How long has franchising been around?

It would probably surprise you to discover that franchising is a construct that has been around since the Middle Ages. While some historians think that the original framework was first evident when governments granted certain individuals the ability to collect taxes and fees and retain a portion of monies collected within designated geographical regions, others believe it roots can be traced to certain merchants being granted the right to hold local markets and fairs. In some instances, the clergy granted permission, while at other times it was granted by the government. Common to both institutions, the individual kept a substantial portion of the monies gained with the church or government receiving the balance. These practices were eventually integrated into the structure of European Common Law.

The franchising model continued to evolve in the German brewery industry in the 1840's when brewers had the exclusive right to distribute their product to taverns, and later in 1851 when Singer sewing machines could only be purchased through select vendors. This franchising model continued to expand through the turn of the century and eventually extended to being a common practice in the automotive and oil industries.

The historical period which not only caused the biggest boom in population, but also the greatest growth and change in the economy and business sectors was post WWII. Three surges in the workforce occurred including women working, men returning from the war and back to the workforce, and the continued swelling of the population as represented by babies born between 1946 and 1964 that were known as the "Baby Boom." These factors served to create a demand for more jobs and the need for an innovative way to create them. Franchising became just one such vehicle whereby businesses, such as franchisor McDonald's, designed a successful format to sell a product or service, created a recognizable identity, and then transferred this system included operational, technical, and managerial training, support, and expertise to a franchisee.

At the same time the 1960's and 1970's provided a time of explosive growth for franchising, it also experienced its share of dishonesty with unscrupulous franchisors misrepresenting businesses, fraudulently handling funds, and bilking franchisees. Despite this negative period, franchising has emerged as a viable business format that provides franchisees with a successful blueprint to follow and an opportunity to continue to benefit from a system that can trace its roots back to the Middle Ages!

The Retail Franchise 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@retailfranchise.com today!

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How do I know if franchising is a good choice for me?

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.

When searching for a new business, this may well be one of the most important questions you can ask. If you are exploring the notion of owning your own business, then you already have an idea of why you are interested in being your own boss. Research indicates that most people go into business for themselves in order to have all of their hard work be to their own benefit. They also cite freedom, flexibility, financial factors, and intrinsic and extrinsic benefits. If you are someone who can relate to any of these reasons, then franchising could well be the right match for you. Franchising is a vehicle that appeals to people of all ages, and diverse business backgrounds. It does not limit those with more of less business experience, and success in franchising is not contingent upon fitting into a defined mold nor is it restrictive to women or minorities. Franchising appeals as much to those with a great deal of business experience as it does to recent college graduates because of the wide variety of franchising opportunities available in every field. Franchising is also appealing because it is an accessible business vehicle to those who have a little to invest as well as those who have a lot of funds available to them and is able to provide investors of all levels with the opportunity to realize incredible personal and financial benefits.

That said, it is still important to note that franchising is not for absolutely everyone. Franchises have achieved their success through a prescribed formula that is based established standards and rules and when you purchase a franchise, you are investing in this proven system. Before you decide on investing in a particular franchise, make certain that you are in agreement with the rules that you will be obligated to uphold and that the franchising model is one that is compatible with your personal and business goals.

Your ultimate success as a franchisee will be based upon the proven success of the franchisor you have chosen and if you choose a franchisor with an established product or service possessing a well-recognized brand name, then you will also benefit from their history of success. The greater the company units and existing franchises, the better the financial background of the company, the more motivated the company is as a whole, the better your chances of success will be. Despite the fact that franchising is a very highly regulated industry, it is still incumbent upon you to ask the right questions, seek all the advice you need to make an informed decision and consider your goals and objectives before you decide to invest in any franchise opportunity.

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What franchise choices are available?

There are multitudes of choices available to you in the North American franchise industry. In Canada, approximately 1,800 franchise systems currently operate in approximately 75,000 outlets, 67,000 of which are owned by franchisees. In the U.S., franchises accounted for $1 trillion in annual sales and with 320,000 franchised locations in 75 industries with franchises representing more than 40 percent of retail sales in the country. Experts estimate that in 2000 alone franchising provided employment for 1 million Canadians (adding 155 new jobs daily) and 8 million Americans with about one in twelve U.S. retail businesses being a franchised one. With such incredible growth and options in the franchising industry, there will surely be a good match for you!

