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Are Franchises for Me?

Apr 22, 2010

For many people, operating a franchise is a good way to start up a business.  In a franchise, you pay the franchisor for the right to use the franchisor’s name and for assistance in setting up your business.  This help varies by franchise, but may include help in selecting a location, training in operations, advise on management, marketing and personnel and other assistance.

 

By operating a franchise you can capitalize on the use of a well-known brand of goods or services.  In general your level of risk is lower than starting a business from scratch, as you are working with an established company.  However, franchises are not free and depending on the franchise, your costs to startup may be higher than going it alone.  With a franchise you also loose a portion of the control over your business as you need to meet the franchise requirements.

 

Most franchises charge a franchise fee, which may run to thousands of dollars.  They also may require approval of your site, building, products sold, accounting procedures and they may restrict your territory.

 

In a recent article on CNN.com, the top 10 franchises that were financed by the SBA were Subway, Quiznos, The UPS Store, Cold Stone Creamery, Dairy Queen, Dunkin Donuts, Super 8 Motels, Days Inn, Curves for Women and Matco Tools.  The franchise failure rates ran from 36% for Matco Tools to 4% for Super 8 Motels.  Franchises in the same industry can have widely different failure rates.  CNN shows that Subway Restaurants (the most popular franchise over the past 10 years) failed at a rate of 7%, while Quiznos (the second most popular franchise) had a 25% failure rate.  Cold Stone Creameries failed at 31%, while Dairy Queens had a failure rate of 8%.

 

The bottom line?  If you are interested in a franchise, do your homework.  Find out what fees are involved, what type of assistance you will receive and what the failure rate is.  A great source of help for evaluating franchises can be found at the SBDC’s Franchise Information Clearinghouse.  This can be found at http://www.sbdcnet.org/SBIC/franchise.php

 

Have you had an experience you'd like to share owning or operating a franchise?



Tags:
Category: Business Planning

Mike Lambert

Mike Lambert is the manager of the Wyoming Market Research Center in Laramie, WY.


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