The Unofficial Guide to Opening a Franchise potx

...3 Reviewing a brief history of franchising ...5 Understanding how franchises work ...5 Determining whether you’re a good fit for a franchise ...6 Discovering the biggest misconception

to

Opening a Franchise

to

Opening a Franchise

Jason R Rich

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I wish you all the best of luck in your endeavors

First, I’d like to thank Pam Mourouzis at Wiley Publishing

for inviting me to work on this project I am proud to be

able to contribute my fourth book to the Unofficial Guides

series Also, thanks to Tere Stouffer, my editor on this project,for all of her hard work and dedication

I’d also like to thank all of the franchising experts whom Ihad the opportunity to interview as I was writing this book I amgrateful for all of their support on this project

On a personal note, thanks to my closest and dearest friends,Mark and Ellen, as well as Sandy, Emily, and Ryan I’d also like

to give a shout out to my puppy Rusty (www.MyPalRusty.com)

As always, my thoughts and best wishes go out to Ferras

vii

About the Author xii

Introduction xiii

I Franchising Basics 1

1 What’s a Franchise, Anyway? 3

Reviewing a brief history of franchising 5

Understanding how franchises work 5

Determining whether you’re a good fit for a franchise 6

Discovering the biggest misconceptions about franchises 9

Recognizing the differences between a franchise and a traditional business 12

Choosing the best franchise for you 15

Just the facts 19

2 Are You Franchisee Material? 21

Do you have what it takes to be a successful franchisee? 22

What to expect from the experience 31

Just the facts 38

3 Choosing the Right Franchise for You 39

Defining your short-term and long-term goals 40

Considering your interests 59

Researching franchise opportunities 61

Preparing for your new life as a franchisee 67

Just the facts 68

4 Franchise Opportunities 69

The latest franchising trends 70

How to learn more 74

A sampling of twenty franchise opportunities 75

Entrepreneurmagazine’s top twenty-five franchises for 2006 95

Just the facts 97

II Before You Open Your Doors 99

5 Lining Up Your Finances 101

Analyzing whether you’re creditworthy 101

Developing a detailed business plan 105

Calculating the total capital needed 106

Financing options for franchisees 111

Keeping the books 117

Just the facts 117

6 Legal Issues Relating to Your Franchise 119

Why you need a franchise attorney 120

Preliminary questions to ask a franchise attorney 122

Understanding the UFOC 124

Making sense of your Franchise Agreement 127

Other legal matters you’ll need to deal with 128

Just the facts 130

7 Choosing Your Location 131

There are many types of locations 132

Analyze your customer base again! 141

Determine whether your targeted customer base is large enough .142

Figuring out your real estate needs 142

Key points to consider when choosing a location 144

Strategies for negotiating your lease 147

The next step: construction 149

Just the facts 151

8 The Training You’ll Need 153

Training basics 153

The training you can expect from your franchisor 155

Take advantage of all learning opportunities available 161

Rounding out your business education 163

Passing on your knowledge to employees 164

Just the facts 164

III Getting Ready for Opening Day 167

9 Hiring and Managing Your Employees 169

Defining your staffing needs 170

Create job titles and descriptions, and then set expectations 171

How and where to find the best employees 172

Having applicants complete a job application 176

The art of interviewing job applicants 177

Hiring employees you can trust 182

Managing your employees 183

Creating an employee manual 184

Rewarding your employees 184

Setting salaries, benefits, and bonuses 186

Dealing with common staffing problems 187

Firing bad employees 187

Just the facts 188

10 Seeking Business Help from Professionals 191

What constitutes an expert? 192

Determining what types of experts your business could benefit from 194

Steps for finding and hiring the best experts .204

Obtaining the additional training and education you need 206

Just the facts 207

11 Working with Suppliers and Vendors 209

Understanding the jargon 210

Following the rules and guidelines of your franchisor 211

Selecting vendors 213

Establishing credit with your vendors 216

Inventory-management techniques 217

Just the facts 218

12 Marketing Your Business Locally 221

Defining marketing, advertising, and PR 222

Promoting and advertising your business .224

Creating an overall plan that works 226

What is marketing? 231

What is public relations? 233

What is advertising? 240

Why becoming active in your community is important 244

Focus on always providing top-notch customer service 245

Planning your opening-day events 248

Just the facts 248

IV Gathering Expert Advice 251

13 Getting Insight from Franchising Experts 253

Lawrence J “Doc” Cohen, CFE 254

Tom Buxton 265

William Killion 270

Just the facts 275

14 Successful Franchisors Reveal Their Secrets for Success 277

Lynette McKee 279

Stuart Mathis 287

Jeff Schenck 293

Joy Flora 297

Don Slifer 297

Ken Sully 305

Amy Nichols 312

Just the facts 319

15 Advice Directly from Franchisees 321

Joy Hofmeister 322

Tom Kilkelly 331

Just the facts 337

V Appendixes 339

A Franchising Glossary 341

B Franchise Directory 349

Top ten low-cost franchises 352

Top ten new franchises 353

C Recommended Reading and Other Resources 355

Web sites 355

Magazines 356

Trade journals and directories 357

Other 358

Index 359

Jason R Rich (www.JasonRich.com) is the bestselling

author of more than 35 books, including The Unofficial

Guide to Starting a Business Online (1st and 2nd Editions).

