A BRIEF INTRODUCTION TO THE FRANCHISE INDUSTRY

Benefits of a Franchise:

A franchise allows the franchisee to be in business for himself without being by himself. A recent study by a national accounting firm showed that out of a random 366 franchise companies, nearly 97% were still in business after 5 years. It is important to remember that in spite of these statistics, no franchise company can guarantee your success.

Important consideration – franchise operations require compliance:

It is important to realize that a person buying a franchise is investing in a business and needs to have the spirit of an entrepreneur, but at the same time, be willing to follow the well defined procedures set forth by the franchise company. Not being able to comply with strict operating criteria can quickly harm the relationship between the franchisor and franchisee.

Financing a franchise business:

Traditionally it is easier to obtain third party financing for a franchise than it is for an independent start-up business.  This is due to the proven success rate franchises have as compared to start-up businesses.

A good franchise company should provide the franchisee with the following:

1) A proven business product or service.

2) Proven systems and procedures to operate and manage the business.

3) Organizational assistance, including site selection, construction plans, start-up assistance and possibly financing.

4) Ongoing Support.

5) Name Recognition - with advertising and promotion programs.

6) Unique and proprietary products or services that are not easily duplicated.

          

Evaluating a franchise - there are many items to consider, but the initial questions should be:

When was the first business operation established? 

When did the company start franchising?

How many company owned locations are there?

Is the franchisor earning money from selling franchises or through royalty payments?

(Earning money through royalty payments indicates successful franchise operations.)

           

Franchise Facts:

● There are approximately 1,500 franchise companies in the U.S.

● One out of every 12 businesses in the U.S. is a franchise. (About 320,000 units)

● 41% of all retail sales come from franchise businesses.

● Franchises businesses collectively generate more than $1 trillion in annual sales.

● Americans spend more on fast foods than on movies, books, magazines, newspapers, videos, and recorded music - combined.

        

Franchise Regulations:

The federal government, through the Federal Trade Commission, regulates the industry and requires franchisors to provide a Uniform Franchise Offering (UFOC) to prospective investors. The UFCO is a disclosure report that addresses 21 specific areas pertaining to the franchisor and its franchisees. The franchisors must also register separately with state agencies in each state where they wish to sell franchises.

Buy two franchises and double your profits:

It does not generally work like that. It could, but usually does not.  One operation can be very profitable, but the owner is usually the operator or at least actively involved in the management. The second operation requires the owner to divide his involvement and usually requires the hiring of an additional manager to replace the owner’s presence. Until there are additional operations to justify the added manager, profits per location usually decline.

Capitol Business Consultants can assist those interested in franchises in a variety of ways and at no cost to the prospective buyers:

The franchise industry is highly regulated and franchise companies will pay a fee to a business consultant / broker that introduces a prospective buyer.  The franchise company cannot charge the franchisee more if they use a consultant / broker and if they do not, the franchisor simply retains this fee.

Individuals interested in learning more about franchises should complete the Buyer Profile for Franchises.  Someone will contact you to assist you in your search and answer all your questions.