Help in Buying a Top Franchise

The decision to buy a franchise will, for most people, be one of the most important decisions of their lives. This decision can yield realization of a life long dream or, for an unlucky few, it can spell financial disaster. Clearly, this decision should be made very carefully and with professional help if possible. Our Franchise Consultants offer a free service to people who are serious about going into business for themselves by starting a Franchise Company.

Our services consist of providing information about franchising, taking the prospective franchisees through a process during which they create a profile of the type franchise that will be a good match for them, then suggest that they look at a number of franchise opportunities which fit their profile, and finally we'll provide them with a system to research the new franchises that they want to look at closely and possibly buy. Over the years of providing this service we have worked with Top 500 Franchises as listed in Entrepreneur Magazine's Franchise 500 and our service has been polished to near perfection. 

Our Franchise Consultants screen hundreds of Franchise companies and know from direct involvement in the industry on a daily basis which franchises are a good investment and which are not. Our service is educational, and match making in nature. The process works very much as follows:

1. Our Consultants are the definitive experts on franchising and spend considerable time educating/coaching people about the benefits of franchising. After becoming aware of our service, an individual who is seriously considering going into business for themselves can schedule an Initial Phone Consultation.
2. Our Consultant provides the individual with important information about the franchise industry, how franchising works etc, a sort of Franchising 101.
3. Our Consultant coaches the individual through a process which builds a profile for the type franchise which will be a good match for them.  It could be anything from restaurant or ice cream franchise to a store franchise.
4. The franchise seeker or client is given franchise information about a number of franchises (typically 3-6 concepts) which fit the individual's profile.
5. Finally, the client is given a systematic method to research any franchises that they are interested in looking at closely. The beauty of the service is that there is no attempt by the Consultant to sell the individual on any particular franchise. And, the service is absolutely free.

Over the years we have researched hundreds of franchise companies and have accepted about 250 that we will recommend to our clients. The franchises vary in investment from $50,000.00 to over $500,000.00. If a client buys a franchise from any one of the franchise companies that we have a relationship with, then the Franchise Consultant is paid a finders fee by the company. This in no way affects the franchise fee paid by the client.  Our service is free, and the individual pays the same franchise fee regardless.

Single-unit Franchises
A franchisee has the right to operate one franchise unit. Most franchisees enter the world of franchising by owning one unit. It is a great way to get in and understand the system before taking on more units.

Territory: The franchisee may have a small radius of exclusive territory to operate within. If it is a retail store, the area of exclusivity may be a two or three mile radius around the store. If it is a home-based business the area may consist of a few specific zip codes.

Level of participation:
The franchisee is very involved with almost all operations of this type. Even if it is a semi-absentee owned business, the franchisee will want to be present at the business and be as hands-on as possible.

Typical liquid capital required:
$25,000 to $60,000 initial out-of-pocket investment required on a total investment of $100,000 to $200,000.

Multi-unit Franchises
The franchisee acquires more than one unit of the franchise, usually at reduced franchise fees. The risk is lower because the franchisee can take advantage of the economies-of-scale theory; by spreading costs across multi-units, the locations may be more successful. A good sign of the health of the franchise is if many of the franchisees are multi-unit owners.

Territory:
There is usually no exclusive territory where the franchises must be set up. The franchisee may have one unit in one part of town with a surrounding radius of exclusivity, and another unit in another part of town 15 miles away or even in another county with its exclusive radius of operation.

Level of participation:
The franchisee is less involved with each of the units operations, but will be managing multiple operations and will need to have some level of supervision in each unit. If many units are opened, a general manager and additional administrative and training staff may be needed. The franchisee is more of a general manager when many units are involved.

Typical liquid capital required:
$50,000 to $70,000 initial out-of-pocket capital is required to take care of mostly the initial franchise fees. The rest of the investment is usually financed when each unit is opened.

Area Development Franchises
This license usually grants the franchisee the right to open a certain number of franchises in a given area. There is usually a production schedule where the franchisee must open a certain number of franchises during a certain period. The franchisee has an exclusive area where no other franchisees can be allowed to open a franchise.

Territory:
The franchisee maintains an exclusive geographic territory as long as the opening schedule is maintained. The territories range from a small city to parts or all of a larger city.

Level of participation:
The franchisee will be very involved in the beginning stages of the first location to make sure it is successful. The franchisee will also need to be looking for qualified real estate to open the next few locations. Once several locations are open, the franchisee will need additional assistance to manage several units.

Typical liquid capital required:
$60,000 to $120,000 initially to secure the area, pay all franchise fees, and have additional start-up capital. The franchisee will then need to be able to finance the rest of the start-up costs for each of the franchises, as they open.

