Franchises' easy path to ownership has costs

by Jeff Cornwall

Franchising is a path to business ownership that many of today's accidental entrepreneurs find appealing.

"For those in career transition who are considering business ownership, franchising may be a viable option, primarily because most have spent their entire career in corporate America and are used to structure and following processes," says Dan Aronoff, Nashville franchise consultant with FranNet.

"Franchising provides that structure through well-established and proven systems. For the right person and right fit, following the franchise's 'recipe' can lead to success. Why reinvent the wheel if you don't have to."

One of the downsides of buying a franchise, though, is that many require that the entrepreneur put up a significant amount of funding to start the business. However, many franchises may be eligible for Small Business Administration loan programs, too. Here is a Web site that offers more details: franchiseregistry.com/registry.

Just like any new venture, developing a business plan is a must. It's essential to determine the feasibility within the local market where you plan to open the franchise. Make sure that you temper any financial projections with current economic conditions. Be realistic.

Also, look for franchise opportunities that create value for the customer, as this will be the best business model for some time to come.

There are some sticky contracting issues with buying any franchise. Make sure to work with an attorney who has experience in that arena.

Monthly fees add up
One of the biggest sources of frustration among franchisees is that, over time, they begin to perceive that the value added provided from the franchisor or the parent company becomes less valuable.

A franchise will charge a significant monthly percentage fee (this typically ranges from 4 percent to
7 percent of sales).

This fee covers business systems, marketing support, purchasing power for inventory, and so forth. As they gain experience in the business, many franchisees believe that they can be at least as effective on their own without the support of the franchisor.

Another concern expressed by franchisees is that with all sorts of rules and standardized procedures, they tend to feel more like an employee than a business owner. Those who try to break away from the predetermined model can face the wrath of the franchisor. Larger franchisors have entire staffs dedicated to franchisee compliance.

Source: http://www.tennessean.com/article/20091011/BUSINESS01/910110340/2047/BUSINESS/Franchises++easy+path+to+ownership+has+costs