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Questions to ask yourself before buying a franchise
What is franchising?
Franchising is a method of distributing products or services through a proven concept. An initial investment is required of the franchisee paid to the franchisor, who grants the franchisee the right to utilize his trademarks and trade name within a specific territory.
Is franchising right for me?
If you desire to own your own business and to be your own boss, franchising may be right for you. The concept of franchising offers individuals the ability to be in business for themselves, not by themselves. To thrive in a franchise, you will follow a proven concept and program. You don’t have to reinvent the wheel! Franchisors have established standards and rules; so before you invest, be sure that you understand the franchise model, and that it is one you agree with.
What should I consider before buying a franchise?
A franchise is already a functioning business system. Most importantly, it provides you with brand recognition. As a franchisee you step into an established concept.
There are a number of items to consider:
- What business experience is required?
- Do I understand the business concept?
- What is the franchisor’s track record?
- How are the other franchisees in the same system doing?
- What is the total investment to get into the franchise?
- What territorial or other boundaries are defined for your franchises?
- How long have these programs been in place, and how successful have they been?
- What is the advertising plan, how are the advertising dollars being used, and how much is allocated to your market?
Are there attorneys who specialize in franchising?
Yes, you can start by checking with your state bar association. Many state bar associations allow members to identify the areas of practice in which they specialize. Franchise or distribution law is a recognized specialty in an increasing number of states.
Are there tax benefits involving franchise fees and royalty payments?
Yes, new tax laws provide considerable benefits for franchisees. Contact us for more information.
What is a Uniform Franchise Offering Circular (UFOC)?
This is the document supplied by the franchisor to prospective franchisees that describes in detail the franchise offering. It should be the point of the initial review of the franchise. Legally, it supersedes anything that is printed or said by other franchise literature and sales persons representing the franchisor. In other words, it the sales person tells you one thing and the UFOC tells you something different, the UFOC rules. It is a good idea to get legal assistance in understanding and interpreting the UFOC.
Who should I contact to learn about a particular franchise?
You can talk to anyone who knows something about the franchise opportunity including; present franchise owners, past owners, the franchise company, representatives, and professional advisors such as CPA’s and attorneys.
Some other general questions to ask yourself:
- How much money can I comfortably invest in a franchise?
- Would I really like to have my own franchise/business?
- How long can I manage without an income?
- Do I have a strong support system?
- Do I like to sell and market?
- Do I have the necessary skills to employ/manage people?
- What reservations do I have about becoming a franchisee?
- Can I sell my franchise?
- Have I met with an accountant who understands franchising?
- Why would I invest in these franchises as opposed to starting a similar business myself?
- How does the management staff of the franchise opportunity view the future of the company? Do I agree with their view?
- How much training do I get when I invest in the franchise? Do I think I’ll need more training? How would I get additional training? Am I confident about the training the franchisor provides? Who will conduct the training classes? Where is the training conducted? What additional expenses will I incur for training?
- After I become a franchisee, what additional support will be available? Will this support result in additional fees? How is support provided- By phone, in person, via the Internet? Will I get an Operations Manual? How thorough is it? How often is it updated? Are the updates available on-line?
- How good are the company's services?
- Am I confident with the leadership of the franchise company?
- How confident do I feel with the training and support staff of the franchise company?
- Who is responsible for advertising and promoting the company’s products and services?
- Is there a national advertising fund? If so, how much will I need to contribute? How is that money used?
- Do I have the right background to become a franchisee with this company?
- Can I see myself operating this business for the next 10 to 30 years?
- Am I allowed to be an absentee owner?
- Is the franchise agreement fair?
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Who should franchise? There are many misconceptions.
Myth #1: Most franchises are giant companies.
Everyone has heard of the franchise giants: McDonald’s, Holiday Inn, Century 21, and H&R Block. Yet franchising is by and large the province of small and medium-size companies. Fully 70% of all franchises have between 1 and 50 locations. (see chart) Another 25% have between 51 and 100 locations. Only 5% have more than 500 locations.
