FREQUENTLY ASKED QUESTIONS ABOUT FRANCHISING IN GENERAL
Is franchising right for you?
What kinds of franchises are there?
What can a franchise do for me that I cannot for myself?
How much profit will I make with a franchise?
How do I investigate the franchisor?
How do I know if I can afford a franchise?
Will the franchise help me finance?
Will the franchise help me get licensed?
Question: Is franchising right for you?
Answer: If you are the type of person who desires to own your own business and be your own boss, then there may be a place for you in franchising. The varied opportunities available in franchising are drawing people from every walk of life from former corporate professionals to young owners, recently out of college. Investors at all levels are finding that few financial investments can compete with the potential income and personal growth of established and reputable franchises.
Franchising is especially attractive because it offers people with various levels of capital and experiences a good opportunity. However franchising is not for everyone, as some people will not adjust well to a franchisor setting. Franchisors have established standards and rules, sometimes making decisions that you might not agree with. Before you invest, investigate . . . ensure that you understand the franchise model and that it is one with which you agree. Meet with the franchisor and prepare your self to this meeting. And ones you have this meeting, do you have the right chemistry?
Question: What kinds of franchises are there?
Answer: More than 750,000 franchise businesses constitute the North American small business landscape, generating more than US$1 trillion in sales. With a new franchise business opening somewhere in the United States every few minutes each business day, franchising is indeed a success story. There are franchises in every business category. In general we define them Blue or White collar franchise and or as Food and Non Food, Retail and Services. Straetus is a typical white collar/ business services franchise
Question: What can a franchise do for me that I cannot do for myself?
Answer: A franchise is already a functioning business system. While entrepreneurs invest heavily in order to set up a profitable business model, a franchisee can step into an already established concept, with much less risk for failure. For example, are you aware that as many as 80% of new business start-ups fail each year? An already functioning business model will put you heads and shoulders above the novice entrepreneur who not only needs to generate profits, but also needs to develop a profitable business model. Franchisees greatly benefit from their association with the brand name and products of the franchisor. It can take much time and be very challenging for an individual business owner to establish his business with the same brand recognition and popularity as an existing successful franchise system.
Question: How much profit will I make with a franchise?
Answer: Although the success rate for franchise-owned business is generally better that the success rate for many independent businesses, there is no formula to guarantee success. The same may also be said of the profits generated. Often the margins you make are a reflection of your ability to properly run your franchise, however you may be able to get a document (Item 19 of the Franchise Disclosure Document) from the franchisor (if this is an American franchisor) that illustrates the typical franchise earnings. If the franchisor does not provide such a document, you should contact a number of franchisees in the market you are interested in and seek their advice on the business’ profitability. One bad apple does not mean the concept is flawed, so be sure to speak with at least five franchisees. Even with our franchise, Straetus: opening a franchise doesn’t mean instant succes. It will take years of hard work and effort to built a company. But we will help: 1 + 1 = 3.
Question: How do I investigate the franchisor?
Answer: Acquire, if available, the Franchise Disclosure Document (FDD) (only in the USA) The format of the FDD is specified by the FTC and NASAA (Federal and State Regulators) and provides information about the franchisor, the obligations of the franchisor and the franchisee, fees, start-up costs, and other required information about the franchise system. It includes a listing of current and former franchisees. In addition to the disclosure portion of the FDD, the document will contain the franchise and other agreements and exhibits. It does not typically include unit earnings information. Item 19, “Earnings Claims” is an optional disclosure under the FTC Rule and State FDDs even though the performance of the franchise in terms of unit “earnings” are material facts that should be disclosed to new buyers by the seller of the franchise, who profits from the sale.
If there is no FDD available: do a proper research, call franchisees, google and meet with the franchisor.
Be certain that you like the business. It is also advisable to talk candidly to existing franchisees. If you reach someone who seems negative, attempt to determine if the comments appear legitimate. Don’t assume the business model is the problem solely because you speak with a negative person. It is a good idea to talk to a good sample of franchisees.
Question: How do I know if I can afford a franchise?
Answer: Before investing in a particular franchise network, carefully consider how much money you have to invest, your abilities and your desired goals. This will save you a lot of time. Usually,the franchisor will ask you in a very early stage if you have the finance to buy the franchise. The following checklist may help you make your decision.
- What is the initial investment?
- How much upfront cash will I need to put down?
- How much money do you have to invest?
- Will you pursue the franchise by yourself, or with partners?
- Will you need financing and where can you obtain it?
- Do you have a favorable credit rating?
- Do you have savings or additional income to live on while starting your franchise?
- Are you able to use your 401K?
Question: Will the franchise help me get licenced?
Answer: Not all industries require licensensing. Do check if this is required for the business you want to start, because this may effect the commence date and the investment. Within the debt collection industry you need a license depending on the country where you will run the company. You need, for example, a license in most of the American states, United Kingdom and Germany.
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