Master Franchises
A Master Franchisee, sometimes called a Regional Developer, has the rights to a larger area than that of an Area Developer. The Master Franchisee, in addition to opening franchises at a much reduced franchise fee and royalty, can also sell unit franchises, multi-unit franchises and area development franchises and make a nice return on the sale. The master usually receives a part of the royalty and franchise fee paid by each franchisee. There may be additional income available from distribution of products through the franchisees in the area and possibly even some real estate interest. The master becomes somewhat of a sub-franchisor for the area, without having experienced all the trial and error the original franchisor did. The master franchisee will usually want to open and operate at least one unit (pilot location), for income and use as a training center. Master franchises are rare; most franchisors do not offer them. However, when they are available they usually sell quickly. The income available from a master franchise is extremely lucrative. The initial investment is low compared to the type of value you can build in the master franchise area. The flexibility is also the greatest at this level.

Territory:
Usually is a large metropolitan area, an entire state or even several states or country. It is an exclusive area and will remain exclusive as long as the master franchisee meets the development schedule of franchises in the territory.

Level or participation:
The master franchisee will usually set up and operate at least one unit and use a manger to manage it while working on selling other "sub-franchises" and assisting them in operating properly. Very rarely is a master franchisee "hands on" in a unit franchise. They tend to spend more of their time operating like a business consultant or coach to their franchisees to help them become successful.

Typical liquid capital required:
$100,000 to $250,000 is needed to acquire the territory and for initial liquid capital to start the area. Financing will be secured for the start-up of the unit franchise.

The word Franchise comes from old French meaning privilege or freedom. In the middle ages a franchise was a privilege or a right. In those days, the local sovereign or lord would grant the right to hold markets or fairs, to operate the local ferry or to hunt on his land. This concept extended to the Kings granting a franchise for all manner of commercial activities such as building roads and the brewing of ale. In essence the king was giving someone the right to a monopoly for a certain type of commercial activity.

Over time the regulations governing franchises became a part of European Common Law. Over the centuries the franchising concept has evolved as the economies of the nations of the world have evolved. In the 1840's in Germany certain major ale brewers granted franchises to certain taverns, giving those taverns the exclusive right to sell their ale. This was the beginning of the concept of franchising as we know it today. In 1851, the Singer Sewing Machine Company began granting distribution franchises for their sewing machines. Singer had written franchise contracts which were the forerunners of modern franchise agreements. In the 1880's cities began to grant monopoly franchises to street car companies and utilities for water, sewerage, gas and later electricity.

Around the turn of the century, the oil refinery companies and the automobile manufacturers began to grant the right to sell their products. At this stage in the evolution of franchising it was essentially just the granting of the right to distribute and sell a manufacturers products. Business format franchising, which is the dominant mode of franchising today came onto the economic scene after World War II with the return of the millions of US servicemen and women and the subsequent baby boom. The baby boom is still driving the economy and will continue to do so into the next century. There was an overwhelming need for all types of products and services, and franchising was the ideal business model for the rapid expansion of the hotel/motel and fast food industries.

During the explosion of the 60's and 70's there were many abuses in franchising. There will always be the unscrupulous con men/women among us, ready to prey on the uninformed and gullible. There were a number of totally fraudulent franchise companies which literally took peoples money and ran, and there were a number of companies that were undercapitalized and poorly managed which went bankrupt, leaving a trail of failed franchisees who lost everything. It became clear that the franchise industry had to change in order to remain a viable business concept. On the industry side, The International Franchise Association was created with the specific intent of uplifting the entire industry. The IFA holds training in all aspects of franchising which greatly enhances the professionalism of the industry. Members of the IFA are required to adhere to the IFA's Code of Ethics which sets a high standard.

The IFA works closely with the US Congress and the Federal Trade Commission on improving how the industry relates to the franchisees. On the government regulatory side, the Federal Trade Commission, in 1978, required that all franchisers submit to all potential franchisees a document called the Uniform Offering Circular or UFOC, before receiving money. The UFOC provides very detailed information on the franchise company, such as its history, information about the officers, litigation history, audited financial statements, the franchise agreement, which is the contract between the franchiser and franchisee and a current list of franchises with owners names and telephone numbers. The intent of the UFOC is that it provide enough information so that the prospective franchisee can make an informed decision.

The FTC doesn't actually review the UFOCs unless there is a complaint and it decides to conduct an investigation. Also there are a number of states called registration states which have their own requirements that must be met before a franchiser is allowed to sell franchises in their states. In some cases these requirements are more stringent than the FTC's. There are several franchisee associations which work to protect the interests of franchisees. Today, franchising is a highly regulated industry which offers a great opportunity to those individuals who truly want to realize their dream and go into business for themselves.