mutual dating exercise. Both parties judge each other before formalizing a long-term relationship. The dating rules are pretty much as they’ve always been:

Care to learn about each other while respecting each other’s boundaries and timelines.
Ask many questions and observe behaviors to learn each other’s values and identify potential opportunities and deal breakers.
At any time, you or the franchisor can decide that another date isn’t the best idea. If one of you says “No”, there are no hard feelings. After all, it takes both to make the relationship great.
As in dating, the courtship could end with a final “No”, or if at the altar one of you says, “I still want to think about it.” If you still have to think about it while one of you is at the altar, then it means something’s wildly amiss.
However, as in dating, the courtship could also result in a wonderful partnership that creates for you a comfortable, prosperous, and peaceful future.
Lastly, one doesn’t marry while planning for divorce.
Consensual validation or third party opinions

Family, friends, lawyers, accountants, financial planners, a friend in the industry, someone you respect because they built a business. Why would a friend and/or someone you know who hasn’t performed any due diligence tell you that the business you’re considering is a good idea? Deep inside, they know there are too many variables to predict whether you’ll be successful or not. For the most part, people will share all the negatives about a business or an industry, and in the back of their minds, they feel that they gave you “safe, solid advice.” Besides, if you change nothing and instead do what you’ve always done, no one loses… right?

When I was vetting my smoothie business, my dad said, “who is going to buy frozen drinks in the winter in New York? The funny thing is, consistently, we sold more in the winter than we did in the summer. That is because in the winter we had less competition in an indoor venue. We had to compete with ice cream, lemonade, beer, and other summer treats during the warm months.

You are doing the research. I suggest forming friendly relationships with the people you talk with at the franchise company. If you buy, they will be the ones helping you be successful. A great franchise company will never try to sell you a franchise. That is against the philosophy of the best franchisors.
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About Tom Scarda:Tom is now a nationally recognized small business and Certified Franchise Expert (CFE), motivator and dynamic speaker. Tom has authored three books: Franchise Savvy, The Road to Franchise Freedom and The Magic of Choosing Uncertainty: How to Manage Change, Embrace Fear and Live a Fulfilled Life.

30 years ago, searching for his inner drive, Tom left college and submerged himself in the motorcycle underworld in lower Manhattan. This made his mother worry. It was the first time Tom chose uncertainty over the status quo.

After four years of life in the outlaw motorcycle subculture in NYC, Tom got a haircut, took a shower and landed a respectable job in the New York Subway system. After more than 13 years in the subway Tom became frustrated with the bureaucracy and politics. So he quit his job and left his pension behind to pursue his dreams of business ownership. This also made his mother worry.

In 2000, he purchased a smoothie franchise, which he built into three units and sold five years later for a considerable profit. He was the #1 franchisee of the year in Maui Wowi Smoothies in 2002. He purchased a second franchise in 2006 called Super Suppers and failed miserably in that franchise concept. The lessons he learned from failure is what makes him such an expert. Tom has owned and operated both franchised and non-franchised businesses and has years of knowledge and wisdom to share with you.

Good News for Franchisors: New Favorable Accounting Rules Go Live!

Posted on by Franchise Strategist

Even though we are in the middle of audit and registration renewal season, these rules could prove to be beneficial for franchisors. The expedient will allow for more representative income recognition and allow franchisors to adjust their opening equity for prior franchise agreements.

Good news for franchisors: New favorable accounting rules go live!
By Michael Iannuzzi
Posted with Permission from Franchise News Wire

Who said accounting was boring? For the past two-and-a-half years the International Franchise Association’s Financial Accounting Standards Board (FASB) Task Force has been working with the FASB to issue guidance to help reduce some of the cost and complexity in applying Topic 606 — revenue recognition rules over initial franchise fees. On January 28, 2021, the FASB released Accounting Standards Board Update 2021-02 to Topic 606, an “expedient” that can be adopted by non-public franchisors on their December 31, 2020 financial statements. What does this mean for non-public franchisors?

