Frequently Asked Questions
Q: What is the Center for Innovation’s Franchise Ownership Program?
A: The Franchise Ownership Program is a partnership that unites investors, franchisors and passionate entrepreneurs for mutual benefit. Entrepreneur franchisees who participate in the program will obtain debt funding and training to operate a franchise.
Q: How will the Franchise Ownership Program work? What does each party invest and gain?
A: The Franchise Ownership Program is being structured to maximize participants’ contributions for mutual benefit:
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Investors provide startup capital to support a portfolio of franchises. They receive a predetermined interest rate and a 2 percent royalty on gross revenues over $250,000 with the expectation the loan will be repaid in seven years, if not sooner. They contribute to jobs and economic growth in Colorado and nationally, and support entrepreneurs who might not otherwise have been able to realize their dreams of business ownership. They assume the risks—and the potential rewards—of franchise ownership.
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Franchisors provide the brand and business model, and cede half of their typical franchise fee to the Center for Innovation in exchange for participating in the program. They benefit from the expansion of their franchise to new locations with fully trained entrepreneur franchisees, and receive half their franchise fee.
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Entrepreneur Franchisees provide an initial investment of 10 percent of the startup investment to enroll and a willingness to learn the business of the franchise. They receive six weeks of intense startup training, and ongoing training and support beyond the startup phase. They pay an interest rate of 10 percent, and the first two years of the loan are interest only, giving the business time to ramp-up. Franchisees own their businesses from day one of operation.
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The Center for Innovation at MSU Denver trains entrepreneurs initially and on an ongoing basis, monitors graduates’ progress, connects new entrepreneurs, franchisors and investors, and runs and promotes the program. It receives half of the original franchise fee, the return on investment on any donations made to the fund, as well as tuition and sponsor revenue.
Q: What is the Center for Innovation?
A: The Center for Innovation is a program within Metropolitan State University of Denver that offers a minor in entrepreneurship or a certificate in entrepreneurship that go beyond mainstream business curriculum. The center supports all types of industry disciplines with more than 40 different majors represented in the program. Coursework is taught by MSU Denver affiliate facility, providing real-world experience from relationships with businesses and organizations in the area. The center offers $2,500 micro-loans; mentors young entrepreneurs ranging in age from 8 to 18 who are working with the Young Americans Center for Financial Education; and will launch MSU Denver Creates, the first virtual incubator for Colorado’s creative industries.
Q: Is the Franchise Ownership Program already up and running?
A: No, The Center for Innovation is working toward making its first franchise investments by Fall 2012.
Q: Are there any other programs like this?
A: While a few colleges and universities have classes directed at franchise management, none provide an entire program or the investment for students to purchase the franchises as well. In addition, the ongoing training and support beyond the startup phase, provided by the Center for Innovation, is unique.
Q: What is the cost of tuition to take franchise classes in the Center for Innovation Franchise Ownership Program?
A: The tuition for the six-week program is $1,000. Successful graduates will receive a Franchise Ownership Credential upon completion, and will become eligible for the next phase of the program and considered for ownership of their own franchise.
Q: Can applicants receive scholarships to enroll in the training program?
A: Although we do not offer any training scholarships yet, we expect to build relationships with sponsors who will offset a portion of this cost for select candidates.
Q: Are candidates required to commit to purchasing a franchise before entering the six-week training program?
A: No. Some program participants will be existing franchisees who want continuing education, as well as candidates who want franchise training to address a professional development need or personal venture.
Q: When must Franchise Ownership Program participants commit to purchasing a franchise? How is the selection process executed?
A: Candidates commit when they successfully complete the training program and are selected by both a franchisor and the Franchise Ownership Program Review Board. Upon acceptance, graduates will make a down payment of 10 percent to get their business started with ongoing support. Franchises involved in the program offer candidates a variety of ownership opportunities.
Q: With a minimum 10 percent cash investment required of each franchisee, what is the expected cost to participate based on current franchisors’ options?
A: At this time, down payments will range from approximately $10,000 to $60,000.
Q: Can candidates obtain their own loans to offset the cost of the down payment?
A: Yes, candidates can obtain down payment funds from family, friends as well as bank loans as long as there is collateral as part of these debt agreements.
Q: Can candidates receive scholarships to offset the cost of the down payment?
A: No, it is vital that franchisees have their own personal financial “skin in the game” commitment to increase their chances for success.
Q: Isn’t it risky to try to start a new business?
A: Every business operation assumes some risk, but success rates for franchise owners are better than for other small business ventures because franchises operate proven models.
Q: Will MSU Denver or the Center for Innovation handle the financial transactions?
A: Financial transactions of the Franchise Ownership Program will likely be handled by a third-party escrow company.
Q: Who can apply to be a entrepreneur franchisee and operate a franchise?
A: MSU Denver alumni and students in their last semester as seniors, and members of the general community will be eligible to apply to be an entrepreneur franchisee. Priority will be given to MSU Denver alumni and graduating students.
Q: Where will the franchise businesses be located?
A: The location of the franchise will be negotiated between the franchisor and entrepreneur franchisee, but the majority of businesses will be located in Colorado for the initial phase of the program.
Q: What kind of training will entrepreneur franchisees receive?
A: During six weeks of intensive online training, entrepreneur franchisees will study the franchise business, marketing and sales, finance and accounting, human resources and legal issues. Participants will receive ongoing training throughout their seven-year participation in the program.
Q: What franchises are in the program?
A: Initial franchise companies that have already signed up to be in the program include Bark Busters, Camp Bow Wow, Cartridge World, College Hunks Hauling Junk, Ductz, Elements Therapeutic Massage, Great Harvest Bread Co., Handyman Matters, Homewatch Care Givers and Intelligent Office.
Q: Who can invest in the Franchise Ownership Program?
A: Only accredited investors and organizations may invest in the Franchise Ownership Program, although anyone can make a donation to the fund itself, or to offset the costs of the program.
Q: What is the minimum investment required for investors and organizations?
A: $100,000.
Q: Why would investors want to participate in the Franchise Ownership Program?
A: To receive a return on their investment while helping people become entrepreneurs who, if not for this program, might not be able to own a business.
Q: How does the investment work?
A: Investors and donors will give loans to individual franchisees, creating a portfolio of companies in which they invest. The total portfolio will fall within a $1 million to $3 million range, consisting of approximately eight to 16 franchises. The investment pays for costs in three areas for each franchise: the initial franchise fee, location development costs and operating capital. The franchisee owns the company from day one.
Q: Can the entrepreneur franchisee buy the business in fewer than seven years?
A: Yes. There is no penalty for early buyback of the franchise business.
Q: Is the entrepreneur franchisee required to retain the business after seven years or can the business be sold?
A: The entrepreneur franchisee can sell the franchise at any time. When the franchise is sold, the investors will receive a share of the purchase price based on the percent that they currently own.
Q: What happens if the franchise fails or the entrepreneur franchisee drops out of the program?
A: If the franchise fails, the business will either be sold on the open market or managed by the franchisor until a new entrepreneur franchisee in the program replaces the previous owner. The investors do assume some risk in the event of franchise failure.??
