How To
Start a Franchise Buisness - Small Buisness Franchise
Franchise Business (Checklist)
Although the success rate for franchise-owned businesses is
significantly better than for many other start-up businesses, success is
not guaranteed. One of the biggest mistakes that you can make is to be in
a hurry to get into business. If you shortcut your evaluation of a
potential business, you might neglect to consider other franchises that
are more suitable for you. Don't be "pressured" into a franchise that is
not right for you. Although most franchises are managed by reputable
individuals, as in all industries, some are not. Also some franchises
could be poorly managed and financially weak.
This Guide is designed to assist you in investigating your options.
Questions needed to adequately evaluate the business, the franchisor, the
franchise package, and yourself are included.
What is Franchising?
A franchise is a legal and commercial relationship between the owner of
a trademark, service mark, trade name, or advertising symbol and an
individual or group seeking the right to use that identification in a
business. The franchise governs the method for conducting business between
the two parties. While forms of franchising have been in use since the
Civil War, enormous growth has occurred more recently. Industries that
rely on
franchised business to distribute their products and services touch every
aspect of life from automobile sales and real estate to fast foods and tax
preparation.
In the simplest form, a franchisor owns the right to a name or
trademark and sells that right to a franchisee. This is known as
"product/trade name franchising." In the more complex form, "business
format franchising," a broader and ongoing relationship exists between the
two parties. Business format franchises often provide a full range of
services, including site selection, training, product supply, marketing
plans, and even financing. Generally, a franchisee sells goods or services
supplied by the franchisor or sells goods or services that meet the
franchisor's quality standards.
Benefits of a Franchise
There are a number of aspects to the franchising method that appeal to
prospective business owners. Easy access to an established product as well
as a proven method of marketing reduces the many risks of opening a
business. In fact, Small Business Administration and Department of
Commerce statistics show a significantly lower failure rate for
franchisee-owned businesses than for other business start-ups. The
franchisee purchases, along with a trademark, the experience and expertise
of the franchisor's organization. However, a franchise does not ensure
easy success. If you are not prepared for the total commitment of time,
energy, and financial resources that any business requires, this is the
point at which you should stop.
Investigate Your Option
As in all major business decisions, nothing substitutes for thorough
investigation, planning and analysis of your options. This Guide is
designed to help you set up a systematic program to analyze the
possibilities and pitfalls of the franchised business you are considering.
Use the questions below to guide your research and cover all the bases.
Read the full Guide before you begin to gather the information you will
need.
Sources of Information
You will need at least the following sources of information as well as
experienced professional advice:
A directory of franchisors
such as the Franchise Opportunities Handbook (published by the U.S.
Department of Commerce and available from The Superintendent of Documents,
U.S. Government Printing Office, Washington, D.C. 20402). Others are
available at your library.
The disclosure document
A Federal Trade Commission rule requires that franchise and business
opportunity sellers provide certain information to help you in your
decision. The FTC rule requires the franchisor to provide you a detailed
disclosure document at least ten days before you pay any money or legally
commit yourself to a purchase. This document includes 20 important items
of information, such as:
- Names, addresses, and telephone numbers of other purchasers
- A fully-audited financial statement of the seller
- The cost required to start and maintain the business
- The responsibilities you and the seller will share once you buy
Current franchisees
Talk to other owners and ask them about their experience regarding
earnings claims and information in the Disclosure Document. Be certain
that you talk to franchisees and not company-owned outlets.
Other references
You should get more information and publications from the Federal Trade
Commission, the Better Business Bureau, the local Chamber of Commerce and
associations, such as the International Franchise Association (1025
Connecticut Ave., N.W. Washington, D.C. 20036).
Professional advice
Finally, unless you have had considerable business experience and legal
training, you need a lawyer, an accountant, and a business advisor to
counsel you and go over the Disclosure Document and proposed contract.
Remember, the money and time you spend before it's too late may save you
from a major loss on a bad investment.
What is the business?
- Is the product or service offered new or proven? Is the product one
for which you have a solid background? Do you feel strong motivation for
producing the product or providing the service?
- Does the product meet a local demand? Is there a proven market?
- What is the competition?
- If the product requires servicing, who bears the responsibilities
covered by warrantees and guarantees? The franchisee? The franchisor? If
neither, are service facilities available?
- What reputation does the product enjoy?
- Are suppliers available? What reputation do they enjoy?
