What to Know Before Starting a Franchise Business

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For many entrepreneurs, buying into a franchise seems like the best ticket. After all, it seems like nearly every new business that opens locally is a franchise of some kind. But is franchising really a better choice than starting a business from scratch?

“When you buy one of these "business format franchises" you get a package deal that's ready to plug in and go”

It's boom time for franchise businesses. A recent study by the International Franchise Association found that some 900 new franchise concepts started up in the previous three years. And it underscored a 2004 study by PricewaterhouseCoopers that found this sector employs 18 million people and pumps more than $1.5 trillion into the U.S. economy.

The key to making the right choice between franchising and starting up from scratch is research. You must investigate before you invest.

First, consider your appetite for risk. If your entrepreneurial fires are burning, you hanker to strike out on your own to test your own ideas, and you thrive on risk, then starting a business of your own may be a better choice. A franchise business lowers the risk because someone else has already pioneered the concept, tested the ideas, made the inevitable mistakes and found out what works and what doesn't.

The result is a tried-and-true formula that's replicated no matter the location. When you buy one of these "business format franchises" you get a package deal that's ready to plug in and go. If buying into an already successful recipe appeals, and the lower risk-lower reward realities are acceptable, then franchising may be right for you.

Look Before You Leap—Things to Know

• Required experience, hours and personal commitment necessary to run the franchise.

• The franchisor's background, track record and how other franchisees in the system are doing.

• Cost to buy into the franchise, how much you'll pay for the continuing right to operate the business, and options for financing your investment.

• Products or services you're required to buy from the franchisor.

• Terms and conditions for getting out, and how many franchisees have left the system during the past few years.

• Detailed financial information on how current franchisees are doing.

• Fun factor: To have the best chance at success, choose a type of franchise business that excites you.

Top 10 franchise business opportunities as of spring 2007

• Heaven's Best Carpet Cleaning

• Home Instead Senior Care

• Synergy Homecare

• i9 Sports

• FASTSIGNS International, Inc.

• Budget Blinds

• Paul Mitchell School

• BONUS Building Care

• CertaPro Painters

• 1-800-GOT-JUNK

(Source: Franchise50.com)

Fertile fields for starting your research:

The International Franchise Association (IFA), a membership organization of franchisors, franchisees and suppliers, offers helpful info on how franchising works. Search their database of over 800 franchise opportunities with Web and e-mail links. You'll find good step-by-step guidance for beginners, with key questions to ask, ABCs of franchising courses, lower-cost franchises and home-based franchise opportunities.

Franchise50.com, a national franchise market research company, independently surveys franchisee satisfaction. It looks at "the critical areas" of a franchise system including training and support, operations, franchisor/franchisee relations, financial opportunity and more. It promises "unbiased facts about the overall health of a franchise system, direct from today's franchise owners."

FranchiseBusinessReview.com offers franchisee feedback as an important element of your research. But it stresses that this shouldn't "replace the franchise investigation process that all investors must go through." A good source for hard data.

Frantopia.com offers networking for those already in the franchising game, and those who want in. Its creators call it a "utopia of information where franchisors, franchisees, prospective franchisees and other business partners are able to work together toward a common goal, building the brands that shape your neighborhood and the world."

Bison.com, "for those serious about franchising." It's designed like an online shopping mall of franchise opportunities, with featured listings, franchising news and articles for franchise buyers.

Franchise Direct is an online franchise opportunity directory and information resource. Browse franchise profiles, research franchise opportunities and get fresh info on franchise events. Search by industry, investment range or alphabetical listings

By Rich and Jeff Sloan