Franchises give small-business owners chance to grow

Emmy Preiss and Harriet Mills launched their Wine and Design franchising empire after a road trip to South Carolina that involved at least two bottles of wine and two great paintings.

"We went and had a girls' weekend there," Mills said. "And the rest is history."

That history includes opening the first Wine and Design in Raleigh, N.C., in March 2010 and franchising the business a year later. Since then, Preiss, 31, and Mills, 32, have acquired 26 franchisees in North Carolina, South Carolina, Virginia and New York.

Franchising is one path that small-business owners can take to expand their business.

"Franchising is perhaps a faster way to grow than growing based on their own capital and the credit market," said Ritchie Taylor, an attorney and shareholder with Manning Fulton, a Raleigh law firm.

Franchising includes replicating a business through manuals, software and other systems, meeting state and federal requirements, and recruiting franchisees who invest their own capital. Successful franchisers constantly work to improve their brands, create and test new products, and support franchisees, Taylor and others said.

"When you become a franchiser, you are making a massive commitment to other people to help them get up and provide for their families and their children and their wealth building," said Doug Schadle, chief executive and co-founder of Rhino7, a franchise sales and development firm in Apex, N.C.

Before exploring franchising, small business owners need to polish their business models and systemize what they are doing, Taylor said. They should also be prepared to spend time and money to create the required documents and support systems for franchisees.

Franchisers can spend between $20,000 and $100,000 in startup expenses and a legal process that takes three to six months, Taylor said.

"It is not an insignificant investment," Taylor said. "But the opportunity is cheaper also than opening up a second location on your own."

When small business owners are ready to franchise, they should start by reaching out to a qualified franchise attorney or consultant to discuss the suitability of their concept and read books on franchising, said Taylor, who recommends "Franchising for Dummies," co-authored by Wendy's founder Dave Thomas.

Franchising is a regulated industry, governed by federal and state franchise relationship laws, and if a business owner fails to make the proper disclosures, he or she could face civil and criminal penalties, Taylor said.

The process includes building the required franchise disclosure agreement, which must be provided to prospective franchisees; establishing franchisee fees and royalties that make sense for both the franchiser and the franchisees; and creating a variety of business systems and training programs.

The most successful franchisers in the U.S. are models in which the owner doesn't deliver the service directly but manages the process of delivering a strong service or product, Schadle said.

In 2009, Preiss was a stay-at-home mom who had previously worked for her husband's college housing business, and Mills was laid off from her job at Vietri, a Hillsborough, N.C., dinnerware company.

During a trip to Charleston in January 2010, Mills and Preiss went to a paint and party business.

After drinking some wine while painting, Mills, who describes herself as unartistic, said she painted better than Preiss, who often paints.

"If I can do this, then we are taking this back to Raleigh so anybody can do this," Mills recalls she said.

The duo opened Wine and Design with the goal of creating a party atmosphere with music and adult beverages, "but at the same time, we wanted everybody to leave with a good painting," Mills said.

In the fall of 2010, Preiss and Mills opened a second location in Wilmington, N.C., but the pair had a hard time managing a store so far away while raising kids, they said. They later sold the business to a franchisee.

That December, Mills and Preiss decided to give in to the ongoing franchise inquiries.

"There was so much interest, we just decided, 'Hey, why not take a shot at this?' " Mills said.

The pair met with Taylor and spent the next three months creating the more than 150-page franchise disclosure document and related manuals.

"Now it is the 'Wine and Design for Dummies' manual," Mills said, describing the document. "You can have that manual and literally open up within 60 days."

That initial process, which included legal advice and creating a separate franchiser limited liability company, cost about $50,000, Preiss and Mills said.

A Wine and Design franchise requires a $15,000 franchise fee and an 8 percent monthly royalty fee. In exchange, franchisees get documentation and training on running the business and access to a website, a reservation system and 24-hour support from Mills, Preiss and two liaisons who work with franchise owners to improve their performance.

"Any type of help we can give them," Mills said.

The first two Wine and Design franchises opened in March 2011.

Each year, Preiss and Mills update the manual and add offerings such as a program for kids. This year, they rolled out Wine and Design on Wheels, which takes the business to private events.

"You are always learning something new because you are always striving to be better," Mills said.

Their long-term goal is to have franchises up and down the East Coast.

"That would be great to open up in New Jersey or New York City," Mills said. "Please open there. We can have a girls' trip again."

FRANCHISES PROJECTED TO EXPAND IN 2013:

According to a March quarterly International Franchising Association economic outlook report, franchise businesses will continue to expand at a slightly faster rate than other businesses in terms of job creation, economic output and gross domestic product. The forecast also found that the number of franchise establishments in the U.S. will increase by 1.3 percent in 2013. The gross domestic product in the franchise sector is projected to increase 4 percent to $472 billion, which follows a 4.6 percent increase in 2012.

More resources:

-Federal Trade Commission: http://www.ftc.gov/bcp/franchise/netfran.shtm
-International Franchise Association: http://www.franchise.org
-Institute of Certified Franchise Executives: http://www.franchise.org/CFE.aspx

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