Myth #2: All franchises are started by small businesses.
All of the franchise giants mentioned above were founded by entrepreneurs. Even today, most new franchises are launched by independent entrepreneurs who own from one to a dozen outlets. Yet, in recent years, more and more large corporations are making use of franchising as well. Kyrstal Hamburgers had 256 units when they launched their franchise program in 1989. Valvoline Oil Company was a nationally-known brand with almost 200 fast-lube facilities, when it began franchising Valvoline Instant Oil Change.
Myth #3: Franchising is limited to businesses of certain types or certain characteristics.
Easy-to-operate businesses in the fast food or automotive field used to be the well-known formula for successful franchising. Today, the scope of franchising is almost as broad as business itself. Manufacturers are franchising. Wholesalers are franchising. Professionals are franchising. Service businesses are franchising. And today, sophisticated franchisees are running some very complicated businesses, such as grocery stores, banks, hotels, and medical clinics.
As knowledge about franchising grows, ruling out franchising, based upon pre-set notions, becomes less appropriate. Each case must be looked at individually. Business characteristics, competition, resources, goals, and many other factors should be examined before a final decision on whether to franchise or how to franchise is made.
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After four decades of explosive growth, franchising is still gaining momentum!
The phenomenal growth of franchising continues.
 Franchising soared in the ’60s, ‘70s, and ‘80s. Even in the wake of a severe recession, franchised businesses in the U.S. grew by 8.3% in 1993 and by 12.9% in 1994. Today, franchising accounts for an estimated 40% of all retail sales in the U.S. The Naisbitt Group has predicted that by the year 2000 franchising will account for half of all retail sales.
Franchising is the one distribution system that emphasizes individual ownership, the foundation of any free economy.
Franchising not only fosters entrepreneurship, it provides a system by which the entrepreneur is nourished, encouraged, and supported during the early period when so many new businesses fail. No wonder people with money to invest in their own businesses see in franchising the safety net they so badly want and need.
Franchised businesses are tough competitors.
The surge in franchising has paralleled a loss of market share by many large retailers. One reason is that franchised businesses have improved upon services these giants once offered. Another is that outlets operated by franchisees typically outperform outlets operated by employee managers.
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Franchising offers growing businesses solutions to the problems of money, people and time.
Growth of McDonald’s (franchised and company-owned) and
White Castle (company-owned only) in numbers of locations.
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Why buy a franchise?
The International Franchise Association in Washington D.C states that franchises accounted for 40% of all retail sales in the year 2000. That astounding figure meant over $1 trillion in revenue. That year there were 320,000 franchises operating worldwide in 75 countries, employing over 8 million people.
 Today, every 8 minutes, a new franchisee is hosting its grand opening somewhere in America. Of all retail businesses opening their doors, 1 in 12 is a new franchise.
75% of all franchises are earning revenues of over $500,000 per year — some as much as $3,000,000 (the top 1%). The IFA also tells us that 36% of all franchisees have net incomes of over $400,000.
Why buy a franchise? The short answer is that investing in a franchise helps you achieve success and helps to avoid failure. A large majority of people who put their hard earned money into a new business are likely to fail. Those who invest in a franchise are vastly more likely to be successful.
Franchisors have the experience and knowledge of running their own businesses. They have made the major mistakes on your behalf, and can help you to avoid taking wrong directions and committing those same expensive mistakes. With a franchise, you get the opportunity to be in business for yourself, but you don’t have to do it by yourself. You are on your own, but you are not alone.
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Why buy a private investigation franchise?
You can be an important part of a billion dollar industry, and a very important part of our national effort to create a network of independently operated agencies that work together as a recognized and highly respected team of investigative offices.
Owning a professionally operated private investigative agency truly allows you to be your own boss, to take pride in your work, and to reap the harvest that you sow for yourself. But — you don't have to do it alone.
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