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Buying a Franchise? Investigate Before You Invest

© Michele Marrinan

1. Why should I buy a franchise? Franchising lets you be in business for yourself, not by yourself. Franchisors provide a proven method of doing business, affiliation with a brand name, expertise and ongoing national exposure through advertising and marketing programs.

2. What kinds of businesses lend themselves to franchising? Virtually every business you can imagine. The IFA (http://www.franchise.org) now lists more than 70 industry categories to describe its member companies. The most popular franchise concepts today help busy consumers organize their lives. These types of systems include maid services, pick-up and delivery dry cleaners, and lawn-care services. The rapid growth of small and home-based businesses has created a niche for another group of service-oriented franchises. These include temporary staffing services, payroll and accounting services, Internet service providers, and shopping services.

While it is important to consider industry growth, it is critical to analyze an individual franchise company's track record. Keep in mind that quick growth does not always lead to success. An organization that grows too quickly might not have a service team in place to support all of its franchisees properly.

3. What is the FTC Franchise Rule? This is a federal regulation enforced by the Federal Trade Commission (http://www.ftc.gov). It requires every franchisor to provide a disclosure document to every prospective franchisee. It usually takes the form of the Uniform Franchise Offering Circular. The UFOC contains 20 categories of information about the company, such as investment costs, background of key executives, and a list of the system's current and former franchisees. The IFA recommends that prospects talk to as many of these individuals as possible to learn how they view their relationship with the franchisor.

4. Are there other laws to protect franchisees? Fifteen states require franchise companies to file or register with a state agency before selling franchises there. These states are: California, Hawaii, Illinois, Indiana, Maryland, Michigan, Minnesota, New York, North Dakota, Oregon, Rhode Island, South Dakota, Virginia, Washington and Wisconsin. These states also have disclosure regulations similar to those of the Federal Trade Commission.

5. How much will it cost to purchase a franchise? About 80 percent of franchise companies have initial investment levels of less than $250,000, and almost half are less than $100,000. In determining total costs, do not over look the cost of buying or leasing, improving and equipping the business, and getting zoning licenses to operate at a particular location. In terms of total opening costs, make sure you consider working capital, rent, payroll, inventory, insurance, and your own salary.