Franchise Business Information

Q: I will be retiring this year at age 60 and intend to fulfill my lifelong dream of owning my own business. I’m too old to start from scratch, so I’m looking at several franchise opportunities, including fast food, auto parts, and an accounting service. What should I consider before choosing one? Anthony R.

A: Congratulations on the retirement, Anthony, and on the new business venture. As the old adage goes, when one door closes, a drive-through window often opens (or something like that).

Given the franchise types you are considering the first thing you should ask yourself is whether or not you want to spend your golden years cooking fries, selling mufflers, or doing taxes.

Franchising can be a great way to start a business career, but you should make sure you’re not just trading one job for another. Unless you plan on being an absentee owner, which I highly discourage, you are gong to be working in the business just as an employee would, so be sure the business you choose doesn’t turn your lifelong dream into a never-ending nightmare.

The primary advantage of buying into a franchise system is that it allows you to enter business quicker with a proven system, while minimizing risk and increases the odds for success.

The primary disadvantage is that you give up considerable freedom in how the business operates. In many ways franchisees are not really their own bosses because they are required to follow the rules set down by the franchisor.

Many franchise owners also quickly tire of asking: “Do you want fries with that?” and become absentee owners, which usually leads to the business being sold or shut down.

No matter what franchise you’re considering, you should ask yourself the following questions before making a decision:

* Do you have past experience that pertains to the type of franchise you’re thinking about buying? * Are you prepared to work long, hard hours? * Are you an effective manager? * Are you willing to share your revenue with the franchisor? * Are you willing to follow the franchisor’s rules and regulations? * And the biggie: do you have access to the necessary capital to invest in the franchise?

The big franchises like McDonald’s and Midas Muffler can cost hundreds of thousands of dollars to buy into, but unless you are a total business savant, the franchise is virtually guaranteed to succeed.

It’s true that even a McDonald’s closes on occasion. Roy Croc spins in its grave when it happens, but happen it does, so keep that in mind. There are thousands of lower cost franchises that you can buy into, but the lower the investment typically means the risk of success is higher.

As a rule, franchise operations are generally more successful than independent startups because they have a proven concept, a ready market, an established customer base, and a business model that can be replicated over and over again. Less than 5% of franchises fail during the first few years as compared to an 80% failure rate of independent ventures.

Many people have done very well as franchisees and often end up with multiple franchise operations. Adversely, many have not done so well because they bought into a franchise system that either was not all it was purported to be or they discovered that they did not fit into the franchisee’s mold.

The key is to pick the franchise system that is right for you. Here are a few tips to help you do just that:

* Purchase a franchise that complements your skills, work experiences, and interests. Don’t start a business in a field that is totally foreign to you.

* Plan on becoming an owner-operator versus an absentee owner. Absentee owners lose control and interest quickly and the franchise suffers because of it.

* Gather as much information as you can about the franchises you are interested in. You are considering investing a lot of money to buy into a system, so know who you are dealing with and what you are paying for.

* Experience the product or service firsthand, as a customer would. If you don’t like the service you get at McDonald’s, don’t invest in a franchise thinking you can fix their problems and run things better. You can’t and you won’t.

* Interview other franchisees to gauge the franchisee satisfaction level.

* Ask how many franchises have closed and for what reason.

* Ask about initial and long-term training and support.

* Make sure the franchisor is profitable and financially sound.

* Finally, do your due diligence. Request a disclosure document that includes in-depth information about the franchisor and if a franchisor refuses to produce such a document, take that as a huge red flag and mark them off your list.
About the Author

Tim serves as the president and CEO of three successful technology companies and is the founder of DropshipWholesale.net, an online organization dedicated to the success of online and eBay entrepreneurs http://www.prosperityandprofits.com http://www.dropshipwholesale.net http://www.30dayblueprint.com -

Franchises — Advantages and Disadvantages

Franchises — Advantages and Disadvantages
By Jean Sifleet

Want to own your own business? Don t want to start from scratch?

