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Important Facts About Franchising
What is the history of franchising?
"How did it all start?" Few people really know the exact
answer. According to definition, the word "franchise"
comes from old French, meaning privilege or freedom. Some say franchising
began with an effort to collect taxes, as governments would select
certain people to gather fees within a given geographical area.
These "collectors" as they were called, kept a sizeable
portion of the monies collected and remit the balance to the Pope.
Other historians say franchising started with a privilege bestowed
by the local sovereign -- or lord - giving merchants the right to
hold fairs, market their wares, trade, run local ferries or hunt
on their lands. Essentially, this was an endorsement of a monopoly
on commercial ventures. This common practice was perpetuated throughout
the Middle Ages, and eventually became part of European Common Law.
Franchising
continued its evolution in the economies of the world. The most
sited example occurred in Germany in the 1840's when major ale brewers
granted exclusive rights to certain taverns to sell their brew.
In 1851, the Singer sewing machine company granted limited distributorships
for their famous sewing machines. The language, format and contractual
agreements utilized in that early franchise document (i.e., Prospectus
or United Offering Circular) are still utilized today.
Around
the turn of the century, the face of franchising looked very much
the same; it essentially granted the right to distribute and sell
a product. At this time, the trend-setting model was the franchising
rights authored by oil refineries and automobile companies.
After
WWII, millions of servicemen and women returned home, and with that
- the Baby Boom began. The large work force demanded the opportunity
to explore and develop more and better business opportunities, which
changed the business and our economy forever. With these demands,
franchising evolved into the dominant and most successful concept
- business format franchising. In this type of franchising, the
franchisor (example: McDonald's) not only allows the franchise to
use its name and sell its products or services, but also involves
the total transfer of a way of doing business. This includes marketing,
operating, technical training, management techniques and expertise
developed and perfected by the franchisor (sometimes referred to
as a "learning curve"). The franchisor will also provide
on-going training and support throughout the life of the franchise
agreement.
A rapid
growth in the 60's and 70's presented a perfect opportunity for
the "franchise concept" to grow and flourish. At the same
time however, franchising experienced some harsh growing pains.
Along with the honest and solid franchisors, emerged the unscrupulous
and fraudulent; misappropriating the licensing fees and literally
running out of town. Others were undercapitalized and faltered in
their concept, leaving in their wake--- the franchisees. Still,
other franchisors had been careless in selecting the right "franchise"
and thus, partnered themselves with erroneous individuals and misrepresented
their company.
In
spite of all of the hardships and stumbling blocks, franchising
has emerged triumphant, as it remains as the most clear and viable
business concept. Franchising, or more specifically, business format
franchising, affords entrepreneurs interested in self-employment
a strategic partnership or relationship that is governed by a contract
or franchise agreement for a defined period of time. When you purchase
a franchise you are investing a proven and refined system that should
have a brand name, successful operating system and a history of
quality service and success. The common goal for the franchisor
and the franchisee is to dominate a particular market and keep customers
coming back for more. All members (franchisees) of a particular
franchise system share the responsibility of maintaining high standards
of quality, consistency, convenience and other factors that contribute
to the success of building a dominant brand, loyal customers and
repeat business for everyone.
The
ultimate success of the franchisee (individual franchise unit owner)
is based on the proven success of the franchisor. If the franchisor
offers an established product or service with a well-recognized
brand name, a history of success with company units and existing
franchises, is well financed and motivated, your chances of success
are very high. And, although franchising is now a very highly regulated
industry, it is important that you ask the right questions, seek
the right advice and consider your objectives before investing in
any franchise opportunity.
The
history of franchising is like any other - with turns, twists, hills
and valleys. But observe any busy street corner to understand the
power, value and foot hold that franchising has accomplished. It
is a highly regarded and regulated industry, which encourages the
creation of business opportunities with guidelines, procedures and
advice.
The
Franchise Opportunities staff represents over 30 years of franchising
experience. We invite you to seek advice from our experts by calling
1-888-363-3390 or e-mailing us at info@franchiseopportunities.com
today!
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Is
franchising right for you?
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, as corporate and professional people are
buying franchises every day. The numbers of women and minority franchise
owners is dramatically increasing, as is the number of 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 an established and reputable franchise.
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.
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What
kinds of franchises are there?
More than 750,000 franchise businesses constitute the North
American small business landscape, generating more than €1 trillion
in sales. With a new franchise business opening somewhere in the
United States every few minutes each business day, franchising is
indeed the success story of the 1990's. 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. On many, we have "web brochures"
which describe the business and provide ample information to help
you determine if you want to request their complete business package.
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What
can a franchise do for me that I cannot do for myself?
A franchise is already a functioning business system. While
entrepreneurs must utilize thousands, millions or even billions
of dollars in order to set up a profitable business model, a franchisee
can step into an already established concept, with much less risk
for failure involved. 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. That might not hold true however,
for a wash.
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How
much profit will I make?
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 victory. 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 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.
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How
do I investigate the franchisor?
Acquire
the franchise document (Uniform Franchise Offering Circular), which
is often referred to as the UFOC. This document is prepared in accordance
with the requirements of the Federal Trade Commission (FTC). It
contains information on the principals, their backgrounds audited
financials and a lot of other pertinent data - including the current
franchise agreement. Included in the UFOC is a list of franchisees,
which we suggest contacting and if possible, visit prior to commitment.
Be certain that you like the business. Gather candid comments from
a representative number. 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. Furthermore, if you can see the franchisor prior
to your investment, we suggest taking the opportunity to meet the
people you will depend on for support.
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How
do I know if I can afford it?
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.
- Your
initial investment
- How
much money do you have to invest?
- Will
you pursue 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?
One
of the primary reasons for business failure is under-capitalization.
While the franchisor will give you a good idea of the initial costs,
understand that they can sometimes vary due to leasehold improvements,
unanticipated needs, etc. You must have enough money to open your
franchise and run it until the time when it is profitable. Check
with franchisees in your area, to determine what their start-up
capital requirements were and add 10%- 20% as a safety net.
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Will
the franchise help me finance?
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 Resource
Center with lenders who want to help.
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Where
can I find additional sources of available capital?
Franchise Opportunities has a Resource
Center that offers information and additional sources of capital
for small or start-up businesses. Visit our Resource
Center by clicking here.
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