He has also written a wide range of other books, including

Pampering Your Pooch: Discover What Your Dog Wants, Needs and Loves (Howell Book House) and Self-Publishing For Dummies

(Wiley)

For Entrepreneur Press, he is the series editor and author of

Entrepreneur magazine’s Personal Finance Pocket Guides, as well as Entrepreneur magazine’s Business Traveler book series

We’ve all heard inspirational stories about

people who quit their grueling, dead-end,unrewarding 9-to-5 jobs in order to pursuetheir dreams of starting a small business Pursuingthis career path requires an incredible amount ofcourage, the need to take significant risks, and acommitment of time, hard work, and relentless dedi-cation If you think you have what it takes, keep reading!

If you look at statistics, only a small percentage ofstart-up businesses actually achieve success, andthat’s for a wide range of reasons One way toincrease your chances of success as a small businessoperator is to become a franchisee As you discoverfrom this book, franchisees benefit from being able

to follow a proven system for success and can alsotake full advantage of the company and brand-namerecognition of their franchisor

No matter where you travel throughout theUnited States (and in many other parts of theworld), franchised-based businesses have becomecommonplace In this book, you learn all about what

it takes to become successful, no matter what type offranchised-based business opportunity you choose topursue—and there are literally thousands to choosefrom

What you’ll also learn is that opening a franchise can give you

a significant edge as a small business operator Aligning yourselfwith even the best franchisor is definitely not, however, a guar-antee of success Contrary to popular belief, in almost all cases,

becoming a franchisee does not provide a get-rich-quick business

opportunity either (Anyone who says it does is lying!) So, ifyou’re looking for a quick and easy way to become a millionairewithout having to work really hard, go buy lottery tickets

If, however, you’re willing to make the necessary financialinvestment, put a lot of hard work, time, and dedication intoyour business, and follow the franchise system you choose topursue, your chances of success increase dramatically For manypeople, becoming a franchisee and operating a franchise-basedbusiness allows them to pursue their dreams, achieve financialindependence, and lead extremely happy and rewarding pro-fessional lives

The Unofficial Guide to Opening a Franchise is jam-packed with

useful information to help you become a successful franchisee.You’ll also have the opportunity to learn from several franchis-ing experts through in-depth interviews If you’re interested inbecoming a franchisee, this book is an extremely valuableresource in helping you get started in a fast, efficient, and cost-effective way It also helps you avoid many common mistakesmade by first-time franchisees

Once you become a franchisee, you’ll be embarking on anexciting, potentially profitable business venture—that is, ifyou’re willing to do the necessary work By reading this book,you’ll be able to overcome many of the common misconcep-tions people have about franchising and learn exactly what it’lltake for you to get started, and then achieve your goals

As you embark on your quest to become a franchisee, I inviteyou to share your experiences with me by sending me an e-mail(jr7777@aol.com) or by visiting my Web site at www.JasonRich.com Best of luck on your endeavors!

Special features

Every book in the Unofficial Guide series offers the followingfour special sidebars, which are devised to help you get thingsdone cheaply, efficiently, and intelligently

■ Watch Out!:Cautions and warnings to help you avoid

common pitfalls

■ Moneysaver: Tips and shortcuts that help you save money

■ Bright Idea: Smart or innovative ways to do something; inmany cases, the ideas listed here will help you save time orhassle

■ Quote: Anecdotes from real people who are willing to

share their experiences and insights

We also recognize your need to have quick information atyour fingertips and have provided the following comprehensivesections at the back of this book:

■ Franchise glossary:Definitions of complicated terminologyand jargon

■ Franchise directory:Lists of the top franchises in the

United States

■ Recommended reading and other resources:Lists of vant agencies, Web sites, books, and magazines that canhelp you get more in-depth information on related topics

rele-■ Index

PART I

Franchising Basics

Chapter 1

3

G E T T H E S C O O P O N .

