Franchise
Q. What should I look for when considering an opportunity
to open a franchise?
A. First, make sure you understand what you are getting into.
Essentially, franchising is a plan of distribution under which an individually
owned business is operated as though it were a part of a large chain. Services
or products are standardized. Uniform trade marks, symbols, design and
equipment are used. A supplier (the franchisor) gives the individual dealer
(the franchisee) the right to sell, distribute or market the franchisor’s
product or service by using the franchisor’s name, reputation and selling
techniques. The franchise agreement should give the franchisee the exclusive
right to sell, or otherwise represent, the franchisor in a specified area. In
return for all of the foregoing the franchisee agrees to pay either a sum of
money (a franchise fee), a percentage of gross sales (royalty), or to buy
equipment or supplies from the franchisor or some combinations of these
considerations.
Franchising can minimize
your risk of failure. If you have a good franchise it will enable you to start
your business under a name and trademark which has already gained public
acceptance. You will have access to training and management assistance from
experienced people in your line of business. Sometimes, you can also obtain
financial assistance from the franchisor. You will also find that there are
franchisors in many lines of businesses, from fast food establishments to
motels and from hardware stores to travel agencies and the requirements
regarding your level of experience and available capital can vary greatly. The
downside of these operations is that the initial and continuing fee to the
franchisor can be quite high.
There are franchises that
have far lower levels of initial and continuing fees compared to the best known
operations. While some of these are legitimate and offer pretty good support
and prospects for success, others come close to be nothing more than scams. As
a result the major issue you will need to resolve is that of the cost and
quality of the franchisor you want to consider. The Federal Trade Commission
(FTC) and the State of
The obtain a thorough
insight into these issues, write to the franchise
companies in your field of interest. Provide some background information about
yourself and the sincerity of your interest and request a copy of the franchisor’s
offering package. You will find franchises can be acquired for as little as a
few hundred dollars while some others can cost up to a quarter-million dollars
or more. Hence it is vital that you thoroughly investigate and evaluate any
franchisor before you invest your money.
After reviewing the
offering packages select the one(s) that most closely satisfy your needs,
financial restrictions, and concerns. Having made your selection(s), visit and
speak to some franchisees of this particular franchisor. Determine the quality
of the relationship with their franchisor. Do they feel they are getting their
monies worth from the franchisor? Determine what kind of training and
management assistance they receive; the effectiveness of the advertising and
sales campaigns that are run to promote the product or service; how much
control the franchiser has over the day to day operations; what other forms of
assistance are provided, i.e., credit, exclusive territory, merchandising
ideas, etc. Also, determine if they can terminate their franchise contract and,
if so, at what cost. Also, can you sell your franchise operation?
In addition to visiting
franchisees, you should investigate the franchisor’s reputation with banks, the
Better Business Bureau, Chambers of Commerce and trade associations that deal
with franchise operations. . What you want to determine is if the franchisor(s)
you are considering is adequately financed so that it can fulfill its obligations;
is it a one person company or a firm with trained and experience personnel; do
they continually update their programs to meet changes in the economy or
competition; are they equipped to provide comprehensive, individualized
marketing plans and financial forecasts; and does the firm have a reputation
for honesty and fair dealings with its franchisees?
While you, as franchisee,
must have a strong desire to succeed you must also recognize that in a
franchise operation the franchisor will always retain a certain degree of
control so as to protect its name and reputation and, as a result you will not
always be your own boss. Nevertheless having a good franchise can be a
rewarding and profitable experience. The key is finding the right franchisor
for you. This should be one you can afford and, based on the information you
have acquired, one with whom you feel you can form a healthy working
relationship.