Does Franchise Ownership Interest You?

Franchising is often described as a business or industry. It is not. Franchising is a method of doing business. You can become a business owner under a franchise agreement. Franchising has been adopted and used by a wide variety of industries and businesses as a means of efficient expansion. Under a franchise system, an individually owned business is operated as though it were part of a large company. The parent company acts as the umbrella organization. This company authorizes the franchise outlets to use its trademark and benefit from the image of a larger organization.

Generally, the franchisor or umbrella organization will dictate standard design for business facilities; specify the use of certain equipment, products or services; and provide instruction on operating the franchise in accordance with the standards set forth for all franchisee operations. While most people think of a franchise as being product or service oriented, such as the case with fast food, restaurant or hotel businesses, franchises may also be found in the wholesale and manufacturing industries.

Franchising offers many advantages to an entrepreneur. As a small business person you can "buy into" a well-established venture, with a proven formula for success. This offers you significant odds for success, when the franchise formula is carefully followed. The franchisor should provide solid advice (often mandates), site selection, management, advertising, accounting and product research and development to aid the overall franchise organization’s success. Greater efficiency and profitability result from uniform coordination.

Is the concept of a franchise right for you? To make your business a success, you must be willing to accept the orders, vision and procedures set forth by the franchisor. Any ideas you have for customizing the proven formula must typically be approved by the franchisor. In a sense, you forgo some of the independence you may have sought as an entrepreneur. Of course, the trade off in autonomy for the support system must be weighed against the increased chances for success.

As in any small business, long hours and hard work are required. There is usually a long payout period in the business. With many franchises, it’s likely to be three or more years before you can begin to take money, other than your salary, from the business. However, there is no guarantee that you will earn a profit any sooner than if you started a small business on your own, rather than going for franchising. Carefully evaluate whether a particular franchise is right for you.

To request a free copy of the pamphlet "A Consumer Guide To Buying A Franchise," call the Federal Trade Commission, Public Reference Branch at (202) 326-2222, stay on the line for an information specialist—do not enter the voice mail selection system for this item.

The following factors should be considered when evaluating franchise opportunities.

• How much money can you invest? Before you invest in a franchise, make sure you can afford any fees charged by the franchisor. The initial investment may require anywhere from a few thousand to several hundred thousand dollars.

• Do you have the background necessary to make the business a success? Do you have experience in whatever field you are going to venture into? The franchisor will want to be assured that its good name and reputation will be placed in good hands with you as the franchisee.

• What are the terms of the franchise agreement? It is in your best interest to have your lawyer, accountant and a business counselor examine the franchise agreement carefully. Don’t be hasty. Fully evaluate the agreement before committing to the business endeavor.

The SCORE Association (Service Corps of Retired Executives) can help. SCORE offers free and confidential business counseling to aspiring entrepreneurs and business owners. SCORE has assisted more than 3.5 million Americans. To discuss franchise possibilities, call for a SCORE counseling session. There are more than 12,000 volunteer, business counselors donating their time to SCORE. Call 1 (800) 634-0245 for the SCORE chapter nearest you.

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