What a franchise is and why you might want to

operate one ■ The history of franchising ■ The

types of franchising opportunities available ■ The

benefits and drawbacks of operating a franchise

What’s a Franchise,

Anyway?

The American dream for many businesspeople

and entrepreneurs involves launching a ness that achieves an impressive level of success,provides at least some level of financial security, andallows them to become their own bosses The goal ofmost business owners is to have independence,retain control over their professional futures, and beable to reap the financial benefits of their businessventures

busi-Launching a start-up business takes a dous amount of time, knowledge, capital, and busi-ness savvy The business owner must simultaneously

tremen-be able to handle a wide range of responsibilitiesand make many important decisions Even for anexperienced businessperson, owning and operating

a business venture can be extremely risky The fear

of failure, inadequate capital, and/or a lack of corebusiness knowledge often keep people from achiev-ing their professional goals, especially when launch-ing a successful business

To help eliminate fear, reduce the risk of failure, and vide the training that entrepreneurs need to successfully launchtheir businesses, one option is to operate a franchise One ofthe benefits of operating a franchise is that most franchisees(that’s you) are provided with a proven roadmap for how tooperate the business, along with all the training needed to makethe business successful.

pro-A franchise is a proven business model developed by the

fran-chisor (the company that has created the business and is making

it available to franchisees through a Franchising Agreement),which allows the franchisee to utilize its established trademarks,proprietary business plan, and methods of doing business, inexchange for a recurring payment, which often involves a per-centage of gross sales or gross profits, along with an annual fee.The franchisor usually provides its franchisees with training, aproven business model, a well known and well established brandname, and a wide range of other tools and resources to helpensure success This support greatly reduces the time needed toopen a business, and it eliminates the need to do a lot of pre-liminary research, like lining up suppliers, for example InChapter 2, you find out more about what you (as a franchisee)can and should expect from the franchisor you choose to workwith The support provided varies greatly, based on the type offranchise opportunity you’re pursuing

Watch Out!

An advertised “business opportunity” can be very different than a legitimate franchise opportunity Multi-level marketing companies, opportunities in which you pay a lump sum for the rights to operate some type of business (such as a vending machines business), and even pyramid schemes (which are illegal) are considered business opportunities, not franchise opportunities If the opportunity you’re being offered involves selling other people that same business opportunity (in addition to, or instead of, selling the company’s pri- mary products or services), this is probably a multi-level marketing operation, not a legitimate franchise opportunity Virtually all reputable franchisors are registered with the International Franchise Association (IFA)

Reviewing a brief history of franchising

Although the concept of franchising as a business model hasbeen around since the 1850s, it wasn’t until the 1930s that itbecome commonplace in America, thanks to franchise-basedrestaurants like Howard Johnson’s By the mid-1950s, with theproliferation of fast-food establishments like McDonalds, fran-chising became extremely popular and continues to grow to this day

In fact, McDonald’s now has over 2,400 individiual chisees (owners/operators) in the United States, and they col-lectively operate over 13,000 retaurants But franchising isn’tlimited to fast food Today, franchise opportunities are available

fran-in virtually every fran-industry How to choose the right opportunitygiven your personal and financial situation, is explored inChapter 3

Understanding how franchises work

A franchise opportunity is a formal business relationship between

the franchisor and the franchisee The franchise itself is anestablished business that has a name, along with products or serv-ices that it sells using a business model that’s proven to be suc-cessful The franchise follows an established method of doingbusiness that often utilizes proprietary business models, prac-tices, tools, and/or resources, including trademarks (such as awell known brand name and logo), all of which have allowedthe business to achieve success and consumer recognition The franchisor and franchisee engage in an ongoing busi-ness relationship The franchisee is typically the proprietor ofhis or her own business However, the way in which the fran-chisee operates the business is often overseen and somewhatcontrolled by the franchisor The franchisor provides the prod-uct(s) or service(s), or at least lines up suppliers and providesthe entire system for operating that business How the fran-chisee/franchisor relationship takes shape varies greatly,depending on the franchisor and type of business

In exchange for the services, tools, and resources provided

by the franchisor, the franchisee pays a variety of different fees.These are explained in greater detail in Chapter 3

Determining whether you’re a good fit for a franchise

People who own and operate franchises come from all walks oflife Franchise owners and operators in the United States andthroughout the world include

■ Businesspeople with an entrepreneurial spirit

■ Homemakers and single mothers looking to break into thebusiness world

■ Retired people looking for a new source of income

■ Married couples wanting more financial independence

■ Working people looking to make a career change

■ Recent graduates looking to launch their careers but also

be self-employed

Chapter 2 focuses on what it takes to become a franchiseowner and operator, in terms of the necessary business-relatedexperience, training, and finances It’s important to understandright from the start, however, that the most successful fran-chisees all have several similarities, including the following

