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-- Franchising 101

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Many years ago, a service station owner developed a tasty chicken recipe that he served to hungry travelers passing through Corbin, KY. However, in the early 1950s, a new interstate forced him to auction off his business. Soon, all he had was $105 a month in Social Security checks - and his secret recipe, made from 11 herbs and spices. So he began traveling across the country, cooking chicken for restaurant owners. If they liked it, a handshake deal was made on the spot.

By 1964, Colonel Harland Sanders had more than 600 franchised outlets. Today, the chicken formerly known as Kentucky Fried is known and loved the world over.

Fiscally fit.

Virtually every franchise started as a good idea. Take Gary Heavin who dropped out of medical school when he could no longer afford it. He partnered with his wife to create a fitness center exclusively for women. In just ten years, Curves® had opened its 9,000th location. And there are plenty more stories where that came from.

Franchising 101

The U.S. Small Business Administration defines franchising as a "legal and commercial relationship between the owner of a trademark, service mark, trade name or advertising symbol and an individual or group wishing to use that identification in a business."

Let's say a company has a franchise for sale. You'll need to pay a pre-set "asking price" for the rights to do business under the company's name and identity - and agree to operate the business within the terms of the franchise contract. Once the ink is dry, the franchising company provides you with goods or services to sell.

A hamburger by any other name.

Of course, when you own a franchise, it's important to maintain the integrity of the company's brand, identity and customer-focused attitude. To protect the company, and to ensure consistency across all franchised outlets - which is called the brand promise - a franchisor will provide you with detailed guidelines for operating the business and maintaining quality control.

Ka-ching.

Depending on the type of franchise you want to buy, the cost could be substantial, even upwards of a million dollars. However, there are plenty of franchises around for under $50,000, and some are much less than that. The top ten includes such familiar companies as Curves®, Jackson Hewitt® Tax Service and Merle Norman Cosmetics®.

On the other hand...

Maybe you're thinking, "I've already built a successful business - should I consider franchising it?" Franchise expert Mark Siebert provides some basic food for thought. "For a franchise concept to work, it needs to meet some basic criteria, including credibility, uniqueness, marketability and teachability. And it has to provide at least 15 to 20 percent return on investment after you deduct a royalty."

Before signing on the dotted line, ask yourself these burning questions:

  • How much money do you have to invest, and how much can you afford to lose?
  • Do you plan to purchase a franchise yourself or with partners?
  • What types of franchises best fit your interests, skills and personality?
  • Where will your franchise be located? Is there competition in the neighborhood?
  • Do you have savings or other income to live on while starting your franchise?
  • Is there a level of technical expertise or education you should ideally have? Do you have it?
  • What specialized knowledge or talents can you bring to a business?
  • How many hours are you willing to work?
  • Is the franchise your primary source of income?
  • Will you be happy operating the business for the next 20 years?

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The article you read was prepared for general information purposes by McMurry. These articles are for general information purposes only and are not intended to provide legal, tax, accounting or financial advice. PNC urges its customers to do independent research and to consult with financial and legal professionals before making any financial decisions.These articles may provide reference to Internet sites as a convenience to our readers. While PNC endeavors to provide resources that are reputable and safe, we cannot be held responsible for the information, products, or services obtained on such sites and will not be liable for any damages arising from your access to such sites. The content, accuracy, opinions expressed, and links provided by these resources are not investigated, verified, monitored or endorsed by PNC.