The right franchise can pave the way to the entrepreneurial lifestyle, without some of the hassles. Read this guide to find out what’s the best fit for you.
There’s more than one way start a business. Many immigrants find their path to entrepreneurship through a franchise, rather than starting from scratch. The word conjures images of MacDonald’s and Jiffy Lube, but there are a wide variety of franchised businesses in the U.S. in a host of industries.
According to the International Franchise Association (IFA), there are more than 85 different categories, including fast food, advertising, construction, dating services, lawn care, real estate, hotels and copy services. In a franchise, a company typically distributes its products or services through a retail outlet or office owned by independent, third-party operators known as franchisees.
Owning a franchise can be an easier path to entrepreneurship than starting a new business, because you are buying into a proven concept, and you have other franchisees to talk to provide you with information and support, says Alisa Harrison, a spokesperson for the IFA. You also get training and marketing support. In exchange, franchisees agree to pay the franchisor—the owner of the business’s trademark—royalty payments, generally about 10% of the profits. They may also have to contribute to a national franchising fund, which is used to fund national advertising campaigns.
What business is right for you?
To find the best franchise for you, step back and look at the things you enjoy doing, the skills you have and what you are passionate about. You may think you just want to make money, but the real key to success in franchising is doing something you enjoy. Think about how you like to work. Outdoors? With children? Making sales calls? With cars? Then visualize yourself as part of that operation, suggests Kevin Pignone, vice president of Domestic Franchise Sales for Mailboxes, Etc., which owns The UPS Store franchises. “You need to go into something you’re passionate about, because you’re making a big investment and you will be spending a lot of time there,” he says. Mailboxes Etc. looks for franchise owners who like working with people and are oriented toward customer service. For immigrants, a good command of English is also essential. Pignone says the company provides comprehensive training to help every franchisee succeed. “We have many stores owned by immigrants, and many are doing quite well,” he says.
You need to go into something you’re passionate about, because you’re making a big investment and you will be spending a lot of time there.
Generally, food franchises are the most popular in terms of demand. Last year saw a rise in self-serve frozen-yogurt outlets, as well as eco-friendly franchises like dry cleaners, cleaning services, and even hair salons. One example is Splish, which uses a chemical-free line of hair products.
Trends in franchising also follow trends in society, and as our population ages, services that cater to seniors, such as in-home care or assisted-living facilities, are growing. Business that focus on health and wellness, like gyms and medical spas, are also increasing in popularity, says Harrison. Franchises that aren’t doing as well in this economy are those that revolve around real estate or, in some cases, finance.
Oftentimes [immigrants] are excluded from powerful positions in corporate America, so they band together and help each other make it on their own.
Whatever type of franchise you choose, experts say it’s critical to hire an attorney with experience in franchise agreements to read through yours and thoroughly explain it. Most agreements are very complex and one-sided, made to benefit the franchisor, not the franchisee, say experts. You and your attorney should also read the offering prospectus, advises Donald Mazzella, COO of Information Strategies, Inc., a market research company that services small businesses and the former publisher of Income Opportunities, a franchising magazine. “That is extremely important, because it details the failures the company has had, as well as the success rates.” More than 85% of franchisees don’t read that prospectus, he says. (Click here for your guide to small-business financing.)
What buying a franchise will cost
Buying into a franchise can cost anywhere from $20,000 to $2 million, depending on the kind of franchise, the industry, and the location, says the IFA’s Harrison. You must typically pay upfront fees in exchange for a geographic location. That generally means you own the exclusive right to operate that Subway or PostNet or Fantastic Sams in a particular area, although there’s no standard. Sometimes a company will allow multiple stores in one location.
Fees for a handyman franchise that might entail owning a van with a logo on it and outfitting it with the necessary equipment, could cost less than $50,000. Location-based, or fixed, franchises are more expensive. Food franchises tend to be the most expensive kinds of franchises, and can cost anywhere from $250,000 to $2 million, says Harrison. The cost depends on whether or not you have to purchase land and construct the building, and what kind of equipment you need. About 45% of all franchises are food franchises. Service industry franchises, where you provide a service like painting or cleaning buildings, are generally much less expensive than fixed franchises.
How to finance your franchise
These days bank credit is tight, and it doesn’t matter if you’re a recent immigrant or a native-born citizen. A problem unique to immigrants, however, is that they may come from a country that doesn’t have the same rules of business as the U.S., and they may not have a credit score. Without that score, it will be very hard to get a loan. If you have a lot of cash saved and just need a small loan, you may be able to overcome the lack of a credit score.
Many immigrants buy into a franchise by banding together and pooling their money. Families as well as communities will often borrow from one another, and as they recoup their investment they pay it back to the group with interest. “Believe me, immigrants are very good at funding franchises this way,” says Mazzella. “Oftentimes they are excluded from powerful positions in corporate America, so they band together and help each other make it on their own.”
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