Should You Invest In a Franchise?

My brother-in-law came to the United States from Damascus, Syria. There, as a young man in his early twenties he was trained and worked as a Chef in the Sheraton Hotel in Damascus . It was his American dream to come to the United States and open a restaurant of his own. After many years of saving, he and my sister had the money to invest. They chose to go with a franchise instead of creating a resturaunt of their own. With a franchise they would be able to have a turnkey business that has been established in the area and receive support and training. Most importantly, with a franchise they would have brand recognition and customers that were familiar with the restaurant. They chose an upscale hamburger franchise in Southern Californa. They met and liked the owners and talked with other franchisees in the franchise network so they would know what to expect. They were able to watch the restaurant being built from raw land and into a brand new establishment with a fabulous kitchen! They have been very successful and happy with their decision.

A franchise will typically offer the prospective franchisee:

• An established business name, trademark, customer recognition


• Business support (business plans, help with location, training)


• Help with financing


• Proven track record


• Product

The downside of opening a franchise over an independent small business:

• Monthly franchise fees of around 6% to 10% of gross sales


• Loss of freedom in product or services


• Reliance on the performance of other franchisees in the system.


• The franchise can terminate your agreement at the end of your contract term.


• You are leasing the trademark name you do not own it.

If you are considering investing in a franchise:

• Evaluate the amount of money you have to invest in the venture.


• Go to Franchise trade shows and talk to the various franchisors and determine what kind of work you would like to do.


• Have the franchisor back up any financial claims with tangible written documentation. The Federal Trade Commision requires all franchisors to provide prospective franchisees with a complete disclosure statement so that the franchisee can make an informed decision.


• Look at franchises that have been in existence for a long period of time--they have a higher rate of success and profitability.


• Talk to other franchisees in the franchise system to find out what you can expect in terms of operation and profit.


• Look at the annual sales and make sure they are increasing and not declining. Do the same with net profit.


• Don't rush into anything. If you feel pressured --walk away.

Check any prospective franchise opportunity for complaints with the Better Business Bureau at

http://welcome.bbb.org/

If you would like any further information to evaluate if a franchise is right for you, The Small Business Administration is an excellent place to start. They have great resources and people trained in helping you to start up a small business including financing options and research materials.

http://www.sba.gov/