Published March 2005

Buying a franchise:
Consider the pros, cons

Dear BizBest: I want to get into business for myself, and buying a franchise seems like my best ticket. Nearly every new business that opens locally seems to be a franchise. But what type is best? There are so many. How do I analyze the field? And is it really a better choice than starting from scratch? — Future Franchise

Dear Future Franchise: Franchised businesses — a uniquely American icon — are growing at a breakneck pace. According to the International Finance Association, nearly 400,000 franchised businesses now employ 9.8 million people with a payroll of $230 billion. Curves, for example, a network of franchised women-only fitness centers, grew nearly 38 percent last year alone.

The key to making the right choice between franchise or startup — and which franchise to buy — is research. You must investigate before you invest.

First off, consider your appetite for risk. If your entrepreneurial fires are burning, you hanker to strike out on your own to test your own ideas and you thrive on risk, then starting your own business may be a better choice. A franchise lowers the risk because someone else has already pioneered the concept, tested the ideas, made the inevitable mistakes and found out what works and what doesn’t.

The result is a tried-and-true formula that is replicated place to place. When you buy one of these “business format franchises” you get a packaged deal that’s ready to plug in and go. If buying into an already successful recipe appeals, then franchising may be right for you.

As you investigate franchises, explore these areas:

• Required experience, hours and personal commitment necessary to run the business.
• Background of the franchisor, its track record and how other franchisees in the system are doing.
• How much it will cost to buy into the franchise, how much you’ll pay for the continuing right to operate the business and options for financing your investment.
• What products or services you are required to buy from the franchisor.
• Terms and conditions for getting out and how many franchisees have left the system during the past few years.
• Detailed financial information on how current franchisees are doing.
• And don’t forget the fun factor. To have the best chance at success, choose a type of business that excites you.

These resources can help you investigate the franchise field, and find a franchise that’s right for you:

• The International Franchise Association, a membership organization of franchisors, franchisees and suppliers, offers helpful info on how franchising works. Search their database of over 800 franchise opportunities with Web and e-mail links. You’ll find good step-by-step guidance for beginners. Visit www.franchise.org.
• StartupJournal.com has an extensive archive of articles on franchising. Click the “Franchising” tab at the main page. Go to www.startupjournal.com.
• Bison.com is designed like an online shopping mall of franchise opportunities, with featured listings, franchising news and articles for franchise buyers. Go to www.bison.com.
• The National Federation of Independent Business Web site offers access to articles, information and advice on buying and operating a franchised small business. Look in the “Tools & Tips” section under “Starting a Business.” Visit www.nfib.com.
• Franchise Direct is an online franchise opportunity directory and information resource. Search by industry, investment range or alphabetical listings. Visit www.franchisedirect.com.
• The U.S. Small Business Administration can help in several ways. You’ll find general information on buying a franchise in the “Starting Your Business” section of the SBA Web site (www.sba.gov). If you are considering a franchise purchase and may want an SBA-backed loan, check the SBA-sponsored Franchise Registry. Visit www.franchiseregistery.com.

Daniel Kehrer (dan@bizbest.com) is founder of BizBest (www.bizbest.com), which publishes “The 100 Best Resources for Small Business.”

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