■ They’re extremely excited and dedicated to the businessopportunities they choose to pursue

■ They’re willing to work hard and take on a tremendousamount of responsibility to operate their businesses

Moneysaver

A growing number of franchise-based businesses are owned and operated by veterans As you learn in Chapter 5, special financing opportunities are avail- able to veterans through the International Franchise Association’s Vet-Fran program (www.franchise.org), as well as the U.S Department of Veterans Affairs (www.vetbiz.gov)

■ They’re willing to participate in training and education grams in order to obtain the business knowledge and skillsneeded to manage their businesses, while following the

pro-mandates and business practices outlined by the franchisor

■ They’re willing to make an often significant financial

investment in their businesses using savings, investments, asecond mortgage on their homes, or a variety of differenttypes of small business loans

■ They’re able to work well with and develop ongoing positiverelationships with the franchisor and suppliers/distributors,

as well as with their own employees, customers, and the

other vendors they need to do business on an ongoing basis

■ They’re able to juggle a wide range of responsibilities

simultaneously and are willing to dedicate the time sary to meet those responsibilities, even when it requiresworking well beyond a traditional forty-hour work week

neces-If you believe you’re able to meet these demands, the nextstep is to ensure you go into this new business venture with all

of the resources you need at your disposal Although you cantypically assume the franchisor will provide training, few offerthe core business education you’ll probably need to successfullyoperate any type of business Thus, in addition to the special-ized skills and knowledge needed to operate the specific type ofbusiness, it also becomes your responsibility to learn a widerange of core business-related skills, including the following

■ Accounting, bookkeeping, recordkeeping, and money

management

■ Hiring, training, and managing employees

■ Marketing, advertising, and public relations

■ Developing and implementing top-notch customer service

■ Inventory management (if applicable)

■ Basic computer skills

■ Time management and scheduling

These skills can be obtained by participating in college-levelcourses or adult education programs, or they can be self-taughtusing books and other training materials Having these skillsbefore you attempt to start operating your own business defi-nitely gives you an advantage and helps guarantee your success.Having a core business knowledge can also keep you from mak-ing common, yet costly mistakes.

Is it necessary to have graduated from an Ivy League lege and have years of business experience under your belt inorder to be a successful franchise owner and operator? In mostcases, it’s not However, keep in mind that the core businessknowledge your franchise will require varies greatly based onthe type of opportunity you choose to pursue By doingresearch about the specific franchise opportunity, the fran-chisor, and the industry you plan to work in, you should beable to develop a good assessment of what will be required ofyou, and then do what’s necessary to acquire the necessaryknowledge and skills

col-Bright Idea

If you don’t have the core business knowledge you determine will be required

to successfully operate the type of franchise-based business opportunity you want to pursue, you have a couple of options You can participate in college- level courses and other training programs, or you can take on a business part- ner who possesses the knowledge, skills, and experience you lack.

Watch Out!

One way to develop specific types of skills and knowledge is to first become

an employee for another franchisee in order to learn the business and gain valuable experience After you’ve mastered the core skills you’ll need to own and operate your own franchise, you can then take the next steps toward becoming a business owner Never rush into a situation or take on responsi- bilities and financial obligations you’re not fully prepared for.

Discovering the biggest misconceptions about franchises

Almost anyplace in the United States that you travel (and inmany parts of the world, for that matter), you’ll encountercountless franchise-based businesses They’re everywhere! Withthese businesses so prevalent in our everyday lives, it’s easy tojump to the conclusion that they’re extremely profitable, easy tooperate, and guaranteed to be successful That’s not always thecase This section focuses on clearing up some of the most com-mon misconceptions people have about franchises

It’s a get-rich-quick scenario

Despite what you’re told by franchisors or other sources,

own-ing and operatown-ing any type of franchise is never a get-rich-quick

opportunity You will not be able to simply make an initialinvestment to open the business, hire a bunch of minimum-wage employees to operate it on your behalf, and then become

an absentee owner who enjoys the good life lounging on abeach somewhere Some franchise owners are able to achievethis lifestyle, but only after successfully managing, building up,and expanding their businesses over many years If this is yourobjective, think of it as a long-term goal, not a short-term one.The vast majority of franchise owners and operators are mar-ried to their work, especially during the first few months oryears, until their businesses becomes profitable Not only willoperating a successful business require a significant financialinvestment, but it will also require you to dedicate a tremendousamount of time and effort to your business on an ongoing basis.When almost any type of problem arises, it will be your respon-sibility, day or night, to pinpoint the problem and achieve a res-olution,

Even the best-known and most successful types of franchisesrequire time, dedication, and a financial commitment In fact,even if you do absolutely everything correctly—have enough

financial capital on hand to launch your business, possess thecore business knowledge and experience needed, and are sell-ing a product or service that people in your geographic areawant or need—don’t expect to start generating huge profitsovernight It realistically takes months or years before your busi-ness becomes profitable, so plan accordingly It’ll ultimately beyour responsibility to develop an operating budget for yourbusiness and make sure you have the financial resources neces-sary to sustain the business until it becomes profitable.

