To Franchise or Not to Franchise

When you consider going into business for yourself, you have three basic choices: Start from scratch, buy an existing business, or look for opportunities to purchase a franchise.

Franchise

A franchise gives you the licensed right to use a service mark, trademark, or business concept. Each franchisee signs an agreement that governs how the business is operated. This ensures a uniform standard of quality within the system.

More than 2,700 franchise businesses exist in the U.S., covering every conceivable industry, from such well-known brands as McDonald's to smaller local establishments. So there's plenty of opportunity if you choose the franchise route. The challenge is to find one that's interesting and a good investment.

Purchasing a franchise obviously isn't a guarantee of success. Here are the main advantages:

Certainly, these advantages can work for you. But before making the leap, consider the potential disadvantages:

Deciding to go full ahead with a franchise is a difficult and challenging task. Take a look at the Federal Trade Commission's booklet on franchising and then carefully discuss the issues with your professional advisors. As with any investment, the more you know, the better prepared you are to make a go of it.

Some Questions to Ask Before Buying Into a Franchise

1. How many franchises does the organization have? A large number of franchises may indicate a successful, well-run established business. If so, that's a good sign, but be careful not to locate too near another of the same franchise.

2. How much is the franchise fee? A blue-chip national chain may cost significantly more than most others.

3. What are the royalty fees? The average seems to be between 3% and 6%.

4. How much help can you expect from the franchisers? Will they help with site selection, licensing and hiring?

5. Is the franchise legitimate? If you aren't certain, check with the Better Business Bureau or the Federal Trade Commission.

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