Work For Yourself: Start a Franchise

With corporate belts tightening all across America, layoffs and lack of job opportunities are prevalent. But trying to hold your head above water while waiting for the storm to pass might not be the only way to endure this recession. For those looking to strike out in a new direction, consider the benefits of starting a franchise.

"We get a lot of people from corporate America," says Lori Kiser-Block, president of Franchoice (www.FranChoice.com), a consulting firm that connects franchisors with franchisees. With people nearing retirement age and those in their early 30s looking to purchase franchises, Kiser-Block sees the layoffs as part of an uncertainty that exists for those working in big corporations. "A lot of people are disillusioned with corporate America."

But before you call your favorite franchise and ask if they're looking for new stores, consider a few things.

The Business

The first misunderstanding people have about franchises is that it's all about food.
Of the over 3000 franchise opportunities in the United States, only about 600 are food-based businesses. The list of potential franchises is long: automotives, children's services, health and beauty, pets, computer printing, personnel services, business services. Finding the right business to run requires considering factors like using your personal strengths and deciding if you want to build a long-lasting business for your kids or one to turn around and sell in five years. "Just because you go by Subway at lunch time and it's busy, that doesn't mean it's the right business for you," says Kiser-Block.

The Cost

The upfront franchise fee ranges depending on the business, but according to the International Franchising Association (governed by the Federal Trade Commission), fees run from several thousand dollars to several hundred thousand. But the initial fee is not the only cost.

Depending on what kind of business you franchise, there will be varying set up fees. If you're starting up a restaurant, you have to get inventory, real estate and a staff. Or, if you're starting a home-based business, you might only need a new phone line and a computer. There can also be ongoing fees like advertising payments that go into a pool with other franchisees to pay for national advertising.

These costs are listed in a Franchise Disclosure Document, or FDD. The franchisor must list any and all costs associated with the business in this document, as well a list of current and former franchise operators. Kiser-Block says it's important to take the time to talk to these fellow franchisees. She also suggests anyone starting a franchise should have somewhere between 12 and 36 months cash reserve to carry them through the start of their business. That way, "if you don't make any money on month seven, you can still pay your mortgage."

The Plan

By buying into a franchise, you're purchasing a concept that's already been tested in the market by the original franchisor. "They've already made all the mistakes for whatever they're selling," says Kiser-Block. Besides the battle-tested products and strategies, you get advantages like trade name, consulting advice, how to manuals including how to train employees, sell your product and keep your accounting books. Also, the franchisors often provide training courses so that you can learn the nuances of running their particular business. "That's the beauty of franchising," says Kiser-Block. "If you started your own business selling eggs from a local farmer, you'd have to develop all that yourself."

However, what you gain in guidelines, you give up in freedom. "McDonald's doesn't care if you have a great way to cook a hamburger," says Kiser-Block. "You're going to cook it their way." Other things listed by the IFA that a franchisor you might lose control of include site approval, design and appearance standards, restrictions on goods and services approved for sale, restrictions on method of operations and restrictions on sales areas. If these limitations sound crushing to your entrepreneurial spirit, then franchising might not be for you. "Great franchisors want people who can follow a process," Kiser-Block says. "They don't want a cowboy."

Getting Started

If this sounds good to you, and you want to buy a franchise, there are a few ways to get started. One thing you can do is contact a company like Franchoice, which will set up a consultation to explore what franchise might be right for you. "We help people understand what they're trying to get out of a franchise," says Kiser-Block, whose service is free for potential franchisees. "Then we give them recommendations based on what their goals and finances are."

The IFA offers a free course in franchising basics at their Franchise University. They also offer more advanced classes that range from $40-$250 with titles like "Practical Financial Management for Growing Businesses" and "Franchise Compliance Program" for those already in the field.

The IFA recommends having an accountant look at the franchisor's books and a lawyer examine the contract, but Kiser-Block says not everyone uses a lawyer or accountant. However, if you do wish to talk to a lawyer, she recommends finding an attorney with franchise experience who is used to examining these agreements.

When you finally decide on what franchise to purchase, make sure it's the right one for you. Even if a business makes a lot of money, that isn't just enough. "Say you have a business cleaning out toilets," says Kiser-Block. "It may make a lot of money, but if you aren't willing to tell people you clean toilets for a living, if you're embarrassed by that fact, it's probably not for you."