"Franchising today is one of the most innovative, dynamic and effective systems for distribution of goods and services the world has ever known. Well informed, satisfied franchisees are the backbone of this system, which combines the experience and expertise of a large company with the entrepreneurial drive and ambition of the small independent businessman."
- from "Investigate Before Investing: A Guide For Prospective Franchisees" a pamphlet written by Jerome L. Fels and Lewis G. Rudnick, published by the International Franchise Association.
Most people have dreamed of becoming fabulously rich. To live the rest of their lives as they wish surrounded by wealth and luxury. Many think owning a franchise is the way to get there. It may be. Of course, it may not be. Franchising is not a get-rich-quick scheme. It is not something in which you invest your money and a year later you're retired - plotting where to go on your next vacation, where to buy your summer home, deciding how much to donate to your favorite charitable causes. There are, however, many advantages to owning a franchise as we shall discover. First, however, lets look at exactly what franchising is.
Franchising is defined by The International Franchise Association (IFA) as "a continuing relationship in which the franchisor provides a licensed privilege to do business, plus assistance in organizing, training, merchandising, and management in return for a consideration from the franchisee." What does this mean? It means that a company (the franchisor) grants others the right to market a product or service under the company's trade name and method of doing business in accordance with the agreement signed by both parties. For this right, the individual (the franchisee) usually must pay the company an on-going royalty as well as an initial fee at the beginning of their agreement. This initial fee is known as the franchise fee and is paid to the franchisor before any training or other materials are given. The royalty fee is usually based on a percentage of weekly or monthly gross income but may be just a flat fee.
With most franchises, there is also an advertising fee. This fee is similar to the royalty fee (it is usually based on a percentage of gross sales) but the funds generally go into a marketing pool and are earmarked for national and/or regional advertising campaigns.
There are really two types of franchises: product and trade name franchises and business format franchises. Product and trade name franchises generally offer older, well-known, established products and very often are not recognized or thought of as actual franchise operations. For example, many soft drink bottling companies are actually franchisees of either Coca Cola or Pepsi. They buy the essential ingredients from the company and make and distribute the end product in their local defined region. The bottling company (the franchisee) has use of the product tradename and benefits from the marketing and advertising efforts of the franchisor, but generally operates independently. Other such franchises include automobile and truck dealerships and gasoline service stations.
The business format franchise is the type most people think of when they think of franchising and is the type we will be concerned with in this program. In business format franchising, the franchisor offers the franchisee a complete plan or system for managing and operating their business. There is generally an on-going relationship between the franchisor and the franchisee. Such franchises are most commonly thought of in the industries of fast-food restaurants, auto repair and maintenance, printing and copying services, commercial and home cleaning services, package mailing and shipping, personnel services, and on and on - a franchise operation may be found (and usually is) in virtually any industry!
Although one generally considers it as "buying" a franchise, in reality, you are actually leasing it. The lease will run for a certain period of time - whatever the term of the agreement calls for. The franchise agreement is a written contract which states the responsibilities of both the franchisor and the franchisee. Franchise agreements typically run for 10 to 20 years, although some may be for as short as 5 years or even less. After that time, the franchisor may decline to renew your contract or renew it but under different terms and conditions than the original agreement. The possible reasons for not renewing an agreement should be stated in the franchise agreement and obviously is something you want to be sure to review.
One of the reasons you may be thinking of going the franchise route is because you think it's an easy way to riches. Although there are many examples of franchisees becoming millionaires, most, in fact, do not. You can, however, earn a very satisfactory return on your investment in a franchise - both financially and personally.
The financial rewards are not the only reason people go the franchise route. Maybe you are just tired of working for someone else and want to be your own boss. You want to make the decisions. You want the responsibility (and the rewards) that those decisions bring. Perhaps your current employment just doesn't give you the satisfaction it once did or perhaps never did. Maybe you realize you need the training and guidance that a franchise can offer. Maybe you want to take advantage of the greater odds for success in a franchise rather than trying it alone.
It is estimated that only two out of ten businesses started from scratch will survive beyond five years - a 20% success rate. Many of the 80% that fail will do so in the first year. It is also estimated that more than nine out of ten franchises will survive - a 90% + success rate. Clearly your odds are much better if you choose a franchise rather than starting out on your own.
Although your odds of success are much greater, owning a franchise is not a guarantee of success nor is it easy. With the help of the franchisor, franchises may be easier to get started than "going it alone" but you still have to do the work. You have to do the bookkeeping, the payroll, the workers compensation forms, the cash-flow statements. You have to watch the cash register, answer to the complaining irate customer, hire and train and fire your help, order your supplies, count inventory, and the thousand and one other things that a business demands of the owner to operate and stay in business.
Maybe you don't know if franchising is for you. If that is the case then what you need is more information. This program was written to provide you with that information, but more importantly, to get you to think of the questions you need answered before entrusting someone you don't know with what could be, perhaps, your life savings. Read the following "chapters" and then call or write the franchises that interest you. Read the material they will send you and ask questions. Ask questions not only of the franchisor but of current franchisees. Talking with the current franchisees of an operation will provide you with the best answers regarding the pitfalls as well as the opportunities that may lie ahead. Good luck to you in whatever you may decide.
