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Frequently Asked Questions
About Franchising
- Is Franchising right for you?
- What kinds of franchises are there?
- What can a franchise do for me that I cannot do for myself?
- How much profit will I make?
- How do I investigate the franchisor?
- How do I know if I can afford it?
- Will the franchise help me finance?
Question:Is Franchising right for you?
Answer:If you are the type of person who desires to own your own business and be your own boss, then there may be a place for you in franchising. The varied opportunities available in franchising are drawing people from every walk of life from former corporate professionals to young owners, recently out of college. Investors at all levels are finding that few financial investments can compete with the potential income and personal growth of established and reputable franchises.
Franchising is especially attractive because it offers people with various levels of capital and experiences a good opportunity. However franchising is not for everyone, as some people will not adjust well to a franchisor setting. Franchisors have established standards and rules, sometimes making decisions that you might not agree with. Before you invest, investigate… ensure that you understand the franchise model and that it is one with which you agree.
Question:What kinds of franchises are there?
Answer:More than 750,000 franchise businesses constitute the North American small business landscape, generating more than US$1 trillion in sales. With a new franchise business opening somewhere in the United States every few minutes each business day, franchising is indeed a success story. Within the various search capabilities of Franchise Opportunities, we have assimilated literally hundreds of franchise opportunities that encompass virtually every category of the small business spectrum. Browse our database and locate offerings that interest you. Our detailed "web brochures" provide more detail on the franchise or business opportunity and will help you determine if you would like to request a more complete business package.
Question:What can a franchise do for me that I cannot do for myself?
Answer:A franchise is already a functioning business system. While entrepreneurs invest heavily in order to set up a profitable business model, a franchisee can step into an already established concept, with much less risk for failure. For example, are you aware that as many as 80% of new business start-ups fail each year? An already functioning business model will put you heads and shoulders above the novice entrepreneur who not only needs to generate profits, but also needs to develop a profitable business model. For instance, fast food businesses greatly benefit from their association with the brand name and products of the franchisor. It can take much time and be very challenging for an individual business owner to establish his business with the same brand recognition and popularity as an existing successful franchise system.
Question:How much profit will I make?
Answer:Although the success rate for franchise-owned business is generally better that the success rate for many independent businesses, there is no formula to guarantee success. The same may also be said of the profits generated. Often the margins you make are a reflection of your ability to properly run your franchise, however you may be able to get a document (Item 19 of the Franchise Disclosure Document) from the franchisor that illustrates the typical franchise earnings. If the franchisor does not provide such a document, you should contact a number of franchisees in the market you are interested in and seek their advice on the business' profitability. One bad apple does not mean the concept is flawed, so be sure to speak with at least five franchisees.
Question:How do I investigate the franchisor?
Answer:Acquire the Franchise Disclosure Document (FDD). The format of the FDD is specified by the FTC and NASAA (Federal and State Regulators) and provides information about the franchisor, the obligations of the franchisor and the franchisee, fees, start-up costs, and other required information about the franchise system. It includes a listing of current and former franchisees. In addition to the disclosure portion of the FDD, the document will contain the franchise and other agreements and exhibits. It does not typically include unit earnings information. Item 19, "Earnings Claims" is an optional disclosure under the FTC Rule and State FDDs even though the performance of the franchise in terms of unit "earnings" are material facts that should be disclosed to new buyers by the seller of the franchise, who profits from the sale.
Be certain that you like the business. It is also advisable to talk candidly to existing franchisees. If you reach someone who seems negative, attempt to determine if the comments appear legitimate. Don't assume the business model is the problem solely because you speak with a negative person. It is a good idea to talk to a good sample of franchisees.
Question:How do I know if I can afford it?
Answer:Before investing in a particular franchise network, carefully consider how much money you have to invest, your abilities and your desired goals. The following checklist may help you make your decision:
- What is the initial investment? How much upfront cash will I need to put down?
- How much money do you have to invest?
- Will you persue the franchise by yourself, or with partners?
- Will you need financing and where can you obtain it?
- Do you have a favorable credit rating?
- Do you have savings or additional income to live on while starting your franchise?
Question:Will the franchise help me finance?
Answer:While there are franchisors that do assist in franchise financing, others do not. This will vary from franchisor to franchisor. Seek the financing options offered by the franchisor but also consider friends, family, investors, the Small Business Administration (SBA) and if you have a relationship with your local bank, certainly deem it as an option as well. Additionally, Franchise Opportunities offers a Finance Center with lenders who want to help.