Before jumping into a franchise, ask questions - Marine Corps News, pay, benefits, careers, entertainment, photos - Marine Corps Times HOME

Before jumping into a franchise, ask questions

Your work history means years of following someone else's orders. But if you want to be in charge in your next career, you might consider owning your own business.

Starting a business involves risk. That's why many entrepreneurs look to franchising, which has offered plenty of entrepreneurs the opportunity for success. Franchising has some built-in safety nets -- and that's particularly true for former service members. Whether it's fast food, child development, hospitality, real estate or the automotive industry, there are programs aimed specifically at helping service members move into business ownership with discounted investment opportunities, mentor programs and other resources, such as ones offered by the International Franchise Association. The IFA is the oldest and largest association representing the interests of franchising, and has more than 1,000 franchisor members and 8,000 franchisee members in more than 75 industries.

Matthew Shay is the association's president. He is in charge of management, finance and operations, membership development, and legislative and regulatory initiatives. Before joining the association staff he was the assistant general counsel of the Ohio Council of Retail Merchants in Columbus. A graduate of Ohio State University College of Law, he was a member of the Ohio State Law Review, is a graduate of the U.S. Chamber of Commerce Institute for Organization Management and holds the designation of Certified Association Executive. He offered an overview of franchising and how service members can take advantage of special programs when starting a new business.

Q. What are the pros and cons involved in buying a franchise?

A When you buy a franchise, you purchase the right to use a brand that is often known on the national or international level. The investor also receives the benefit of the franchisor's years of experience and proven operating system.

In any new business, much time and money are spent in trial and error, but a proven franchise may eliminate many of those start-up problems. A franchisor will provide training and ongoing support to the franchisee, and there is a significant economy of scale when it comes to buying such things as advertising and inventory.

As with starting any small business, there is always risk. The franchisor may have a great program and a respected name, but in the final analysis, much of the risk is in the franchisee's hands. A person who has difficulty following directions or who dislikes working within a system will probably find franchising frustrating since conformity to the franchisor's operations manual is critical to the brand's success.

Q What questions should be taken into consideration when determining whether a franchise is the right move for an individual?

A The International Franchise Association offers a free, online course, "Franchising Basics," (at www.franchise.org) where anyone can go and learn more about franchising, questions potential investors should ask, and laws and regulations that apply. Another resource is the Federal Trade Commission booklet, "The Consumer Guide to Buying a Franchise."

Any potential investor should ask himself the following six questions:

1. Am I willing and able to take on the responsibilities of managing my own business?

While franchisors provide ongoing training and support, franchisees must manage their business, which means long hours and hard work. Typical work weeks are 60 to 70 hours, and prospective entrepreneurs must be willing to handle a wide range of duties, from hiring and firing employees to pacifying unsatisfied customers.

2. Will I enjoy the franchise?

Future franchisees should invest in a business that they will enjoy for the next 10 years, the typical length of most contracts.

3. Am I willing to completely follow the franchisor's system?

When a franchisee displays the sign and trademark of a franchise, he or she is telling customers they can expect the same experience as in every other location of that system -- the key to franchising success.

4. Can I afford it?

A major cause of small-business failure is under-capitalization. While the franchisor will be able to give a good idea of start-up costs, the prospective franchisee will need enough money to open the business and run it until it turns a profit.

5. Have I studied the required legal documents?

Franchisors are required to prepare and make available a comprehensive disclosure document, the Uniform Franchise Offering Circular (UFOC), which contains more than 20 items of information of disclosure about the company. Prospective franchisees should study the UFOC carefully with the help of an attorney trained in franchise law.

6. Are other franchisees generally happy and successful?

UFOC will list other franchise owners -- both current owners and those who have left. It is worth your time to contact them to ask if they're happy with their investment, if they left, why, and if they knew then what they know now would they still invest in the franchise system.

Q What are the financial incentive programs available to veterans?

A Veterans interested in acquiring a franchise may be eligible for the IFA's Veterans Transition Franchise Initiative -- VetFran. More than 200 franchise companies that are members of IFA participate in the program, which offers veterans a "best deal" through discounts or other incentives that are determined by each company.

Nearly 500 veterans in 45 states have purchased franchised small businesses through the program, and more than 120 are in various stages of negotiation. VetFran has been recognized by the U.S. Department of Veterans Affairs for expanding veterans' business opportunities.

Q Where would you suggest interested people look for information on the kinds of franchise systems out there and what they cost?

A Franchise investment information is available on a searchable database on IFA's Web site in the "Franchise Opportunities" section. The database is searchable by company name, industry category, investment level, or companies that provide financial incentives for veterans. There are hotlinks to individual company profiles that contain contact information, a brief description of the business concept, the number of franchised units and length of time the company has been franchising, cash investment required and the training the investor will receive.

Potential investors are also encouraged to use their feet--visit a trade show, examine the exhibits and ask questions. Upcoming trade shows include the West Coast Franchise Expo at the Los Angeles Convention Center, Nov. 3-5; the Franchise Expo South at the Miami Beach Convention Center, Jan. 19-21, 2007; and the International Franchise Expo at the Washington, D.C., Convention Center, March 30-April 1, 2007. Veterans will be admitted free.

QYou decide to invest in a franchised small business -- how do you do it?

A Once a franchise company has been selected, contact its franchise development staff member to discuss the amount of money needed to invest and whether or not a VetFran discount is available. Talk with lawyers and accountants who specialize in franchising to advise you on the UFOC and the company contract. To locate a lawyer or accountant who specializes in franchising in your local area, check the Supplier Directory at our Web site. Contact current and former franchisees listed on the UFOC, and also make sure you like the franchisor's staff. Only when you have done all that, should you consider signing on the bottom line.