THE MOST COMMON QUESTION WE GET

Tue, Jan 12, 2010

EVERYMAN’S QUESTION

“I’ve decided I want to own my own business, and I’m pretty sure that I want the ‘safety net’ of a franchise, but I’m not at all sure what industry I want to be in. Can you help?”

These are the opening words of phone calls I receive several times a week. As a franchise broker and development consultant, many call to discover the possibilities for their future as entrepreneurs. To improve my ability to field these inquiries, I visited the Sixth Annual International Franchise Exposition in Washington during the last week of April. My goal was to uncover some unique opportunities that will fit the needs of my typical 40+ corporate manager looking for a way to escape the corporate world by buying a venture of his or her own.

I found about 5,000 potential franchisees crowded into the Washington, DC Convention Center to review the wares of some 200 franchisors. With national unemployment at record lows, some franchise executives complained of a lower than normal crowd for this edition of the Expo. For a $10 entry-fee, the ambitious could spend four to six hours discussing the potential of franchises from many industries and attend seminars explaining how to separate the “wheat from the chaff.”

A cross-section of American business, franchise opportunities continue to penetrate a broad spectrum. Most Americans think first of food, automobile services, carpet cleaning and maid services when the word franchise is mentioned. Not to disappoint, these segments filled almost half the booths at the show, with food services accounting for about a third of all the exhibitors.

Atlanta food firms seeking more licensees included the Atlanta Bread Company, Blimpie International, Church’s Chicken, Great Wraps, and Popeyes Chicken & Biscuits. While many shy away from food service businesses, with a large enough investment, the rigors of actually making the food and serving customers is not the owner’s job description. Blimpie’s, whose investment starts at less than $65,000, is the only one in the group where you’re apt to meet the owner at the cash register. The others, with investments starting in the $180,000 range, call for a more complex management structure.

Most of the automotive-related franchisors at the show focused on oil and brake repairs, but one specializes in CV joint replacement and another offers gold-plating of wheels (and anything else metallic that suits your fancy).

Franchises focusing on cleaning include carpet care, maid services, and janitorial companies which allow wanna be entrepreneurs to invest as little as $3,500 to buy one office-cleaning contract that is serviced after the owners’ 9 to 5 jobs.

Coffee continues to be on the minds of Americans and five exhibitors at the show are ready to help buyers open in their home towns. The Coffee Cavern designs cave-like interiors that seem especially suitable for the generation raised on the Flintstones.

Some years this Franchise Expo is notable for its variety of new, exciting concepts that foretell future trends. This year’s collection of companies seemed more conservative–addressing well-developed markets with proven concepts to help their franchisees gain an advantage.

A couple of the more unique, although I’ll reserve judgment on their success potential, include a publisher of yellow page directories, several internet advertising ventures and a new pretzel company. Probably the most unusual, was the Photo Refractive Keratectomy clinic that allows you to sculpt your customers eyes so they no longer need glasses or contact lenses!

Most major cities will host at least two Franchise Shows in the next twelve months. Buyers considering owning a franchise should plan to attend and question the vendors to learn how their system will help a new unit get open and maintain a higher profitability than they could achieve independently. While many buyers question paying training fees and on-going royalties, the industry continues its rapid expansion. Almost 50% of all retail sales and services pass through franchise units which make up only 5% of American businesses. Unless an entrepreneur has extensive experience in an industry, their chances of opening and operating a business for five years are only 2 in 10. As a franchisee, their odds improve to 9 in 10! Always remember that a good franchisor only wants winners in their system. Others will take anyone’s money and not be concerned about their success or failure. As with any investment, its critical for the buyer to perform extensive investigation before making a purchase. Franchise Shows are a great place to begin researching for likely partners. Then one should research other companies serving the same industry and compare the offerings. Finally, questioning franchisees in the system and obtaining advice from experienced accountants and attorneys in the field should help an investor reach the best conclusion for his or her personal circumstances.

A PRESCRIPTION FOR YOU

Here are my thoughts on checking out a franchise.

Looking Beyond the Hype and the Documentation

Tips for Matching Your Franchise to Your Personality, Skills & Interests

  • Before you invest, evaluate yourself: What job experiences have you enjoyed? Disliked?
  • Are you experienced in sales? Customer Service? Employee Hiring & Management? Can you manage money? What is your energy level? How do you handle stress? How do you define a long day? How competitive are you? What are your persuasive abilities? Level of Creativity? How decisive are you? What are your feelings toward these functions?
  • What is the demand for these functions within the franchise system you are evaluating? Can you confirm this?
  • Have you evaluated the people at the franchisor with whom you are dealing? Are they “your kind of people?” Are they knowledgeable about the industry and the system, or just “hustlers.” Have you talked to the Regional Operations Manager who will visit your unit? What about the head of training? How do you evaluate the other franchisees? Are they similar to you in background, experience & philosophy?
  • What can you learn reviewing the “tone” of the franchise offering circular? Any legal problems of concern? What is the background of the principals? Can you verify their philosophy in industry trade associations? Are fees reasonable and competitive? (Any reductions as you grow?) What about the ad fund? Do you understand how its used? (Are most franchisees satisfied?) Does the tone indicate a “partnership” mentality or “parent/child?” Any onerous provisions?
  • You should plan to obtain several Offering Circulars so that you’ll have something to compare to. All franchise systems are NOT created equal–you need to discover how you’ll fit in before you invest.

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