Franchising Means Entrepreneurs Don?t Have to Go it Alone

buying a franchiseRich Wallace wanted to start his own business, but wasn?t sure where to start.

At first, Wallace, 34, wanted to open a coffee shop, but his experience was in administration and information technology.

So he decided to explore franchising.

?I know how to manage an existing business, but I didn?t know how to get started,? Wallace said. ?A franchise system was going to give me the coaching I needed and the freedom I also wanted to run my own business.?

Franchises offer prospective owners the opportunity to go into business for themselves but not by themselves, said Alisa Harrison, senior vice president of communications and marketing for the International Franchise Association. But it doesn?t guarantee a business? success, Harrison and others said.

Prospective owners need to do research, have enough capital to get the business off the ground, and put time and effort into the endeavor, Harrison and others said.

?Make sure you fully understand what it is going to take to be successful, especially in the beginning,? Harrison said.

Franchises accounted for 10.5 percent of businesses with paid employees in the 295 industries from which data were collected in 2007, according to the U.S. Census Bureau?s most recent statistics. Franchises accounted for nearly $1.3 trillion of the $7.7 trillion in total sales for those industries.

U.S. franchise establishments increased by 1.5 percent to 757,055 in 2012, and are expected to grow by 1.4 percent in 2013, according to a report prepared for the IFA.

According to the U.S. Small Business Administration, survival among independent businesses and franchises is similar; about half of new small businesses survive five years or more and one-third survive 10 years or more.

Ted Zoller, a professor at the University of North Carolina-Chapel Hill Kenan-Flagler Business School and the director of the Center for Entrepreneurial Studies there, said franchise advantages include a template business with a predefined pricing and marketing strategy, and access to market research.

The biggest advantage, Zoller said, is the relevance and visibility of the brand.

?People know the brand based on its experience with it elsewhere,? Zoller said. ?So you can immediately get traction.?

Franchising includes everything from restaurants and car washes to postal companies and hair salons. With more than 300 different lines of businesses, and in some cases hundreds of companies within those categories, the opportunities abound.

Initial investments run between $5,000 and $5 million, Harrison said.

Product distribution franchises, including Coca-Cola and Goodyear Tires, are businesses in which the franchisor owns the right to the trademark and sells that right to distribute their product to the franchisee, according to the IFA.

Business format franchises, such as Wendy?s and Jenny Craig Weight Loss, provide franchisees with a way to operate using the brand name, and often include ongoing assistance with services such as training, product supplies or marketing.

Product franchises represent the largest percentage of total retail sales, but business format franchises are the most popular, according to the IFA.

Once an entrepreneur decides to move forward, they need to ?research, research and research,? Harrison said. ?You just can?t do enough research.?

?If you are someone who is very independent and who likes to create and do things your own way, then franchising might not be the best way because the whole point of franchising is to follow a system,? Harrison said.

Most prospective franchisees have a company in mind before they start, but others, such as Wallace, turn to consultants for help.

But some consultants only represent certain brands, Harrison said.

?Be aware of that and ask those questions up front and make sure that you are taking advantage of all the companies and brands that are out there,? Harrison said.

Also, newcomers should seek the help of an attorney, business broker, or consultant before signing a franchise agreement.

?It is a big commitment, and it?s very, very important that you understand what you are signing,? Harrison said.

Also, potential franchisees should be aware of pitfalls such as taking on the additional risk of buying a location instead of leasing, not having enough cash flow and assuming that the franchise brand is going to carry the business, Zoller said.

Wallace sought help from SCORE, which offers free counseling to small businesses, in the summer of 2011. Representatives there directed Wallace to Daniel Prendergast with The Entrepreneur?s Source, a franchisor that offers business coaching and helps connect prospective owners with franchising and business opportunities.

Prendergast presented Wallace with three companies, and Wallace decided on Window Genie, which cleans and tints windows.

?It was pretty clear to me early on that I wanted to be with Window Genie, but I made sure that I fully investigated the other two options,? Wallace said.

Wallace paid about $32,000 to open his North Raleigh store in March. The company?s franchise fees start at $20,000, but Wallace paid more to claim a protected territory of 60,000 homes. No one else can open a Window Genie in those ZIP codes or advertise in that area, Wallace said.

Window Genie supplies Wallace with training and marketing materials. However, he had to pay for equipment, he said. He spent about $7,000 on a Window Genie package of supplies, including a pressure washer and ladders. He also spent about $19,000 on a vehicle and additional marketing materials.

Plus Wallace pays Window Genie a bimonthly royalty fee, which is about 7 percent of his gross profit.

Window Genie gives guidance to ensure that branding and company standards are met, Wallace said. Wallace can run ads, but Window Genie has to approve the artwork. Also, Window Genie requires services to meet its standard, but Wallace handles customer scheduling and management. Wallace hires his employees, but they have to pass a background check and be insured.

Wallace has access to the franchise?s experts and technicians, and is part of weekly meetings to discuss best business practices.

?They guide. I decide. They approve,? Wallace said.

Source: MCT Information Services