FRANCHISING
BY YEGOR MESCHERIAKOV, GWU
It is statistically proven that over 90% of the new (non-franchise) business startups fail within three years. That is why business format franchising is as close as you are going to come in today’s market place to guarantee success with a minimum of risk.
 History. The word franchise comes from an old French word meaning privilege or freedom. The middle ages meaning of this word corresponded to a monopoly right granted by the local lord to someone who wanted to pursue a commercial activity. Business format franchising, which is the dominant mode of franchising today, came onto the economic scene after World War II with the return of the millions of US servicemen and women and the subsequent baby boom. Today, franchising is a highly regulated industry, which offers a great opportunity to those individuals who truly want to realize their dream and go into business for themselves.

 What is franchising? Essentially franchising is a very specific method or way of distributing goods and services. Simple types of franchising such as product franchising or name and process franchising developed early on were operated whereby a manufacturer granted a franchisee a right to either sell products or use a process along with its name. Modern franchising, however, is primarily in the business format mode – this type of franchising not only grants the right to use the name and sell the products or services, but it also involves the transfer of the total way of doing business that has been developed by franchisers. Specifically the franchiser transfers all the operating systems, technical expertise, marketing systems, training systems, management methods and essentially all relevant information, to the new franchisee.

Why buy a franchise? Besides obvious advantages of stability, enhanced chances of success and minimized risk, franchising also offers so called chain reaction benefits – the large number of units enables the franchisee to advertise heavily, positive word of mouth, domination of the market because of sheer size, etc. In addition, a franchise investment can be thoroughly researched before any significant expenditures are made. That helps to anticipate the future and eliminate ‘operating in the dark’ like many non-franchise business startups usually do.

How to select a franchise. It might sound obvious, but one has to find a franchise that suits his/her interests. It is necessary to imagine yourself operating the franchise and ask yourself a simple question – Will I be happy in that environment? After narrowing your research to a handful of franchisers, you should get brochures and other materials about prospective companies. Based on your readings and overall feelings about particular franchises, the next step is to visit an operating unit and thoroughly explore it. Further, if interest is still there, it is recommended to visit one of the home offices where one can meet key people and familiarize him/herself with other nuances of the prospect company. Finally, you will be given a Uniform Offering Circular (UFOC) to take with you. This document represents a great deal of information on the company and the opportunity. The following are the crucial steps in franchise selection:

Analyze the UFOC with a help of professional.
Closely examine the franchise agreement.
Call as many franchises as possible.
Visit personally as many operating units as possible.
If everything still looks good, then contact the sales rep and get as much definitive sales information as possible.
If you satisfied with your findings, then go for it!

          MOST COMMON MISTAKES MADE BY FRANCHISE BUYERS
  1. A great industry assures your success. Although addressing a growing market is important, this alone will not make you succeed because franchiser’s training, marketing plan, site selection, plan implementation and many other factors are more important to your success than just the size and growth trend of the industry served.
  2. Opening a franchise for less money than your franchiser predicts. Too many franchise buyers are overly optimistic and undercapitalized that they may be doomed to failure. Substantial funds are highly important
  3. Bigger is not always better. Although big franchise chains enjoy great marketing and aggressive salespeople, they sometimes ‘overpopulate’ a city in their eagerness to grow and end up with many units competing for the same customers.
  4. Being the first franchise in the system. It is reasonable to assume that it is too risky to become a first franchise in the system; however, on the bright side, it is also obvious that the first franchise would get more care and attention than probably any of the future franchises. As a rule of thumb, if you are confident in the franchiser, being the first should not be injurious.
  5. No need to hire an attorney nor accountant until you complete Initial Training. Early mistakes can be costly. Be sure to have a professional involved before you sign a check to your franchiser.
TOP FIVE WEB SITES ON FRANCHISING http://www.bison1.com/ A Franchise Network that features three main sections –Franchise Information, Business Loans and Franchise Development. Provides insights on virtually 1,500 franchise companies, specializes in loan placement and offers a comprehensive development programs for franchisers. Additionally, features Franchise Bookstore with top 50 franchise books and manuals and order online service.

http://www.franchisedoc.com/ An extremely useful source of information on franchising featuring such topics as Franchise Evaluation, Finding the Right Franchise and Ten Great Franchises for the Next Century. Also offers a free electronic newsletter.

http://www.franchise1.com/ In-depth online resource on franchising information, opportunities, news, associations and links. Also features a message board to communicate with other users.

http://www.frannet.com/ "A World of Information about Franchising". Web site offers free help in finding a right franchise for you while also provides the methodology of the best way to franchise your own business. In addition, a directory of excellent franchising opportunities is presented with a listing of direct contacts and order-on-line services for those who are very interested in a particular franchise.

http://www.franchise-conxios.com/ "The Global Information Site for Franchises". Features two major categories – Franchiser Listings and Franchise Support Services. First category provides information on franchising opportunities in retail, business and personal services industries. Second category offers help in such areas as franchise advisory services and franchise and trademark legal services in the US and worldwide. Moreover, site provides a directory of franchise associations based in the US as well as six international associations.