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Making Lemonade

Many laid-off workers are using their severance pay to invest in a franchise.

Opinions expressed by Entrepreneur contributors are their own.

"I suppose I could have gone out there and gotten another job, but I knew two to five years down the line, I'd probably be looking for another one," says Frederic Holdsworth, a former CFO for a manufacturing company and a current franchisee for AlphaGraphics.

When the company Holdsworth worked for decided to move its operations to Malaysia, Holdsworth helped shut down its Massachusetts base, laying off many workers before being let go himself this June. With severance package in hand, Holdsworth, 41, decided not to find another finance position. Instead, he looked into franchising. This September, he opened the doors to his Manchester, New Hampshire, printing franchise.

In an uncertain economy, Holdsworth's story is fairly common. "When people are laid off, they typically try to get employed by other companies in the same industry, only to find those [companies] are cutting back as well," says Don Boroian, president of Olympia Fields, Illinois-based Francorp Inc., a franchise consulting firm. "After a month or two of sending out resumes to no avail, they begin looking at business opportunities and convert their severance pay to capitalization for a franchise."

Dana Hobson had been looking into franchising even before she was laid off from her job with Time-Life. Wanting to start a family, Hobson's husband, Linc, a former lobbyist, suggested the couple move from suburban Washington, DC, back to his hometown of Peoria Heights, Illinois. "There's not much lobbying to do in Peoria, so if we wanted to move back there, we knew we would need to start our own business," explains Hobson, 34.

When the books division Hobson worked for closed down, she and her husband put their full effort into finding a franchise, reasoning it would provide more security than just another corporate job. "The benefit [of franchising] is the ultimate control over your work and your income," she says. "Obviously, the benefits of [working for a] company are you get your paycheck every two weeks and your 401(k), but tomorrow they can tell you, 'We're laying you off.'"

In 2001, Hobson used her severance package to purchase a Home Instead Senior Care franchise, a business that provides nonmedical care to senior citizens. She and her husband operate the franchise together, a move that gives them the freedom to spend more time with their 6-month-old baby.

Jeff Huber, vice president of franchise development for Home Instead, is seeing more people like the Hobsons show interest in his franchise. "We've noticed a marked increase in inquiries from people who have a severance package or have been downsized and are looking into small-business ownership," he says. "I would say one in five to one in six people who buy a franchise in our system have a severance package, whereas a year or so ago it was one in 10 to 15."

According to Huber, these prospective entrepreneurs are looking for something in franchising they couldn't find in the corporate world. "They've spent the past 20 or so years working for kind of a nameless, faceless corporation, and now they want to control their own destiny," he says.

Holdsworth agrees. Although his shop has only been open since the end of August, he's already noticed some major advantages to being self-employed. "If I'm going to work a lot of horrendous hours and put in a tremendous effort, I'd just as soon do it for myself as opposed to someone else," he says.

Don DeBolt, president of the International Franchise Association, sees other fringe benefits for people looking to invest their severance in a franchise: "It offers an opportunity to match your interests and skills with a business that has already been proved."

Franchising, according to Huber, also offers a wiser investment. "People who have been downsized or have a severance have the option to take the money and maybe invest it in the stock market, but they don't feel like they have control over the stock market or the factors that affect [it]," he says. "If they invest it in themselves and their own business, that's something they feel they have control over. All the sweat equity they put into the business falls directly to their bottom line and is building an asset for them."

DeBolt agrees that franchising is "a wonderful way to diversify a person's investment portfolio, particularly when we have a stock market that's not too predictable."

Not that owning a franchise is a small undertaking. As Holdsworth and Hobson have found, being a franchisee requires not only a sizable financial investment, but a great deal of time and energy as well. For Hobson, knowing she's working for herself does make the long hours worthwhile. "You may have to work at night or on weekends," she says, "but you get to make that decision yourself."