How To. . .Select A Franchisor
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One of the initial surprises for prospective franchisees is often the large number and great diversity of franchisors. Franchising doesn't just take place in the quick-service restaurant business-many other industries also use franchising as a means of expansion. Some franchises require an investment of well over $1 million, while others require an investment that's probably less than the credit limit on your charge card. Many want you to find a piece of land and build your location, but you'll also find opportunities that can be operated out of vans. With some opportunities, all you may need to get started are a desk and a computer in the basement of your home.
The history of the operation also varies from concept to concept. While most are based on long-standing consumer demands or trends, others, like e-commerce offerings, are in industries that didn't exist 10 years ago. You'll even find franchises taking advantage of the latest fads.
Where should you begin when selecting the franchise that's right for you? By determining where not to begin. Avoid the inclination to hire a franchise brokerage firm. They may actually limit your opportunities and create a feeling that you have to hurry and make a decision. And here's why.
The services of most franchise brokerages are free to prospective franchisees. The reason they can offer "free" services is their fees are paid by the franchisors that hire them to sell franchises. The fees they charge franchisors are usually a percentage of the initial franchise fee you'll pay and, in some situations, a portion of your future royalty payments.
A broker's job is to sell you a franchise. The small percentage of franchisors they have for clients limit your selection pool. There are good and competent brokers out there, but because their primary focus is to help you buy a franchise from one of their clients (and earn themselves a fee), they may pressure you to buy before you can fully explore all the franchise opportunities available. So do the legwork yourself-it'll take some time, but it's not hard. When you need advice, hire a franchise attorney, accountant, consultant or other experienced advisor who will work for you.
Doing the Research
Getting information about companies offering franchises has gotten much easier. Many business and consumer publications write stories about companies in franchising and some, like Entrepreneur, offer e-commerce versions. Entrepreneur's Franchise 500®contains a listing of franchise systems as well as the magazine's rating of the franchise systems and other information. Specialized directories, available at bookstores or sometimes free on the Net, contain information on franchisors. Even the U.S. Department of Commerce's bookstorehas publications that provide franchise information.
Most franchise systems have Web sites with abundant information, and many exhibit regularly at trade shows and expositions. If you're looking for a franchise location that's already up and running, you can visit Web sites like the Business Resale Networkto find out what's for sale. Trade associations and other organizations representing franchisors and franchisees have information available, but the best source may be a franchisee whose business you frequent as a consumer. Current franchisees can tell you whether the business is as good as its products or services. With the availability of details about companies on the Web, you can even do most of your research at 1 a.m. if you want to. The information is plentiful, easy to find and easy to use.
If you want to meet with a large number of franchisors, speak to their representatives, get literature about their companies and sample their products or services, you can attend one of the regional franchise expositions or trade shows. The International Franchise Association sponsors the largest exposition each year, the International Franchise Exposition (IFE). Contact the association for information at www.franchise.orgor (202) 628-8000. Besides having booths, the IFE also provides a wide-ranging educational program taught by some of the leading experts in franchising.
Other, smaller trade shows in various cities highlight franchises as well. You'll see these shows advertised in your local newspapers and on television and radio. Some of these shows also provide information on business opportunities. Because the support you get from a business opportunity isn't like the support you would expect from a franchise system, make sure you understand the difference between them.
Getting into business as a franchisee can be exciting and rewarding. However, not every franchisor offers the same level of service and not every franchisor will provide you with the same income and return on your investment. Do your research carefully . . . and do it yourself.
Michael H. Seid and Kay Marie Ainsley are managing directors of Michael H. Seid & Associates (www.msaworldwide.com), a West Hartford, Connecticut- and Troy, Michigan-based management consulting firm specializing in the franchise industry. Seid recently co-wrote Franchising for Dummies (IDG Books) with Wendy's founder Dave Thomas.