Good employees are a dime a dozen

Another common misconception is that finding, hiring, ing, and managing reliable, dedicated, trustworthy, hard-work-ing, and customer-service-oriented employees (who will mostlikely be crucial for the successful day-to-day operation of yourbusiness) will be easy Chances are, it won’t be easy and couldbecome one of the biggest ongoing challenges you face as abusiness owner See Chapter 9 for more on hiring employees

train-Location doesn’t matter

Yet another misconception is that location doesn’t matter.Although a franchisor might offer assistance in choosing a loca-tion or site for your business, it’s ultimately your responsibility

to become extremely familiar with the area and ascertain foryourself whether the location where you plan to open your busi-ness is suitable The location should be easily accessible and

Bright Idea

Don’t just assume that if you build it, they will come Just because a chise opportunity has been successful in certain geographic areas doesn’t guarantee success for the location where you choose to open your business It’s important to determine exactly who your target customers will be, and then determine whether an adequate customer base exists in the area where you plan to open your business From a marketing, advertising, and promo- tional standpoint, you need to have a detailed plan in place to attract local customers to your business

fran-ideal for the type of business you’re opening, plenty of parkingshould be available for customers, and the building or officemust be adequate in terms of layout and size to meet yourneeds Chapter 7 focuses on choosing a suitable location foryour business

You don’t have to market your business

Although you can rely on the brand name and reputation of thefranchise to initially attract some customers, and also expectthat you’ll benefit from the regional or national advertisingdone by the franchisor, you will ultimately need to handle mar-keting, advertising, and promotions on a local level for yourbusiness This will become another of your important and ongo-ing responsibilities as a business owner/franchisee See Chapter

12 for details

Success is guaranteed

Finally, don’t assume that just because you’re buying into anestablished franchise, your business will automatically becomesuccessful Throughout this book, you’ll read about “franchiseopportunities,” not “franchise guarantees.” As you start evaluat-ing opportunities, you’ll realize that not every available fran-chise represents a viable business venture Your own experience,knowledge, the geographic area, the local economy, your avail-able finances (start-up capital), the type(s) of products or ser-vices you’ll be offering, who your customer base will be, thequality of training you’ll receive from the franchisor, and theoverall business plan and methodology offered by the fran-chisor all play vital roles in your potential for success

After deciding on the type of franchise you’d like to open,one of the first steps is to develop a comprehensive businessplan By creating such a plan, you’ll more easily be able to iden-tify your proposed business’s strengths and what pitfalls you’relikely to encounter Chapter 5 will help you create a detailedbusiness plan

Recognizing the differences between a franchise and a traditional business

When you decide to launch your own business, you becomeyour own boss This means that you take ultimate control overyour professional and financial future If you open a traditionalmom-and-pop business, it becomes your sole responsibility toplan and then manage all aspects of the business, with little or

no outside support or guidance You need to develop your ownbusiness plan; find your own location; handle all your own mar-keting, advertising, and promotions; train yourself and youremployees; manage your own finances; establish relationshipswith distributors and supplies; and establish your company’sreputation in the community in order to build awareness andcustomer loyalty

The benefit to owning and operating a franchise is that some(although not all) of the preliminary research and planning isdone for you As a franchisee, you’ll be starting off with a busi-ness model and plan that has already proven itself to be viable.You’ll also be offered training and ongoing support, have access

to suppliers and distributors (if applicable), and be able to talize on the name recognition and logo(s) of the franchise.Although a potential customer probably has no clue what toexpect from Joe’s Burgers or Joe’s Sub Shop, virtually everyone in

capi-Watch Out!

The sales pitch you receive from a franchisor will almost always provide you with the best-case scenario in terms of the opportunity’s profit potential Instead of relying exclusively on what the franchisor has to say, talk directly

to several existing franchisees It’s important to develop realistic expectations about potential earnings and profit projections right from the start This will help you plan your finances accordingly and predict how long it’ll take to recoup your initial investment and begin generating a profit Remember, if what you’re being told sounds too good to be true, it probably is! Even the most carefully calculated projections are seldom totally accurate, so plan accordingly.

