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Franchise 101

Franchise owners must consider these 5 steps before starting a franchise

Franchise Buster

January 26, 2009

Ninety-five percent of franchises succeed according to the U.S. Commerce Department. The success rate for independent businesses is only about 35 percent. If you want to run your own business without the risk of creating your own start-up you should learn how to start a franchise.

When you start a franchise you buy the right to use the name of a parent company. There are literally hundreds to choose from. Most people buy groceries, fill prescriptions and go out to dinner without ever entering an independent business.

Here is a five-step guide to teach you how to start a franchise.

1. Organize your priorities. Because there are so many franchises to choose from it is important that you know what kind of business you would like to run. Understand the work environment you work best in and what type of business best fits your lifestyle. For example, a restaurant might be a great franchise for you if you like customer service.

2. Research. There are many venues you can use to get more information about individual franchises. The internet is a great resource. If you are willing to spend the extra money, you can also hire a franchising consultant.

3. Contact the franchise you would like to buy. The Franchiser will give you material explaining the specifics of that particular franchise. This is a tricky step because the franchiser is trying to learn about you at the same time you are learning about it. The franchiser wants to make sure that you are the right person to manage its business.

4. Get an attorney. A franchise attorney specializes in reviewing franchise contracts, understanding state statues related to Franchising and limiting your liability. Your lawyer should be a member of the ABA forum on franchising. This organization keeps up with the latest in franchise law.

5. Sign the franchise agreement. This document outlines your responsibilities in running the franchise and the parent company's responsibilities in helping you do so. It will lay out the initial franchise fee, advertising fees and royalty fees. It will also explain the terms of the restrictive covenant - the agreement that prohibits franchise owners from owning any competing franchises. Your lawyer should review the franchise agreement.

Now that you know the basics of how to start a franchise there are a couple of additional points you should keep in mind. Remember that it is difficult to transfer ownership of a franchise. Your contract may restrict or prohibit your re-sale of the franchise. Your parent company must approve any sale you make.

Further, remember that by buying a franchise you sacrifice an element of freedom in exchange for the security of instant name recognition. The added security often well worth the sacrifice. Your parent company will provide training, guidance and resources, cutting down on beginners' mistakes. It also organizes promotion and advertisement so you can focus on your passion - running the business.

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