A Guide to Franchising - Page 2 of 3

A Guide to Franchising

completely delegate to others? While some franchises may be able to operate with absentee ownership, most are best run with the owner actively on board. Are you dedicated? Franchise agreements typically run 15 to 20 years, so be sure you’re prepared to hang in for the long haul. Also weigh your strengths, weaknesses, and goals. This well help you determine which franchise is right for you.

Identify your interests. Compatibility is important when choosing a franchise, so consider what you like to do and then match your interests and skill sets to available opportunities. Darrell Johnson, president and CEO of FRANdata, says there are 3,500 active franchised brands in the U.S. with between 50 and 100 new brands starting every quarter. There are many resources you can use to find a franchise that fits. Visit www.frandata.com and sort by industry and sector. There are 30 industries and 230 sectors from which to make your selection. Also, visit www.franchise.org for more lists of franchise opportunities.

Consider what’s hot. Some of the growth sectors include health care (in-home health services and companion services for seniors); beauty and fitness (fitness centers); residential services (dog walking and pet grooming); lawn service; legal and accounting services; and handyman services. “Franchising is operating in sectors that you would never typically associate with the use of the franchise business model,” says Johnson, whose company monitors franchising activity nationwide. “It’s not just the traditional food or business-to-consumer retail type of establishments that are franchising. Franchising is in a lot of business-to-business as well as business-to-consumer markets,” he says.

Research the costs. “One of the first things we did was look at our financial position to make sure that it was financially feasible for us to do something like this,” Charnita says. Determine how much you can invest. There are several costs to consider when purchasing a franchise, including a franchisee fee, royalty payment, and advertising outlay. You may also incur the expense to rent, build out, and equip a facility, purchase initial inventory, and secure operating licenses and insurance. Your franchise fee depends on the type of franchise you choose but can range in amount. The Brock sisters paid a $35,000 franchisee fee to buy their second Rita’s and spent nearly $400,000 to build out and equip the store. Royalties are typically paid as a percentage of sales and range from 3% to 8%, but some franchisors vary in when they’re paid. Rather than paying their royalties after sales, Angela and Charnita pay a percentage of the product they purchase from Rita’s – anywhere from 6% to 8% of the total amount of goods bought. As for advertising, FRANdata’s Johnson says almost all franchisors require a contribution to an ad fund, fees that go toward national or regional promotions.

Investigate your pick. Franchisors are required by law to supply a Franchise Disclosure Document (FDD, formerly called the Uniform Franchise Offering Circular). This document provides information about the franchisor, the franchise system, and includes the franchise agreement that you will need to sign.