Your Burning Franchise Questions

When it comes to buying a franchise, we know what's on your mind. We answer your top questions here.

Online Exclusive: Get answers to more of your franchise questions from our franchise coach, Jeff Elgin, whose articles can help you research and find the franchise opportunity that suits you best.

Franchises play an integral role in our lives and American society in general. Most likely, you're a frequent customer at the local Subway franchise. Or you know people who have found success through franchising. Perhaps you've even considered purchasing a franchise yourself. If so, you probably have some burning questions you haven't quite been able to find the answers for.

We know the current economy and society have brought new concerns to the surface, so we dug a little deeper to find answers to the issues affecting you. We took six burning questions people are asking today and presented them to Michael H. Seid, managing director of Michael H. Seid & Associates, a West Hartford, Connecticut-based management consulting firm specializing in the franchise industry. Here's what he had to say.

Should I own my own business before buying a franchise?

It can't hurt, but it's not essential. Keep in mind, some franchisors would prefer that you didn't. The reason is, if you were in the same industry, you may have habits that they'd have to spend time breaking. You'd have [management] styles that may not be compatible with theirs, and the normal and natural thing would be for you to always slip back into your comfort zone.

On the other hand, having experience working in any business gives you discipline. You understand how to work with customers, meet deadlines and take on responsibility as opposed to relying on your co-workers and your secretary in a big company. All in all, sure, I would rather have someone who spent years in business, but it's a personal preference among franchisors.

Either way, a lot of franchisors realize that people who come out of training remember about 20 percent of it, and then they struggle for a while until they grasp the rest of it through practical experience in the [franchise] setting.

Over the past few years, I have built up significant equity in my home. Would it be wise to cash out some of that equity to invest in a franchise?

Given today's interest rates on home loans, yes. They're modestly priced. I would certainly be careful, as with any investment. There's no difference between investing in a franchise, quite frankly, and investing in a stock. If you invest in a very stable, secure [franchise] with a great history and good performance, there's not a lot of risk. If you get involved with a franchise that's a fad or that you don't know a lot about and haven't done your research on, no, I wouldn't invest a dime. But that's just an investment decision. Most people [use the equity in their homes] because it's their major asset and they can borrow against it, but you should make sure that what you're investing in is a rational investment. Don't jump into something just because the salesman is good.

I am 20 years old and interested in buying a franchise instead of going down the usual post-college career path. What are the obstacles in franchising for a young person?

Probably fewer than you imagine. There are going to be some franchise salespeople who will talk down to you, and you need to under-stand that you have to set them right and tell them you're a serious investor. If you're 20 years old, you have more enthusiasm than you have experience. You haven't seen a lot--you think you've seen a lot, but you haven't. You need an experienced advisor. You need one at any age, but at 20, you really do, and dad and mom aren't it, unless they happen to be franchise sophisticates. You should definitely find yourself an advisor [and] a good lawyer. Go to the International Franchise Association's website and learn about franchising, or buy a book on franchising to get an understanding [of how it works]. But at 20, some franchisors are going to speak to you with less respect.

Let's be honest about it--franchisors are in the business of selling franchises. They're in the business of expanding their systems, and if you come to the table with enthusiasm and knowledge, you've done your research, have the money, can show the franchisor you're serious and have a good track record, they'll treat you seriously. But understand that you need to do more than just believe everything the franchisor says. Twenty-year-olds are more gullible than 50-year-olds--most of the time.

In the industry today, we put a lot of emphasis on veterans--kids in their 20s coming home from military [service]. My firm puts out a scholarship every year to put a veteran in college, for example. [Some] franchisors have VetFran [the International Franchise Association's Veterans Transition Franchise Initiative], which offers a discount for veterans. On one level, we're doing it out of respect for the soldiers, regardless of their age. And from the franchisors' point of view, they're doing it because they want to sell franchises.

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This article was originally published in the June 2006 print edition of Entrepreneur with the headline: Your Burning Questions.

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