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What can a franchise provide that I would not have on my own?

Starting a new business is fraught with obstacles and challenges and statistics indicate that 80% of new businesses do not achieve a successful outcome and fail each year. On the other hand, franchising provides a new business owner with a business system that has already proven to be successful. Starting a new business from scratch requires entrepreneurs to invest thousands, millions or even billions of dollars to create a business model that may or may not be successful. A franchise affords franchisees the ability to be in a business that has an established concept with a proven track record. Thus, the risk is greatly reduced and the chances of a successful outcome are far greater. As someone interested in starting a new business, it would be in your best interest to find a vehicle that maximizes your chances of a positive outcome and minimizes your risk.

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What level of profitability can I expect from a franchise?

Although franchise-owned businesses have a greater success record than startup businesses, keep in mind that there are no ironclad guarantees for success in the business arena. This also holds true with regard to profits realized as a business owner. While profit margins are often reflective of your acumen and ability to operate your franchise, you should endeavor to get a document from a potential franchisor that would indicate what a franchise would typically generate in earnings. Should the franchisor be reluctant to do so, there are other channels through which to secure such information including other franchisees already occupying the market in which you are interested. Keep in mind that it is prudent to contact more than one franchisee to discern a franchise's profitability as one negative operation is not a fair representation of the broad picture any more than one positive operation would insure success.

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How do I conduct due diligence on a franchisor?

Remember when purchasing any new business it is imperative that you become an informed and educated consumer and perform an intense investigative process known as due diligence. In the case of franchises, a document known as the UFOC (Uniform Franchise Offering Circular) should be acquired. The Federal Trade Commission (FTC) requires this document be prepared in accordance with prescribed standards and it provides information about the franchise including background information about the principal owners, their audited financial information, and current franchise agreements. Prior to your committing to a franchise, it is highly recommended that you contact the list of franchisees included in the UFOC. Take and create as many opportunities to gather a wide variety of information that will then provide you with an accurate representation of the franchise. Be diligent in your investigation and do not let yourself be persuaded or discouraged easily. Remember that the effectiveness or lack thereof of the business model can only be discerned by diligent examination on your part.

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How do I determine if a franchise is affordable for my budget?

As with any substantial purchase, before you invest in any franchise, make certain that you have carefully examined what your goals are and how much money you have to invest. You should take time to carefully consider how much money you have on hand or will need to secure with financing, if you have a positive credit rating enabling you to secure necessary financing, if you will be the sole investor or take partners into your venture, and if you have the financial wherewithal to cover your living expenses while your franchise is getting started.

Statistics indicate that one of the main reasons businesses fair is that of under-capitalization. Even though a franchisor will give you an estimation of the business' initial costs, keep in mind that there are unforeseen circumstances that can impact these figures. While you may not be able to predict these circumstances, you can prepare for them by having funds on hand to deal with the unexpected and operate your franchise until it is in a profitable mode. Checking with franchisees in your market with regard to what they recommend as start-up capital is advisable and then to be safe, tack on an additional 10-20% for good measure.

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Do franchises provide financing options?

While some franchisors do assist franchisees with financing, others do not offer any assistance. This is a variable from franchisor to franchisor and information that you should seek out during your due diligence process. In addition to financing from the franchisor, keep in mind that friends, family, private investors, traditional lenders, and the Small Business Administration (SBA) are all possible sources of funding for your new business. In addition, Retail Franchise offers a Resource Center with lenders who are eager to provide you with the help you need.

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What other sources of capital are available?

We are interested in being of assistance to you as you explore your options and seek information about purchasing in a small business or acquiring a franchise. Therefore, Retail Franchise has created a Resource Center offering a wide variety of information and additional sources of capital for small or start-up businesses. To visit our Resource Center just click here.

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