Franchises Satisfying, But Risky
The downsizing of corporate America has prompted a growing percentage of displaced employees to seek new career paths. Many are seeking future fame and fortune through franchising, a major avenue to business ownership.
So far, the ‘90s have seen a 30 percent growth in franchisee-owned businesses, which now number more than a half-million.
Q. I’ve just been laid off and decided to seek a business opportunity rather than another job. Since most of my experience has been in large corporations, it has been suggested that I look into a franchise opportunity. Good idea?
A. Franchising is a great way for an individual with limited entrepreneurial experience to get off to a running start. While there’s no substitute for hands-on know-how in running a business, the experience of the franchiser and its franchises can bring you up to speed quickly.
They know what works and the mistakes to avoid. Plus, they can provide a wide range of tools, from vendor contacts, to bookkeeping systems, to marketing programs. They’ve devised workable pricing and can provide training programs and a brand name with clout in the marketplace.
But before you jump, remember this: any business opportunity should be examined very carefully before committing precious time and financial resources.
As with anything else, there are good and bad franchises. So, after you select one or more franchises to consider, make sure you get a copy of the company’s Uniform Franchise Offering Circular.
This document reveals a great deal of information about the background and standing of the franchiser, including litigation and bankruptcy history; the fees, royalties and start-up costs involved in the deal; and the registered trademarks (if any) that you will be entitled to use.
As part of this package, you’ll also receive the audited financial statements of the franchiser and a copy of the proposed franchise contract.
Since a franchise agreement is a contract that can obligate you for years (they typically run 10 years or so), make sure you have an experienced attorney review the papers before you sign. During the course of your discussion with the franchiser keep detailed notes, and then make sure the things you have agreed to are spelled out - in plain English - in the final contract.
You should also gather enough financial information and estimates so that you and your accountant can work out some projections to determine if the deal is financially worthwhile. If you can’t get this data from the franchiser, talk to existing franchisees to see what their experience has been both financially and operationally. Get a feel for their attitude about the way the franchiser conducts business after the contract is signed.
Don’t commit to anything unless you have some reasonable indication of how the deal will play out economically. Given the risk you are assuming, it should compare favorably with the income and benefits you could get working for somebody else.
However, on the flip side of the issue, don’t forget to calculate the value of the personal independence and satisfaction you’ll get by being your own boss. (Don’t discount the risk involved. A recent study of franchised businesses less than four years old, revealed that 35 percent failed.) For more information, contact the American Association of Franchisees and Dealers (1-800-733-9858) or the American Franchisee Association (1-800-334-4232).
Q. I’ve been fine-tuning an idea for a business for years, but never feel ready to act. How can I tell when I’m really ready to move?
A. There is a rule-of-thumb “acid test” that can be applied to determine if a business idea is fully incubated. Simply stated, this test requires you to cogently and completely describe your proposed business to an uninitiated observer in 25 words or less. If you can’t do this, if the business concept does not lend itself to such a concise oral, off-the-cuff presentation, the idea probably isn’t yet “ripe” for harvesting.
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The following fields overflowed: CREDIT = Paul Willax The Spokesman-Review