Franchise
Buisnesses: How to Choose and Buy a Franchise Buisness
Basics
of Buying a Franchise
Many small business
owners have been helped to a sound start by investing in a franchise. You
may wish to consider doing the same. Franchising can minimize your risk.
It will enable you to start your business under a name and trade-mark
which already have public acceptance. You will receive training and
management assistance from people experienced in your line of business.
Sometimes, you can also obtain financial assistance that will permit you
to start with less cash than you would otherwise need.
On the other side of the coin are the sacrifices required when entering
a franchised operation. You will lose a certain amount of control of your
business. You will no longer truly be your own boss. And, of course, you
must either pay a fee or share profits with the franchisor.
What Franchising Is
Essentially, franchising is a plan of distribution under which an
individually-owned business is operated as part of a large chain. Services
or products are standardized. It is a system used by a company (the
franchisor) which gives the individual dealer (you, the franchisee) the
right to market the franchisor's product or service by using the
franchisor's trade name, trade marks, reputation, and way of doing
business. The franchise agreement (or contract) usually also gives the
franchisee the exclusive right to sell or otherwise represent the
franchisor in a specified area. In return, the franchisee agrees to pay
either a sum of money - a franchise fee, a percentage of gross sales or
both, and frequently to buy equipment or supplies from the franchisor - or
some combination of these considerations.
A reputable franchise may be the best successful business insurance
inexperienced entrepreneurs can acquire.
Advantages of Franchising
Among the advantages of franchising to you as a franchisee are that you
can start a business with:
1. Limited experience. You can use the franchisor's experience
which you might otherwise have to obtain the hard way - through trial and
error.
2. A relatively small amount of capital and a strengthened financial
and credit standing. Some franchisors give financial assistance so you
can start with less than the usual amount of cash. For example the
franchisor may accept a down payment with your note for the balance of the
needed initial capital. Or, the franchisor may allow you to delay your
payments for royalties, purchases, or other fees to help you over the
initial rough spots. With a well known, successful franchisor behind you,
your standing with local financial institutions and credit associations is
strengthened.
3. A well developed consumer image and goodwill with proven products
and services. Because the goods and services of the franchisor are
well-known, your business has "instant" pulling power. To develop
equivalent pulling power on your own might take years of promotion and
considerable investment.
4. Competently designed facilities, layout, displays and fixtures.
The franchising company has effectively designed facilities, layout,
displays and fixtures prepared by experts and proven by nationwide usage.
5. Chain buying power. You should receive savings through the
franchisor's quantity purchasing of products, equipment, supplies,
advertising materials and other business needs.
6. Business training and continued management assistance from
experienced company personnel. You can expect advance training in the
mechanics of your particular business. Some franchisors will guide you in
day-to-day operations until you are proficient. Moreover, management
consulting service is provided by many franchisors on a continuing basis.
This usually includes help with record keeping and other essential
activities.
7. National or regional promotion and publicity. National and/or
regional promotions of the franchisor will help your business. You will
receive help with local advertising. The franchisor's research and
development program will assist you in keeping up with competition and
changing times. Best of all, the immediate identification many franchise
operations enjoy will bring pre-sold customers to your door.
All of these factors can help increase your income and lower your
chances of failure.
Disadvantages of Franchising
Now, what are the disadvantages of franchising? Some of them are the:
1. Required standardized operations. You cannot make all of the
rules. Contrary to the "be your own boss" lures in franchise
advertisements, you will not be your own boss. You must subjugate your
personal identity to that of the franchisor. If an important satisfaction
to you is to have your business known by your name, a franchise operation
is not for you. Most franchisors have the right to exert control and
pressure you (1) to conform to standardized procedure; (2) to handle
specific products or services which may not be particularly suitable or
profitable in your marketing area; and (3) to follow other policies which
may benefit others in the chain but not always you. You lose the freedom
to make most decisions. In other words, you are not your own boss.
