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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 Franchises
For Women
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 contactus@minorityfranchise.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,
Franchises For Women offers a Resource
Center with lenders who want to help.
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Where
can I find additional sources of available capital?
Franchises
For Women 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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