During the year-end December 31, 2019, non-public franchisors that issued their financial statements prior to the FASB issuing an election to defer Topic 606 during June 2020, were tasked with the challenge of implementing Topic 606 for the very first time by following these steps:

Step 1 – Identify the contract with a customer (in our case, a franchise agreement)
Step 2 – Identify the performance obligations in the contract (training and the right to use the license, as examples)
Step 3 – Determine the transaction price (the franchise fee paid)
Step 4 – Allocate the transaction price to the performance obligations (determine the value to be received, more on this later)
Step 5 – Satisfaction of performance obligations (delivering the service)

The current method (prior to issuance of the expedient)
The struggle for franchisors was how to identify the performance obligations in Step 2 and how to value the transaction price to be recognized as revenue in Step 4. Using pre-opening training as an example, many franchisors offer training that is specific to their brand as well as generic training, such as how to use QuickBooks. The challenge was to separate the training into brand specific vs. non-brand specific trainings (Step 2), then to come up with a value to allocate (Step 4), and ultimately recognize a portion of the initial franchise fee as revenue and record the remaining initial franchise fee as deferred revenue to be recognized over the life of the franchise agreement. This proved to be very difficult and costly for franchisors of all shapes and sizes. There were assumptions made that the entire amount of the initial franchise fee should be deferred and bypass the steps above. That’s not to say that isn’t the case; however, you would have had to do the analysis to conclude that the entire fee should be deferred and not just default to that position.

In applying the practical expedient, “pre-opening services that are consistent with those included in a predefined list within the guidance may be accounted for as distinct from the franchise license.” What does this mean? The intent was to simplify Step 2. In Step 2, non-public franchisors can now look at most of their pre-opening activities and count them as one performance obligation, meaning they are delivering an upfront service to a franchisee. This would potentially allow them to recognize more of the initial franchise fee as revenue, creating an income pickup for franchisors compared to the amount being recognized based on prior rules, as they are now allocating more of the transaction price identified in Step 4 to these costs.

Even though we are in the middle of audit and registration renewal season, these rules could prove to be beneficial for franchisors. The expedient will allow for more representative income recognition and allow franchisors to adjust their opening equity for prior franchise agreements. Careful consideration needs to be given when adopting the expedient. Most importantly, this is meant to be general advice, and franchisors should always consult with knowledgeable franchise and accounting professionals before forming any conclusions.

CPA, FASBE, franchise, Citrin Cooperman

Michael Iannuzzi is a partner and co-leader of Citrin Cooperman’s franchise accounting and consulting practice. The company provides audit and accounting, business consulting and advisory, and tax planning services to a wide spectrum of clients within the franchise community. Iannuzzi works with franchisors and multi-unit franchisees in a variety of industries, including, but not limited to, fitness and athletic centers, children’s entertainment services such as recreational youth programs and party providers, junk removal companies, mobile concepts, pet hotels, quick service restaurants (QSRs), and grocery stores. For more information, call 212.697.1000 x 1250 or email [email protected]

WHAT’S YOUR SUPERPOWER?

Posted on by Franchise Strategist

A superpower should be super. It should be something that very few other people can match. For example, a lot of people can play a guitar pretty well. But Eddie Van Halen can coax sounds from the instrument like few others.

WHAT’S YOUR SUPERPOWER?
By Jeff Morrill

Superman can fly, Wonder Woman can deflect bullets, Spider-Man can sense danger. Real people can’t leap tall buildings in a single bound, but we can develop special abilities that form the backbone of our success over a lifetime.

It usually takes a few superpowers to make a superhero, because even a monumental talent will not, by itself, guarantee success. For example, towering athletic ability won’t get you very far unless you also have the long-term discipline to sharpen your skills and match your competition. I use the term “superpower skill set” to describe a cluster of a few exceptional strengths that add up to a whole greater than the sum of its parts. Imagine a person with unusually high levels of manual dexterity, stamina, and intellect—those qualities would combine to make very good surgeon, or a pilot. The set of faculties work together to create quite a competency.