Who is the franchisor?
Visit at least one of the firm's franchisees, observe the operation,
and talk to the owner. You need to determine reputation, stability, and
financial strength of the franchisor.
- How long has the franchisor been in the industry? How long has the
firm granted franchises?
- How many franchises are there? How many in your area?
- Examine the attitude of the franchisor toward you. Is the firm
concerned about your qualifications? Are you being rushed to sign the
agreement? Does the firm seem interested in a long-term relationship or
does that interest end with the initial fee?
- What, if any, restrictions apply to competition with other
franchisees?
- What are the terms covering renewal rights? Reselling the franchise?
Again, use your professional support to examine all of these questions.
Some of the contract terms may be negotiable. Find out before you sign;
otherwise, it will be too late.
Personal Assessment
Finally, an examination of your own skills, abilities, and experience
is perhaps your most important step. Determine exactly what you want out
of life and what you are willing to sacrifice to achieve your goals. Be
honest, rigorous, and specific. Ask yourself:
Am I qualified for this field?
- Physically?
- By experience?
- By education?
- By learning capacity?
- Financially?
Ask yourself about the effects of this decision on your family? How
will this new life style affect them? Do they understand the risks and
sacrifices, and will they support your efforts? Beginning a franchise
business is a major decision that does not ensure easy success. However,
an informed commitment of time, energy, and money by you and your family
can lead to an exciting and profitable venture.
Food For Thought
As the pace of life becomes faster, as
markets become more segmented, as tools become more sophisticated, and
as individuals become more interconnected, the need for creativity is
greater than ever before.
Creativity has two distinct processes, and each one is vital.
First is the process of integration and synthesis of a new idea.
Everything new that is created -- great buildings, works of art,
businesses, complex machines, books, films -- must first exist in the
mind. New ideas come largely from the integration of existing concepts
-- combining and intermingling them in ways that have never before
been expressed. This part of the creative process requires exposure to
a diverse set of experiences and a broad spectrum of thinking.
Just as vital to creativity is the action necessary to bring ideas to
reality. The creation of great architecture demands engineering and
construction skills. The creation of great literature demands
grammatical skills, and the ability to operate a printing press.
Discipline and focus are necessary to manifest any creation.
It's a bit of a paradox. In order to be fully creative, we must be
very open-minded, while at the same time remaining disciplined and
focused. A delicate balance, indeed. And balance is the key. In all
great creations the idealistic coexists with the pragmatic in an
elegant proportion. A great idea is worthless unless it is manifest.
And a great skill is useless unless it has direction.
Think balance. Learn to be a dreamer while also being a doer. Harness
the power of your thoughts and the power of your actions together in
the same direction, and your life will be a truly creative force.
The person who can help you the most is YOU. The person who knows you
best, and who most completely has your best interest at heart, is YOU.
You have within you the power to make your life anything you want it
to be.
What do you care about? What is your passion? How are you making a
difference? Are you drifting aimlessly from day to day, or are you
focused on a clear direction?
Don't worry about things that are beyond your control. Your worrying
won't make them any better. And it will waste the energy you could use
to change things that you CAN control.
Take aim, take control and take action today. It doesn't have to be
perfect. It just needs to be done. Use your own unique talents and
abilities, and follow your own dream. If you don't, nobody else will.
Things are the way they are. You are the person you are. You life is
the way it is. You can either accept these things, or make yourself
miserable about them.
There are no doubt many things you think you should have done, and
many other things you wish you had not done. Accept these things. You
cannot change them by pretending they did or didn't happen.
Take a deep breath. Relax. Accept the person you are. Accept the
people and the world around you.
Acceptance doesn't mean being passive. If there's something you want
to change, then take action to change it. Acceptance doesn't mean that
you approve of or support something. It just means that you see it for
what it is. That you don't deceive yourself about it.
Acceptance will help you to see clearly, to learn and to grow. Think
of a baby learning to walk. When he stumbles and falls, he doesn't get
depressed, or paranoid, or embarrassed, or angry. He doesn't develop a
guilt complex, or ulcers, or high blood pressure. He doesn't try to
pretend like the fall didn't happen. He simply pulls himself up on the
nearest supporting object. He enthusiastically tries again, accepting
the fact that he'll have to fall many times before learning to walk.
In an environment of acceptance, true learning and growth takes place.
Bring peace, patience, learning and accomplishment to your life by
practicing acceptance.
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