THE BLOG

Is Franchise Ownership Right for You? Here's What You Should Know

08/15/2012 12:12 pm ET | Updated Oct 15, 2012

For Women & Co., by Mercedes Cardona, OMH Communications

If you have the drive to be an entrepreneur, but have concerns about going out on your own, you may want to consider a franchise business. "Franchising is inherently less risky [than a startup]," says Matthew Haller, Vice-President of Public Affairs of the International Franchise Association (IFA).

There are nearly 750,000 franchised businesses in the country with annual output of about $781 billion -- from hotels and restaurants to tax preparers and auto-repair shops -- according to the IFA. At the 2012 International Franchise Expo in New York City, I spoke to the IFA and franchise business owners about the pros and cons of owning a franchise, and how to find one that's right for you.

Many of the owners say that franchises have several advantages, including a concept that's been already tested and support from the franchisor. However, they add, you'll need to do a lot of homework to make sure it's something you want to do, and then you'll have to apply to be accepted by a franchise organization.

"First, find out what kind of business you want to be in," says Patrick Conlin, area developer for Blimpie of Long Island, one of the franchise organizations of the sub shop chain. "Running a franchise requires a big time commitment, so make sure it's a business you'll want to spend long hours on," he adds.

Most franchisors require a full-time commitment, especially for new franchisees, says Haller: "They're not looking for passive investors."

You'll also need to find out the minimum net-worth requirement for a franchise you're interested in. The IFA represents 3,000 franchises in the U.S. with capital requirements. That can range from just a few thousand dollars to millions.

Before you get started, you'll want to investigate your financing sources; Haller recommends getting the financing lined up before the franchise application. Talk to the Small Business Administration (SBA) and banks. Some franchisors will help finance a new franchisee, but you may have to use some of your own finances to fund it.

Haller also mentioned that the SBA's Franchise Registry can help expedite loans. The IFA also has a Veterans Transition Franchise Initiative, known as VetFran, to help former military personnel start franchises.

Once you're sure you want to do this and know what franchise you want, talk to other franchisees of the same company. As part of the application process, the franchisor will hand you a franchise disclosure document (FDD) that includes contacts for existing franchisees. Blimpie's gives out all franchisee contacts nationwide, said Conlin.

Before you become a franchisee, says Haller, you should learn about human resources and accounting. You should also hire an accountant, and taking some courses yourself would be a good idea, say insiders.

If this all seems a little overwhelming, you may want to consider working with a consulting franchise who will meet with you to determine which franchise concepts will work for you and identify the financial qualifications. Franchise brokers are usually paid by the franchisors, so this shouldn't come out of your pocket.

The IFA's website, franchise.org, has a Franchising 101 section about getting started, as well as a franchise search function that finds businesses by industry and other resources.

About Women & Co.:
Women & Co.®, a service of Citibank, is the go-to personal finance source for women. Women & Co. delivers financial content with sharp, insightful commentary and a female point of view. Sign up for free at womenandco.com.