When identifying your superpowers, keep these things in mind:

There’s a difference between the things you want to be good at and things you actually are good at. As a boy I wanted to be a great baseball player. I persisted through my little league years on modest talent, hoping that that my genetics would eventually deliver me the physique necessary for real success (you know—big butt, powerful upper body). It was not to be. I made it to six feet but never to even 140 pounds. I permanently abandoned my efforts on the diamond after I failed to make the Blacksburg High School junior varsity team.

A superpower should be super. It should be something that very few other people can match. For example, a lot of people can play a guitar pretty well. But Eddie Van Halen can coax sounds from the instrument like few others. You probably do a lot of things well. But what do you do really well? What’s easy for you but hard for others? That’s where you can really make things happen.

In my case, I have always been freakishly organized, I have a feral risk tolerance, and I can remain intensely focused on goals for years on end. This skill set is ideal for entrepreneurship. I have depended upon those qualities my whole life, and they have helped me compensate for many deficiencies in other areas.

Be respectful of your superpowers. Use them for good, to make the world better for you and everybody else. Don’t waste them, because they don’t necessarily last forever. There might come a time in your life when you regret screwing around with your prime years instead of discovering the frontier of your potential.

What are the handful of special abilities that comprise your superpower skill set? Have you developed each to its full potential? Are you making the highest and best use of your overall capability?

About the Author:
Jeff Morrill co-founded Planet Subaru, “your undealership,” in 1998, and built it into one of the most successful privately-held car dealerships in the United States. He later started other businesses in automotive retail, real estate, telecommunications, and insurance that generate over $100,000,000 in annual revenue. His achievements in building profitable and ethical companies have been featured in a variety of national media including USA Today, Entrepreneur Magazine, Automotive News, The Boston Globe, and others.

Jeff is a strict vegetarian, even though people tell him it’s a big missed steak to eat that way. However, he does like his puns well done. Jeff lives with his wife, Julie, outside Charlottesville, Virginia, on a mountain he refers to as “The Morrill High Ground.”

3 Ways to Cut Through the ‘Noise’ and Carve a Path to Success

Posted on by Franchise Strategist

…we’re experiencing stress and anxiety at record levels…resulting in lost productivity, not to mention what it’s doing to the health of our employees, our companies, and our nation.” A recent Harvard Business Review study found a whopping 43% of employees reported struggling with feelings of burnout.

3 Ways to Cut Through the ‘Noise’ and Carve a Path to Success
The Key to Productive Leadership Lies in your Signal-to-Noise Ratio
By Stephen Kohler, Founder & CEO at Audira Labs

As we face an ongoing global pandemic, a cacophonous political landscape in the U.S., and an overwhelming amount of digital overload, most of us are feeling overwhelmed and simply exhausted. Doing our best to juggle everything at once – continuing to lead at work, supporting our families at home, and somehow maintain our own physical & mental well being along the way.
I recently began thinking about this in relation to a parallel concept in the world of music and audio called the “signal-to-noise ratio”. In a musical context, signal-to-noise ratio is a measure that compares the level of a desired audio signal to the level of background noise, usually in the form of decibels.  

In applying this concept to our working world, our current signal-to-noise ratio is extremely poor. Strike that: let’s be honest, it’s awful. If we were music producers making a record, we’d say things sound so bad right now that we need to start over.  

“…we’re experiencing stress and anxiety at record levels…resulting in lost productivity, not to mention what it’s doing to the health of our employees, our companies, and our nation.”
– Stephen Kohler, Audira Labs

The issue? We are experiencing so much noise that we’re experiencing stress and anxiety at record levels. A recent Harvard Business Review study found a whopping 43% of employees reported struggling with feelings of burnout. This is resulting in lost productivity, not to mention what it’s doing to the health of our employees, our companies, and our nation. 
Below are 3 ways to eliminate noise by adjusting your signal-to-noise ratio:

1. Turn up your input signal. 
In a musical setting, when we notice noise, one of the first things we can do is to turn up the primary signal.  For example, this might mean turning up the singer’s microphone, the keyboard, or (gulp) the guitar amp. From a leadership perspective, we can do this by reconnecting to our sense of purpose – be that our individual values, our team’s mission, or our organizational vision.  Simon Sinek famously articulates this in his book, Start with Why.

