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Franchising Opportunities -
What you have to do, to Evaluate Franchise Opportunities

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How to evaluate a Franchise Opportunity. Some basic Rules.

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Franchising Opportunities - What you have to do to Evaluate Franchise Opportunities


Starting out as an entrepreneur is difficult and does involve considerable risks. Many people select buying into a franchise as a way to reduce the risks. The general feeling is that with a franchise you are not totally on your own. You buy yourself into something that already has a track record of success. That is why franchises are a favorite way to become an independent entrepreneur.


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Statistically, franchises have a good record of surviving as business start-up's. A total of over 35-45,000 new  franchises related businesses open every year (2001-2012). And they have a high survival rate! A study of the Small Business Administration shows that 70% of independent businesses cease to exist within 5 years of opening. Only 12% of franchises fold in the same time period. That's only 17% of the failure rate of independent start-up's.

A franchise is a way to buy yourself into a business that is, in principle successful. Naturally, depending on the type of business, location and other factors will also play a part. But some basic elements like organization structure, sometimes suppliers and strategic elements, such as marketing, definition of a product, branding, staff training, etc., have been taken care of by the seller of the Franchise, thus, reducing risks.

For the use of these business elements or ideas, you will have to pay the Franchisor an ongoing fee, often referred to as a Royalty. In addition, you will, most likely, have to conform to other characteristics of your franchised business. In other words your creativity within your own business is strictly within limits! You should remember, that the strength of the Franchise is determined by the uniformity of its products. If you go into the Hilton Hotels, you do not want to see a room that looks like a Hampton Inn, or vice versa.

For an initial entry fee, anyone who is accepted by the Franchisor, can buy into the franchise with a proven brand, tested marketing strategy, and presumably an existing customer base. The initial fee will depend on the business which can range from hotels, to fast food chains, florists, copy shops, and a variety of other businesses, The challenge is to choose the right franchise for your circumstances and abilities.

There are a number of key variables that you should consider, when selecting a franchise, as shown below.

Key Issues when considering a Franchise
Your Abilities (Your Strengths and Weaknesses) Your own abilities are obviously a key to acquiring the right franchise for yourself. At the very least, you will have to manage the people who will do the work (e.g. restaurant, copy shop etc). But, normally you will be the person who has the technical know-how, or can acquire it, through the training the Franchisor offers.
The initial Costs of Entry This is an obvious element and it is usually the number one factor in choosing a franchise! The costs of franchises can run from a few hundred Dollars to millions. Therefore, when selecting a franchise, you have to identify the opportunities you can afford.

Although, there are sources of finance available for franchises, be sure about two things

  • that you do not over leverage your purchase (i.e. take on too much debt), and
  • remember, that you have to supply some collateral of your own, in almost any financed franchise deal.

Make absolutely sure what your price range is before you make a short list of possible franchises, that you consider.

The Royalties The royalties you pay on your ongoing sales can vary considerably from franchise to franchise. Royalties should not be at a level that they could potentially destroy your business. You will, after deducting your operating costs and your royalty payments have to be able to make a decent living and sufficient funding to enable your business to grow.

Speak with operators of the franchise so that you know where you stand. These discussions with franchise operators should be at an early stage of your selection process.

The Reputation and the historic Performance of the Franchise Once you have determined the franchises which are within your financial reach, you have then to assess the market reputation of the Franchises you pre-selected.

A potentially successful Franchise will it require

  • a good or superior market acceptance and
  • a proven track record over a considerable time span and
  • it should also have a continuously loyal client base.

New Franchise opportunities may not have the historic record of success that you are looking for and are therefore a much higher risk to participate in. This should be reflected in the initial entry price and the royalty payments charged. Make sure, that you can live with that, if you select one of those.

Legality Franchise businesses are governed by special laws in every state here in the USA and also in almost every country around the world. Make sure that the franchise you are buying conforms to all legal requirements of your location. You should have a local lawyer look at those issues.
Matching the right Franchise with the right Location If the franchise involves direct physical contact with the public, location becomes very important. Matching the right business with the right location is an art in itself.

