July 2012 Archives

The only difference between a franchise and a collection of "mom and pops" is training. Think about it, what is a franchise?

It's a brand, and what makes up a brand? It's the products and services you sell, but mostly it's the way you do business.

When you bring on a new franchisee, you must train them on the way you do business. When that franchisee hires new employees, they too must be trained on that way.

The reason a McDonald's in Paris, Texas is the same as one in Paris, France is because they sell mostly the same products, but also because the experience is the same.

Brand = consistency and consistency comes from effective training.

Training is one of the most significant competitive differentiators you have, if not the most. So why is it an afterthought for most franchisors? Then, why do the majority of franchisors...

1. Reluctantly allocate money for training.
2. Half-hardheartedly spend the time developing training.
3. Grudgingly allow employees time off for training.

One reason is because much of what's considered training out there today is grossly ineffective. But it's also an attitude towards training, a disrespect, if you will.

Here are common mistakes franchisors (big and small) make when it comes to training:

1. Startups - wait and see approach. I've had several new franchisors say to me, "I'll wait until I sell my first few franchises, then I'll worry about training." So for your first few locations, the most important ones in terms of proving the concept, you're going to wing it?!

2. Growing - failing to revise training to fit the new growth model. We've seen brands trying to open 100 locations a year the same way they were opening 10 a year, and they wonder why they're not getting the same results. You can hold the hands of 10, you can't hold the hands of 100.

3. Established - resting on their laurels. As your market becomes saturated, same-store sales are what drives your revenue, and that requires changes, innovations, improvements, efficiencies, reductions, etc. and training is crucial to achieving each.

So how should franchisors "respect" training? Here are a few ways:

1. Name a training person to your executive team.
2. Add a discussion about training to every executive team meeting, regional meeting, national meeting, town-hall meeting, etc.
3. Hire or appoint a training manager, depending upon your size this could be a half-time person or a department of 20.
4. Allocate annual dollars to a training fund (think co-op for training).
5. Devise a training "program", not just individual classes. Training is not en event, it's a process.
6. DEVELOP EFFECTIVE TRAINING. If you don't know how, hire a vendor who does. Hint: if your idea of training is PowerPoint slides, it may be time to bring in an expert.
7. Base your training on your processes, i.e. your standards or best practices. Hint: if you don't know what are your best practices, it may be time to bring in an expert.
8. Invest in an LMS. Any franchisor with over 10 locations should have one. Hint: if you're wondering what exactly LMS stands for, it may be time to bring in an expert.

If you're thinking, "woah, this is going to take time and money", you're right. Each of these requires know-how and effort and that's not free. What's more, this is only the tip of the iceberg, but don't get paralyzed by trying to do too much at once. Start off small.

Do something, get yourself a "win" and then move on to the next thing.

One final thought. If you even devote half the time, money and effort to training as you do to franchise sales, you'll soon be operating an efficient and profitable brand. And isn't that easier to sell?

This July, 401k participants will receive more disclosures about the fees they are paying inside their 401k plans.

The Department of Labor wants more transparency and more disclosure on what kind of fees employees are paying inside their 401ks. Why? Because many employees have no idea how much they are paying in mutual fund fees. A recent survey by AARP said that 71% of people saving for retirement thought they didn't pay any investment fees whatsoever.

The fees inside a 401k are either paid by the plan sponsor (you - the employer) or by the participants, which are the employees. Over the last few years more of the fees have been paid by the employees. According to a report issued by the Investment Company Institute and Deloitte, employers are moving more of the plan charges onto their employees. For instance, employees are now paying for 91% of plan expenses, which is a substantial increase from 2009 when they paid 78% of such charges.

How does this happen? Here is an example. An employer wants to start a 401k and calls a bunch of mutual fund families to get some pricing to see how much it will cost to set up and administer. Most of the bids come back at $5000 a year. But one comes back at $1000 a year. Why is this one so much cheaper? Because the fund is making the money on the back end - higher mutual fund fees. So the employer goes with the cheaper option, and the little guy ends up paying more in fees.

A report issued last month by the U.S. Government Accountability Office highlighted that many employers aren't really aware about the fees charged by retirement plan providers (the mutual funds). The most obvious fee is the expense ratio inside the mutual funds offered inside the 401k plans. Many 401ks do not offer enough low cost mutual funds such as index funds. That's because they are usually not as profitable (to the fund company) as an actively managed fund is. For an explanation of index funds vs. actively managed funds, click here

Some Perspective

In the 1990s, when the average stock mutual fund was making 10% year after year, no one was complaining about mutual fund expenses inside 401k plans. Everyone was making money. But today, stock market returns have averaged 3.77% for the past 10 years. Mutual fund fees inside 401ks have decreased over the past 10 years. According to the Investment Company Institute, the average expense ratio for a stock fund in 1997 was 1.04%. In 2011, the average fee was 0.93%.

