Start a Business the Fast Way
Buying a franchise or business opportunity takes much of the fuss out of startup and lets you focus on profits and growth.
At one time, holding an executive position in a prestigious company represented the top of the ladder. These days, there's a new, exciting dream: entrepreneurship. For blue- and white-collar workers alike, the life of an entrepreneur is alluringly glamorous. After all, what other occupation lets you be in total control, comes with the potential for boundless financial rewards and gives you such a feeling of personal accomplishment? In an era when corporate layoffs are disturbingly common, many people desire to break free from traditional career paths and start businesses they can call their own.
It's easy to dream, but making that dream a reality can be challenging. Fortunately, there are paths to entrepreneurship for those who lack the business know-how to do it on their own. Franchises offer a systematic approach to setting up shop. Business opportunities provide a business kit with clear guidelines for selling a basic product or service. Here's a closer look at how each option offers a fast and easy approach to entrepreneurship.
Today's consumers are very franchise-oriented. They seek out McDonald's to grab a burger or Supercuts to get a haircut because they know the names and are familiar with the products or services. But from a business standpoint, what defines a franchise? A franchise is a continuing, almost symbiotic relationship between a franchisor--a company that owns intellectual property and know-how--and a franchisee, who invests money in developing a business using the franchisor's intellectual property and experience.
It's this relationship that can mean the difference between success and failure. "Franchising is popular because it's an avenue for entrepreneurs who have little or no experience in owning or operating a business to be able to go into business and have training available," says Andrew A. Caffey, a franchise lawyer in the Washington, DC, area. "It shortens the time involved [in startup] and addresses the concerns a lot of new entrepreneurs have about who they can turn to for help. In a franchise [system], you have a built-in support network--you can turn not only to the franchisor, but also to other franchisees."
Michael and Karla Irvin relied heavily on the support provided by their franchisor when they purchased a Kitchen Solvers full-service kitchen and bath remodeling franchise in Longmont, Colorado, in January 2005. Michael and Karla had previously worked in corporate marketing and office management, respectively, and consequently knew very little about running a business. Therefore, the amount of support and the two-week training session offered by Kitchen Solvers appealed to them. A corporate representative even helped them man a booth at their first home show shortly after they opened their franchise in March 2005. The Irvins continued to rely on the franchisor months after opening. "We were on the phone with them multiple times a day for the first six months," says Michael, 49.
The Irvins may not have had any prior business experience or knowledge, but they had some very attentive partners by their side who had a vested interest in their success. "I had seen a lot of great people who had great ideas but didn't know how to [get started]," says Michael. "I wanted a franchise that would, in essence, be a safety net if we had questions."
Most Valuable Document
The franchising system is highly regulated to provide security for the investor. Franchisors are required by law to send potential franchisees a disclosure document called a Uniform Franchise Offering Circular before any money is paid or contracts are signed. In the UFOC, you will find invaluable information, including the franchise fees, estimated expenses, history of the franchise and, most important, names and contact information of both existing franchisees and those who have left the system in the past fiscal year. Having such easy access to this wealth of information can translate into quicker startup for the investor. "It goes right to the fundamental question of why it is faster and easier to buy a franchise [than to start a business on your own]," says Caffey. "There's good learning and good experience you can lean on as an investor, and that starts in the sales process with a UFOC."
Well Worth It
Buying a franchise isn't cheap. A typical franchisor charges $25,000 to $35,000 upfront as well as a percentage of your business's gross monthly sales. You should carefully examine the value you will receive for your money, but the fees associated with a franchise usually result in rewarding payoffs. For example, the relationships Kitchen Solvers has secured with vendors helped the Irvins by removing the challenge of having to go out and secure their own. Says Caffey, "Most franchisees tell me that when a business is working well, the continuing value that results from being a member of the franchise system exceeds the monthly fees."
Franchise fees may seem steep, but starting a business from scratch will also inevitably require capital. And when it comes down to securing financing, having the name and brand of a franchise can actually improve your chances of securing a loan. In fact, the SBA has developed a program called the Franchise Registry that is designed to streamline the SBA loan application process for franchisees. "It has been an enormous success in the franchise field," says Caffey. The Irvins are among the countless number of franchisees who have used the program.
What's in a Name?