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Going through the Franchise buying process.
A a very short and incomplete Guideline


Start off by making a selection of the type of franchises your would like to get involved in. Examine them in the light of the Key issues above and assess your own strengths and weaknesses and what skills, besides your financials, you can bring to the table. Make sure that you want to perform the type of work required from you. Once you have determined the above. make a list of the the five most likely franchises that fit your circumstances. Then, approach the franchisor and ask for an information and documentation packet.

Participating in a Franchise is a "two way street". You have to like the type of franchise offered and, the franchisor has to be sure, you are the right person for his business. The Franchisor will therefore like to know from you, what your interest and abilities are and how you will be able to promote and conduct his business. This is normally done in a Qualification Package that is part of the Franchise Disclosure Documents required by the government.

Be sure you read, not just glance, through it, and understand these documents thoroughly and in every detail. If there are parts that you do not understand, get an advisor who will help you and explain the parts you cannot follow. In the end, you need a complete understanding of what is being offered and what your obligations are.

Tasks which you need to do before you purchase a Franchise
Research the Industry you are Franchising into Find out everything about the industry sector in which you want to buy a franchise, e.g.hotels, fast food, other restaurants, copying, couriers etc. Look at the risks and ask yourself what you are left with under the worst circumstances of failure: What is my exit strategy and what will I be left with for the payment of my franchise fee under these circumstances?
Prepare a set of questions for other Franchisees in the Industry. This is a most important task, since it lets you confront other people working in the industry. It is important, that you should be able to interview four to five franchisees, before you meet the franchisor who wants to sell you the franchise! Ask them about everything, from the quality of training to the product support, to marketing of the brand, to the flexibility of the financial arrangements (especially when you are not doing so well!), to the responsiveness of the Franchisor to normal organizational or business problems. Also ask them about failures in their franchises, what happened to those people and why do other franchisees think they failed! Be careful that you separate rumors from fact! A series of important questions should center around what the key factors of success and failure in the business are: people? location? product support, etc? You should do all of that in writing, so that you can refer to it later on.
Prepare a set of questions for the Franchisors Once you have completed the above, you should be able to prepare a thorough set of questions for the franchisor. Make sure that in the end you walk away from the meeting with a fundamental understanding of what you buy, what your responsibilities are, how you have to fulfill them and what the franchisors commitment to you, the franchisee, will be. This understanding has to go over and above the legal agreements you sign. Make sure you understand the training and support side and whether you have to make additional financial sacrifices for additional training.

You should, at this stage, be able to get the text of the franchising agreements, so that you can evaluate them. Don't be surprised if you see that the agreements are pretty one sided in favor of the Franchisor!

Look at competing Franchises Most franchises have direct and indirect competitors. You should look at them and how they manage their franchisees. This is not only a good market research strategy, but also lets you look at different approaches to similar problems.
Select a team of Advisors Now go and select a team of advisors. But make, from the start, clear in a written "job description" for your own internal use what they should advise on. Then make a budget for each advisor: Accountant, Lawyer, Real Estate, who you will need will to help you get the best type of Franchise for your particular circumstances. Don't waste your money and time on advisors. Therefore, define what you want from them clearly and before you talk with them.
Select your Location and/or Team of collaborators (associates) The location of your business might be crucial for your success, for instance, if you franchise a fast food or restaurant business, a copyshop or a hotel, a garage, a gas station or anything of that nature. Similarly, the skills and aptitude of your team of associates or employees may be a key factor in the success or failure of your franchise venture.

Then, based on all of the above, make your final selection and get the Uniform Franchise Offering Circular from your desired Franchisor. Make sure that the franchisor you want to team up with is licensed in your state. Then, read and re-read the Offering Circular, get legal and accounting advise if you do not understand everything. When you are satisfied with everything and have no doubts, sign a franchise agreement. Don't let yourself be rushed by the franchisors.