Higher fees mean lower returns for 401k participants.

If the average investor made 3.77% net of fees and the average fee paid by the investor was 0.94%, the average investor paid nearly 20% of his/her profits in fees.

Things to Consider If You Are an Employer and You Offer a 401k

1. Offer index funds inside your 401k plan.

2. Be proactive. Tell your employees about the upcoming information they will receive about the fees they are paying.

3. Calculate the average expense ratios of the funds in your 401k. Shop your pan and see how competitive your current 401k is.

4. Remember that if you are most likely a plan fiduciary, which means you are personally liable if you breach your duty as a fiduciary to the plan participants and beneficiaries.

5. Consult with 3rd party professionals like plan administrators and ERISA attorneys to make sure your 401k plan is compliant.

The trend is for more transparency in 401k fees that people will pay. Get in front of this and be proactive.

Remember what Wayne Gretsky said. "A good hockey player plays where the puck is. A great hockey player plays where the puck is going to be."

This has been a guest post by Justin Krane, CFP®, CIMA® President/Principal. Justin Krane, is a Certified Financial PlannerTM professional and the President of Krane Financial Solutions. His savvy, holistic approach to financial planning allows clients to unite their money with their lives and businesses with sound financial decisions. Using a unique system developed from his studies of financial psychology, Justin partners with entrepreneurs to create a bigger vision for their business with education and financial modeling.

This is one of the most important and difficult questions for any business owner to answer. The value of a business is based on its future cash flow, which usually can be predicted from historical results of sales and profitability.

And, buyers don't care how much you spent yesterday, they care how much they can make tomorrow.

Ultimately your business is worth what someone will willingly pay.

A common mistake owners make is that they believe their business is worth what they have invested in it, that is rarely true.

If you are a franchisee, you are part of a system and usually are not so unique to lack comparable statistics. Talk to your franchisor to see if they have historical data on what other units have sold for. You also can see if other units in your system are listed for sale and what their asking price is relative to their revenue and profitability.

The next step is to talk to local business brokers and ask them what they believe the business is worth and what they could sell it for. In addition to referrals, the best way to find local brokers is to go to websites that list businesses for sale and see who the local brokers are with good listings. Remember that brokers primarily are compensated on a successful transaction. They won't want to list your business if you are asking an unrealistic price.

You might also want to consider a professional valuation. For businesses with revenues over $1 million this is money well spent. It will not only give you a realistic view of your value but it will help your buyer secure financing.

Always remember that your business is competing against all the other local businesses for sale. You need to take a realistic look at what others are asking and where your price should be relative to your revenue and profitability. If you can't live with the price you can get, then you need to wait to sell your business. If not, you will get frustrated and waste a lot of time, money and effort. If you can live with the price of what your business is worth to a buyer today, then you will be able to sell it.

The broker, the landlord and even the franchisor will have an interest in the lease signing that is not always perfectly aligned with the business owner who will be making a long term commitment.

The business owner is most likely personally guaranteeing a large portion of that commitment, for hundreds of thousands of dollars over the course of many years.  He or she is truly committed to the success of the location.

Location, location, location is the mantra of success in retail. It is prudent after you finally select a location, negotiate the rent and are ready to sign a lease that you don't let the fine print kill your location down the road. I have worked with hundreds of franchisees and landlords over the years, and I know what to look for,what is critically important and most importantly what many landlords will give up.

As a retail business, your lease is one of your most important assets.

Every situation and location is unique and every business has a different story to tell. Leases can be complex, long and one sided contracts.

My role as your attorney is to explain every clause in the lease in plain language and to come up with a plan to negotiate the most tenant friendly language in the final version as possible.

Here are 10 important clauses to negotiate, after the rent has been decided.

