If you like the idea of running your own business, but don’t want to take the risk of a pure start-up, consider becoming a franchisee
By Max Berry

Dorothy and Paul Thompson of Atlanta, Georgia, wanted to start their own business, but were concerned about the potential problems that new small businesses often encounter. “We’ve always desired the independence that comes from owning our own business,” says Dorothy, “but we wanted to avoid the trial and error of a start-up business.”

The Thompsons were like many people, who want to own their own business but are wary of the risk of starting a company from scratch. Other would-be entrepreneurs no longer want to work for someone else, but haven’t come up with a killer business idea of their own. For either group, there exists another option: becoming a franchisee. That is, purchasing the right to open a store, restaurant, or outlet of an existing, and presumably successful, business. Instead of starting their own business from scratch, the Thompsons decided to purchase a JAN-PRO commercial cleaning franchise.

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Buying a franchise mitigates the risk of starting a business by yourself because you are purchasing an already established brand name, complete with a track record and some level of support and advice from the corporate parent. Many franchisors—though not all—provide training for their franchisees. A franchise also eliminates some of the guesswork involved in operating a business since the franchisor usually sets chain-wide policies governing pricing, vendors, location, decoration, advertising, and employment policies. In the Thompson’s case, JAN-PRO’s management system takes care of most of the business’s routine functions. “JAN-PRO handles the billing, sales, and customer service follow-up—and they provide us with ongoing training to grow the business,” explains Dorothy Thompson.

While the policies and guidelines set by the franchise may prove helpful for some aspiring small business owners, they can be more of a burden to others. Many franchisors dictate the exact appearance of their locations, down to furniture and paint colors, prescribe which vendors you may use, set employment conditions, demand uniforms, and set specific procedures governing routine business decisions. Not every would-be business owner is comfortable operating under so many external rules. “You need to realize that when you buy into a franchise, you are buying into someone else’s business model,” says franchise attorney Mario L. Herman. The extent of such mandatory policies varies from franchise to franchise, but most insist on a substantial level of compliance. “If you fail to comply with the rules they set forth, they can declare you in breach of your franchise agreement and you can lose your investment.”

In order to become a franchisee, you must make some form of minimum investment to purchase the franchise rights—the right to use the company’s name, marketing, products, etc.—from the corporate parent. Franchise fees vary greatly, depending on the company and the popularity of its franchise operations, and can range anywhere from $25,000 on up. However, most franchises expect franchisees to rent or purchase the location for the franchise on their own. Other costs will include franchise-approved supplies and equipment, fees, and a percentage of your monthly gross revenues, meaning that the initial minimum cash investment is just the beginning. Just like a business built from scratch, acquiring and building your franchise business will require considerable investment and effort.

However, having a franchise name behind you can also be a considerable help. “Depending on your own financial history, a bank may be more likely to give you a loan to open a store if that store has a big franchise name behind it,” says franchise lawyer Michael Klein. “The franchise name gives your business more credibility compared to something no one’s ever heard of before.” In fact, the Small Business Administration (SBA) has established a special loan application process for franchisees called the Franchise Registry (franchiseregistry.com), which is meant to make it easier for franchisees to get loans from participating lenders.

Max Berry is an Associate Editor/Writer for Business 24/7 Magazine.

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