Franchising Expert Says "Buyer Beware"

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Franchising expert, Ken Cone, offers 10 important tips to help potential franchisees choose a highly lucrative enterprise and avoid common pitfalls.

For individuals looking for a highly lucrative income stream, owning a franchise can be the perfect jumpstart. Unlike creating a business from scratch, a franchise involves no guesswork, but rather, comes complete with instructions from A-Z so new owners do not have to reinvent the wheel. Franchises also have a success rate that far outnumbers the survival rate for independent businesses. (97% of franchises were still in business at the end of 5-6 years as compared with only 62% of non-franchised businesses, according to the United States Chamber of Commerce Report, 1999.)

While operating a franchise can yield a far greater return than creating an independent business, and often be up and running within a few months, there are a number of important considerations to be aware of. Following, are 10 tips from Ken Cone, franchise consulting expert, to help potential franchisees avoid some common pitfalls and create a winning opportunity.

10 Keys to a Successful Franchise

Tip #1: Choose an industry you feel passionate about. Franchises are available in 27 different industries, including: automotive, building storage, decorating, child education and development, coffee, computer technology, convenience stores, employment and personnel, financial services, food and restaurant industry, health beauty, and nutrition, lodging, laundry and dry-cleaning, maid service and cleaning, maintenance, management and training, packaging and mailing, pet care, printing and copying, food businesses, real estate, repair and restorations, retail sales, dry cleaning, senior care, signs and sports. The hottest trends right now are in pet care services, including mobile pet care, and senior care agencies, with millions of baby boomers and their aging parents on the horizon.

Tip #2: Choose a franchise that is up and coming, rather than one that has already saturated the market. It is difficult-to-impossible to buy a popular, fast food franchise, such as a Burger King or McDonald’s, because new territories are often unavailable. However, there are hundreds of franchises on the rise, (fitness centers being one of many examples), that represent excellent opportunities for new franchisees.

Tip #3: Choose the right location. Most franchises use professional site selectors and demographers to ensure that there is a large enough target market to support the franchise being located in a particular setting.

Tip #4: Review the UFOC carefully! Once you’ve chosen a particular franchise to investigate, the franchiser will send you a document called the UFOC (Uniform Franchise Offering Circular), which will provide you with the information you need to research that franchise in depth. Before making your final decision, review the UFOC with a lawyer or accountant.

Tip #5: Contact other franchisees within that franchise. All franchisees are required to be listed in the UFOC, including those who have left within the past year. Be on the lookout for unprofitable or unhappy franchisees. A few are acceptable; ten or more are not.

Tip #6: Note the amount of litigation in which the franchiser is involved. This information will be listed in the UFOC. Excessive litigation with franchisees can be a sign of a franchiser who has poor communication skills.

Tip #7: Meet face to face with the franchiser. Not only is it good to know who you are doing business with, but you will also want to know what systems are put in place so that if a problem arises you are immediately able to access the franchiser, or other franchisees, to find out how that issue has been dealt with before.

Tip #8: Inspect the procedure manual and observe how well-organized the franchise is. The franchise should be organized so that the procedures that are supposed to be followed can be followed. If the franchise is not well-organized, and the procedures are not easy to follow, the risk of failure increases.

Tip #9: Royalties should be priced at a rate that allows both parties to thrive. The intent of being a franchiser is to receive passive income from the efforts of others. The royalty rate depends upon the industry. Royalties for food-related franchises are lower because of the higher overhead costs. For example, franchisees at McDonald’s pay a 4% royalty to the McDonald’s franchiser. For franchises that are based on service providing, where the overhead is low, such as for maid services or the computer service industry, the royalties are higher, at 10% or larger.

Tip #10: Talk with a franchise consultant before jumping into the franchise world. There are many risks that franchise consultants can help a potential franchisee avoid. The consultant’s job is to save franchisees time, money and potential aggravation. The cost of buying a franchise should not increase when you use a franchise consultant, and franchise consultants should provide their services free of charge.

For more information, and to obtain a free copy of the report: 40 Reasons Why Franchises Fail, contact Ken Cone, Cone Franchise Consulting, Inc,

Contact: Ken Cone

877-536-2663, 408-730-2311

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