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Going Beyond the Hype, Managing the Risk and Finding the Right Franchise Opportunity for You

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Going Beyond the Hype, Managing the Risk and Finding the Right Franchise Opportunity for You

By Caron_Beesley, Contributor
Published: January 28, 2010

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A new year brings with it new opportunities - not least of

which occurs in the franchise industry. In fact, for every eight minutes of

every business day a new franchise business opens (*source) - quite a

statistic.

And it's easy to see why - franchisors and franchise

associations are very good at persuading would-be franchisees that franchising

is generally a lower business risk, than independent business ownership. But is

it? Ask any franchising expert or experienced franchisee and you might hear a

different story.

Going Beyond the Hype

In '*The

Truth About Franchising' business strategist coach, Mark Munday, discredits

much of the reported 'hype' surrounding entrepreneurial franchise success

rates.

Munday points to research by Timothy Bates, a Wayne State

University Economist, which concludes that '... After four years, only 62% of franchised businesses had survived, while

68% of independent small businesses were still open for business.'

Munday goes on to suggest three 'harsh realities' as to why

some franchisees fail:

  1. Franchisees struggle to

    make a profit - especially after taking into account the initial purchase

    price of the franchise opportunity.

  2. The 'hype' and marketing

    messages used to sell franchises are paid for by franchisors themselves

    and are therefore biased and subjective. This makes getting hold of the

    information you need to make a sound business decision difficult.

  3. Franchise agreements favor the franchisor.

Managing the Risk -Tips to Help You Assess

Your Readiness to be a Franchise Owner and Find the Right Franchise for You!

Becoming a franchisee

is just as risky as starting your own independent business, if not more. Getting started is going to require quite a

bit of research, planning, and due diligence to get you beyond the hype and

misleading claims of franchisor marketing.

With a picture of

the 'harsh realities' of franchise ownership in your back pocket, take the next

step beyond the hype by building a picture your own readiness to become a

franchisee. Assess potential franchise opportunities; and equip yourself with

an understanding of what the law can do to ensure your interests are protected.

Here is a

collection of expert advice (largely drawn from fellow Business.gov blogger *Joel

Libava, otherwise known as '*The

Franchise King') to help you on your way:

  • Are You Ready to be a Franchise Owner?

It takes a

particular personality to be a successful franchise owner. More than just a

risk-taker, you need a 'franchise personality', or as Joel Libava explains '...the type of personality that is OK with

rules'. For example, not only must you follow the franchisor's operations

manual, but you'll also have to pay a certain percentage of your gross sales

revenues to the franchisor! Read more about the rules that you must follow, as

well as those the franchisor has to follow in Joel's article: 'Do You Have That Special Personality Needed To Be A Franchise Owner?'.

  • Understanding the Types of Franchise

    Opportunities Available

It's fairly easy to search for franchise

opportunities. For example the International Franchise Association offers a '*Find a Franchise'

search tool allows you to search based on industry, location, financing, etc.

Many would-be franchisees choose their franchise type based on marketing by the

franchisors - many of whom market their franchises with a certain demographic

in mind, to the exclusion of others. For example, some franchise concepts

specifically target men, when in fact women would be just as skilled in

executing the franchise strategy.

To get yourself thinking about the types of franchise

opportunities available to you (advertised or not), read Joel Libava's 'The Franchise Business Model: Opportunities Galore for Women' (and just in case

you feel excluded, Joel's article does apply to men, too!)

  • Finding the Right Franchise - Using a

    Little Detective Work and the Law!

How do you know when you've found the right franchise for

you? Read more about the vital key indicators that will help you know when

you've found the right franchise in my earlier article, 'Investigating a Franchise Opportunity - How a Little Detective Work and the Law can Help'.

You'll also learn about what the law requires to help you make informed

decisions about a particular franchise (including financial statements, contact

information of other franchisees, and so on), in addition to steps that you can

take to assess a franchise opportunity.

  • How Much Should You Invest in a Franchise?

Read more about assessing your net worth; the factors that

determine how much money you can actually make from a franchise; and a good

rule of thumb for how much you should invest in a franchise opportunity in Joel

Libava's article: 'Franchise Opportunity Exploration Starts at the Kitchen Table'. As Joel explains, 'When

you buy a franchise, *in every case except one, the amount you invest does not

have a direct bearing on what your potential income will be. In other words, there is no automatic correlation

between what you invest in a start-up franchise, and what type of

profit you can expect.'

Additional Resources

  • Small Business

    Franchise and Business Opportunities Guide - This guide from www.business.gov provides

    helpful advice on buying and evaluating a franchise and information on how to

    avoid common scams.

  • *The Franchise King - Rich with franchise

    information, resources, products, and services. If you are a prospective

    franchise owner, you'll find the resources you need to help you lower your

    risk. If you are a franchisor, you'll find great resources to help your

    franchise system continue to flourish.

  • *Buying a Franchise: A Strategic 101 (Allbusiness.com) - Four things you can do to ensure the investment you make is

    in a credible, proven franchise model and that there are no hidden pitfalls.

*Note: Hyperlink directs reader to non-government Web site.

Message Edited by CaronBeesley on 01-28-2010 08:12 AM

About the Author:

Caron_Beesley
Caron Beesley

Contributor

Caron Beesley is a small business owner, a writer, and marketing communications consultant. Caron works with the SBA.gov team to promote essential government resources that help entrepreneurs and small business owners start-up, grow and succeed. Follow Caron on Twitter: @caronbeesley

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