2. Sharing profits with the franchisor. The franchisor nearly
always charges a royalty on a percentage of gross sales. The royalty fee
must ultimately come out of your profits. Sometimes it must be paid
whether you make a profit or not, and it must often be paid before the
operation is established. On the other hand, the franchisor does not
usually share your losses.
3. Lock of freedom to meet local competition. Under a franchise you
may be restricted in establishing selling prices, in introducing
additional products or service or dropping unprofitable ones, regardless
of the local competition you must meet.
4. Danger of contracts being slanted to the advantage of the
franchisor. Clauses in some contracts, imposed by the franchisor, may
provide for unreasonably high sales quotas, mandatory working hours,
cancellation or termination of the franchise for minor infringements,
and/or restrictions on the franchisee in transferring his franchise or
recovering his investment. The territory assigned the franchisee may be
overlapping with that of another franchisor or may be otherwise
inequitable. In settling disputes of any kind the bargaining power of the
franchisor may be greater than that of the franchisee. In the past, fast
food franchisees worked a median of 60 hours a week; some families as much
as 120 hours. As the owner, you may still opt to do this. Alleged
infringement of the franchisee's exclusive territory, long a major source
of friction between franchisee and franchisor, need not be if your
attorney oversees the contract. The power imbalance in favor of the
franchisor is usually due not only to the franchisee's smaller financial
resources but to a lack of information - information which the franchisor
usually has.
5. Time spent preparing reports for the franchisor. Franchisors
require specific reports and you may consider the time and effort in
preparing them inordinately burdensome. On the other hand if these reports
are helpful to the franchisor it is likely that they will also help you to
manage your business more effectively.
6. Sharing the burden of the franchisor's mismanagement. While
ordinarily the franchisor's chain develops good will among consumers,
there may be instances in which ill will is developed by one of the units.
As one link in the chain, you may suffer despite the excellence of your
particular unit. Fortunately, in recent years this has been an infrequent
occurrence.
7. Few management decisions. As a franchisee, you will probably not
be permitted to make management decisions even to meet changing conditions
in your territory. Canceling a product or introducing a new one is seldom
allowed - certainly not without consultation with a representative of the
franchisor and, possible, contract revision. The same applies to a desire
to expand your operation beyond its specified geographic limits. As an
entrepreneurial type, constant submission to the letter of the contract
may become an irritant. On the other hand, the safeguard of the
franchisor's name and mode of doing business - if it results in profits -
may make the restrictions more palatable. Also, some of the larger
franchisors now hold annual meetings with their franchisees and encourage
open discussion and initiative.
Checklist for Evaluating a Franchise
The Franchise
The Franchise
- Did your lawyer approve the franchise contract you are considering
after he studied it paragraph by paragraph?
- Does the franchise call upon you to take any steps which are,
according to your lawyer, unwise or illegal in your county or city? What
are they?
- Does the franchise give you an exclusive territory for the length of
the franchise, or can the franchisor sell a second or third franchise in
your territory?
- Is the franchisor connected in any way with any other franchise
company handling similar merchandise or services?
- If the answer to the last question is "yes", what is your protection
against this second franchisor organization?
- Under what circumstances can you terminate the franchise contract
and at what cost to you, if you decide for any reason at all that you
wish to cancel it?
- If you sell your franchise, will you be compensated for your good
will, or will you lose the good will you have built into the business?
The Franchisor
- How many years has the firm offering you a franchise been in
operation?
- Has it a reputation for honesty and fair dealing among the local
firms holding its franchise?
- Has the franchisor shown you certified figures indicating exact net
profits of one or more going firms which you personally checked with the
franchisee(s)?
- Will the firm assist you with:
- A management training program?
- A public relations program?
- Credit?
- An employee training program?
- Capital?
- Merchandising ideas?
- Will the firm help you find a good location to carry out its stated
plan of financial assistance and expansion?
- Is the franchising firm adequately financed to carry out its stated
plan of financial assistance and expansion?
- Is the franchisor a one-man company or a corporation with
experienced management in such depth that there will always be an
experienced person at its head?
- Exactly what can the franchisor do for you which you cannot do for
yourself?
