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Tips for franchise seekers
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June 5, 2000: 10:15 a.m. ET
Franchising gives you a solid base for business, but could cut into your profits
By Jane Applegate
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NEW YORK (CNNfn) - Dear Jane: I'm thinking about buying a franchise, but I'm not sure. Any advice?
Franchising is a great alternative to starting a business from scratch. The primary advantage is that you carefully follow a tested business concept. Franchise buyers also receive tremendous support in setting up their new business, creating marketing materials and buying supplies.
On the downside, you have to be willing to follow the franchise-operating manual to the letter. There is little room for creativity or experimentation. In fact, if you go too far outside the lines, you may jeopardize your franchise agreement.
In recent years, franchisees have begun to organize to protect their rights. Membership in the American Association of Franchisees & Dealers, based in San Diego, has grown significantly since it's founding in 1992. By getting together, franchise buyers are trying to make sure they are treated fairly by the companies they deal with.
Although franchisors emphasize the profit-making aspects of operating a particular kind of store, most franchisees tell me they are not rolling in money. Profit margins can be slim, and depending on what kind of franchise you buy, you could be spending hundreds of thousands of dollars to open the doors.
You'll also be expected to pay a percentage of sales, called a royalty, back to the parent company. Royalties pay for marketing and shared advertising costs and can run up to 10 percent, depending on the business you buy.
For more information on franchising, visit http://www.franchise.org/. There is also a recent interview with Don DeBolt, president of the International Franchise Association, posted at: http://www.sbtv.com/frame.05.htm.
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