What You Should Know about Franchises

By Mary M. Alward

If you are a budding entrepreneur, you have probably thought about buying a franchise. There are a wide range of franchises on today's market, from fast foods and coffee shops to hotels, car repair shops, ice cream parlors, hair salons and beyond. However, fast food franchises top the list of franchise opportunities. These can be simple fare, such as hamburgers and fries or pizza, chicken and rib franchises and more. No matter what type of fast food franchise you choose, if you manage it carefully, chances are it will be successful.

Maybe you're wondering if a franchise will be more successful than a business that is well established. Another possibility is starting your own business. How do franchises compare to these other opportunities? Let's take a closer look at franchises.

What is a Franchise?
A franchise is a relationship between an individual, individuals or an organization and the owner of a brand name, service mark or trademark. This is a legal relationship and the franchise contract identifies how the business will be conducted between the parties involved. Usually, the franchisee sells goods, products or services that are supplied by the franchisor. At other times the franchisee sells goods, products or services that meet the high quality standards of the franchisor.

What You Pay For
When you think of the cost of a franchise, think in terms of paying for the development of a successful business. The business plan, initial research, operation and marketing strategies have all been completed successfully.

Franchise Success
Franchises are usually very successful and they're easy to buy into. However, unless the franchise has a top success rate nationally, there is a possibility it could fail. Even the top franchises do not do well in some areas. Do a little leg work and ask people how they would feel about having a certain franchise in your area.

Financial experts have reported that 40 cents of every dollar in America is spent on a franchise product or service. Each year, nine out of ten franchisees report that their business has showed a profit at the end of their fiscal year.

Choosing a Franchise
In order to choose a franchise that will suit your needs, you will have to conduct a great deal of research of your own. Figure out exactly how much you are willing to invest in a franchise. Franchise fees can be as low as $1,000 or as high as $500,000. There are also start-up costs to consider. These can range from inexpensive equipment to high priced real estate.

The average amount spent on a franchise agreement is $250,000, which excludes equipment, real estate and initial set-up fees. There are more reasonably priced franchises, but the more expensive ones are the most successful. The average commission paid to the franchisor can be anywhere from three to eight percent each month. The usual length of a franchise agreement is 10 years.

Which Franchise?
Once you've examined franchise costs and feel comfortable with the amount you’ll need to invest, you need to take a long, hard look at the different types of franchises available and choose one that is compatible with your interests and lifestyle. Check your local library for books on different types of franchises and conduct online research as well. You will find that there are many franchise opportunities available that will pique your interest.

Make a list of franchising opportunities that interest you and are within your investment budget. Then, go out, meet and talk to other franchisees in your area. Ask them about costs, earnings and support from the franchisor. Ask them if they had to do it all over again if they would make the same choice.

When you have completed several interviews with franchisees, it's time to look at the pros and cons of franchises to allow you to decide if investing in a franchise is right for you.

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