The Franchise Advantage

Some people are more comfortable not starting their own business from scratch They would rather join a business with a proven track record through a franchise agreement. A franchise can be formed as a sole proprietorship, partnership, or corporation. Some of the best-know franchises are McDonald’s Jiffy Lube, 7-Eleven, Weight Watchers, and Holiday Inn.

Over 9 million people in the United States work in a franchise. Franchised businesses now take in $1 of every $3 spent by Americans for goods or services, or 40 percent of all national retail sales (about 1 trillion). In fact, 1 out of 12 American businesses are franchises, and a new franchise opens every six and a half minutes of each business day. The most popular businesses for franchising are restaurants (more than 80 percent of all franchises), retail stores, hotels and motels, and automotive parts and service centers.

When you think of franchising, however, don’t confine your thoughts to the United States. Small, midsized, and large U.S. franchisors have expanded overseas, often with great success. For example, McDonald’s has over 25,000 restaurants in 117 countries serving 40 million customer. Ranked as the world’s greatest brand by the Interbrand Group, and independent branding consultant, McDonald’s plans to accelerate its global business by adding as many restaurants outside the United States in the next 4 years as it did in the last 30 years

Advantages of Franchises

1. Management and marketing assistance. A franchisee has a much greater chance of succeeding in business because he or she has an established product; help with choosing a location and promotion; and assistance in all phrases of operation. It is like having your own store with full-time consultants available when you need them. Some franchisors are helping their franchisees succeed by helping with local marketing efforts rather than having them depend solely on national advertising. You have a whole network of fellow franchisees who are facing similar problems and can share their experiences with you.

2. Personal ownership. A franchise operation is still your store, and you enjoy much of the incentives and profit of any sole proprietor. You are still your own boss, although you must follow more rules, regulations, and procedures than you would with your own privately owned store.

3. Nationally recognized name. It is one thing to open a gift shop or ice cream store. It is quite another to open a gift shop or Baskin-Robbins. With an established franchise, you get instant recognition and support from a product group with established customers from around the world.

4. Financial advice and assistance. A major problem with small businesses is arranging financing and learning to keep good records. Franchisees get valuable assistance and periodic advice from people with expertise in these areas In fact, some franchisors will even provide financing to potential franchisees they feel will be valuable parts of the franchise system. For example, SRA International Inc., an executive-recruiting franchise, eases entry for selected new franchisees by allowing $20,000 of the $35,000 initiation fee to be paid from revenue over a period of two years or more.

Historically, the failure rate for franchises has been lower than that of other business ventures. According to the International Franchise Association, a Washington, D.C.-based trade group, franchises have a 66 percent higher success rate than independent businesses. However, franchising has grown so rapidly that many weak franchises have entered the field, so you need to be careful and invest wisely.