A significant portion of the franchise fee goes toward obtaining permission to use the brand's name. Customers flock to what they know and give their business to brands they trust. "The well-known marks of franchises like Burger King and Pizza Hut are powerful consumer magnets," says Caffey. "This magnetism is created and maintained by years of national advertising. We've grown up with these brand names. The power of a franchise trademark is that it promises consumers constancy. When someone pulls off a road at the sight of a trademark on a sign, he or she knows exactly what to expect."
In most cases, investors are also gaining access to a proven, time-tested and well-established system. The result is time gained and money saved. "Our franchise has been around for 20 years, so they have all these steps in place--from going out on your first call to installing--so you don't have to reinvent the wheel every single day," says Karla, 45. "There's a proven track record that works for them. That's [one] great thing about a franchise, especially when you're first starting out. You have no idea what to do, so you use their formula."
The husband-and-wife team stuck to the formula, and it's paying off: They reached their first-year sales goal of $250,000 by month nine and are expecting to reach $400,000 by the end of their second year. Says Michael, "We haven't had any regrets [about] starting out on our own or going with a franchise."
The Biz Opp Option
While the structure of a franchise can be liberating for some, it can be restrictive for others, and that's where your personality comes into the equation. Says Caffey, "It has often been said that if you're a hardheaded entrepreneur who simply insists on doing things your own way, you may not be happy owning a franchise business because a franchise has to be run according to the specs, the plan and the business feel of the franchisor."
For these types of entrepreneurs, a business opportunity might be preferable since it imposes fewer restrictions. However, it also provides less ongoing support. "A business opportunity tends to be a one-time transaction in which you buy a package of materials that you can then use to generate your own business," explains Caffey. A business opportunity, generally speaking, is the sale of goods or services that enable the purchaser to begin a business and where the seller makes certain statements, representations or guarantees in the course of the sale.
Get in the Game
Purchasing a business opportunity is simple. The investor pays a fee and receives a business kit that usually includes a training manual, basic steps to getting started and access to a product or service.
Growing the business, however, can be more challenging. "People spend $1,000 for a package that requires them to sell goods or services, and that is something some people don't expect," says Caffey. "They don't understand what is involved in making a sale and a cold call, or how to handle rejection." Before you buy, it's crucial that you understand the nature of a business opportunity, believe in the product or service and are comfortable selling it. Caffey advises consulting with friends and family first to determine whether the product is sellable.
If you choose the right product, success can be just around the corner. Susie Cortright, 31, has been involved with Leaving Prints, a direct-sales scrapbooking supply company, since November 2003. Already, she has grown her team to include more than 400 other consultants and has been recognized as one of Leaving Prints' top three performers in the country. Since she chose scrapbooking materials--a product she is passionate about--the selling aspect comes naturally to Cortright. "If some-one doesn't like the style, then they won't be successful selling it, so I always tell [potential investors] to look at the product line," she says. "It's so important to [find] a product that matches you and your personality."
As an independent entrepreneur, Cortright would have had to spend time and money creating the brand and the materials. As a business-opportunity entrepreneur, she has access to an entire product line of professional supplies.
Easy on the Pocketbook
The financial barriers associated with a business opportunity are significantly lower than with a franchise--startup costs are typically a few thousand dollars or slightly more. For Cortright, it was even less. She started her scrapbooking business from her Breckenridge, Colorado, home with an initial investment of only $30, which paid for a business kit as well as a user ID and password to access the wholesale website.
Previously, Cortright had been working on developing an online magazine but hadn't been able to turn it into a profitable business. As the mother of three, she was looking for something to bring in some extra money without a huge initial investment. "I wasn't in a position to put in a lot of money. It was one of those things where it was like, 'Well, it's $30. I'll try it, and if worse comes to worst, I would have just gotten my scrapbooking supplies at a discount,'" she says.
Cortright's business has blossomed into much more than just a way to get discounted scrapbooking supplies. Working about 20 hours a week with Leaving Prints, she can focus on her family and her e-zine while bringing in an income of just under $2,000 a month. She's also able to provide a good example for her children. "I love [that] I'm modeling the entrepreneurial spirit to my children, showing them that you have choices as to how you create your working life," she says.
The choices are certainly out there. And with numerous franchises and business opportunities available, the dream of becoming an entrepreneur has never been so attainable. You don't need major capital or extensive business sense. All it takes is a personal commitment, hard work and an understanding of the options.