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10 Keys to a Successful Franchise
For individuals looking for a
highly lucrative income stream, owning a franchise can be
the perfect jumpstart. Unlike creating a business from scratch,
a franchise involves no guesswork, but rather, comes complete
with instructions from A-Z so new owners do not have to reinvent
the wheel. Franchises also have a success rate that far outnumbers
the survival rate for independent businesses. (97% of franchises
were still in business at the end of 5-6 years as compared
with only 62% of non-franchised businesses, according to
the United States Chamber of Commerce Report, 1999.)
While operating a franchise can yield a far greater return
than creating an independent business, and often be up and
running within a few months, there are a number of important
considerations to be aware of. Following, are 10 tips from
Ken Cone, franchise consulting expert, to help potential
franchisees avoid some common pitfalls and create a winning
opportunity.
10 Keys to a Successful Franchise
Tip #1: Choose an industry you feel passionate about. Franchises
are available in 27 different industries, including: automotive,
building storage, decorating, child education and development,
coffee, computer technology, convenience stores, employment
and personnel, financial services, food and restaurant industry,
health beauty, and nutrition, lodging, laundry and dry-cleaning,
maid service and cleaning, maintenance, management and training,
packaging and mailing, pet care, printing and copying, food
businesses, real estate, repair and restorations, retail
sales, dry cleaning, senior care, signs and sports. The hottest
trends right now are in pet care services, including mobile
pet care, and senior care agencies, with millions of baby
boomers and their aging parents on the horizon.
Tip #2: Choose a franchise that is up and coming, rather
than one that has already saturated the market. It is difficult-to-impossible
to buy a popular, fast food franchise, such as a Burger King
or McDonald’s, because new territories are often unavailable.
However, there are hundreds of franchises on the rise, (fitness
centers being one of many examples), that represent excellent
opportunities for new franchisees.
Tip #3: Choose the right location. Most franchises use professional
site selectors and demographers to ensure that there is a
large enough target market to support the franchise being
located in a particular setting.
Tip #4: Review the UFOC carefully! Once you’ve chosen
a particular franchise to investigate, the franchiser will
send you a document called the UFOC (Uniform Franchise Offering
Circular), which will provide you with the information you
need to research that franchise in depth. Before making your
final decision, review the UFOC with a lawyer or accountant.
Tip #5: Contact other franchisees within that franchise.
All franchisees are required to be listed in the UFOC, including
those who have left within the past year. Be on the lookout
for unprofitable or unhappy franchisees. A few are acceptable;
ten or more are not.
Tip #6: Note the amount of litigation in which the franchiser
is involved. This information will be listed in the UFOC.
Excessive litigation with franchisees can be a sign of a
franchiser who has poor communication skills.
Tip #7: Meet face to face with the franchiser. Not only
is it good to know who you are doing business with, but you
will also want to know what systems are put in place so that
if a problem arises you are immediately able to access the
franchiser, or other franchisees, to find out how that issue
has been dealt with before.
Tip #8: Inspect the procedure manual and observe how well-organized
the franchise is. The franchise should be organized so that
the procedures that are supposed to be followed can be followed.
If the franchise is not well-organized, and the procedures
are not easy to follow, the risk of failure increases.
Tip #9: Royalties should be priced at a rate that allows
both parties to thrive. The intent of being a franchiser
is to receive passive income from the efforts of others.
The royalty rate depends upon the industry. Royalties for
food-related franchises are lower because of the higher overhead
costs. For example, franchisees at McDonald’s pay a
4% royalty to the McDonald’s franchiser. For franchises
that are based on service providing, where the overhead is
low, such as for maid services or the computer service industry,
the royalties are higher, at 10% or larger.
Tip #10: Talk with a franchise consultant before jumping
into the franchise world. There are many risks that franchise
consultants can help a potential franchisee avoid. The consultant’s
job is to save franchisees time, money and potential aggravation.
The cost of buying a franchise should not increase when you
use a franchise consultant, and franchise consultants should
provide their services free of charge.
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