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When thinking of a franchise business, many people think of McDonalds, Burger King, and Wendy’s. But there are many more types of franchise businesses. One out of three dollars spent by Americans for goods and services is spent in a franchise business. Homes are bought, sold, cleaned, painted and carpeted through franchised businesses. Cars can be purchased, tuned, and washed through franchises. Franchising is successful because we Americans are people of habit and are brand-driven with our purchases. We trust brands we see often, and tend to be loyal to products or services delivered to us in the same way all of the time. Entrepreneurs have many opportunities to become part of one of these businesses, but have to weigh the advantages and disadvantages of investing their money and time. Franchising is a way to go into business for yourself but not by yourself.
Although there were 10% fewer franchises last year, industry watchers expect a year of slow but steady recovery for the franchise world. An upswing has already begun for recession-proof businesses such as fast food, tax preparation and home repair. Financing for franchises has changed, however. Instead of the ten or twelve big national lenders that would finance new franchises anywhere, entrepreneurs now must go through a regional or community bank. Also many franchisors are making loans themselves, discounting fees, or allowing new franchises to pay fees over time. Contrary to public opinion, there is money to be loaned for new franchise start ups.
The top 10 franchises for 2010 are:
1. Subway (fast food)
2. McDonalds (fast food)
3. 7-Eleven Inc. (convenience store)
4. Hampton Inn (mid-priced hotels)
5. Supercuts (hair salon)
6. H&R Block (tax preparation)
7. Dunkin’ Donuts
8. Jani-King (commercial cleaning)
9. Servpro (insurance/disaster restoration and cleaning)
10. AMPM Mini Market (convenience store and gas station)
Some of the advantages of opening a franchise instead of going into business for yourself include: reduced investment risk by marketing an established product, proven methods and business procedures, start-up assistance, experiencing success sooner, on-going support, advertising, collective purchasing power, and possibly easier financing.
Some disadvantages include: initial franchise fee may be non-refundable, royalty fees may have to be paid even if there isn’t significant income and may be due if you terminate the business early, the right to renew isn’t guaranteed, lack of independence because company controls restrict ability to exercise your own business judgment, franchise agreements tend to favor the franchisor, and the fact that a franchisor’s problem may become your problem. Fundamental to the smooth running of a franchise business relationship is a business model that is profitable to both the franchisor and franchisee. A great deal of research and self-evaluation is needed before deciding whether a franchisor’s business opportunity would be right for you.
If you are entering into a new franchise opportunity, don’t forget to incorporate first!!!!
THE AUTHOR OF THIS BLOG ARTICLE IS NOT A LAWYER AND HARVARD BUSINESS SERVICES, INC. IS NOT A LAW FIRM. THE ARTICLE ABOVE IS NOT INTENDED AS LEGAL ADVICE AND SHOULD NOT BE TAKEN AS LEGAL ADVICE. THIS SHORT ARTICLE IS STRICTLY TO MENTION SOME ASPECTS OF DELAWARE’S CORPORATION LAWS AND/OR LAWS RELATING TO OTHER FORMS OF ENTITIES WHICH YOU MAY NOT BE FAMILIAR WITH. WE RECOMMEND THAT YOU CONSULT WITH A LAWYER BEFORE FORMULATING A STRATEGY WHICH WILL BE SUITABLE FOR YOUR SPECIFIC CASE.