Franchise Buying Guide

A Perfect Match

New or Established Franchise?
Presented by Guidant Financial
Guidant Financial specializes in helping entrepreneurs purchase new franchises using their retirement funds.

An important consideration is whether the franchise is new or well-established. Each has its benefits and its drawbacks.

Established franchises have a number of advantages in their favor, including name recognition, a tested business-operation plan and many other successful franchises for the new franchisee to look to for encouragement, direction and inspiration.

Some of the negatives of such a business include a possibly oversaturated market and a lack of prime locations, which make it more difficult for the new franchisee to be profitable. While an established franchise may have diminished profitability because of increased competition, the potential for growth and the capturing of market share for a new franchise is high.

If you sign on with a franchise in its early years, you'll tend to get the prime locations, and if the business is successful, your return is likely to be higher than if you'd chosen an established franchise. There is the risk that a new franchise won't survive, however, leaving you without financial support. There is also a risk that the concept of a new franchise won't survive, and your business will fail. Because the franchise is new, there are fewer proven guidelines for you to follow and, as a result, you can be less sure of what works. An established franchise comes with a "road map" of instructions and guidelines that have been proven to work.

Whether you choose a new franchise or an established one will depend on your personality. "Individuals who choose newer franchises tend to have a higher risk tolerance," says Siebert. "Because the concept is untried, they are making a much more risky investment. They may also need a high return on their investment, which only a new franchise can generally provide."

When Doug Bauguss chose to buy an Impressions On Hold International franchise, he did so partly because it is a new business that has a high potential for growth.

"You hear people talking about ground-floor opportunities, and that's what this is," says Bauguss, who started his customized, on-hold phone-advertising business when he bought the territorial rights to the entire Phoenix area in February 1995. "The market is unlimited and the potential for growth is phenomenal."

Steve Dunkle also got in on the ground floor of The Connoisseur, a gift-service franchise based in Redondo Beach, California, that operates through retail stores. The Connoisseur features premium wines and champagnes with personalized messages printed on each label. This February, he and his wife, Diane, opened their The Connoisseur franchise (the franchisor's sixth store) in Portsmouth, New Hampshire, which happens to be the first to open east of Colorado.

"I chose a new franchise because, at heart, I'm an entrepreneur, and the higher the risk, the higher the potential for reward," Dunkle says. "I wanted a franchise that could be grown--one with no limitations--so that I could create a retirement fund. With the business still in its infancy, it can be lucrative for myself and others involved in the start-up."

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This article was originally published in the July 1997 print edition of Entrepreneur with the headline: A Perfect Match.

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