Ask Tough Questions Before Decision to Start Franchise | AccountingWEB

Ask Tough Questions Before Decision to Start Franchise

High startup costs, long hours, and hitching your fortunes to a find-it-anywhere chain; these are the dilemmas that keep many entrepreneurs from starting a franchise. But some see advantages instead of obstacles and leap in with both feet.

Some franchise owners see great value in services the franchisor provides, such as use of the brand name, and the company's help in administration, finding a good location, training, store leasing, construction, and more. The franchisees get going by paying an upfront fee - in the case of a MaggieMoo gourmet ice cream franchise it's $30,000 - and a percentage of gross sales.


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"Franchising is typically safer than starting a new business," William Bradford, a University of Washington professor of finance, told the Seattle Post-Intelligencer. He said the uniform operating procedures can help franchisees become successful.

In a 1996 study for the Small Business Administration (SBA), Timothy Bates, a Wayne State University economics professor, found that "while franchise firms were better capitalized than non-franchise firms, about 62 percent of the franchise firms survived, versus 68 percent of the non-franchise or independent firms."

Anyone contemplating buying a franchise must be aware that the contract they sign is critically important to success. "In real estate, the mantra is location, location, location," said Susan Kezios, president of the American Franchisee Association. "Well, in franchising, it's contract, contract, contract." Read the fine print, she said.

The Federal Trade Commission (FTC) suggests carefully weighing the risks by examining the demand for the products or service, the competitive environment, the support the franchisor will provide, and other factors.

The world's largest lawn mowing franchise, The Jim's Group, for example, heard from its franchisees that they were not getting the support they expected, so the franchisor made improvements. A new financial controller was hired to improve accounting services, salaries were increased, and the interests of the franchisee were put first, the Age of Melbourne, Australia reported.

One entrepreneur has started a business that offers the perks of a franchise at a much lower cost. Laurie Hurley of Newbury Park, Calif., sells a home tutoring business package that will help others connect teachers with students who need one-on-one help. The package includes a website, accounting software, personalized training, marketing and advertising, and a business manual.

Some firms offer accounting services that are specific to franchises, such as FileTax and Padgett Business Services. Thinking about purchasing an accounting, restaurant, fitness center or other franchise? Go to http://accountingfranchises.com/

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