Evaluate all the factors before deciding if franchising is your path to business ownership

Many people considering business ownership are attracted to opening a franchise. They see franchising as an easy way to enter self-employment as the opportunity comes pre-packaged with a business model, processes and procedures, marketing and product already proven in the marketplace.

However, franchising is not for everyone. To begin to assess your fitness for franchise ownership, ask a few simple questions.

• Can I accept guidance and direction, or do I prefer to chart my own course?
• Can I give total commitment to a product or service not of my own design, and which I may perceive has some flaws?
• Can I accept that part of my profits must be paid to the franchiser?
• Will I resent having to send information on sales and other documents from my business to the franchiser?
• How will I feel about the franchiser's representative visiting my location to check up on the quality of my product or service?
• Am I proficient at following operations manuals, implementing prescribed processes?
• Can I accept that my franchise ownership may be for a fixed term, with an option to renew for an additional fixed term?

In return for franchise fees, you will receive access to the franchiser's experience and expertise. You'll get training in how to run the business, the company's brand name, promotional and advertising support and detailed instruction on how to make your business run profitably. If the franchiser does his job, you will receive lots of support, not only at start-up, but throughout your tenure with the business.

Other advantages to franchises include an established brand and customer base. You'll have reputable suppliers of materials and realize some economies of scale when purchasing. Some franchisors supply financial assistance to franchisees, and you benefit from ongoing research and product development.

One group of entrepreneurs who appear to enjoy great success with franchising is veterans. Most agree that's because of their high comfort level with following established procedures, using detailed operating manuals and taking orders from a chain of command. In fact, because of this tendency toward success for veteran business owners, some franchises offer start-up and licensing discounts for former members of the armed services.

There are some disadvantages to franchising. Not being able to entirely "run your own show" is certainly one of them. In addition, some franchisors require you to pay for marketing assistance in addition to the franchise royalty fee. You have limited creativity and flexibility in implementing the business model. In large measure, you are tied to the success and reputation of the franchisor. Simply said, their problems become your problems.

Franchising is not without financial risk. It still requires a financial investment. Just because a franchise is popular in one community, region or state, does not mean that it will necessarily be successful everywhere. Franchises that cater to a passing fad can be just as tenuous as any other type of business.

The first step is to do your research. Franchise fees vary widely by industry and by franchise. Likewise, the amount of vetting of the concept and success factors can vary widely as well. If the franchiser is under-funded to start with, if the idea is ill-conceived or has not been adequately tested and if the franchiser does not provide adequate training and mentoring, no matter how hard you work or how enthusiastic you are, the chances for success are small.

The average franchise investment is about $250,000, excluding real estate. The average royalty fees paid by franchisees to the franchisor range from 3 to 6 percent of monthly gross sales. The average length of a franchise contract is 10 years. Make sure you are prepared for that level of commitment.

Once you have identified possible franchise opportunities that appeal to you and which you think you can afford, speak with current franchisees to get the real scoop on owning the franchise. What are the earnings, and what are the costs? What kind of support does the franchisor provide? Do the earnings live up to expectations? Is the franchisor a support or a pest? If they had it to do over again, would they choose the same franchise? Would they choose a franchise at all?

Explore the issues of franchising thoroughly, and then make the right decision for yourself.

This story was featured in the November 2010 newsletter