Franchises: Great opportunities, but do research first

If you're looking to start a new business in a slowing economy, one option you might want to consider is running a franchise. But before you turn your nose up at the idea, consider that franchises don't have to mean selling fast food or oil changes.

Small business owners have found plenty of pluses in running a franchise. It means working with an established name rather than starting a company or retail outlet entirely from scratch. And the marketing of your merchandise or services is likely to be handled through the franchisor, many of whom also supply training and financing.

Most people think of companies like McDonald's or Jiffy Lube when they think about franchises.

But businesses such as home contracting and consulting can also be franchises, and so can tutoring kids in reading and math -- there are thousands of franchise business opportunities in the United States.

Because running a franchise usually means investing thousands of dollars and often requires a 5- or 10-year contract, a would-be franchisee should do extensive research and soul-searching before making any commitments. The Internet and how-to books are excellent places to begin.

The Federal Trade Commission's A Consumer Guide to Buying a Franchise can be a starting point. It provides a quick overview of questions you need to ask yourself and a franchisor before you sign anything. The guide is available online at www.ftc.gov/bcp/conline/ pubs/invest/buyfran.htm or by calling 1 877 FTC-HELP.

The International Franchise Association, a trade group, operates www.franchise.org, which has information and publications for sale. It also has information on opportunities, as do a number of franchise consultants on the Internet.

But note that some of these sites are looking to sign you up as a customer, and some might only be listing companies that pay to get a plug.

If you're considering something that calls itself a franchising opportunity, but it's not from a company that's well-known or easy to research, you should proceed cautiously and be sure it's not part of a scam.

The FTC notes in a publication called Could `Biz Opp' Offers Be Out For Your Coffers? (http://www.ftc.gov/bcp/conline/pubs/invest/

vending.htm) that some business opportunities, particularly those that promise huge amounts of money for little work, may be fraudulent schemes to get you to put up money for an investment that never pays out.

Guides to franchising can be good resources because they go into great detail.

Factors you should consider include how much money you'll need to invest and how much you might have to pay a franchisor on an ongoing basis. Another big issue can be independence in running the business - - many franchisors exercise a lot of control over day-to-day operations.

In Franchising for Dummies, authors Dave Thomas and Michael Seid put it well:

"If you bristle at the thought of being told how to set up your merchandise, how to display the advertising banners, or having to report your sales and expenses every month, you should think about how you'll feel when you are expected to follow an entire system every day. That's day in and day out -- year after year."

Another concern -- how solid the franchise name is and will demand for its products or services last? In 220 Best Franchises To Buy, authors Philip Lief Group and Lynie Arden ask, "Will it sell a year from now? Five years? Ten years?"

Whether or not to buy a franchise isn't a decision to make on your own.

You should talk to a lawyer familiar with franchising and perhaps hire a franchise consultant. And before you sign any contracts with a particular franchise, it's a good idea to talk to as many current franchisees as possible to find out about pitfalls.

Among other things, they'll let you know whether the franchisor works well with a Franchisee Advisory Council, whose members serve as advocates for their fellow franchisees.

Joyce M. Rosenberg comments on small business issues for The Associated Press.

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