2. Identify and ruthlessly eliminate the noise. 
Building on our music metaphor, after we’ve turned up on our input signal, the next thing we can do is to identify sources of extraneous noise. This might include checking for faulty cables, incorrect wiring, or extraneous devices.  From a leadership perspective, this is no different. One of our biggest sources of “noise” as leaders is that of distractions and loss of focus. Strategy guru, Michael Porter, famously stated that the first rule in strategy is to identify what you will not do. We can apply this as leaders from multiple perspectives: Based on my personal values, what will I not tolerate? Given our team’s mission, what must we say “no” to in order to stay on scope, schedule, and budget?  In support of our organization’s vision, what opportunities are we willing to forgo in the short-term to ensure long-term success? 

3. Keep listening & adjusting.
As leaders, one of the biggest traps we can fall into is fear of change. Musicians and producers are constantly listening and optimizing their tone and the overall mix.  We can use this mindset from a leadership perspective and adjust based on what’s happening with our customers, the competition, and overall market. This may mean focusing on different customer segments, new product lines or completely separate geographic markets. The key is to keep listening and identify what’s resonating (working) and what is not.

Keep optimizing your leadership signal-to-noise ratio and don’t be afraid to turn it up to 11. 

ABOUT THE AUTHOR
Stephen Kohler, Founder & CEO at Audira Labs

Stephen Kohler brings passion for people along with 25 years of extensive corporate experience within organizations ranging from startup to Fortune 100, across multiple industries.
His credentials include an MBA from University of Chicago’s Booth School of Business, a BA in Philosophy from Northwestern University, and is a certified Professional Coach (PCC. CPCC) and Balanced Scorecard Professional (BSP).
His passions include spending time with his wife, two children and two dogs. He is a life-long musician, avid BBQ enthusiast and loves traveling the world.

What You Need to Consider Before Opening Your Own Restaurant

Posted on by Franchise Strategist

The amount of work it takes to not only survive but also make an impact with a restaurant is massive. According to FSR Magazine, 60 percent of all restaurants fail in the first year. A restaurant that lasts for years takes humility. You must acknowledge daily how bad you are at restauranting, until one day you’re not bad anymore.

What You Need to Consider Before Opening Your Own Restaurant
The following is adapted from Unsliced.
By Mike Bausch

Opening a restaurant is a huge decision—one of the biggest decisions you’ll ever make. It’s hard work, full of risk and failure, and can be disappointing and frustrating. It can also be rewarding and fun, and if you do it correctly, can be profitable.

But you may have a 9-to-5 job right now that brings in steady income. How do you trade that for the uncertainty of the restaurant business? For most people, it’s not a trade they’re willing to make. To know whether you’re one of those people—or the type of person who should try their hand at restaurant ownership—here are few important considerations.

Two Types of People: Which One Are You?
First, look at the two statements below. Which one best fits you?

I am a person who tries hard, and the effort is what counts.
I am a person who likes setting my mind to things and accomplishing them.

At first glance, both seem like positive, motivational statements. But the second statement is actually better because the mindset is results-oriented. You’re focusing on a goal, and just trying hard and giving it an effort isn’t enough.

This means that when things get bad, you enjoy finding a way out of it. I’m pretty sure that being a glutton for punishment isn’t necessarily normal or healthy. However, it’s an essential trait of anyone looking to own their own business—especially a restaurant.

Owning a Restaurant for the Right Reasons
You may have decided to own your own restaurant hoping to become a celebrity chef. Or maybe you just don’t like your job and think owning a restaurant will be fun. If these are your reasons, then forget it. A restaurant is not the answer to your problems. It’s asking for a lot of new problems—problems you’ve never encountered or imagined.

