Learn how to invest your IRA or 401k into a franchise penalty-free. ($50k min)
Big-company executives yearning to break free from corporate routines likely won't make good franchisees. Mavericks and rule breakers need not apply.
When Joe Grimand first opened a Precision Tune Auto Care franchise 25 years ago in Oklahoma City, he didn't know whether the new venture would be successful.
He was a highflier but not as an experienced business owner or executive. He had just left the U.S. Air Force, where he was a combat pilot in Vietnam, among other assignments.
But Mr. Grimand was committed to his new business and worked long hours. His efforts paid off. He now runs eight Precision centers in Arkansas and Oklahoma, each generating $600,000 or more in annual sales.
"Looking back, I never thought it would grow to what it is now," says Mr. Grimand.
Franchising can be a fulfilling and financially rewarding career for some. Franchises generate approximately $1 trillion in annual sales in the U.S. per year, according to the International Franchise Association (IFA), the industry's primary trade group, based in Washington, D.C.
More than 320,000 U.S. small businesses are operated as franchises, in 75 different industries, employing approximately 8 million people. One of every 12 retail business establishments is a franchised business, and sales from franchisees account for 40% of all U.S. retail sales, the IFA reports.
Franchisees, who operate their businesses according to the original parent company's established system and format, reportedly have a higher rate of success than owners who start from scratch. But franchises aren't for everyone who dreams about leaving the corporate fold. The similarities between owning a franchise and owning an independent business are limited.
Sam Chamberlain, vice president of sales with Fransmart LLC, a consultant to potential franchisees based in Alexandria, Va., notes the two main similarities: "You have to have the entrepreneurial spirit to quit your job. And you get a check only after you make money."
However, he notes, "franchising is about being in a system, and, once you are in a system, you cannot change it." For this reason, creative and independent types may chafe as franchisees.
Buying into a System
"A true entrepreneur has an idea and takes a risk," says Steve Hockett, president of consultant FranChoice Inc., in Eden Prairie, Minn. "But not all of us wake up in the morning with a great idea and know how to make it into a business. Franchises know they need people who have motivation and a dream. [Franchisees] have time, talent, skills energy and desire. But they don't want to spend years building an idea."
Some entrepreneurial personalities may bristle at rules about the hours franchisees must stay open, the color of paint they use in their units, or even the appearance of their delivery trucks.
"If you want to put a giant plastic bug on top of the truck as an advertising symbol, and the people at the franchise don't agree to it, you have to deal with it," says Dick Rennick, incoming chairman of the board of the IFA, who also is chief executive officer of American Leak Detection, a franchiser in Palm Springs, Calif. "You can't just go out and do it."
Further, says Mr. Rennick, despite the national brand name and support from the franchise system, "the franchiser cannot be responsible for your success."
Do You Fit the Profile?
Some would-be franchisees who want to determine whether they have what it takes to make it in franchising turn to consultants like Fransmart and FranChoice, known also as "franchise coaches." The typical prospect they advise is an experienced corporate manager or executive, age 35 to 55, who wants to escape the drudgery of working for someone else, says Mr. Chamberlain. Most prospects want to spend about $150,000, with many financing the purchase through home-equity loans, says Mr. Hockett.
"The toughest [franchisees] to deal with are those who want to put their own sauce on the burger or sell flowers at a Mail Boxes Etc.," he says. "Often, those people just walk away from a franchise."
Franchise coaches help their clients examine their interests, goals and personality types. Once clients define their business and career goals, coaches brief them about the franchise business.
"There's a little bit of psychology involved," says Mr. Chamberlain. "They have to be educated about what franchising is. They need to learn how to borrow money. They need to learn how to sign a lease. These are all entrepreneurial tasks. But once you open the doors, you have to borrow someone else's system."
Franchise consultants can help prospective franchisees to sift through the thousands of opportunities available and to see whether they are a good fit. "We help them articulate what it is that they want to do," says Mr. Hockett. "We help them determine what their goals are, and use that to identify what franchises are a good fit for them. Our ultimate goal is to find a perfect match."
Mr. Rennick stresses the importance of researching a franchise thoroughly before making an investment. "You really have to do your 'due diligence' with a potential franchiser," he says. "It's like being a part of a football team in the end. The franchiser is like the team owner or coach, and you have to stay within the rules of the game, or go find another game to play."
These franchise coaches don't charge would-be franchisees a fee. Rather, the franchise company the prospect signs with pays the consultants. "We're like real-estate agents," says Mr. Hockett. "Our service is free to the candidate."
Copyright Â© 2004 Dow Jones & Company, Inc. All Rights Reserved