Published March 2005
Buying
a franchise:
Consider the pros, cons
Dear
BizBest: I want to get into business for myself, and buying a franchise
seems like my best ticket. Nearly every new business that opens locally
seems to be a franchise. But what type is best? There are so many. How
do I analyze the field? And is it really a better choice than starting
from scratch? — Future Franchise
Dear Future Franchise:
Franchised businesses — a uniquely American icon — are growing at
a breakneck pace. According to the International Finance Association,
nearly 400,000 franchised businesses now employ 9.8 million people with
a payroll of $230 billion. Curves, for example, a network of franchised
women-only fitness centers, grew nearly 38 percent last year alone.
The key to making
the right choice between franchise or startup — and which franchise to
buy — is research. You must investigate before you invest.
First off, consider
your appetite for risk. If your entrepreneurial fires are burning, you
hanker to strike out on your own to test your own ideas and you thrive
on risk, then starting your own business may be a better choice. A franchise
lowers the risk because someone else has already pioneered the concept,
tested the ideas, made the inevitable mistakes and found out what works
and what doesn’t.
The result is a tried-and-true
formula that is replicated place to place. When you buy one of these “business
format franchises” you get a packaged deal that’s ready to plug in and
go. If buying into an already successful recipe appeals, then franchising
may be right for you.
As you investigate
franchises, explore these areas:
- Required experience,
hours and personal commitment necessary to run the business.
- Background of
the franchisor, its track record and how other franchisees in the system
are doing.
- How much it will
cost to buy into the franchise, how much you’ll pay for the continuing
right to operate the business and options for financing your investment.
- What products
or services you are required to buy from the franchisor.
- Terms and conditions
for getting out and how many franchisees have left the system during
the past few years.
- Detailed financial
information on how current franchisees are doing.
- And don’t forget
the fun factor. To have the best chance at success, choose a type of
business that excites you.
These resources can
help you investigate the franchise field, and find a franchise that’s
right for you:
- The International
Franchise Association, a membership organization of franchisors, franchisees
and suppliers, offers helpful info on how franchising works. Search
their database of over 800 franchise opportunities with Web and e-mail
links. You’ll find good step-by-step guidance for beginners. Visit www.franchise.org.
- StartupJournal.com
has an extensive archive of articles on franchising. Click the “Franchising”
tab at the main page. Go to www.startupjournal.com.
- Bison.com is
designed like an online shopping mall of franchise opportunities, with
featured listings, franchising news and articles for franchise buyers.
Go to www.bison.com.
- The National
Federation of Independent Business Web site offers access to articles,
information and advice on buying and operating a franchised small business.
Look in the “Tools & Tips” section under “Starting a Business.” Visit
www.nfib.com.
- Franchise Direct
is an online franchise opportunity directory and information resource.
Search by industry, investment range or alphabetical listings. Visit
www.franchisedirect.com.
- The U.S. Small
Business Administration can help in several ways. You’ll find general
information on buying a franchise in the “Starting Your Business” section
of the SBA Web site (www.sba.gov).
If you are considering a franchise purchase and may want an SBA-backed
loan, check the SBA-sponsored Franchise Registry. Visit www.franchiseregistery.com.
Daniel Kehrer (dan@bizbest.com)
is founder of BizBest (www.bizbest.com),
which publishes “The 100 Best Resources for Small Business.”
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