While some media reports claim that franchising is ‘hot,’ the real 411 on franchising is probably a little more mixed. Reporting from Entrepreneur, recently featured on cnbc.com, says that the franchise universe is optimistic, but cautiously so.
The good news is that according to the IFA’s annual Franchise Business Economic Outlook report (compiled by HIS Global Insight), the number of franchises grew in 2012, for the first time since 2008. Not only that, but that growth is expected to continue this year and outpace other business sectors.
Yet, the industry says it’s frustrated, believing that the numbers could be better if not for uncertain public policy and a stalled economic recovery. Health care questions, of course, top the list for many, and appear to be eroding confidence in a long-term business outlook. Taxes aren’t far behind in terms of perceived hindrances to small business growth.
Franchises in some sectors are projected to do better than those in others. If housing continues its upward trend, that would be good news for real estate franchises. Quick-service restaurants also continue to do well. But, many see much slower growth, if any, for other sectors such as automotive, retail products and services and food retailers, as consumers stay cautious and ‘make do’ with what they already have.
So, if you’ve been thinking about going the franchise route, should you? And if so, what should you consider before buying?
Contributor Dinah Wisenberg Brin writes on the Entrepreneur.com blog about some broad considerations and cautions that franchising isn’t for everyone. Nor is every apparent ‘opportunity’ what it seems. She points to advice from Scot Keller, the sales director of Penn Station East Coast Subs, whose insights are relevant and applicable to most sectors, not just quick-service restaurants. There are the standards you’ve probably heard before but still need to spend a lot of time on: Do your homework on any franchise you’re considering. Review its expansion plans and look carefully at the support you’d be receiving from the company in areas like marketing, construction and training.
But, there’s also some less-obvious advice to consider, like the Franchise Disclosure Document that all franchisors are required to provide franchisees at least two weeks before the sale is closed. Keller says franchisees-to-be should hone in on two line items: claimed earnings (item 19) and number of units, closures, etc. (item 20).
And, don’t skip over the many fees and sometimes-hidden costs that are part of any business. Although it’s not stated here, it would seem that this is an area where the services of an experienced business/franchise consultant and/or attorney could be invaluable. Areas, like the franchisor’s litigation history, need to be identified and reviewed in depth.
If your dream is to own a franchise, don’t let the legalities and uncertain economic outlook necessarily deter you. Just don’t be in a hurry to buy. Make sure the business is the right fit for you. Take your time to do exhaustive research on all facets of the business. And, spend the time necessary to talk to more than a few franchisees and visit their establishments in person.
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