Are You Cut Out to Be a Franchisee?

Susan Solovic, CEO of Itsyourbiz.com

For many Americans, owning a small business is a life-long dream.  However, building a business from the ground up may be more risk than you are comfortable with.  According to information from the U.S. Census Bureau, approximately half of all start-ups fail in the first three years.  Purchasing a franchise is an attractive alternative because a franchise is kind of like a business in a box.  It provides a blueprint for building your business minimizing the risk of failure. 

When you purchase a franchise, you are actually buying the experience and expertise of the franchisor.  Plus, the franchisor has a vested interest in helping you succeed.  As a result, most franchisors offer training and assistance with setting-up the business such as, the hiring employees, personnel training, site selection and lease negotiations.  Typically, as part of the franchise system there are standardized operating procedures including a financial and accounting program. 

Another great advantage of purchasing a franchise is being associated with an existing, established brand.  For example, if you open a McDonald’s franchise it’s going to be much easier to build business than launching Joe’s Great Burgers.  Additionally, franchisees profit from national advertising and collective buying power.  And if start-up capital is a problem, many franchisors offer some type of initial financing packages.  

However, before you jump right in there and purchase a franchise, keep in mind, not all franchises are created equally.  You have to do your homework.  For your protection the FTC requires franchisors to supply full disclosure of information to a prospective franchisee so they can make an educated decision about whether or not to invest.  This is called the Franchise Disclosure Document (FDD).  It includes such things as the franchisor’s business background, the financial history of the franchise, termination and renewal statistics, product purchase requirements and training programs offered.  You must receive this document at the time of the first personal contact where the sale of a franchise is discussed and at least 14 business days prior to the signing of any contract or the payment of any monies. 

Make sure you clearly understand exactly what investment is required and what kind of additional fees might be involved.  Evaluate the strength of the franchisor by talking with other franchisees.  The franchisor is required to provide you with their contact information.  Ask existing franchisees detailed questions and compare their responses with the information provided by the franchisor.

Take time to consult with a franchise attorney and CPA.  These professionals can help you decipher the legal information and financial statements provided in the disclosure document.

Finally, keep in mind buying a franchise is not for everyone.  When you buy a franchise you are your own boss only to a point.  A successful franchisor must maintain control over franchisee operations to ensure uniformity and quality control.  For some people, the thought of giving up even a little control is out of the questions.  So if you have a strong entrepreneurial spirit, then becoming a franchisee probably isn’t your best bet.

More information on franchise opportunities is offered through the International Franchise Association (IFA) for a minimal fee.  You can contact the IFA at 800-543-1038 or www.franchise.org.