Fast Facts:
By investing in a franchise you are buying a proven business system with the right
to sell a franchisor’s products and/or services, and to use the franchisor's trade
name and trademark in a particular location for a specified period of time.
So in essence, it’s not just the name you are buying, but a complete business system and philosophy.
U.S.A. is the largest franchise industry in the world with over 6,000 franchise
companies
Approximately one out of every 12 businesses in the U.S. is a franchise business
There are over 750,000 franchised businesses across the country
Franchise businesses employ more than 14 million Americans a year
Over 80% of all franchises started in the past 6 years are still in operation
under the same ownership, while 80% of private businesses fail in the first two
years
More than 75 industries use franchising as a means to distribute goods and services
A new American franchise business opens every 8 minutes of every business day
20% of franchises cost less than $50K
Nearly 50% of all retail business in the United States is done through franchises
Top franchise industry: Fast food
Top franchise company: McDonald’s
Tips:
1.
Although there is less inherent risk when buying a franchise then when going into
business independently, like everything else in life, there are no guarantees.
2.
Success begins with a thorough investigation of all business opportunities.
3.
Given the long-term investment of both time and money, it is crucial to identify
multiple opportunities before making any commitments.
4.
Take your time to find the best location before committing yourself.
5.
Choose the best location over cheaper rent.
6.
Study the locations of interest, the demographics, and spend a few hours each day
at the locations of interest.
7.
Be sure to analyze yourself and your motivations to understand which franchise opportunity
is the best fit for you.
8.
Business failures relating to franchise investments often occur if the business
is not managed properly, so if you have little management experience, consider enlisting
in a business management course.
9.
Contact and interview franchisees to determine if they are satisfied with the business
and the assistance provided by the Franchisor.
10.
Consult an attorney and accountant to help evaluate the business opportunity.
Checklist:
Questions to ask a Franchisor when researching a franchise
opportunity:
How long has the company been Franchising?
How many franchise locations does the Franchisor have?
Have any failed in the past? What was the cause of failure?
What type of training and on-going support will I get? What is the duration of
training?
How long is the term of the franchise agreement?
How much liquid capital do I need to invest?
What type of financing options are available and is there any financing assistance?
Questions to ask before buying a franchise:
Can I afford the franchise?
What are my goals, both short and long term?
Am I ready to take on the responsibilities of running my own business?
What industry sector interests me? And why?
Would I be happy focusing on the business in the industry sector of interest for
the next 5, 10, or 20 years?
Will my family, spouse or significant other accept my choice of business and support
me?
Do I like dealing with people considering I will have to interact with customers,
employees, and the franchisor?
Franchise Regulation:
Franchising is a method of distributing products and services that involves a ‘franchisor’
who lends their trademark and business system to a ‘franchisee’ who, in return,
pays a royalty for the right to use the franchisor’s trademark and system in their
business.
Franchised businesses operate in all 50 States, the District of Columbia and in
every Congressional District. The offer and sale of franchises in the USA are regulated
by both the federal and state trade commissions. In 1979 the Federal Trade Commission
(FTC) adopted a national franchise trade regulation rule (Rule 436) which specifies
the amount of disclosure franchise companies must provide a prospective buyer or
franchisee.
In addition to the FTC franchise rule, the following states have adopted their own
franchise rules and regulations that require franchise companies to provide a prospective
buyer or franchisee a more detailed disclosure format known as a Uniform Franchise
Offering Circular (UFOC).
These states include:
| California |
Hawaii |
Illinois |
| Indiana |
Maryland |
Minnesota |
| Michigan |
New York |
North Dakota |
| South Dakota |
Rhode Island |
Virginia |
| Washington |
Wisconsin |
|
To learn more about the FTC franchise rule visit the Guide to the FTC Franchise
Rule.
http://www.ftc.gov/bcp/edu/pubs/consumer/invest/inv05.shtm
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