Is Home Based Franchising for you?
Do you desire Home Business Ownership but cringe at the thought of starting from scratch?
Possibly a Home based Franchise is your answer.
A Franchise is a business in which “… the franchisor, the owner and developer of the franchise system licenses [you] franchisees to use trademarks, service marks, logos, or advertising owned or developed by the franchisor.” (International Franchising Association, Franchising basics).
With some franchise programs, the business operates using the Franchisor’s brand name only.
Other programs are less restrictive and allow for the usage of both a trade name in addition to the franchisor’s brand name.
Common to all franchise programs, the franchisee[ you] is responsible to pay the franchisor, advertising fees, initial fees, service fees, and or royalty fees.
You are responsible for payment whether your business is profitable or not.
Additionally, many franchisor’s provide educational programs to franchisees before the inception of the business.
Often times, they’ve done demographic studies and other studies to ensure that you have greater odds of returning a profit.
Major Franchise Types
o Unit Franchising
Is the most simple type of franchise in which the Franchisor grants the franchisee the right to operate a single operation at a specified location or within a particular territory.
o Area Development Franchising
In accordance with a “development schedule”, the franchisee agrees to establish a predetermined number of “unit franchises” within a particular territory.
o Subfranchising/Master franchizing
Is quite similar to Area Development Franchising with the major difference being that the franchisor grants the subfranchisor the option of opening the unit franchises herself or selling the the franchises to third parties. (Common with International franchising)
o Affiliate Franchising
This type of set up is typically used by an owner of an established business who decides to join/affiliate with a franchised chain.
This allows for the benefit of the franchises brand. This is common with many real estate.
This type of set up is customized between the franchisor and the franchisee.
Franchises are not the same as Dealerships and distributorships
A dealership or distributorship differs from a franchise in that there is no FEE involved. Dealers purchase products usually from the manufacturer at wholesale prices.
Note however, that a dealership can become a Franchise IF a FEE is paid to the franchisor AND the distributor is dependent upon the franchisor’s pay structure.
Considerations when buying a franchise
o There’s a benefit to purchasing a franchise that is well known
o Will the franchisor provide ongoing education and support?
o Were demographic studies performed?
o How many of the franchises have closed operation? Why?
o Have you STUDIED the franchiser’s Comprehensive Disclosure Statement? It’s required by Law that prospective Franchisee’s are provided Comprehensive Disclosure, a copy of the franchisor’s Standard Franchise Agreement, Audited statements, a list of the names of all of the Franchisees, as well as a copy of all documents that require the franchisees’ signing.
By law, each of the above must be provided at least 2 weeks prior to purchase date.
o I’ve heard the saying, “if you buy a McDonald’s, be prepared to eat burger’s for breakfast lunch and dinner.” In other words, your business requires commitment.
Additional Sources of information
oInternational Franchise Association http://www.franchise.org
oFranchise Sales Press *Get this magazine since it is known for its focus on franchise opportunities. Further, they perform regular interviews with both franchisees as well as with franchisors.
oSBA Small Business Association
oBrokerage firms and analysts Since stock information on A public company is useful.
oFederal Trade Commission Public Reference Branch
oUFOC “Uniform Franchise Offering circular — the material that is provided by law, by the franchisor to the qualified franchisee. This is likely the most telling of all information gathered.
oAttorney General’s Office
oBBB located in the city of the Franchisor’s headquarters.
oYour Banker should have access to the Dunn and Bradstreet Report on the particular Franchisor.
oContact the franchisor’s franchisee’s listed in UFOC. *** Prepare a list of relevant questions prior to calling.
Purchasing a franchise usually equates to a reduction in investment risks since the” system” and Franchise name is established, training and ongoing support is provided, market research has been conducted… Conversely…
franchise ownership can be costly. Consequently, it is critical that you investigate the franchise thoroughly prior to purchasing.
There is a continual rise in the number of franchises. Obviously, there’s a HUGE market for this method of business ownership. When approached methodically and practically, Franchise ownership can be Very lucrative and much simpler than beginning a business from the ground up.
Be wise and ensure that you conduct sufficient research prior to commitment.
If you’ll need financial backing, then you will need to create a business plan. There’s a handy Business Plan workbook available at our site.
Bridging the Gap between Opportunity and Success, OwnABizToday.com
Copyright 2005 Shawn Price