| Millions of people dream about owning | | | | you to work a normal five-day, |
| their own business. Having the | | | | fourty-hour work week? Life is too short |
| independence that being your own boss | | | | for the seven-day, sixty to eighty hours |
| brings, the security that no one can | | | | a week, workaholic lifestyle,that can |
| fire you, enjoying a good income - and | | | | destroy health, family and pocketbook. |
| for the most successful - the | | | | Financially, the true hourly rate for |
| accumulation of wealth and prosperity. | | | | franchise owners who work these |
| Unfortunately, the cards are stacked | | | | workaholic hours is often less than |
| against a new small business making it | | | | minimum wage. |
| big - or making it at all. An endless | | | | Minimum Number Of Employees |
| stream of problems makes competition | | | | Can you operate the business with five |
| from large, sophisticated chains just | | | | or fewer employees? Managing dozens (or |
| too intense. Most new start-ups end as | | | | hundreds in the case of some fast-food |
| failures. | | | | operations) of minimum-wage teenagers |
| Franchising represents a more viable | | | | who are constantly quitting or simply |
| approach to business ownership. For a | | | | not showing up for work is a sure |
| price, the parent company teaches its | | | | formula for stress. |
| proven business methods to the | | | | Leasing And Location |
| franchised-operator who shoulders all | | | | For most retail franchises, the triple |
| operating and financial responsibilities | | | | net lease of the location is the biggest |
| of the outlet. The statistics are | | | | financial commitment, larger than the |
| impressive: over 40% of all U.S. retail | | | | total franchise investment. Yet, the |
| sales are through franchised | | | | typical real estate lease and its |
| establishments. While giants like | | | | ramifications are not required |
| McDonalds, H&R Block, 7-Eleven and Radio | | | | disclosure in any Franchise Offering |
| Shack are familiar, household names, | | | | Circular (FOC). For example, an estimate |
| franchises are available in a wide range | | | | that you'll need 2,000 sq. feet of space |
| of industries. The list of 3,000-plus | | | | with expected rental of $5 to $10 a foot |
| franchise companies span over 100 | | | | per month is normally disclosed in the |
| different categories. But just as | | | | FOC's initial investment table as Leased |
| franchising represents a chance to get | | | | Real Estate $10,000 to $20,000. A |
| rich, it's also a chance to get stung. | | | | footnote to the investment table may say |
| An alarming number of franchised | | | | "assumes 2,000 sq. ft. at $5 to $10 a |
| operators make less than the minimum | | | | foot." But, that's only the beginning of |
| wage, working seven days, sixty to | | | | the story. The lease is normally a 5 to |
| eighty hours a week, pursuing an | | | | 10 year triple-net lease. So, the |
| expensive and elusive American Dream | | | | financial commitment made when the lease |
| that turns into a nightmare. | | | | is signed is at least $600,000 (at $5 |
| What follows is a bottom-line check list | | | | foot for 5 years) to $2,400,000 (at $10 |
| of tips compiled from leading franchise | | | | foot for 10 years). And this doesn't |
| experts that will help you eliminate 95% | | | | include substantial, additional |
| of the companies you are considering. | | | | obligations to pay all of the landlord's |
| Then, you can concentrate your efforts | | | | yearly property taxes, insurance, common |
| on the 5% "cream" of the crop" companies | | | | area operating expenses, etc. Key |
| that deserve consideration. This check | | | | questions to ask here: (a) is the |
| list assumes the franchise company: (1) | | | | franchise you're considering one that |
| has itself successfully operated the | | | | can be operated in a low rent commercial |
| concept being franchised for at least | | | | business zone? Avoid franchises |
| five years at multiple locations; (2) is | | | | requiring the costly expenses and |
| not plagued by litigation or complaints | | | | triple-net leases of a visible retail |
| from disgruntled franchise owners; and | | | | storefront and the extravagant rent |
| (3) has a balanced, fair franchise | | | | associated with areas of high foot |
| contract. | | | | traffic, like shopping malls or strip |
| Industry Trend | | | | centers. You'll sleep much better at |
| Is the franchise in a cutting-edge | | | | night. (b) What's your total financial |
| industry that is doing well currently | | | | commitment under the lease? (c) Do you |
| and is projected to do well in the | | | | have sufficient liquid assets (or a |
| future despite any economic slowdown? | | | | willing, sufficiently liquid third party |
| Education and home-improvement services | | | | guarantor) to meet the landlord's lease |
| are stable categories. Food is | | | | qualification standards? If you don't, |
| over-saturated generally, and except in | | | | you might as well forget about investing |
| exceptional circumstances, is not worth | | | | in the franchise. Or even worse, getting |
| the high investment, headaches and | | | | involved in a questionable franchise, |
| marginal income. | | | | realizing you've made a big mistake - |
| Total Initial Investment Required | | | | only to discover you're on the hook for |
| In general, don't expect a franchise | | | | a $500,000+ lease obligation. |
| that requires a five-figure initial | | | | Image And Lifestyle |
| investment to produce a six-figure | | | | How does flipping burgers, scooping ice |
| income. As with most things in life, you | | | | cream or cleaning restrooms fit the |
| get what you pay for. Is the total | | | | image of what you want to do for a |
| initial investment range (including | | | | living? Investing in a franchise will be |
| working capital) $125,00 or less; and | | | | the most important psychological and |
| the maximum investment less than | | | | financial decision you ever make. Does |
| $200,000? You can find solid companies | | | | the typical working day of the franchise |
| in this investment range if you're | | | | you are considering fit your personal |
| willing to look around. Don't forget to | | | | image and desired lifestyle? |
| consider long-term financial | | | | Franchise Brokers |
| commitments, particularly the real | | | | Does the franchise company have its own |
| property lease (see discussion below | | | | in-house marketing department, or does |
| under "Leasing And Location"). | | | | it utilize outside franchise brokers? |
| Real Business | | | | The use of franchise brokers is a |
| Is this a legitimate retail business, as | | | | definite red flag. First, it indicates |
| opposed to a "work out of your home" | | | | the franchise company is not very |
| operation? The vast majority of work out | | | | serious about who it lets into the |
| of your home concepts produce marginal | | | | franchise network (or even worse, |
| income at best. | | | | they're desperate to sell franchises). |
| Management Expertise | | | | Second, franchise brokers receive a |
| Does the management team have executives | | | | substantial commission up to 50% or more |
| with demonstrated past achievement and | | | | of the franchise fee you're paying the |
| experience in operating other franchise | | | | franchise company. They definitely do |
| companies? If not, this is a big RED | | | | NOT have your best interests in mind and |
| FLAG. Many companies enter franchising | | | | will do whatever they can to close a |
| and fail to realize they are in a brand | | | | deal. This accounts for the common |
| new business - one requiring entirely | | | | observation that franchise brokers tend |
| different management skills and | | | | to give glowing recommendations for all |
| abilities. If the management team lacks | | | | franchises they represent. A detailed |
| strong franchise credentials, you might | | | | analysis often reveals these highly |
| as well take a trip to Las Vegas with | | | | touted franchises produce mediocre or |
| the money you're intending to invest. | | | | even below minimum wage financial |
| Your chances of making vs. loosing money | | | | performance. Yet franchise brokers won't |
| are roughly equal. | | | | mention this, and individuals continue |
| Normal Working Hours And Days; | | | | to rely on their recommendations, |
| Sufficient Income Level | | | | believing the broker represents them. |
| Will the nature of the business allow | | | | Nothing could be further from the truth. |