Try a Low(er) Risk Opportunity: Open a Franchise


Jobs are scarce these days, but the bleak employment market could be just the kick in the pants you need to strike out on your own.

An easy way of becoming a small-business owner is to open a franchise. This niche has been growing for the past 50 years and led the recovery during the slumps in the 1980s and 1990s, says Michael Seid, coauthor of "Franchising for Dummies."

He predicts that it'll be the same for today's economy.

"As people lose their jobs or are threatened with losing their jobs or simply because the pressure of doing more for the company with less personnel pushes them to obtaining their 'great American dream' of business ownership, 2009 should see a strong increase in prospective franchisees," Seid says.

Before you sink your retirement savings, keep these seven tips in mind:

Are you the right fit? Being a franchisee takes a certain personality. You need to be ambitious but willing to execute the brand strategy designed by the franchisor. You need to be a go-getter but also able to follow orders. "If you want a job, get a job," says Scott Evert, director of franchise sales and resales at international business brokerage firm Sunbelt. "If you want to own a business but want structure, then you're a good franchisee. You also have to be a good listener and a fast learner."

Consult experts: If this is your first stab at being a small-business owner, consider working with a broker, who gets paid by the franchisor to locate new franchisees, or a lawyer who specializes in this niche. They can help you narrow down what companies you would like to partner with. After all, there are thousands out there, from pet stores to auto services. But be honest about your expectations. What kind of salary do you think you can live on once things are up and running? Are you willing to work on weekends? How will this impact your family? What's your tolerance level for risk? How hard do you want to work? What's your passion?

Do your research: Even ifyou hire an expert to help you navigate your choices, you should still do your homework and learn as much as you can about the franchise and what you're getting yourself into. Evert recommends calling at least 10 of the franchisees to hear what they have to say about the kind of support system the parent company offers. It'll also help you see if your personality is a good fit with the team.

And don't forget to contact those who have left the system, recommends Steve Rosen, chairman and CEO of franchise consulting firm FranNet. If their tales are horror stories, then you may not want to buy into it.

Read the market correctly: Given that people are guarding their wallets, be smart about where you're investing your money. Seid, who is also managing director of Michael H. Seid & Associates, believes there will be strong demand for businesses that educate or take care of children, service the senior community and provide personal care like hair salons. "Also look for companies to outsource many internal services such as repair and maintenance, accounting, human resources, etc.," he adds. "Those companies that can provide those services at a lower cost than having internal employees will be great opportunities."

Other winners: check-cashing services, low-cost medical walk-in clinics and restaurants that provide quick, casual table service and a family dining experience.

Limit risk by buying an existing franchise: This strategy can be cheaper and less risky than going to a franchisor with a proposed location. Franchisors like Dunkin' Donuts want franchisees who have experience running multiple stores and will ask for a significant commitment. "If I can buy an existing franchise that is a little dirty because of an absentee owner but has enough of a cash flow to service any debt and pay me a salary, it's a business I would own regardless of sector," says Evert.

You may also find getting a loan from institutions like the Small Business Administration to be a little easier.

But risk still remains: Whatever business you decide to join, be aware that there is still a risk of failure. Sure, becoming a franchisee means you have greater brand recognition and support than if you started a business from the ground floor. You're working with a proven business model. But, says Rosen, "this is not a slam dunk. McDonald's (MCD) even has failures. You have to do your homework."

The price tag: Starting any business, including a franchise, requires capital. And considering how tight the credit market is these days, you may have to tap into your savings and retirement funds, not to mention hit up friends and family. So what's it going to cost you? It all depends on which franchise you want. It can cost you as little as $10,000 and as much as millions. Just because the economy is in the dumps doesn't mean franchisors are slashing prices to attract franchisees. Franchise experts say they are seeing more and more people looking into this area for financial stability.

"We have 60 offices in the U.S. and it has become increasingly noticeable in the last six months that the number of people attending our seminars is up significantly," says Rosen.

Show Comments

Back to Top