Is Buying a Franchise the Right Decision?

October 9, 2006
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Ken Franklin (right) and Justin McClure teamed up for a seminar titled "Buying a Franchise: Is It Right for My Business?"

BALTIMORE- As far back as the beginning of time, mankind was looking for a way to franchise itself. At least that's what Ken Franklin told attendees to his seminar on franchising at the 2006 HVAC Comfortech in mid-September.

Franklin, president of franchise developments for the Daflure Corp., New Cumberland, Pa., and Justin McClure, president of Daflure, spoke about the reasons for buying an HVAC franchise. Daflure recently announced its first franchise location in New Cumberland and plans to expand its operations.

Franklin noted that at the beginning of time, Adam was created and instructed to go out and multiply, the same concept behind growing a franchise - going out and multiplying by signing up franchisees. He said, "The Singer Sewing Machine Co. was the first franchisor on record, beginning around the time of the Civil War. Franchising really took off in the time period after World War II."

According to Franklin, 43 percent of all retail business is through franchises. The economic impact of franchise businesses- a total of $1.5 trillion annually- include the following notable facts:

  • Represents 11 percent of the United States' Gross National Product (GNP)

  • Represents 1 million locations

  • Employs 10 million people

  • Grows at 10 percent each year

    "It is difficult to find a service in any industry that is not being franchised," Franklin said.

    WHY FRANCHISING?

    Franklin noted that 40 percent of small businesses fail in the first year and 80 percent fail within the first five years. The reasons? Many of these businesses are underfunded and undermarketed, two things that people acquire when they purchase a franchise. He said franchise operations enjoy a success rate of 90 percent and above.

    "The funding problem is taken care of at the beginning when a person pays the franchise fee," Franklin said. "After that, business management help is given to franchisees. What separates franchising from other growth methods is the continuing relationship between franchisees and the franchisor (parent company)."

    That relationship usually begins with a franchise agreement. A Uniform Franchise Offering Circular (UFOC) contains the agreement and full disclosure of the franchisor. It is furnished to the franchisee prior to any investment. "The buyer can even contact current franchisees to learn more about the franchisor," said Franklin.

    Full disclosure and continuing support is in the best interest of the franchisor, added Franklin. If a franchisee succeeds, the whole franchise company succeeds.

    THE BRAND NAME

    Franklin said ultimately that the most valuable part of any business is the brand name. An established and respected brand name can make or break a new business. That is perhaps the most important benefit of owning a franchise.

    "What is it worth to have a brand name?" Franklin asked. "The worth is unbelievable and the cost is incalculable. People recognize the brand name and become customers right away."

    The brand name symbolizes a tested concept- a successful franchise method that has been tested and backed by years of experience. Franklin added that the franchise name often represents a marketing niche that is distinctive and different. The brand name also includes a sophisticated operating system, thanks to a franchisor's successful track record.

    If a brand name is successful, it also brings with it a professional image, a key to growth, and profitability. "You need to have a professional image so customers will buy from you," Franklin said. "A professional brand image creates trust and maximizes customer retention."

    Other benefits of franchising include business and technical training, help in recruiting employees, an exit strategy, and group volume purchasing.

    "Volume purchasing should save a franchisee at least 12 percent of the current cost of goods," Franklin said.

    Are there disadvantages of owning a franchise? Sure.

    "There are restrictions that may keep a person from running their operation the way they prefer," said Franklin.

    He also noted that there are franchise and royalty fees that are paid up front and on a monthly basis. But often the fees collected can pay for an effective local and national marketing-advertising campaign.

    "It may be cheaper to pay the fee and royalties than to try and do your own marketing and advertising," he said.

    And what if a person decides to remain out of the franchise business? "If franchising isn't for you, it could be for one of your competitors," said McClure.

    Visit www.daflure.com for more information on Daflure Corp.

    Publication date: 10/09/2006

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