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