Economic uncertainty or no, franchising remains an exciting option for those who want to test the entrepreneurial waters. In fact, now may be an uncommonly good time to explore franchising opportunities, according to Tom Portesy, president of MFV Expositions.
“I’ve been in this business 20-some years, and I’ve never experienced an economic environment that is more picture-perfect for franchise development,” says Mr. Portesy, whose company organizes the International Franchise Expo, an annual industry trade show.
Economic downturns tend to pique interest in franchising, particularly among people who have lost jobs. The current climate is unique, however, by virtue of its historically low interest rates and high home values. The latter is significant because many people fund franchising startups by borrowing against their home equity, notes Mr. Portesy.
The fast-growing franchising industry generated $1 trillion in U.S. retail sales last year and accounted for 8 million U.S. jobs, according to the International Franchise Association. Moreover, it continues to expand beyond the stereotypical fast-food model. The nation’s 1,500 franchisors currently represent 75 industries, and most operate small-business systems.
Such systems present excellent opportunities for individuals who don’t have significant capital to fund a franchising venture. Numerous franchising operations require an initial investment of less than $50,000, according to Mr. Portesy.
“Most people don’t have a clue about how big the franchising industry is,” says Howard Bassuk, founder, president, and chairman of the board of The Franchise Network Group, a franchising consultancy.
Mr. Bassuk and many analysts agree that Hispanics and other minorities are well positioned to take advantage of the industry’s increasing emphasis on underserved communities.
Differentiating between legitimate franchisors and shady outfits, however, can be difficult in the case of some less capital-intensive industries. Chuck Modell, an attorney who specializes in franchise law, recommends that would-be franchisees request an offering circular from the franchisor in question. These documents detail, among other things, the fees and other requirements for new franchisees. Franchisors are required by law to present prospective franchisees with an offering circular when the two first meet, according to Mr. Modell.
He advises all would-be franchisees to survey current franchisees – a complete list of contact information is available under Item 20 in the circular offering – about their experiences and satisfaction level. If the prospective franchisees are still interested after that, he recommends hiring a lawyer.
More information on the franchising industry is available on the Web at www.franchise.org.
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