Franchises May Be Worth a Closer Look
If you’re looking to start a business in a slowing economy, one option is to run a franchise. Before you turn up your nose at the idea, consider that franchises don’t have to mean selling fast food or oil changes.
Small-business owners have found plenty of pluses in running a franchise. It means working with an established name rather than starting a company or retail outlet from scratch. The marketing of your merchandise or services probably would be handled through the franchiser, many of whom also supply training and financing.
Most people think of companies such as McDonald’s or Jiffy Lube when they think about franchises. But businesses such as home contracting and consulting also can be franchises, and so can tutoring kids in reading and math. There are thousands of franchise business opportunities in the United States.
Because running a franchise usually means investing thousands of dollars and often requires a five- or 10-year contract, a would-be franchisee should do extensive research and soul-searching before making any commitments. The Internet and how-to books are excellent places to begin.
The Federal Trade Commission’s “A Consumer Guide to Buying a Franchise” can be a starting point. It provides a quick overview of questions you need to ask yourself and a franchiser before you sign anything. The guide is available online at https://www.ftc.gov/bcp/conline/pubs/invest/buyfran.htm or by calling (877) FTC-HELP (382-4357).
The International Franchise Assn., a trade group, operates https://www.franchise.org, which has information and publications for sale. It also has information on opportunities, as do a number of franchise consultants on the Internet. But note that some of these sites are looking to sign you up as a customer, and some might be listing only companies that pay to get a plug.
If you’re considering something that calls itself a franchising opportunity, but it’s not from a company that’s well-known or easy to research, you should proceed cautiously and be sure it’s not part of a scam.
The FTC notes in a publication called “Could ‘Biz Opp’ Offers Be Out for Your Coffers?,” at https://www.ftc.gov/bcp/conline/pubs/invest/vending.htm, that some business opportunities, particularly those that promise huge amounts of money for little work, may be fraudulent schemes to get you to put up money for an investment that never pays out.
Guides to franchising can be good resources because they go into great detail.
Factors you should consider include how much money you’ll need to invest and how much you might have to pay a franchiser on an ongoing basis. Another big issue can be independence in running the business; many franchisers exercise a lot of control over day-to-day operations.
In “Franchising for Dummies” (Hungry Minds, 2000), authors Dave Thomas and Michael Seid put it this way:
“If you bristle at the thought of being told how to set up your merchandise, how to display the advertising banners or having to report your sales and expenses every month, you should think about how you’ll feel when you are expected to follow an entire system every day. That’s day in and day out--year after year.”
Another concern: How solid is the franchise name and will demand for its products or services last? In “The 220 Best Franchises to Buy,” (Broadway Books, 2000), authors Lynie Arden, Philip Lief Group and Constance Jones ask, “Will it sell a year from now? Five years? Ten years?”
Whether to buy a franchise isn’t a decision to make on your own. You should talk to a lawyer familiar with franchising and perhaps hire a franchise consultant. Before you sign any contracts with a particular franchise, it’s a good idea to talk to as many franchisees as possible to find out about pitfalls.
Among other things, they’ll let you know whether the franchiser works well with a franchisee advisory council, whose members serve as advocates for their fellow franchisees.