Franchising--is it right for you?
Currently there are an estimated 760,000 franchise establishments operating in the United States, according to a recent International Franchise Association Educational Foundation study. Additionally, the franchise sector accounts for 9.5 percent of the U.S. private-sector economic output. Franchising generates one out of every seven jobs in the private sector.
Are you guaranteed a successful business if you buy a franchise? No. Just like any other business, you must plan and work to succeed. People from all backgrounds--minorities, women, retired corporate individuals and college graduates--have made a life and future in the franchise sector. But, how do you know if franchising would be a good fit for you?
Determine Your Area of Interest and Ability
You may know exactly the type of business that interests you. On the other hand, you may need to research your options. With more than 75 industries to choose from, the amount of time you invest on the front end researching your possibilities will pay off. There are many resources to choose from, including the IFA's online Franchise Opportunities Mall at www.franchise.org, which lists more than 900 franchise opportunities that can be sorted by category and investment level. If you are interested in locating franchise companies that are committed to the expansion of minority participants in their system, visit the National Minority Franchise Initiative's (NMFI) Web site at www.minorityfranchising.com.
In addition, you should examine your natural talents, gifts and aptitudes. A test such as the Myers-Briggs or the Keirsey Temperament Sorter may assist you. Your ability and willingness to interact with people and develop strong relationships with the staff at the corporate headquarters will be important as well. As a result, many franchisors will ask prospective franchisees to take a personality assessment to determine their fit within the franchise system.
Determine Your Ability to Follow
Does owning a franchise mean that you will not be able to be a creative entrepreneur? No. But the essence and success of franchising is directly linked to a system where the customer can have a similar experience at each location. To achieve this end, the franchisor will have a system of standards and guidelines that you will be expected to follow. If you do not like following a predetermined path, I would caution you from acquiring a franchise.
Evaluate Your Financial Health and Business Aptitude
A major cause of business failure is under capitalization. Make sure you have the resources to not only start your franchise, but to keep it running smoothly until you can successfully turn a profit, which in many businesses, can take a year or more.
You also need to assess your willingness to work the long hours typically required to run your own business. The "buck stops with you," so you will probably wear more hats than you've ever worn before, from hiring and firing employees and dealing with customers, to new business development, marketing and accounting.
Study All Legal Documents
This will be one of the most important research projects of your life. Fortunately, there are many resources to help you thoroughly evaluate a particular franchise opportunity like the Federal Trade Commission (FTC) Consumer Guide to Buying a Franchise (www.franchise.org/resourcectr/acquirea.asp) and the Introduction to Franchising (www.franchise.org/edufound/intro2franchising.pdf).
Once you have identified several franchise choices, ask each franchisor for their Uniform Franchise Offering Circular (UFOC). This document must include 23 items which will contain important and useful information on the franchise, including the franchisor's litigation history, initial and ongoing fees required, the franchisee' and franchisors' obligations, territory rights (if any), renewal rights, and much more.
Be sure to enlist the help of trained professionals. Find an attorney and accountant familiar with franchising. Don't expect your family attorney to be able to provide expert franchise assistance. Would you go to a family doctor to have open-heart surgery? Of course not. For this reason it is important that you find an experienced "franchise" attorney and accountant. The IFA's Web site includes a list of franchise attorneys, consultants and accountants. Simply go to www.franchise.org and click on "Supplier Business District." The American Bar Association may also be able to assist you in finding an attorney in your area.
There are other organizations that can assist you, as well, such as the Service Corps of Retired Executives (SCORE). Score's Web site is located at www.score.org. You may also consult your local Small Business Development Center for help writing your business plan, finding financing, and managing your business. A complete listing of centers and other resources can be found at www.sba.gov.sbdc.
Investigate the Franchisor's Reputation
As noted above, the UFOC will contain a list of outlets and franchisees. Franchisors are required to list both current and past franchisees. It is worth the time it takes to call several franchisees in both categories. Ask them why they purchased the franchise. Are they satisfied with the return on their investment? Do they think their franchisor is or was fair in its dealings with them? If they left the system, why did they leave?
Get Support at Home
Your new venture will require hours of your attention and that of your family as well. Make sure that you discuss your plans with your family. Starting a business can allow you to build wealth for your family. It is important that you have your family's full support and assistance.
Cynthia Gartman, CFE, is vice-chair of the IFA's Minorities in Franchising Committee and is senior director of franchise administration for Accor North America, Inc., franchisors of Novotel, Red Roof Inns, Studio 6 and Motel 6. Accor's Web site can be found at www.accor-na.com. Gartman can be reached at firstname.lastname@example.org or 972-360-5409.