Consider Purchasing a Franchise

Pick up any newspaper or turn on the television and chances are there is a story about layoffs or companies closing. Many of you are experiencing this firsthand and wondering what to do now. Various agencies are offering to help you update your resume, learn how to interview, and increase your Facebook and LinkedIn skills to go in search of a new job. So what happens when you find there are no attractive jobs locally and you don’t want to relocate?

We are a resourceful people and are trending back to the pioneer spirit that built this country. You can become an entrepreneur instead of operating in whatever “box” an organization may have put you in. So perhaps buying a job does make sense.

However, before you hand over your hard-earned severance or roll over your 401k, dig deep and consult the experts. One option to consider is buying a franchise. However, not all franchises are created equal. Lou Vescio of Melbourne-based Coastal Business Intermediaries said, “If you buy a typical food franchise count on working 60-80 hours a week. Other service franchises can be done working part-time. You have to think about the work lifestyle associated with each one.”

First, Some Interesting Facts about Franchises:

• 1 in 12 businesses are franchises;

• More than 75 industries use franchises to distribute goods and services;

• There are an estimated 1,500 companies operating in the U.S. with more than 316,000 outlets;

• A new franchise business opens every 8 minutes;

• A 1990 Chamber of Commerce study showed 86{099636d13cf70efd8d812c6f6a5a855fb6f8f27f35bea282d2df1d5ae896e2c2} of new franchises were still under the same ownership and 97{099636d13cf70efd8d812c6f6a5a855fb6f8f27f35bea282d2df1d5ae896e2c2} were still open five years later.

Look Closely at the Pros and Cons

Franchises have many advantages:

• Instant name recognition and branding;

• Financial, operations, and marketing models;

• Training and support systems.

Franchises also have disadvantages:

• Can be expensive to open and to operate;

• Not all franchises are good, reputable or profitable;

• Royalties are paid on all sales ;

• Some require a monthly fee for advertising and marketing;

• Required to participate in national campaigns;

• Expansion may require buying a new franchise.

Questions to Ask Yourself

• How much capital do you have to invest? (Most franchise companies do not offer financing.);

• How much do you have in liquid assets? (A Subway costs $250,000; McDonalds is $1.5M. If you only have $10,000 this is not your deal);

• Do you require a specific level of annual income?

• Are you interested in pursuing a particular field?

• Are you interested in retail sales or performing a service?

• Do you want a part-time or full-time opportunity?

• How many hours are you willing to work?

• Will employees love working for you?

• Do you have the staying power? The concept is easy, the execution is hard work.

“Having started and grown businesses of my own, I recommend you buy an existing business, which also applies to franchises. The advantages are they already have customers, an existing infrastructure, should provide immediate cash flow and return on your investment,” recommends Vescio. “Eighty percent of all start-up businesses fail in the first 5 years and 80 percent of the remaining businesses fail in the second 5 years. So, only 4-out-of-100 start-up businesses make it to the 10-year point. Ninety percent of resale businesses with cash flows greater than $100K survive more than 5 years after the sale.”

Before You Buy a Franchise

You will want to talk with an expert before you buy because they know the dark side of the deals. Other resources:

• Franchising for Dummies by Dave Thomas & Michael Seid

• Tips & Traps When Buying a Franchise by Marry Tomzack

• Guide to Negotiating a Business Lease by Keith J. Kanouse

• The Franchise Opportunity Guide

• Bond’s Franchise Guide

• The Franchise Annual

• The Franchise Handbook