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How toSelect a Franchise64 pages 21.95 value

Greetings from the Publisherant to own a business but don’t want to start one from scratch? If so, afranchise may be a perfect fit.WFranchise ownership is popular with business people and entrepreneurs whowant to own their own businesses -- but who prefer to start with a proven businessmodel, established systems and processes, and a well-known brand.Franchise ownership also appeals to those who have left corporate careers and arelooking to try business ownership for the first time.We created this Franchise Guide to help you decide if a franchise is right for you.This is one of a series of eBooks published by our company, Small Business Trends, anonline resource for small business owners. Our online publication has one sole focus:serving small business. We provide from-the-trenches advice. This one phrase sumsup our mission: “Small business success delivered daily.”This eBook consists of a collection of articles written by franchise expert-in-residence,Joel Libava (known as The Franchise King). They are written in Joel’s uniqueconversational style – blunt, informed, yet tinged with humor. For convenience we’vegathered them together in this printable document. You can also find all of the articlesonline at: http://smallbiztrends.com/franchise-guide.Wishing you the best in your quest,Anita Campbell,Founder and CEOSmall Business Trends, LLC2How to Select a Franchise

Table of ContentsGREETINGS FROM THE PUBLISHER2INTRODUCTION TO FRANCHISING5PROS AND CONS OF BUYING A FRANCHISE8TAX BENEFITS OF FRANCHISE OWNERSHIP115 BENEFITS OF BUYING A FRANCHISE VS. STARTING FROM SCRATCH14DOWNSIZED? FRANCHISE VS. CORPORATE EMPLOYMENT17IS BUYING A FRANCHISE REALLY BUYING A JOB?20QUESTIONS TO ASK FRANCHISE COMPANY EXECUTIVES23THE FRANCHISE DISCOVERY DAY26HOW NOT TO TALK TO FRANCHISE COMPANY EXECUTIVES29TYPES OF FRANCHISES AND INVESTMENT REQUIRED32THE WORLD OF MOBILE FRANCHISE OPPORTUNITIES35FRANCHISE MACHINES: DVD KIOSKS, ATMS, PHOTO BOOTHS, VENDING38WORK-AT-HOME FRANCHISES: REAL OPPORTUNITIES OR SCAMS?41MULTI-UNIT FRANCHISING: WHAT YOU NEED TO KNOW43A FEW WORDS ABOUT THE HOTTEST FRANCHISES473How to Select a Franchise

TOP FRANCHISE TRENDS FOR 201250HOW TO RESEARCH FRANCHISES5425 FRANCHISE FOLKS TO FOLLOW ON TWITTER59ABOUT THE AUTHOR63COPYRIGHTS AND REPRINTS644How to Select a Franchise

Introduction to FranchisingThe business model of franchising has been called one of the greatest everdeveloped. Its popularity has to do with its proven track record of success, andthe relative ease in which people can become franchise business owners.Franchising contributes a sizeable amount of dollars to the U.S. economy, and some ofthe data that I’ll be sharing with you here willbear that out.It used to be that folks would graduate fromcollege, land a well-paying corporate job, andmove up the ranks in the company until it wastime to retire. Those were the days .Today, people are graduating and landingcorporate jobs, but they’re finding themselvesout of that job 4 years later. (According to theBureau of Labor Statistics, the mediannumber of years that wage and salary workershad been with their current employer was 4.4.) Is it any wonder that we’re seeing moreand more people take a serious look at other career alternatives, including franchiseownership?What Is A Franchise?A franchise typically involves the granting by one party (a franchisor) to another party (afranchisee) the right to carry on a particular name or trade mark, according to anidentified system, usually within a territory or at a location, for an agreed upon term. Thefranchisee is granted a franchise license to use the franchise company’s trademarks,systems, signage, software, and other proprietary tools and systems in accordance withthe guidelines in the franchise contract.Not only must you run the business according to the operations manual and thefranchise contract, but you must pay them an upfront franchise fee (license fee), and5How to Select a Franchise

