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Franchising

Written by: Charles J. Fisher

Article Overview: Strong growth in franchising offers alternatives for the entrepreneur.

Franchising

On Franchising

More than 200 new franchising opportunities were introduced in the U.S. last year, underscoring the industry's enormous popularity here.
But which ones will be around 10 years from now, and which are simply somebody's make-a-quick-buck scheme?
Anyone considering starting a franchise needs to determine whether it is a legitimate concept, has legs and is appropriately priced, so as not to create a backlash among franchisees who feel misled on their investment. Experts who help would-be franchisers get started warn that many rush to market.
"A lot come to franchising prematurely," says Mark Siebert, president of iFranchise Group, a Homewood, Ill., consulting firm that advises potential franchisers on how to turn their ideas into real businesses. They may have been operating a popular barbecue restaurant in their home town, for example, but that doesn't guarantee that they could dot the country with them.
Handy Checklist
To winnow the thousands of inquiries it gets each year, Mr. Siebert's company asks potential entrepreneurs a series of questions, among them:
Do you really have something that will sell? How credible is your business model? Can it be easily replicated but hard to copy? Are multiple units already successfully operating in a variety of venues? How seasoned is your management team? Is it adequate to support your franchise if it takes off? And how much money can a typical franchisee expect to make?
An adequate return on a franchisee's investment is vital. Without it "you might be able to sell the first 10 [franchises], but you will have a real hard time selling No. 11," because by then the concept's worth will be widely known, Mr. Siebert says. He looks for at least a 15% return on a franchisee's investment -- after subtracting what that person would pay someone to manage the business.
A franchise should have a distinguishing attribute. Newcomers often seek to compete in segments that already are heavily franchised -- in effect, stacking the odds against themselves.
For example, no fewer than 48 franchisers -- many probably hoping to become the next Curves -- began marketing fitness-center concepts in the past five years. Another 39 sought to sell coffee and tea, while 34 others got into submarine sandwiches, according to Arlington, Va.-based FRANdata, which tracks franchising.
A franchiser also must be well-capitalized.
"You can have the best concept in the world, but if you don't have enough capital, it's one of the quickest ways to become a casualty in this industry," says Adam Siegelheim, an attorney with Stark & Stark, a Lawrenceville, N.J., law firm that assists new franchisers.
The number of locations already operating is important. The more outlets there are, the more likely a franchise's business model will be bug-free. Some franchise brokers consider a concept still unproven if only a handful of sites exist, and won't agree to help promote it.
Looking Ahead
Attitude and commitment are also indicators of a franchise's long-term success.
"If a person wants to franchise because he doesn't want to work anymore but just go to the mailbox and collect royalty checks, that's not going to work," Mr. Siegelheim says.
"Franchising is harder than running your own business, because you have to watch over franchisees who have no experience," he adds. "It's like a parent taking in more teenagers."

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Related Forum Posts
Re: Re Franchise etc - [quote="bmueller47":e0j0nu4t]Can you see a shift of various types of franchises? What I am thinking about is that today it is more difficult to create franchises, that has great appeal. More and more people want to have their business, but no interference of someone else.[/quote:e0j0nu4t] Not sure what you mean exactly but it is certain that more and more people want to have their own business but not more and more people know what they really want to do, or how to do it. And that's what franchising is all about. Franchising is not for an entrepreneur. An entrepreneur will do his own thing. People who buy franchises want a turn key business, with a proven model. Franchising in the US had never been that good. I don't have the exact numbers in mind but I know for sure that franchising is growing more and more as people are getting more and more aware of this business model.
Franchising vs. Licensing? - What is your opinion on Franchising vs. Licensing? Which is better?
Nominations for a new Franchising Moderator! - Is there anyone you'd like to nominate as our Franchising Moderator (or volunteers for the position)?
Great Article, chock full of info. - Ian, Thank you for linking your article regarding Licensing vs Franchising. Its a good read.
Re: Hello from Captain Franchise - Hi BuzzAroundBooks, I actually found the site in my search for franchise networking. We're looking to make connections and also inform the general public about franchising. Franchising is often misunderstood because of the lack of knowledge. We're here to help and learn as well! Thanks!


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