America knows when to expect when they step into a McDonald’srestaurant or Subway sandwich shop Whether you walk into aMcDonald’s in New York City or Houston, Texas, your experience

as a customer will be virtually identical This consistency is haps one of the biggest benefits of operating a franchise

per-One potential drawback to operating a franchise (asopposed to an independent, stand-alone business) is that youmust adhere to the guidelines and operating procedures out-lined by the franchisor, whether or not you agree with them.You must also pay the required franchisor fees on an ongoingbasis In some situations, these fees make sense In others, how-ever, like when the brand name isn’t well known and thenational or regional advertising isn’t helping your business,these ongoing fees may not make financial sense In Chapter 3,we’ll take a closer look at the fees associated with owning andoperating a franchise

Franchise opportunities vary greatly Some franchisors offersingle-unit business opportunities This means you (as the fran-chisee) obtain the right to open one single location or unit.There are also multi-unit franchise opportunities that allow you

to open several locations, often within a specific region or tory This means that as the franchisee, you’re given an exclusiveterritory or region Some well established franchisors look only

terri-Bright Idea

Every franchisor is required by the Federal Trade Commission to create and offer to prospective franchisees a detailed disclosure document This docu- ment must contain details about more than twenty different aspects of the business opportunity, including the history of the business, its current finan- cial statement(s), and the required fees and investment costs Earnings claims for potential franchisees may or may not be included Before pursuing any type of franchise opportunity, request a disclosure document from the fran- chisor and review it carefully Franchisors are also required to be registered with most of the states in which it plans on doing business and to adhere to local laws and government regulations in those states, both in regards to iranchisees and consumers.

for franchisees who will ultimately want and be able to open ple units within a predetermined time period

multi-In some situations, the franchisor might offer you what’s

often referred to as a Master Franchise This means that in

addi-tion to being the exclusive franchisee for a specific region orarea, you have the right to sub-franchise (sell additional fran-chises) to other prospective franchisees, and thus benefit finan-cially When opening up discussions with a potential franchisor,make sure you fully understand the business arrangement andthe type of franchise opportunity that’s being offered

As you begin negotiating with a potential franchisor, ously consider hiring a lawyer who specializing in franchising torepresent you (see more on lawyers in Chapter 10) Becoming

seri-a frseri-anchisee requires you to sign seri-a vseri-ariety of binding legseri-al ments and engage yourself in a potentially long-term businessrelationship with the franchisor It’s vital that you understandwhat you’re signing, know what you can expect from the fran-chisor, and understand what’s expected of you You can findreferrals for experienced attorneys who specialize in franchisingthrough the International Franchise Association (www.ifa.org)

docu-or through your state’s bar association Early on, develop a tionship with an attorney whom you can trust and who canguide you through the process of acquiring, opening, and thenmanaging a franchise-based business

rela-Moneysaver

To help match up qualified potential franchisees with established franchisors, independent consulting companies, such as FranChoice, Inc (800-678-2802; www.franchoice.com) exist Operated by franchising specialists, these firms spend time carefully evaluating potential franchisees and help to match them

up with suitable franchise opportunities In many cases, this service is paid for by the franchisor and is offered free of charge to potential franchisees looking to explore various business opportunities If you’re having trouble deciding what type of franchise opportunity to pursue or have questions you’d like answered by an independent third-party that is knowledgeable about franchising, utilizing one of these services is a smart decision.

Choosing the best franchise for you

What most people don’t realize is that there are literally sands of franchise opportunities available in America In fact,one out of every twelve businesses currently operating inAmerica is a franchise This translates to more than 550,000franchised businesses generating more than $900 billion inannual sales

thou-Although most people think of McDonald’s or DunkinDonuts when they hear the word “franchise,” there are morethan 3,000 different franchise opportunities available in morethan seventy-five industries, many of which go well beyond therealm of fast food Chapters 3 and 4 introduce you to many dif-ferent types of franchise opportunities

As a consumer, companies you see in your neighborhood or

at the mall and perhaps do business with on a daily basis mayactually be franchises For example, McDonald’s, The UPSStore, H&R Block Tax Services, Dunkin’ Donuts, Midas,General Nutrition Centers (GNC), Subway, 7 Eleven, Ramadahotels, 1-800-Flowers florists, Party America, ACE HardwareStores, FastFrame, Minuteman Press, Payless Car Rental,Kumon Learning Centers, Curves Fitness Centers, Mrs FieldsOriginal Cookies, Dairy Queen, Pizza Hut, KFC, Taco Bell,Supercuts, Merry Maids, Pearl Vision Centers, Fast Signs, andJenny Craig are a random selection of well known franchise-based businesses you’re probably already familiar with and thatmay already be present in your community

