If you are curious about franchising and wondering if franchise ownership is right for you, this is the place to start. Franchising has helped many people achieve success through business ownership and, chances are, there is a franchised business that has just what you are looking for. Did you know that about 1 in 12 U.S businesses are franchises.

The phenomenal growth of franchising in the U.S. is a testament to the value of the franchise model to those interested in owning their own business. How big is franchising? A study called the Economic Impact of Franchised Businesses was done by PriceWaterhouseCoopers in 2001 and published by the IFA Educational Foundation in 2004.

This study shows:

• There are more than 750,000 individual franchise businesses
• Franchising provides an annual payroll of more than $229 billion
• The franchise industry directly employs over 9 million people in the U.S. or 7.4% of the private sector employment

If you'd like to learn more about franchising and how it may be able to help you reach your personal and financial goals, we invite you to read this primer on franchise basics to get you started.

Questions:

• What is Franchising?
• What's the difference between a Business Opportunity and a Franchise?
• Business Opportunity vs. Franchise – Which is best for Me?
• How do I know If I'd make a Good Franchisee?
• What should I do before I begin Searching for a Franchise?
• What Financial Assistance is available?
• Do I need Experience in a particular Industry to Successfully run a Franchise?
• What do Franchisors look for in a Franchisee?
• What is the UFOC?
• How do I Evaluate a Franchisor?

What is Franchising?
Franchise:
A privilege or right officially granted to offer specific products or services under explicit guidelines at a certain location for a declared period of time.

There are two effective ways to become a business owner without reinventing the wheel and starting from scratch: buying a business opportunity and/or being awarded a franchise business. Each has advantages and disadvantages so knowing how each works and how you would fit their model is important before you begin your search for a particular business.

Government Protection
While a business opportunity is not federally regulated, some states will encourage a general form of disclosure prior to purchase, but most do not require it. If a business opportunity does offer a disclosure document, it may provide only general information. The lack of regulation can speed up the purchase process, but it also leaves the buyer responsible for completing a thorough investigation of the business.

Some advantages to a business opportunity are that there are no ongoing royalty payments and the buyer is given complete freedom to run the business as he chooses. On the downside, there is no vested interest by the seller to ensure that the buyer succeeds in the business so they are less likely to offer ongoing support, marketing help, etc.

Income expectations for a business opportunity may be lower than for a franchise opportunity, but they typically are available at a lower overall investment than most franchises. A business opportunity may not require costly leasehold improvements or large working capital reserves, making it an option for many people who may not have the capital available to purchase a franchise. For many buyers, a business opportunity provides the flexibility to start out as a supplemental income or home-based business, but has the potential to support their lifestyle and meet their financial goals in the future.

First, a franchisor generally collects a franchisee fee up front from the buyer and also collects on-going royalties. What the buyer gets for these fees are access to a brand, a proven business model, comprehensive training and ongoing support.

The second difference is that in a franchise, the franchisor will require the franchisee to adhere to strict guidelines in the operation of the business. This is done because it is the franchisor's name on the business. The brand must be protected for the benefit of all franchisees in the system and the service or product provided must be consistent from store to store and state to state. Such consistency is a hallmark of a well run franchise system.

Government Protection
The Federal Trade Commission (FTC) regulates franchising at the federal level. In order for a business to be labeled a franchise, three elements must be in place:

Franchisor allows the buyer to use the franchisor's trademarks.
Franchisor collects a fee (of at least $500) from the buyer within the first six months of operation.
Franchisor exercises "significant control" over the buyer's operation on an ongoing basis.

The most critical FTC guideline requires franchisors to provide buyers proper disclosure information prior to finalizing the sale. This document is called a Uniform Franchise Offering Circular (UFOC) and will assist a buyer in completing the due diligence (the process of investigation into the details of a potential investment and the verification of material facts) before purchasing the franchise. In many cases, individual states have additional guidelines a franchisor must meet to sell franchises in that state.

The UFOC is of enormous value to a prospective franchisee and is the best way to differentiate the good franchisors from the bad. Franchisors must disclose any litigation they have faced, list all franchisees in the system and address turnover, terminations, etc. Although not required, the UFOC can also list the earnings potential for a franchise.

Which is Best?
If you've never owned a business, you may find that franchising offers a significant advantage to you over a business opportunity. A good franchisor is continuously working on refining the product or service and building the brand. As the marketplace or technology changes, your franchisor will be there for you, providing new products, upgraded equipment and training as needed. As a franchisee, you have the benefit of learning from your peer groups – other franchisees in your area, region, state and even across the country. You may also have such advantages as group buying power and national advertising.

A franchisor has a vested interest in seeing each franchisee succeed for many reasons, including the royalty it receives. The royalty revenue makes it possible for the franchisor to have a strong corporate staff and to provide a superior level of ongoing support to the franchisees. Finally, franchising offers one exceptional benefit over a business opportunity and that's the power of the brand. A consistent, recognizable, and everywhere brand is important to customers with an added benefit of increasing the value of the investment the franchisees make in their business.

How do I know if I'd make a Good Franchisee?
Have you ever wondered if you have the personality and skills to be a successful franchisee? There are over 1,600 franchise companies operating in the US, each requiring a plethora of different skill sets in a franchise owner.

