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