Franchises are a way to get into business quickly, with a brand name, proven methods of operation and a support structure. Franchises are everywhere. Familiar names include Dunkin Donuts, Curves, Mail Boxes Etc. and McDonalds, to name a few.

“Buying” a franchise is legally complicated. As a franchisee, you pay money for the right to use the franchisor’s Trademarks, systems and methods. Many franchises are legitimate and successful. Unfortunately, there has been a history of problems with franchises. As a result, franchising is heavily regulated at both the state and federal levels.

The legally required franchise documents are intended to provide full disclosure to the prospective purchaser. In reality, the franchise documents are voluminous, full of legalese, extremely one-sided in favor of the franchisor, and packed with restrictions and fees.

Advantages of buying a franchise include:

- Quick startup

- Help with site selection

- Brand name and recognition in the marketplace

- Training and support

- Customized accounting system

- Exclusive territory

- Marketing assistance

- Access to markets and suppliers

Disadvantages of buying a franchise include:

- Up-front fees (substantial initial investment required)

- Ongoing fees (usually royalty payment is a percentage of revenues)

- Fees for marketing and related services

- Restrictions on activities (you can only offer approved franchise products and services)

- Monitoring (the franchisor monitors your books, bank accounts and operations)

- Termination criteria

- Renewal requirements and fees

- Restrictions on transfer

A franchise is a major investment.

It s important to carefully investigate the opportunity. A common misconception is that franchises are really turnkey operations. Purchasers think that they just buy the franchise and it runs itself. This is incorrect. It s important to clearly understand what you are buying, how hard you will have to work and what income is realistic.

Here are some tips to evaluate a franchise opportunity:

1. Check to see if there are lawsuits against the franchisor. Litigation is required to be disclosed in the franchise documents.

This will give you important information about what s gone wrong for others.

2. Talk to/visit existing franchise owners.

There should be a list of existing franchise owners in the franchise documents.

You can stop by and visit as a customer, and observe their operations.

You can also call up and ask questions, such as:

- Are you satisfied?

- Did you receive the support promised?

- Were there any surprises?

- Have there been any problems?

- How were the problems resolved?

- Are you making the money you expected?

- Can I visit and observe your operations?

3. What are the fees?

Franchise terms vary. It s important to understand the fees.

Make a list of fees:

- What s included with the initial franchise fee?

- What s the royalty? Is it a percent of gross or net sales?

- Is the royalty a fixed percentage or does it decline over time?

- Are there service fees? Training fees? Marketing fees? Advertising fees?

4. What s your territory?

Draw a map with clear boundaries:

- What is your defined geographic territory?

- How close can another franchise like yours be located relative to your location?

5. What s your competitive advantage?

- What sets this franchise apart?

- Does the franchise include key technology or methods?

- Can it be easily copied?

6. What are the restrictions?

- Are you limited as to what you can sell?

- Are you required to buy from specific suppliers?

- What are the reasons for termination?

- What is the scope/term of the non-compete?

- What are the requirements for renewal?

- Can you transfer ownership?

In conclusion, buying a franchise may or may not be a good choice for you. Before signing a franchise agreement, check it out carefully and make sure you understand what the documents say. The advice of a business attorney knowledgeable about franchises can help you understand the legalese and make an informed decision.

Jean Sifleet is a practical and experienced business attorney whose career spans many years in large multi-national corporations and includes three successful entrepreneurial ventures. Jean has extensive experience in dealing with intellectual property matters in the large and small companies and as a small business owner. She has authored numerous books and publications on avoiding legal pitfalls in doing business. This article is excerpted from her new book, Advantage IP Profit from Your Great Ideas (Infinity 2005). For more information, Jean’s website is http://www.smartfast.com

Expense Reduction Analysts
This report is the Uniform Franchise Offering Circular (Ufoc) for Expense Reduction Analysts What’s a Ufoc? If you appear to be a good candidate for a franchise, the franchisor will send you a Ufoc, or “Uniform Franchise Offering Circular.” This document is required of franchisors by the

Tags: Franchise Articles