WHAT SHOULD I CONSIDER BEFORE BUYING A FRANCHISE?

Among the points which IFA recommends for investigation are:

1. the type of experience required in the franchised business;
2. a complete understanding of the business;
3. the hours and personal commitment necessary to run the business;
4. who the franchisor is, what its track record has been, and the business experience of its officers and directors;
5. how other franchisees in the same system are doing;
6. how much it’s going to cost to get into the franchise;
7. how much you’re going to pay for the continuing right to operate the business;
8. if there are any products or services you must buy from the franchisor and how and by whom they are supplied;
9. the terms and conditions under which the franchise relationship can be terminated or renewed, and how many franchisees have left the system during the past few years;
10. the financial condition of the franchisor and its system.

WHAT KIND OF INVESTMENT IS NECESSARY TO BUY A FRANCHISE?

Investment requirements differ tremendously. It all depends on the industry and the type of business. Total start-up costs can range from $20,000 or less, to over $1,000,000, depending on the franchise selected, and whether it is necessary to own or lease real estate to operate the business. Moreover, the initial franchise fee for most franchisors is between $10,000 and $30,000. Seventy percent of franchisors charge an initial franchise fee of $40,000 or less. The average investment, excluding real estate costs, is between $350,000 -$400,000.

ARE THERE ANY CURRENT TRENDS IN FRANCHISING?

Among the most important trends in franchising today are the internationalization of franchising, the emergence of women and minorities in franchising, and the increased use of technology.  All of these have profound and positive effects on franchising and make it an even more dynamic method of doing business today.

International Franchising

• Franchised businesses continue to grow in all corners of the world.  Domestic franchisors in many countries are increasingly establishing franchises across borders.  More than 400 U.S. franchise systems operate internationally.   International franchising has been successful because consumers around the world recognize famous brands as symbols of quality, consistency, service, and value.
• If you are considering the purchase of a franchise, you may want to not limit the scope of your search to franchisors in your home country.  Increasingly, franchisors are seeking franchisees internationally, and a foreign-based franchisor may provide you with the franchised opportunity you are seeking.
• In many cases, foreign-based franchisors offer individual franchises to operate a single unit.  They also often offer development rights to operate multiple units and “master franchise” rights.  The latter is, essentially, an opportunity to be the “franchisor” for the foreign-based concept in your country or a portion of your country.
• Of course, international franchising presents some different challenges than domestic franchising.  For example, if goods will come from overseas, you may need to be aware of various duties, tariffs, and transportation requirements.  You also need to consider language and cultural differences.  For instance, if you are a franchisee in a different country from the franchisor’s home office, the franchisor’s system may need to be modified for use in your country.

Minorities and Women in Franchising

• Increasing numbers of minorities and women are discovering that franchising can be a good opportunity for everybody.  While franchising is not a panacea, it provides a means for mitigating the traditional obstacles that otherwise competent and capable small investors, particularly women and minorities, face: lack of business experience and capital.  Franchisors provide managerial training and assistance on an on-going basis and, in some cases, arrange for property leases, provide equipment financing and sale-leaseback programs, and assist franchisees in obtaining financing.
• As a result of a strong economy, women are increasingly in leadership positions in franchising whether through establishing new companies, becoming single and multi-unit franchisees, or having high-level positions at corporate headquarters.
• According to the Center for Women’s Business Research, as of 2004, there are an estimated 10.6 million privately-held, 50% or more women-owned firms in the U.S., accounting for nearly half (47.7%) of all privately-held firms in the country.  These firms employ 19.1 million people, and generate $2.46 trillion in sales.
• As the population of minorities in the U.S. population continues to rise, minority franchising in cities is expected to rise.
• IFA’s Minorities in Franchising Committee and the IFA Educational Foundation’s Diversity Institute provides research, education, and outreach programs to expand the opportunities for minorities in franchising.
• IFA’s Women’s Franchise Committee (WFC) is dedicated to inspiring and encouraging women in franchising by creating a network of business professionals dedicated to strengthening the success of women in franchising.  The WFC has created a number of programs and resources in order to achieve this goal, ranging from “how to” guides and conferences to local networking chapters.

Technology and Franchising

There are several trends related to the use of technology in franchising today.  First, many franchisors use the internet to communicate with franchise owners and suppliers through secure extranets in order to share critical information, facilitate discussion among the franchise network, post operations manuals and updates, disseminate news about ad campaigns, engage in supply chain management, and gather sales reports automatically and without the need for more labor-intensive data entry.  Second, franchisors use the internet to advertise their network to customers.  Third, some franchisors use the internet to engage in business-to-consumer (B2C) e-commerce, often with the involvement of franchisees.  Fourth, many prospective franchisees glean information and make contact with franchisors using the internet.  Some franchisors now report that they get more sales leads from the internet than from any other source.  Fifth, some franchisors have started providing disclosures to prospective franchisees by electronic means.  Sixth, and finally, franchisors make extensive use of technology in offering their services directly to consumers — such as networks of businesses that offer website design and web hosting.  The prospects for, and reality of, involving technology in franchising make this a very exciting time to own a franchised business.