Ideally, what a franchise offers is the closest thing someonecan get to a complete turnkey solution for achieving successwhen operating a business For many people, opening a fran-chise is the added edge needed to become their own bosses andlaunch their own successful businesses, because much of thefear and some of the risk associated with this process is elimi-nated by the franchisor

Sorting through the opportunities

available today

As you can discover in Chapters 3 and 4, there are a wide range

of franchise-based business opportunities available that extendbeyond the fast food industry Before you start evaluating specificfranchise opportunities, it’s important to consider the following

■ Where your interests lie and what type of business you’reinterested in operating

■ What experience you already have that will prove beneficial

■ What your current financial and credit situation is like

■ What your long-term professional and financial goals areOnly by knowing this information can you accurately deter-mine which of the thousands of franchise opportunities arebest suited to meet your wants and needs Unless you haveaccess to hundreds of thousands of dollars to invest in yourbusiness (including funds available through loans) and stillmeet the prerequisites of the franchisor, chances are, opening

a McDonald’s or other high-profile and expensive franchiseisn’t a viable option Even if you have the investment capitalavailable, perhaps you have no interest in getting into the fast-food industry

Chapter 4 shares profiles of twenty franchises available inthe United States These profiles give you an overview of what’savailable, but it’s not a complete list of available opportunities.There are several comprehensive directories that profile hun-dreds or thousands of potential franchise opportunities, includ-ing the following

■ The Franchise Handbook:This is a quarterly publicationpublished by Enterprise Magazines, Inc., that’s distributedthrough newsstands nationwide For more information,point your Web browser to: www.franchisehandbook.com

■ Franchise Opportunities Guide:This is the official directorypublished by the International Franchise Association

(800-543-1038; www.franchise.org) Thousands of franchiseopportunities are profiled in each issue of this magazine,which is published semi-annually.

■ Entrepreneur Magazine’s Franchise 500:The publisher of

Entrepreneur magazine offers an online database profiling

the top 500 franchises in the United States To access thisWeb site, point your browser to:

www.entrepreneur.com/franzone/listings/fran500/

■ Entrepreneur Magazine’s Ultimate Book of Franchises:The

Publishers of Entrepreneur magazine publish this soft-cover

directory ($23.95) describing over 1,000 franchise tunities It’s available from bookstores everywhere or

oppor-online at www.EntrepreneurPress.com

Lining up your finances

The initial investment capital required to own and operate afranchise can be anywhere from a few thousand dollars to wellover $1 million, depending on the opportunity you pursue Insome cases, the franchisor will assist potential qualified fran-chisees in acquiring financing However, you’ll need to deter-mine in advance your net worth, your credit potential (based onyour credit rating and credit score), and the sources of financ-ing that may be available to you For first-time franchisees, somepotential sources of financial capital, which are described ingreater detail within Chapter 5, include the following

■ Personal savings and investments

■ Borrowing from friends and family members

■ Taking out a small business loan from a local bank or

credit union

■ Obtaining a second mortgage on your home

■ Working with outside investors or investment capital firms

■ Obtaining a loan from the U.S Small Business

Administration (SBA)

■ Obtaining direct financing from the franchisor

■ Utilizing government-supported programs available tominorities, veterans, and others who meet qualificationguidelines

Additional considerations as you get started

As you begin to evaluate various franchise opportunitiesdescribed in this book and elsewhere, focus on the following:

■ Whether you have any interest in working in the type ofbusiness and industry in which the franchise opportunity

is involved

■ The costs involved, including the franchise fees, alongwith the continuing royalty fees, advertising fees, andother expenses

■ The control you’ll have over your business versus the trol the franchisor maintains

con-■ Your ability to either terminate the relationship with thefranchisor or renew it

■ Whether or not you have the knowledge, experience, andskills necessary to successfully operate the business

■ Whether the franchise opportunity will ultimately allowyou to meet or surpass your long-term personal, profes-sional, and financial goals

■ Whether there’s a demand for the products and/or vices you’ll be offering after you open the franchise

ser-■ How much local competition you’ll have and whether ornot you’ll be able to effectively compete in your geo-graphic area

■ How much value the franchise’s name recognition,

logo(s), and consumer awareness is worth

■ The training and support offered by the franchisor

■ What similar opportunities are available from other franchisors

I delve deeper into each of these considerations, discuss whythey’re important, and offer advice on how to deal with themthroughout the rest of this book.

