Franchising allows aspiring business owners to represent and benefit from a larger brand while pursuing their own entrepreneurial dreams.
When a company sells rights to its existing business model and products to another businessperson or company, it is creating a franchise. The exact definition, however, varies because of the numerous statutes passed by the Federal Trade Commission (FTC)and individual states.
Federal regulations exist to protect the rights of both the franchisee and the franchiser. The FTC helps to oversee and enforce franchise laws in order to ensure that entrepreneurs receive full disclosure on the state of the business they are joining and that the franchisor's brand is protected. [See Related Story: Should You Be a Franchisee? 5 Questions to Ask]
Early in the franchise purchasing process, franchisors must provide a franchise disclosure document (FDD) to the potential franchisee. Sometimes called an offering circular, the FDD outlines the fees, investments, and bankruptcy and litigation history of the franchisor company. There are also registration and relationship laws that govern the registration of the franchise, salespeople and advertising, as well as grounds for terminating a franchise, notice and cure periods, grounds for nonrenewal and equal treatment. These vary by state.
Factors to consider
Franchising requires a significant financial investment in return for the benefits it gives entrepreneurs. After having paid the initial fee, the franchisee can begin setting up the business premises to sell products under the franchise's brand name.
Before launching the business, the franchisee is expected to propose a store location, business model, business opportunities and royalties. Once the terms of the franchise contract are agreed upon, the entrepreneur can begin setting up the storefront. All of those activities require an additional investment of money and time.
While the appeal of the franchise is an established name and branding, it may limit your business autonomy — that is, the ability to move and grow your business in different directions to take advantage of local business factors. However,Tom Portesy, president of MFV Expositions, thinks there is still a lot of opportunity in the business.
"You can grow your own franchise tremendously, sell it as an existing [business] for a huge profit based, leave it to your children, or open more of the same concepts or other franchise systems," he said.
For more factors to consider, check out this Business News Daily article.
Benefits of franchising
According to Portesy, there are franchise investments in almost every industry, from restaurants to fitness clubs. Franchising has become one of the fastest and most lucrative routes to being successfully self-employed, with average annual pretax income for franchise owners at $80,000 per year, he said.
Some specific benefits of franchising include the following:
- Perks of the particular brand (e.g., training and discounts)
- Business model with a proven record of success
- Easier access to money and loans
- Low risk for banking institutions
Opportunities to watch
Nearly every industry has a successful business practice being sold as a franchise, from retail stores to salons to employment services. Portesy advised franchisees to choose a company that matches their passion, skill set, comfort zone and lifestyle.
Based on our research of top franchising opportunities lists from around the web, we've identified 10 industries where franchise business is booming:
1. Children's enrichment. Parents want the best for their children, and educational franchises such as Kumon, The Goddard School and The Little Gym are helping the next generation learn and grow.
2. Hair salons. Hair care for men, women and children is a consistently in-demand service. Companies such as Supercuts, Sport Clips and Great Clips allow franchisees to stand out with a recognized brand name, while kids-only concepts like Snip-itsgive owners the opportunity to narrow their target market.
3. Fitness. While large gyms like Crunch and Retro Fitness are going strong, selecting a niche missing in your area, such as kickboxing or Pilates, can help you stand out.
4. Paint-and-sip studios. This entertaining concept, which allows participants to have a glass of wine while they take a group painting class, is growing fast for both new and established companies, such as Painting with a Twist, Pinot's Palette, Paint Nite and Wine & Design.
5. Pizza. A staple of the franchise world, competitors are still finding new and innovative ways to put together a pie or slice. Domino's, Pizza Hut and Papa John's still rule the market, but concept franchises such as Kono Pizza and Project Pie offer a fresh take on this classic food.
6. Frozen yogurt. The "fro-yo" craze is still going strong, with franchises like Menchie's, Yogurtland, Pinkberry and Red Mango continuing to grow.
7. Property management. Since 2008, the number of rental properties — and companies needed to manage them, like Real Property Management and Property Management Pros — has been on the rise, prompting growth and opportunity for those looking to fill that need.
8. Senior care. As more and more aging baby boomers require in-home or facility care, this field is evolving by offering services such as advocacy and placement. Some franchise options include Caring Senior Service and BrightStar Care.
9. Spa and beauty services. Franchises such as Massage Envy, Hand and Stone, and European Wax Center are a part of the burgeoning self-care market. You can offer specialized treatments like waxing or massages, or go for a full-service establishment with add-on services such as facials and threading.
10. Vending machines. Vending machines have been popular for decades, but the success of these models — and the variety of potential product offerings — has recently made franchising a viable option, through companies including Fresh Healthy Vending and Healthier 4U Vending.
Further reading on how to buy a franchise and current opportunities can be found on the following websites:
Additional reporting by Ryan Goodrich and Marci Martin.