Franchising appears to be one part of our economy that is recession-proof. Even with economic storm clouds overhead, franchising continues to grow at a rapid 15 percent to 20 percent annual clip.
One reason is that a lot of individuals who have had to leave corporations in recent cutbacks have been looking to own franchises. Another is that many folks who have always wanted to run their own businesses view a time-tested franchise as a less risky way of doing so in this weak economy. The success rate of franchise businesses is an impressive 95 percent, though how you rate success is a subjective call. Independent businesses, on the other hand, have a 50 percent first-year failure rate.Many modern franchises don't cost hundreds of thousands of dollars to own and operate as some of the more famous ones do. The International Franchise Association points out, for example, that a Novus windshield repair franchise is a $10,000 investment; an Office Answer outlet $20,000; and Jazzercise $27,000.
However, running a franchise is no piece of cake. Long hours are a given and you must face the vagaries of how good your location turns out to be, how strong your competition is and whether your ongoing costs wipe out your profits. In addition, a repetitive business may become downright boring to you in short order.
It's not a get-rich-quick scheme, either. To dramatize matters, recall any inadequate assistance you've received from employees at a variety of franchise businesses. Next, sit back and consider the worrisome possibility of being the boss of those employees.
Financial commitment is a key factor. "The return on investment probably relates to how much you put up in the first place, so, if you put up $100,000, you should figure 15 to 20 percent return on your money," said William Cher-kasky, president of the International Franchise Association, a trade organization for 700 franchisors. "As a rule, if you don't invest much money, you won't get much back."
There has recently been a significant growth in the number of home-based franchise businesses, and franchises that serve the business-to-business market. In addition, more couples are getting involved. Money Mailer of Huntington Beach, Calif., fits into all of those categories, a nationwide operation with 270 franchises that sends out direct mail coupons of various companies. Start-up investment is $20,000. All the equipment required to get started is a telephone and a postage machine.
"Costs involved in owning a typical franchise include a francise fee paid up front, generally between $5,000 and $35,000, and an ongoing royalty fee, probably paid weekly as a percentage of your sales," explained John P. Hayes, president of the Hayes Gregory Group, a franchise consulting group in Fort Washington, Pa., and author of the book "Franchising: The Inside Story." "A third fee is an advertising fee, which can be computed in a variety of ways."
The International Franchise Association offers the Franchise Opportunities Guide, which lists all of its members, for $10, plus $4 for shipping and handling. It also offers Investigate Before Investing, a pamphlet which gives tips on how to prepare for franchise ownership, for $5 plus $4 for shipping and handling. Write to the IFA, 1350 New York Ave. N.W., Suite 900, Washington, DC 20005.
"We really push the husband and wife concept, and we stress working out of your home with no overhead," said Christina Huckins, co-owner of Mr. Miniblind, based in Irvine, Calif., which since 1988 has sold 70 franchises in 11 states. "We came up with the concept for our business after realizing that miniblinds, wood blinds, vertical blinds, pleated shades and shutters are a $6 billion industry in this country." Mr. Miniblind, operating from mobile vans, requires a $28,000 initial cash investment.
Proper funding is crucial to any franchise, according to Alber Bevilacqua, owner of a Packaging Plus Service store in Massapequa, N.Y., for three years. Packaging Plus offers packaging and shipping services.
"My advice to anyone considering buying a franchise is to save your money, because you just can't make it without proper capital," Bevilacqua emphasized.