Every year thousands of prospective business owners want to buy a franchise business. Some franchises are very good, and others are scams. Below is some helpful information everyone considering investing in a franchise should know.
What is franchising?
A franchise is a legal and commercial relationship between the owner of a trademark, service mark, trade name or advertising symbol, and an individual or group seeking the right to use that identification in a business. Generally, a franchisee sells goods or services that are supplied by the franchiser or that meet the franchiser’s quality standards. McDonald’s, Service Master, UPS Kinko’s, Subway, and RE/MAX Intl’l. Inc. are just some of the well known franchises.
The success rate for franchise owned businesses is very high. According to studies conducted by the 1999 U.S. Chamber of Commerce, less than 5 percent of franchised businesses failed or were discontinued after five years.
Although forms of franchising have been in use since the Civil War, enormous growth has occurred more recently. By the end of 1990, more than 500,000 franchised establishments in 60 industries achieved gross sales of over $700 billion dollars and employed 7 million full and part time workers.
Industries that rely on franchised businesses to distribute their products and services touch every aspect of life, from automobile sales and real estate to fast foods and tax preparation.
One reason franchise businesses have a limited failure rate is the many benefits provided the franchisee. Benefits of Franchising: Business franchises often provide a full range of services including:
- Site selection
- Training
- Product supply
- Marketing plans
- Financing
There are a number of aspects to the franchising method that appeal to prospective business owners. For example, easy access to an established product and a proven method of operating a business reduces the many risks of opening a business.
Be careful when investigating a franchise business. Unfortunately some are scams. One of my clients called me asking if he should buy into one. He was very excited about it. When I started asking him some questions like “where is the corporate headquarters, what do they provide for franchisees, and does it have a record of success with current franchises”, my client said he didn’t know. If you are considering getting a franchise, check with the Better Business Bureau in the city in which their corporate headquarters is located, check with the State Attorney General’s office for any complaints, and finally talk to some successful franchisees.
The franchisee purchases not only a trademark, but also the experience and expertise of the franchiser’s organization. If you are not prepared for the total commitment of time, energy and financial resources that any business requires you should stop and reconsider your decision to enter the franchise business.