The amount of work it takes to not only survive but also make an impact with a restaurant is massive. According to FSR Magazine, 60 percent of all restaurants fail in the first year. A restaurant that lasts for years takes humility. You must acknowledge daily how bad you are at restauranting, until one day you’re not bad anymore. That’s a lot for the average person to absorb.

Asking Yourself the Big Question
The restaurant life will affect your home life drastically. Restaurants sometimes destroy relationships and consume your mental health and quality of life. This life choice is a gamble—a gamble you might succeed in, in your hope to serve people food in an industry with a meager financial return rate and as I said, an extremely high failure rate.

If you haven’t committed to a restaurant yet, please pause and say this out loud:

“I need this; I need to own a restaurant. I don’t just want to own a restaurant. I absolutely need to do this. This is my calling. I got this, and nothing else will suffice.”

If that statement sounded stupid when you said it out loud, restaurant ownership isn’t for you. If you don’t believe what you said, you aren’t ready to do this. If you’ve never even operated or worked in a restaurant, then don’t assume for a second that you know anything. In fact, your best move is to concede you know nothing so you can be a blank canvas ready for paint.
Make the Best Decision for You

So what’s it going to be? Safety or risk? The same old routine or unpredictability? Don’t feel bad if you choose to opt for that cubicle job. It usually offers a lot less stress and heartbreak than opening your own restaurant. The world needs people in those office chairs.

But if you choose to be a restaurant owner, be ready for a roller coaster ride. Be ready for long days and nights, unexpected changes, and some lean times. But you knew that, or you wouldn’t have made that decision, would you?

For more advice on deciding to open a restaurant, you can find Unsliced on Amazon.

About the Author:
Mike Bausch is an industry leader whose restaurant, Andolini’s Pizzeria, is a top ten pizzeria in the US, as named by TripAdvisor, BuzzFeed, CNN, and USA Today. Andolini’s began in 2005 and has grown to five pizzerias, two gelaterias, two food hall concepts, a food truck, and a fine dining restaurant by 2019. Mike is a World Pizza Champion, a Guinness Book world record holder, and a writer for Pizza Today. Mike is part of a Marine Corps family who has lived across America from New York to California. Mike calls Tulsa home and lives with his wife, Michelle, and son, Henry.

What Are Common Area Maintenance Charges In A Commercial Lease?

Posted on by Franchise Strategist

What Are Common Area Maintenance Charges In A Commercial Lease?
Posted with Permission from Spadea Lignana Franchise Attorneys


What Are Common Area Maintenance Charges In A Commercial Lease?
Most commercial retail leases are triple net leases. The “triple” stands for (i) taxes (ii) insurance and (iii) maintenance.

Taxes: This is pretty straightforward, as the landlord will simply pass on to the tenant the real estate taxes proportionately based on the size of the overall property and the size of the tenant’s location.
Insurance: This is calculated in a similar manner based on the landlord’s insurance cost for the overall property, not the tenant’s specific insurance.

Maintenance: This is the big variable and is also called CAM or “common area maintenance.”
Basically, under a triple net lease, the landlord will pass through all of the expenses to maintain the property including landscaping, cleanup, snow removal and minor repairs to each tenant on a pro-rata basis. The CAM charges in a commercial lease are typically added on to base rent as additional rent (in addition to the taxes and insurance cost). This is an area fraught with danger for the unwary tenant. A landlord typically will try to pass through as much of their expenses as possible through CAM charges, and if not negotiated upfront, these expenses can grow and grow over the life of the lease.

CAM charges to be wary of are:

Administrative & Maintenance Fees
Roof Repair & Replacement
Capital Improvements
Lighting
Plumbing
Electrical Wiring
HVAC

Many of these charges should be considered capital expenses or general overhead of the landlord and should be excluded from CAM.

READ THE ENTIRE ARTICLE HERE:https://www.spadealaw.com/blog/what-are-common-area-maintenance-charges-commercial-lease