NFIB

Franchising: Is It Right for Your Small Business?
03/ 28/ 2002


It has made the fast food industry what it is today. Video rental outlets, drugstores, and convenience stores are entirely changed because of it. The real estate industry is also in its grip. Even tax preparation has fallen prey to its allure. What do these assorted enterprises have in common? Franchising. Thanks to franchising, people as far away as Beijing, China not only know what a "Mac Attack" is, but they can indulge their cravings in exactly the same way as you. In today's workshop, Pamela Mills-Senn discusses the merits of franchising.

Franchising has turned once geographic-specific names into ones that are recognized worldwide. Simply put, it has changed the face of every industry it has entered, says Don Boroian, chairman of FRANCORP, Inc., a franchise development and consulting firm headquartered in Olympia Field, Illinois. And even though undertaking this effort can be a costly and hair-pulling adventure, the advantages franchising confers (namely, buying power, brand name power, and market-share power) are enticing. It can be, says Boroian, one of the best ways to rapidly expand a business; enabling owners to overcome the limitations of cash flow, personnel, and distance.

But not every business is franchise-appropriate. According to Boroian, the business should:

* Demonstrate good growth and be operating profitably.

* Show a 15% return on invested capital, plus the manager's salary.

* Be well organized with definable systems.

* Be adaptable nationwide.

* Be teachable to others within a three-to-four week time period.

Additionally, the owner needs to demonstrate they are capable of managing the franchise. This includes possessing the necessary selling and teaching skills along with the ability to direct the franchise process. Owners must be able to counsel their franchisees because ultimately, says Boroian, these skills in particular will prove integral to the franchise's success.

Think that you have what it takes? If upon reflection you decide to move forward, consider doing the following:

* Hire the necessary consultants. Some businesses try to cut down on the expense associated with franchising (which can be enormous) by doing as much in-house as possible. But in the long run, the failure to use outside help can prove very costly. Know when to bring in advisors.

* Educate yourself. Read books about franchising. Talk to people who own franchises. Attend franchising seminars. Ask questions. Lots of them.

* Have your systems in place before you begin. You must develop employee handbooks. All operational procedures must be clearly defined and established. You need a computer system. You need to put together the infrastructure and support system. Otherwise, you have nothing to sell.

Franchises come and go. Improve your chances of sticking around by:

* Hiring an expert to evaluate your concept before you head for a lawyer and start drafting documents. Doing otherwise is usually a mistake, Boroian says. You might be spending money on a concept that is inherently unworkable.

* Having a clear understanding of your objectives. Develop a mission statement to help steer your vision.

* Realizing that your franchisees will need ongoing support. Develop a plan that will allow you to provide this.

* Creating the right package (here's where a consultant really pays off). For example, your fees and royalties must be sufficient to support the franchise. You also need to have the support system and executive skills necessary to keep the franchise viable.

* Selling this package to the right people. The best package in the world will not help you if you are not extremely selective about whom you sell to. In addition to their financial resources, look for those who want to be involved in the day-to-day operations of the business. Avoid those who want to be an absentee owner. You need people who can think and act on their own, but who, at the same time, will not constantly question your decisions.

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