Owning your own business is part of the American Dream. However, starting a business can be risky and complicated. People often become overwhelmed by the myriad laws, licenses and liabilities to be considered. A franchise can be an option for people who want to avoid some of the start-up headaches.
Simply put, a franchise is a business with a proven business model that is sold as a package. Subway, Pizza Hut and Quiznos Sub top the list of fastest-growing franchises, according to Entrepreneur.com. Also in the top 10: Curves, Jackson Hewitt Tax Service and the UPS Store.
A franchise can offer a safety net. You give up the freedom of being an independent owner to join a group of people who sell a brand using a common business model. You don't have to guess about the best ways to build your business; you take advantage of franchise marketing and follow the operations strategy developed by the franchise.
A franchise may provide group buying power, lower operating expenses, faster growth and predictable results based on your adherence to the business model. There is less risk for invested capital, both for you and the bank. Most franchises are eligible for Small Business Administration loan guarantees, if the franchisor allows for independent management decisions.
The tradeoffs are the fees you pay for the operating license and restrictions on how you operate.
Once you've decided a franchise is the right business for you, how do you choose the right franchise? Narrow the choices to a few industries based on your interest and experience, then analyze your geographic area to see if there is a market for that type of business. If so, contact all the franchise companies in those businesses and ask them for information. Any reputable company will be happy to send you information at no cost.
Also, this is a good time to talk to your banker regarding financing. Just as you are evaluating a franchise, the franchisor will in turn be evaluating you. Many successful franchises are difficult to obtain — the franchisor will want to see that you have the necessary capital, the right personality, skills and experience, as well as the correct location and market conditions for it to achieve maximum profits.
The process of becoming a franchisee also entails legalities. You must sign a legal document that protects the franchisor and the franchisee, as well as the franchisor's intellectual property, and defines the business model that must be followed. It includes terms and conditions, all costs, location, fixed assets and supplies, required operating practices, and renewal and/or termination clauses.
| Before you sign, be sure you understand your obligations. Each company's agreement is different and it's up to you to evaluate it. The assistance of an attorney is recommended. Start your franchise search with these Web sites: |
- http://sbdcnet.utsa.edu/
- http://sba.gov/
- http://franchise.org/
Your attorney and banker are your greatest resources as you embark on this venture. And of course, the Small Business Development Center is your free-of-charge resource for this and other business questions you have. Call us at 479-6136.
Teresa Thomae is director of the Central Coast Small Business Development Center at Cabrillo College in Aptos.
