Take almost any town in America today and on some street you'll find a franchised business. So accepting has the American public been of franchising that financial experts refer to franchising as the "wave of the future." For example, sales by franchised businesses now total more than one-third of the U.S. retail market. More than 7 million people draw their paychecks from a franchised business. Over half-a-million franchised businesses dot the American landscape. More and more people are making the decision to get involved with a franchise company with the hope of pursuing the American dream of business ownership.
One of the reasons many franchises have been so successful is that, in franchising, a business synergy is created. Franchisees brought together under one trademark can achieve things that as individual businesspeople they could not do. Group advertising, buying power and sharing of ideas are some examples of what can happen.
While there are many examples of successful franchises, buying a franchise is no guarantee of success. Each year there are failures, both on the part of franchisors and franchisees.
Following are 10 important questions to consider before buying a franchise, along with commentary by Robert McIntosh, author of Is Franchising for You?(Lakeshore Communications). Consider these comments when coming up with your own answers.
1. Are you willing and able to take on the responsibilities of managing your own business?
Some very careful self-analysis is important before buying a franchise. Indeed, your personal house should be in good order. One of the myths that has been perpetuated is that franchise ownership is easy. This is simply not true. While the franchisor will provide the start-up training and ongoing support, you, the franchisee, must be prepared to manage the business. While some franchises may lend themselves to absentee ownership, most are best run by hands-on management. You must be willing to work harder than you have perhaps ever worked before. Forty-hour weeks are also a myth, particularly in the start-up phase of the business. It is more like 60- to 70-hour weeks. You must also be willing to mop floors, empty garbage, fire employees and handle upset customers.
2. Will you enjoy the franchise?
Sometimes people buy a franchise they think will make them a lot of money, only to find later that they do not enjoy the business. The adage "know thyself" certainly applies here. You should buy a franchise that centers in an area that you will enjoy for the next 10 to 15 years.
3. Are you willing to completely follow the franchisor's system?
The very key to franchising success is the consistency of product and service customers find from one franchise to another. When you display the sign and logo of a franchise, you are indicating to customers that you follow a particular system. People who are extremely entrepreneurial in the sense that they do not like to conform to a predetermined formula should be very careful about buying a franchise.
4. Do you have a history of success in dealing and interacting with people?
Many franchised businesses are based on people relations. Your ability to interact well with your franchisor, other franchisees, your employees and your customers cannot be emphasized enough. A negative, critical franchise owner can be a detriment to the entire franchise system. You must have a track record of good relationships with employers, supervisors and fellow employees.
5. Can you afford the franchise?
One of the major causes of business failure is insufficient capitalization. While the franchisor will be able to give you a good idea of the start-up costs, sometimes these will vary due to leasehold improvements, needs and other variables. You need enough money to not only open your franchise, but run it until such a time as it is profitable. For some franchises, that may take a year. Remember, it is better to start out with more money than you think you will need rather than less.
6. Have you carefully studied the legal documents?
Franchisors are required to prepare a document called the Uniform Franchise Offering Circular. This document will give you pertinent information about the franchise. It will also contain the franchise agreement that you will sign. This agreement will govern your relationship with the franchisor for the term of the contract. The UFOC is a vital document. It should be studied very carefully and discussed with your lawyer.
7. Does the franchise you are considering have a track record of success?
You should get to know the principal directors of the company-their business background and how profitable their franchise has been. The UFOC will contain this information. Have an accountant review the financial analysis of the franchise. Is it a solid company? Also examine how long the franchise has been in business. A new start-up franchise may offer you the opportunity to get in on the ground floor, but it might also mean the franchisor has not had sufficient experience to fully develop the system.
8. Are the franchisees generally happy and successful?
The UFOC will contain a listing of all the franchise owners. It would be worth your time to contact a number of them to discuss their experiences with the franchise. Has the franchisor followed through on commitments? Did the franchisees receive adequate training? Would they buy the franchise again? Is the business profitable? What advice would they give you?
9. Do you like the franchisor's staff-those people with whom you will be working?
One of the most important elements of a franchise is the ongoing support and contact you will have with the franchisor, so you should feel comfortable with the people you will interact with for a number of years.
10. Do you have family support?
Managing a franchise is a full-time job. It requires great sacrifices of personal and family time. For this reason, your family should understand you will have tremendous demands on your time. Spouses and children need to be supportive of your decision to buy a franchise.
Buying a franchise is not a 100 percent guarantee of success. By carefully evaluating yourself and the franchise you desire to purchase, the chances of success become greater.
Will you succeed or fail when you buy a franchise? There are not too many franchise failures, but there are people who fail. Your success or failure is really in your own hands. Evaluate carefully the franchise you desire to purchase and your own attitudes and abilities. By doing so, the wonderful dream of business ownership could be yours.
Excerpted fromIs Franchising for You?(Lakeshore Communications) by Robert K. McIntosh.