As part of your research go to http://www.franchisedoc.com and read through their pages. They have some excellent suggestions and expand on many of the points which we have touched on. e-sbforum is not in any way associated with that site, but highly recommends it as a source of information.


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Major Benefits of buying a Franchise


Purchasing into a franchise must bring some immediate benefits, since, "by the nature of the beast", it also makes restrictions on your individual business choices. Some of these benefits are listed below. Depending on the individual franchise, there might be others.

The Major Benefits of a Franchise versus an independent Start-up
Buying into a Franchise vs buying an independent Business Purchasing an existing independent business will usually cost you anywhere between 2 and 20 times its annual after tax earnings. Sometimes, more than that. The initial purchase costs of a franchise are usually a fraction of that.
Avoiding some of the Learners Money Buying a franchise eliminates the trial and errors you will always face, when you start on your own. Buying into a franchise is not facing the "hit and miss" environment that you work in when you are an independent start-up. Someone in a franchise has gone through the particular circumstances you face and experienced it. So you are buying into a known business path and you are up and running faster then when you go it alone!.
Buying into a known Structure and Business Model. You have immediate access to advice on Site Selection, Unit Design,  Operations, Capitalization and Marketing A good franchisor provides instruction and support on ALL aspects of running a  business in his industry. It is similar to being hired and trained to open a  branch for company, except that you have a financial stake in that company.
Access to other Franchisees and their experience You have immediate access to a proven, profitable system of business and Quality Research &  Development. The fact that you can talk to other Franchisees is an important part of the internal information system about the business. Something that you will not have when you start something on your own.
Good Training to be successful and nationwide Advertising You have immediate access to trained support personnel The Royalties you pay contribute to the funding of ongoing training. In addition, the Franchisor is likely to carry most of the advertising budget. While you may be responsible for local advertising, the Franchisor will see to it that his brand and product are known to the public at large.

The combination of being your own boss, earning what you are worth, direct an operation with visible satisfaction and achievement are important factors in a persons motivation. Additionally, like all small business owners you will have many tax benefits which you will not have, if you are employed.

Even though, buying a franchise does not make you totally independent, many of the vagaries of employment, such as lay off's. etc., are far more distant. If you want to know more, look at some of the books from amazon.com


Staples


Books and Information on Franchising from amazon.com

You can buy the books second hand. Just select a reliable dealer with lots of good reviews.


Franchises and Business Opportunities

ID Number Required Position Date Posted
VA10-US-0925-01 Business Development - Sales - Franchise Opportunity - Handyman Matters 08-02-2017

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Links to other Sites about Franchising


We know about starting a business and how to negotiate the pitfalls of a new venture. But we are not franchising specialists. Consequently, we have selected a few sites that will give you further insight into the franchising option. Take advantage of the free information on these sites! You consult these sites at your own risk! e-sbforum does not have a business relationship with any of the companies/internet sites shown below.

Franchise Gator NOLO - Legal Information for your Business -
Why not to buy a Franchise
BizBuySell
The Internets Business for Sale Marketplace - Franchises for Sale
Buying a Franchise
(A Consumer Guide from the Federal Trade Commission)
Inc. (Magazine)
Articles and write ups about buying a Franchise
JobMonkey.com -
Franchises Opportunities for Sales
Entrepreneur Magazine
"Buying a Franchise" - a series of articles by Jeff Elgin
Match Point
A Consulting Network for Franchises
Franchise Expo -
A multi national directory of available Franchises
Small Business Administration
Information about buying a Franchise
International Franchise Association (IFA)
Membership organization of franchisors, franchisees, and suppliers
More Business.com
Buying a Franchise
Buying a Franchise
Information about Franchising in the USA and the UK
Franchise Prospector The entrepreneurs guide to buying a franchise Small Business Trends
Buying a Franchise and other Articles

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