By Jean Kruse / Guest Editorial
Are you eager to start a small business but worry that a lack of resources and/or experience will doom your entrepreneurial dreams? Then you might want to consider franchising, an approach that thousands of people from all walks of life have transformed into highly-successful enterprises.
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 wishing to use that identification in a business. Generally, a franchisee sells goods or services that are either supplied by the franchiser or meet the franchiser’s quality standards.
According to the International Franchising Association, the U.S. has more than 900,000 franchising businesses in more than 90 categories. Franchised businesses generate $2.31 billion in economic output each year.
What sets franchises apart from other types of small businesses is that the franchisor does much of the “up-front” work, providing franchisees services such as site selection, training, product supply, marketing plans, advertising and even financing. Best of all, franchisors don’t simply leave their franchisees to fend for themselves when times get tough.
“The beauty of a franchise is that you get the experience and support of people who have been through tough times,” says Jania Bailey, president and COO of FranNet, a national franchise consulting organization. “The franchisor is there to help with suggestions and systems that have worked in prior economic downturns.”
One downside to a franchise is the upfront cost of buying it and the ongoing fees that the franchisee, the new entrepreneur, must pay to the franchisor. The ongoing fees are paid monthly and are based on a percentage of sales.
Don’t view franchising as a shortcut to entrepreneurship. Research and due diligence is a must for any prospective franchise owner. That includes fully understanding the franchisor’s disclosure document, which discloses information about the franchise organization, and the franchise agreement, the actual contract between franchisor and franchisee. Watch for specific requirements such as sales quotas, mandated sources for equipment, supplies and inventory and conditions for terminating the agreement. The U.S. has laws that regulate franchising.
Before buying a franchise, it is a good idea to interview some of the company’s current and past franchise owners to gauge the level of support they receive. Ms. Bailey also advises prospective franchisees to plan for the long-term and partner with franchise organizations that have the same perspective.
“A franchisee needs to have a well thought-out personal business plan with long- and short-term goals, and then look for a franchise that matches up with them,” she said. “Also, they should pick a franchise that has a good track record of growth, and increased earnings at the franchisee level.”
Should you buy a franchise instead of starting a business from scratch? Don’t buy a franchise if you are a very independent entrepreneur. Franchises have systems, guidelines, rules and processes that must be followed. Not all franchises are successful. Do your homework. Some stagnate, fail or wither.
However, in general franchises have been very successful. They have systems already in place so you don’t have to invent your own.
On Oct. 29, the East Central Iowa SCORE chapter presented a workshop on “Franchise Business Opportunities” that was very well received. Sometime in the next few months that workshop will be repeated at the Marion Public Library. If you are thinking about buying a franchise, attending this free workshop may answer many of your questions. Visit the SCORE website (www.scorecr.org), click on “Local Workshops” to view the current upcoming workshops, then on the lower right side of that screen click on “View Event Calendar” and then click on Oct. 29 to view the details of the franchising workshop. Watch our website for the announcement of the date on which the franchising workshop will be repeated.
Meanwhile, SCORE has several mentors who can help you determine whether franchising is for you. Sign up for mentoring on our web site or call (319) 362-6405 or visit our office, 2750 First Ave. NE, Ste. 350, Cedar Rapids.
Jean Kruse is a SCORE counselor, past chair of SCORE CR and a certified public accountant. She operated her own CPA firm for 13 years and in 1988, joined RSM McGladrey, a ntaional firm, where she provided accounting and tax services to small businesses.
