Franchising

Congratulations! You are looking to become a business owner in the franchise arena. There are over 1500 options for you to choose from. How does someone separate and decide which choice is right for you?

It is important to first decide the amount of capital available for you new business. Franchises come in all shapes and sizes. There are service based franchises, retail product(s) franchises, restaurant franchises, auto service franchises and many others. The amount of capital required will also vary greatly.

If you are looking to purchase a top level franchise such as Subway, be prepared to have a large sum of money available. Most of the top level franchises are going to require a minimum of $50,000 of available cash in addition to a stellar financial statement. Some franchises will be upwards of $1 million needed. There are some franchises available for around the $10k investment level, but you will most likely need at least another $10k for equipment, inventory, building costs, etc.

If you have a maximum of $10k available for all of the above listed costs, your options may be somewhat limited. For those that have $25k-$50k, your available choices will open up considerably but most likely will still exclude most of the top tier options. For those with $150k+ available, your choices to purchase a more proven franchise will be significantly greater.

Where can a person go to find quality information in a non-biased way? There are a few websites that you should find beneficial.

This link will give you an overview of the things to look for in a franchise and how to evaluate each one.

http://www.franchisedoc.com/evaluate.html

The FTC has a great site with an unbiased view of what to look for when choosing your franchise. See their site at:

http://www.ftc.gov/bcp/edu/pubs/consumer/invest/inv05.shtm

Be careful of any sites that list franchises available with links to the respective companies. This is in and of itself not a bad thing, but know that most of these sites receive a commission for you clicking and/or purchasing a franchise there and the listings will most likely be limited to those companies that they receive this commission and may omit many franchises that you would be interested in. Careful searching and planning should always be exercised in evaluating any business opportunity.

What are the benefits of purchasing a franchise?

1. You should have a better chance of success.

2. The franchise you purchase is (or should be) already proven in the market place.

3. The company will provide you with the support and systems to help avoid mistakes of a stand alone business. In essence, your learning curve is greatly diminished.

4. Problem solving. With the company and numerous other franchise owners in the company, problem solving and better solutions to issues can happen more quickly and efficiently.

5. Management support. You will have access to people that can help you with decisions, problems and marketing. Their expertise is a part of what you pay for with your franchise fees and royalties.

6. Buying power of a larger group usually means cheaper costs for the goods your business needs. Ongoing research and new product introductions are also available for the franchise owner from the franchise company.

Let's examine some of the pitfalls/downsides of franchising.

1. Excellent products don't automatically transfer into excellent franchise opportunities. Be careful of newer franchises. Know how long they have been in business and be sure to contact references of the franchise owners that they provide but also do some calling of those that own the franchise you are looking to purchase from those they don't provide. Google search for specific locations and talk to several owners and get their opinions.

2. A fast growing franchise system may or may not be a good thing. Newer franchises should grow faster than older established franchises. This may be a good sign of future growth and business for you, but you must also beware that the company has the infrastructure to handle this rapid growth. This is where you need to ensure that the territory that you receive from the company is rock solid. Have your legal advisors make sure that one year from now the company can not sell a franchise 6 blocks down the road from you. This can kill your business in a hurry!

3. Employees are going to be a significant part of your future. If you have never had someone working for you, the switch to having and managing employees can be daunting. With employees come other areas for concern. You now have payroll taxes, workers compensation, benefits, reliability issues and several other challenges. Many new franchise owners report that the single biggest "headache" in their new business is managing and dealing with employees. Know that you will be spending a lot of your time dealing with employees directly or with the accompanying compliance and paper shuffling that comes with employees.

4. Don't ever purchase a franchise thinking you will have more time or freedom of your schedule! This mistake has cost many a new franchisee money and peace of mind. Be prepared to double the amount of hours you currently work once you purchase, open and operate your new business.

5. Have a back up income plan in place. Many new businesses take some time to become profitable. As the new owner of a business, you are the last person to get a "pay check". Employees, government entities, vendors, suppliers and your business cash reserves all get paid before you do. Becoming profitable is certainly easier with a franchise than opening your own stand alone business, but make sure you have at least 6 months of cash in the bank to live on before you should expect the new franchise to provide you with income to live on.

So, the pros and cons of franchise ownership are really what you have to weigh. For some people, working within a stringent business system is difficult. This can be especially true for those true "entrepreneurs" or those that aspire to become an "entrepreneur". For many, there are some excellent alternatives to franchising that are worth consideration.

If the above pitfalls outweigh your desire to purchase a franchise, these alternatives can provide you with the following benefits.

1. Tremendously lower costs to start and operate than a franchise with no ongoing royalty fees.

2. No employees to pay payroll taxes on, benefits for or head aches to deal with.

3. The world can be your market. No limitations as to where or how you can market your business.

4. Proven systems with a few select franchise alternative companies. Be careful of "get rich quick" schemes and scams. Do your research for these business opportunities and make sure you find done with a high profit margin.

5. Be wary of M-L-M compensation plans. Although there is nothing inherently wrong with these plans, most people prefer to keep the commission they earn with their business for themselves.

For an excellent low cost franchise alternative that provides several of the benefits of a franchise with a franchise level income, check out:

Money Saving Franchise Alternative

In summary, there can be many benefits of purchasing a franchise. If you are in a position finacially and have the amount of time required, you may be an excellent candidate for franchise ownership. Select carefully and utilize the resources listed in this article. For those that can not invest the required capital and can not go without a paycheck for 6+ months, check out the alternative listed above.