- Has the franchisor investigated you carefully and successfully
enough to be assured that you can operate one of their franchises at a
profit both to them and to yourself?
- Has the franchisor complied with the law regulating the sale of
franchises?
- How much equity capital must you have to purchase the franchise and
operate it until your income equals your expenses? Where will you get
it?
- Are you prepared to give up some independence of action to secure
the advantages offered by the franchise?
- Do you really believe you have the innate ability, training and
experience to work smoothly and profitably with the franchisor? Your
employees? Your customers?
- Are you ready to spend much or all of the remainder of your business
life with this franchise company, offering its product or service to
your public?
Your Market
- Have you made any study to determine
whether the product or service which you propose to sell under franchise
has a market in your territory at the prices you will have to charge?
Will the consumer population in the
territory given you increase? Remain static? Decrease over the next 5
years?
Five years from now, will the product or
services you are considering be in greater demand? About the same? Or in
less demand?
What competition for the product or
service you contemplate selling already exists in your territory?
Nonfranchise firms? Franchise firms?
Food For Thought
Life is full of risk, discomfort,
frustration, disappointment and outright danger. How do you muster the
courage necessary to overcome the fear of moving forward in life?
Your courage depends on what you value, and on what you have to lose.
Do you define yourself based on the neighborhood you live in, the car
you drive, the vacations you take, the size of your bank account?
These are things that you could lose. If you were to lose them, who
would you be then? Now, these are all fine aspirations, to be
treasured and protected. As long as you're not paralyzed by the fear
of losing them. As long as your very identity is not dependent on
them.
On the other hand, when you value such things as your integrity, your
purpose in life, your desire to make a difference in the world, your
sincere and unconditional love for others -- you know that nothing can
take these away from you. That gives you the courage to live. And when
you're able to transcend the need for superficial, material things,
you are then free to truly enjoy them for their own sake, without fear
of loss.
Reach deep into yourself. Get in touch with your true essence, and
suddenly nothing will pose a threat. You are free to do what is right,
what is necessary, what is you.
When it is impossible for you to lose the things you value most, then
you have the courage to attempt anything.
Elephants have been trained and used by humans as work animals for as
long as 4,000 years. How is it possible for a 175 pound man to keep an
11,000 pound elephant in captivity?
When an elephant is very young, it is tethered to a four foot long
wooden stake driven into the ground. This stake is physically able to
hold the young, small elephant, despite the elephant's repeated
attempts to escape it. After unsuccessfully trying many times to
escape, the young elephant eventually comes to believe that escape is
impossible. This belief is carried into adulthood. When the elephant
is full grown, it could easily break free from the four-foot wooden
stake, yet it never even attempts to do so. This intelligent, powerful
creature is held captive, not by any physical restraint, but by its
own thoughts.
Does it make you wonder what thoughts of your own might be holding you
back? Are you tethered to circumstances from which you could easily
break free, if only you knew you could?
Your thoughts can be your prison, or they can set you free to soar. If
you think you can, or if you think you can't, you're absolutely right.
In order to do anything, or become anything, or have anything, you
must first believe that it is possible. It must exist in your mind
before it can come to pass.
Today is full of opportunity. Everywhere you go, everything you do,
every person you meet gives you the potential to make a difference --
in your life, in the lives of others, in your community and in the
world at large.
Welcome the challenges. Look for opportunities, in every situation, to
learn and to grow. Delight in the beauty that is around you. Offer
your sincere kindness and caring to others. This is the stuff of life.
Your are fully alive and capable of making this day into whatever you
want it to be. Though you often cannot control the situations that
come along, you always can control the way you deal with them.
Every moment is your opportunity to express the wonderful, unique
person that you are. Life is not in the fondly-remembered past. It is
not in the hoped-for future. It is here and now. What you are now, is
what you are.
Anything that may have previously held you back is now behind you.
Today is your golden opportunity to fashion your life into what you
want it to be.
Take a deep breath, put a smile on your face, and make it a great day.
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