1. CAM (Common Area Maintenance): How will the landlord calculate their cost to maintain the property?

2. Personal Guarantee: What if things go bad?

3. Term: What if things go great?

4. Build Out Period: Never underestimate the time it takes to build a store.

5. Assignment: If you sell, will you still be liable? Can you sell?

6. Use & Exclusivity: Can you do what you want? Can others compete directly?

7. Signage: You don't get what you don't ask for.

8. Permits: How long will you have?

9. Default: How much time do you get to cure?

10. Remedies: How draconian are the landlords's remedies?

Expect the process of negotiating a lease typically to take between 10 and 12 hours of legal work for review, drafting comments and negotiating the final version. The first step is a thorough review of the landlord's lease marking up our requested changes. This first step is critical; it is very difficult to get any further changes not asked for in the first round. After the attorney and the client agree on that first round it is presented to the landlord.

Usually, a conference call is scheduled to come to terms with what is agreeable and to identify all the remaining outstanding
issues.

Finally, the last steps are to negotiate the remaining issues and to work with the landlord's attorney to prepare a signature ready final version. You can expect the process to take 3 to 5 weeks after receipt of the initial lease from the landlord. But the time and money are well worth securing the advantage and protection of your great new location.

As an employer, you now know that he Supreme Court ruled 5-4 that the Affordable Care Act (ACA) is largely constitutional.  And that the ruling came about due to Chief Justice John Roberts’ determination that the individual mandate portion of the ACA constitutes a lawful tax precipitating his surprise alignment with the more liberal justices.

But, what does this outcome mean for you as an employer? For the time being at least, much of the uncertainty has been removed despite Republican vows to continue to fight to repeal the law. While repeal efforts may ultimately succeed, particularly if Mitt Romney is elected President, for now you really need to look at the following areas to ensure your legal compliance:

1. Summary of Benefits and Coverage (SBC.) Employers sponsoring group health plans should ensure compliance with the SBC provisions.  These require distribution of a Summary of Benefits and Coverage regarding your health plan during upcoming open enrollment periods.  The summaries must be distributed no later than the first day of the first open enrollment period beginning on or after September 23, 2012.

2. Form W-2 Health Care Reporting. Forms W-2 for calendar year 2012 (generally provided in January, 2013) and beyond must include the annual cost of group health coverage in Box 12 using code DD.  The amount is reported for informational purposes and is not taxable. Important Note: Employers that issued fewer than 250 W-2s have been given transition relief from this provision for 2012 (and perhaps beyond) pending further guidance from the IRS.

3. Health Plan Components. Employer group health plans will be prohibited from imposing lifetime or annual maximums on benefit amounts and pre-existing condition limitations by 2014.  The law already mandates that plans provide coverage for subscribers’ children up to age 26 and that specific preventative care benefits have first dollar coverage (unless grandfathered.)

4. Health Flexible Spending Account (FSA) Limits.  For plan years beginning in 2013, annual contributions will be limited to $2,500.  If you offer an FSA with a higher limit, you’ll need to adjust the plan document, communicate the change to employees and provide updated summary plan descriptions.

5.Medicare Payroll Tax. Beginning with the 2013 tax year, there will be a 0.9% Medicare payroll tax increase on high income individuals (those earning $200,000 plus.)

6. Play or Pay. Beginning in 2014, employers with 50 or more full-time employees will have to either (a) provide at least a specified minimum level of health coverage that its employees can afford or (b) pay a shared responsibility payment.  This payment amounts to a penalty of $2,000 per full-time employee (not including the first 30.)  While that’s a lot less than the cost of health insurance, think carefully about all the implications (such as recruiting and retention) before deciding to drop health insurance for your employees.

7. Small Employers. Employers with  fewer than 25 employees (whose average salary does not exceed $50,000) that pay at least 50% of an individual health premium are eligible to receive a tax credit. For tax years 2010 through 2013, the maximum credit is 35 percent for small business employers and 25 percent for small tax-exempt employers. On January 1, 2014, the rate will increase to 50 percent and 35 percent, respectively.

8. Automatic Enrollment. Beginning in 2014, employers with more than 200 full-time employees are required to automatically enroll new full-time employees in group health plans.

9. Waiting Period Limitation. Beginning in 2014, any waiting period for employee eligibility for health benefits is limited to 90 days.

10. Future Cadillac Tax. As you plan for future health insurance for your employees, keep in mind the provision that takes effect in 2018 that imposes upon insurers an excise tax of 40% on the amount of health insurance premiums that exceed $10,200 for individual coverage and $27,500 for family coverage.  Although insurers pay the tax, there is a concern that the cost will be passed on to consumers.

11. Union Contracts. If you are unionized, consider the effects of current health care reform requirements and those that will roll out during the next few years when negotiating contracts.

Subscribers to HRSentry, can find more information about the Affordable Care Act in our handy Healthcare Reform Kit under HR Topic Modules