Just the facts

■ A franchise is a proven business model, developed by thefranchisor, that allows the franchisee to utilize its estab-lished trademarks, proprietary business plan, and operat-ing methods, in exchange for a recurring payment (whichoften involves a percentage of gross sales or gross profits,along with an annual fee) The franchisor potentially pro-vides its franchisees with training, a proven business

model, a well known and well established brand name,

and a wide range of other tools and resources to help

ensure success

■ There are more than 3,000 different franchise ties available in more than seventy-five industries, many ofwhich go well beyond the realm of fast food

opportuni-■ The franchisor and franchisee engage in an ongoing ness relationship The franchisee is typically the proprietor

busi-of his or her own business However, how the franchiseeoperates the business is often overseen and somewhat con-trolled by the franchisor

■ Franchisees come from all walks of life

■ Owning and operating a franchise-based business is rarely,

if ever, a get-rich-quick business opportunity for the chisee It can take months or years before you recoup yourinvestment and generate a profit

fran-■ Never assume that just because you’re buying into an

established franchise that your business will automaticallybecome successful Achieving success will require you toinvest a significant amount of time, hard work, dedication,and money

Chapter 2

21

G E T T H E S C O O P O N .

What will be required of you to become a

fran-chisee ■ The level of risk you’re willing to accept

■ What to expect from the franchise experience ■

The management and leadership skills you’ll

need to achieve success

Are You Franchisee

Material?

Regardless of what type of franchise

opportu-nity you ultimately choose to pursue, ing a franchise owner/operator is alife-changing decision and one that will require a sig-nificant commitment, investment, and risk-taking onyour part This chapter helps you determine whetheryou currently have the knowledge, skill set, experi-ence, mind set, and willingness to take on the manyvaried responsibilities of becoming your own boss,should you choose to pursue this type of businessventure

becom-Operating any type of business involves risk.Unless you’re willing to take on this risk and youhave all of the resources needed to successfully oper-ate your new business, don’t move forward Makesure you fully understand exactly what will berequired of you financially, as well as how much timeand effort will be needed to get your new businesslaunched, fully operational, and profitable Do you

understand the commitment you’re making to the franchisorand what ongoing fees you’ll be responsible for?

Also, make sure you have, or will be able to obtain, the business-related skills and knowledge you’ll need to achieve suc-cess, based on the specific type of franchise opportunity youchoose to pursue

Do you have what it takes to be a

successful franchisee?

Chapter 3 focuses on finding the type of franchise opportunityyou’re best suited for, based on your knowledge, skills, experi-ence, and financial resources In this section, however, I focus

on what becoming a franchise owner/operator will require ofyou personally Do you fit the personality profile of a typicalfranchisee? To find out, this section explores what the fran-chisee personality profile consists of

There’s a lot to think about before making the commitment

to become a franchisee To help determine whether you havewhat it takes, ask yourself these questions

■ Are you an independent self-starter looking to take morecontrol over your professional destiny?

■ Are you willing to make a long-term commitment to ing, managing, operating, and growing your business?

start-■ Do you have a support system in place to help you manageyour business and make important decisions? Family

Watch Out!

Becoming a franchisee is not a business decision to make impulsively, cially if it requires a significant financial investment that will involve you tak- ing out personally guaranteed loans, mortgaging your home, or putting yourself into serious debt Before committing, ask yourself the two following questions: If your business fails, do you run the risk of losing your home to foreclosure? Will you be able to deal with and recover from the negative financial ramifications if your business fails?

espe-members, mentors, and experienced businesspeople can

be part of your support system

■ Do you possess at least some core business-related edge, education, skills, and experience? Do you know thedifference, for example, between accounts payable andaccounts receivable?

knowl-■ In addition to the knowledge you already possess, are youwilling to learn new skills, develop operating proceduresfor your business, and adopt the strategies outlined by thefranchisor?

■ Do you have enough of a cash reserve to launch your ness, and then support yourself, your business, and yourfamily until the business becomes profitable? Can you suc-cessfully operate the business without putting yourself andfamily in financial jeopardy if the business isn’t immedi-ately profitable?

busi-■ Do you have the personality to be the boss and properlymanage your employees, while at the same time, acceptmandatory direction from the franchisor?

■ Will you be truly passionate about your business? Will you

be willing to make sacrifices in order to make it successful?

In addition to financial sacrifices, will you be willing to

work nights, weekends, and holidays? Will you forego tions and time off in order to meet your responsibilities as

vaca-a business owner? If you’re willing to work only vaca-a stvaca-andvaca-ardforty-hour work week (five days per week, eight hours perday), you’re probably not cut out for this type of businessventure

■ Depending on the type of business you plan to operate,will you be comfortable and successful working directlywith customers and clients? Will you be able to manageand grow relationships with employees, suppliers, distribu-tors, and representatives of the franchisor?