Buying a Franchise Opportunity: Business Ownership Tips

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Franchising has been ingrained into the American lifestyle as much as football and fireworks, especially when one considers that a new franchise business opens every eight minutes of every business day.

There are an estimated 2,500 different franchisors operating in the United States and there are more than 500,000 franchise outlets in the country. Most consumers probably don't realize that the franchise industry accounts for 41 percent of all retail sales in the United States.

But what are the nuts and bolts of franchising? How exactly does it work?
Franchising might best be defined as a business opportunity in which individuals (franchisees) establish a relationship with a successful business (franchisor) and are given the rights to own and operate that business utilizing the franchisor's systems and brand.

It's often said that one of the biggest advantages of franchising is that it allows individuals to go into business for themselves, but not by themselves. A franchisor helps the franchisee get started and provides training, inventory, site selection assistance, marketing and more.

Owning a franchise also often gives owners instant-name recognition. Rather than starting a business from scratch, franchisees enjoy the benefits that come from a proven name and concept.

Individuals buy the right to become a franchisee usually by paying an initial franchise fee, along with additional start-up and training expenses. Ongoing royalties (usually a percentage of sales) and advertising fees are paid once the business opens.

Essential information concerning fees, projected start-up costs and other requirements for franchisees is outlined in the Uniform Franchise Offering Circular (UFOC). The UFOC contains information that state and federal regulators consider important to your decision regarding whether to buy a franchise.

Franchising thrives in the United States today because it benefits both the franchisee and franchisor. Many start-up companies are failures. Most small businesses fail because of weak management. Studies have shown that 90 percent of new businesses fail within three years. But franchisees benefit from a franchisor's managerial expertise. In turn, franchisors are able to achieve rapid growth either locally, regionally or nationally.

Franchises are prevalent in almost every industry and encompass more than 150 categories including automotive, business and children's services; computers; health and fitness; financial services; food and beverage; personal care; lodging; retail stores; pet care; residential services; sports and recreation and more. Whether a franchisee is looking for a pure retail opportunity or a business-to-business franchise, there is a franchisor that fits their need.

According to Rosen, there are three initial steps involved in establishing the foundation for considering a franchise investment:

a. Consider the work environment. Do you want to work days or nights? Do you want employees? Do you want a retail-oriented or B2B business?

b. Research, research, research. Visit franchising web sites to learn more about a franchisor. Consider your investment level and type of business. Narrow your choices based on what's most important to you.

c. Go to the source. Contact the franchisor for more information, but keep in mind that franchisors are as interested in you as you are in them. You'll likely be asked as many questions as you ask yourself.