Owning and running
a business through a franchise arrangement has become a popular way for
many individuals to fulfill their dreams of being entrepreneurs. Types
of businesses available in franchise form include everything from popular
restaurants to cleaning services to retail stores and auto service centers.
When you buy a franchise,
you are often able to sell goods and services that already have name recognition.
You often can get a "road map" for how the business should be
started and operated. However, as with all businesses, there are risks
and no guarantees of success.
Be sure to investigate
the franchise carefully. You will probably want to have a qualified attorney
review the franchise agreement. Make sure you understand all the terms.
When considering a franchise opportunity, there are many factors to take
into consideration and here are a few.
In return for the right to use the franchiser's name and get its assistance,
there are usually upfront and ongoing payments to the franchiser and costs
of starting and operating the business.
Your initial franchise
fee may be non-refundable and can be significant. Usually the more recognized
the product, the higher the fee. You will also incur startup costs for
a location, equipment, inventory, working capital and other things like
licenses and insurance.
You will probably
also be required to pay ongoing royalty fees. Consider them to be fees
for the right to use the franchiser's name in your business. These fees
are usually based on revenue and can be owed even if your business does
not show a profit. Usually the franchiser is to provide ongoing support,
but the royalty fees will probably be due regardless of the level of support
you actually receive.
The third type of
usual franchise cost is some form of advertising fee. Generally, the franchiser
will have some ongoing advertising or promotional activities. Since you
are expected to benefit from those activities, you will be expected to
participate in their costs.
To ensure standardization, franchisers will impose some controls on the
operation of your business. These can include site approval, design and
appearance of your location and types of products offered. There may even
be restrictions on how you run the business on a day-to-day basis. One
of the other items to watch for is any geographic restriction that may
be part of the agreement.
Your franchise agreement will usually include language covering how, why
and when either party may end the agreement. Make sure you understand
your rights and those of the franchiser.
Other items to
- Your investment.
How much will be needed and how much can you afford to lose?
- Your abilities.
Do you have the right combination of technical skills, management abilities
and psychological make-up to run a business?
- Your goals. What
level of income do you want and how much time and effort are you willing
- Type of franchise.
Do a complete investigation of the business you are considering. This
includes a "due diligence" investigation. Evaluate the demand,
competition, support you will receive and the financial dynamics of
- Talk to other franchisees.
In most franchise arrangements, there is a level of tension between
the franchiser and the franchisee. By talking to other franchisees,
you can get an understanding of how well or poorly other franchisees
The history of franchising is full of successes and failures. There are
many opportunities that sound too good to be true, and often they are.
The federal government and many states have laws covering franchises.
You can talk to them or visit their web sites to learn more. The Better
Business Bureau, your accountant and your attorney may also be able to
offer insights that are important.
Another concept to
be wary of is "multi-level marketing programs." These typically
involve you recruiting others and getting a royalty on their sales. Make
sure it is not a "Ponzi" scheme where the activities may be
illegal and ultimately the financial dynamics don't work.
spirit is alive and well in many people. If you have that spirit and the
drive, a franchise may provide the map to your future financial success.
But, be careful.