ongoing royalties. The average franchisee fee ranges from 25,000 - 35,000, althoughsome franchise fees can go well over 100,000, as in the case of what’s called a MasterFranchise. In a Master Franchise, like Jan-Pro Cleaning Systems, one buys the rights toan entire area, and it’s usually based on population.The royalties are usually based on a % of gross sales. Royalties range anywhere from4%, like over at Batteries Plus, a retail storefront type of franchise, all the way up to 9%as in the case of MRINetwork, an executive recruiting franchise. Some franchisors likeFantastic Sam’s, a hair salon franchise, charge a flat monthly royalty fee.In addition to royalties, franchisees usually pay into a national monthly advertising andmarketing fund, which amounts to 1-2% of gross sales.How Big Is Franchising, As An Industry?According to a report put out by the IFA (International Franchise Association),franchising is huge. As of 2005: There were 909,253 franchised business establishments in the United States. Franchised businesses provided more than 11 million jobs, or 8.1 percent of thenational private-sector workforce. Franchised businesses supplied an annual payroll of 278.6 billion, or 5.3 percent ofall private-sector payrolls in the United States. Franchised businesses produce goods and services worth 880.9 billion per year, or4.4 percent of private-sector output in the United States.(Go to the IFA website to see the full report.)Differences Between a Franchise Opportunity And a Business OpportunityThey’re both really “business opportunities.”A franchise business provides a detailed, step-by-step, business “blueprint.” There arevery specific rules that must be followed, including the use of approved signage, andmarketing materials, hours of operation, etc. Franchisors also provide ongoing supportto their franchisees. Franchising is also highly regulated, and there are a lot of thingsthat a franchisor must do to legally set it up.6How to Select a Franchise

A non-franchise business opportunity also provides a “blueprint,” but it’s usually notas detailed. There just aren’t as many rules, when compared to a franchise. The actualcontract that you’re given to review prior to signing a business opportunity type ofbusiness may be one to two pages in length. Franchise contracts are 20 to 40 pageslong.A good example of a business opportunity would be a mall kiosk type of business. Thekiosk owner is provides with a pre-packaged set-up including the actual kiosk, theinventory, and preferred methods to make sales. In addition, there are no ongoingroyalties, as with a franchise.Most of the time, pure business opportunities have a much lower investment than afranchise business. One reason for this is that once someone buys a businessopportunity, the support provided by the business opportunity seller is very limited inmost cases, as opposed to a franchisor, who must invest in an infrastructure that canhandle the ongoing needs and contractual obligations of its franchisees.7How to Select a Franchise

Pros and Cons of Buying a FranchiseAs with anything in life, there are pros and cons involved and it’s important toconsider every aspect of them. In this section, we’re going to take a look at thepros and cons of buying a franchise as a way of getting into your own business.So let’s get started.PROSOperating system:This is the system developed by the franchisorthat enables the business to be easily replicatedby franchisees. This includes standardoperating procedures and methods.By getting an already-established operating system, it means you don't have to startfrom a blank sheet of paper creating everything yourself for your business. When I thinkof “systems” I think of McDonald’s. They’re the franchise industry standard.Formal training program:Good franchisors provide good training to franchisees. This usually includes classroomstyle training at corporate headquarters. Franchisees are taught things like pre-openingprocedures, daily operations, marketing techniques, hiring practices, software use, andmore. There’s usually on-site training also, right at the new franchisee’s location.Read more about franchisee training at Entrepreneur.com.Specific marketing and advertising plan:Part of the general business plan, the franchisor will have a proven, detailed plan thatallows its franchisees to rapidly get to market with their products or services. Here’swhat a franchise marketing plan looks like, courtesy of the folks at Palo Alto Software.8How to Select a Franchise

One new trend in franchise marketing involves automated solutions that are designed tohelp franchisees at the local level. Companies like Balihoo are leading the way with thisnew technology.Product supply line / purchasing power:When the franchisor buys products that the franchisees will use or sell, there’s adiscount involved, because the franchisor is really purchasing these goods on behalfof a large number of franchisees. The franchisor has bulk buying power. This makes ittough for an independent business to compete on price with the franchisee. 7Eleven (over 36,000 stores worldwide) is one franchisor that does this quite well.Support staff:Usually based at the franchisor’s corporate headquarters, the support staff can helpfranchisees with whatever problems they are experiencing. These support areasinclude, marketing, technology, sales, real estate, and operations. Some franchisorshave field reps that go out to visit and assist franchisees at their locations.CONSRules:Part of the attraction of the franchise business model is of course, the system. For asystem to work properly and effectively, the users of the system must follow it closely.The franchise operations manual contains pages and pages of rules that franchisee’smust follow.For instance, if you’re a franchisee of Ace Hardware, there will be certain items thatyou must carry in your inventory. If you invest in a Seattle’s Best Coffee franchise,you’re going to have to be open certain days and times. You’ll also have to purchaseand use the technology that the franchisor has chosen. Everything that you’ll need willbe disclosed to you, before you sign the franchise contract.Complex legal documents:9How to Select a Franchise