Some companies say they have many franchisees that came from corporate downsizing, former CEOs and CFOs and such. Others claim they don't want franchisee candidates with too much structure. Some companies want a marketing and sales background and others prefer someone without preconceived ideas so they can train that person in their system, their way.

Confusing? You bet! But there are a few key characteristics that you should be aware of to determine if franchising could work for you. Consider the following:

Making Connections
A successful franchisee needs good interpersonal skills. Seem obvious? Well think about this carefully. In your current and past jobs, did you really enjoy working with people?

A franchisee will need to manage employees and work to retain them. You'll have to build good-will with your customers and gain their loyalty and trust. In many cases, a franchise owner's role will be to make community connections by joining civic organizations and networking with various groups.

If you are truly a people person, you have one of the most valuable assets to successful franchise ownership.

Following a System
Many people think being your own boss requires you to be a true entrepreneur, someone who wants to take charge and challenge each step in the process. That's simply not true for franchising. If someone has already done the work, tested the procedures and proven that a system works, a clever person will pay attention and follow that system. This person is truly focused on success.

Someone willing to listen and learn from others to avoid making mistakes will avoid many of the pitfalls of business ownership and find success sooner. That is the essence of franchising.

Willing to ask for Help
In the same vein, a good franchisee candidate is someone who will let the franchisor help and support them. At most franchise companies, there are teams of people who will train you in every aspect of the business. There are people to call for help. There are people who will come to your place of business to show you the way. The motto of franchising is that you are in business for yourself but not by yourself. It is up to you to take the help and follow the advice. When you are successful, the franchisor is successful.

Doing Whatever it Takes
There is just no substitute for hard work, particularly during the first year. A successful franchisee is someone who is willing to do whatever it takes to get the job done. They show their employees by example. They put in whatever hours necessary to get the job done.

If you are someone who understands what it takes to be successful and have the motivation to make your business succeed, you have the cornerstone of a winning franchisee personality.

Avoiding Risks
Starting a business by yourself is taking a big risk. Buying a franchise can help reduce the risk. In fact, successful franchisees are typically risk averse. They want to minimize their risk as much as possible and so they choose a strong franchise system with a proven track record.

If you love to take big, bold risks, franchising probably isn't for you. If you are careful and thorough in your franchise research so you know just what you are signing up for, then you have the stuff to triumph as a franchisee.

So, how many of these qualities do you have? Unlike a magazine survey on health concerns, you can't get some of the answers wrong and still be in good shape. You need all of the above attributes to consider yourself a great candidate for franchise ownership.

This new business you are considering is your business and the money you invest is your money. You'll want to have every advantage possible to make it successful. So before you begin research on a franchise company, do some soul searching about your own assets and how they fit with a franchise opportunity.

There's nothing more exciting than embarking on that road to owing your own business. Just make sure you can avoid the speed bumps along the way.

What should I do before I begin Searching for a Franchise?
Before you even begin looking at franchises, you need to do an introspective self-evaluation of your own strengths and challenges. Sit down, get out paper and pen, and as objectively as possible answer these questions:

What Financial Assistance is available?
Financing can be a major hurdle for any potential franchisee. Start-up costs can reach a high level and it is essential that the franchisee have adequate working capital. It is important to address any financing issues during the investigation of franchise opportunities.

The best source of information about financing options for any franchise is the franchisor. Once again, we are dealing with an issue that the franchisor has addressed numerous times with other franchisees and they will have a good deal of information about the practical options that are available.

Do I need Experience in a particular Industry to Successfully run a Franchise?
No, in fact most franchisors are looking for people with no experience in their industry. This is because they want their franchisees to focus on running the business and not performing the labor their concepts require. Franchisors need people who can be effective in areas such as motivating employees, generating sales, and running the day-to-day operations as efficiently as possible. The franchisee role is typically one of management rather than labor.

What do Franchisors look for in a Franchisee? 
Although it may not be immediately evident, a franchise company is under no obligation to award a franchise to just anyone who can afford the franchise fee.

Like any good business, a franchise company will want to populate their system with great people. Since franchising has as its foundation a strong, consistent brand, a franchisor looks for franchisees who will present the brand in the most positive light. In the same manner, they will want to have only those people as franchisees who are able and willing to learn the system and work within the specific parameters of the business.

When researching a franchise company, you will find that they may have as many questions about you as you do about their company. A franchisor is putting their time, money and reputation on the line, so most have developed a "profile" of a successful franchisee which they use to determine if you are "right" for their business.

While this may sound exclusionary, franchisors have a very good reason to learn what works and then to stick with it. Successful franchise companies want their franchisees to excel. They have refined their systems around a set of standards they have learned franchisees need to thrive.

• Capital: This is one of the first hurdles you'll encounter when trying to qualify for a particular franchise. Most franchisors have a minimum net worth and liquid capital requirement for their franchisees. While this may seem obvious, there are other demands on cash availability beyond the initial costs of the franchise – such as the length of time it will take your business to start making money and the living expenses you will have during that time. There are financing options available that may help you qualify if you are short of capital, however no good franchisor will want to see you start out your business heavily in debt.
• Personality: There are some personality characteristics that seem to be common in all successful franchisees. Other characteristics are specific to individual businesses. Are you willing to follow a system or are you the type who wants to do everything your own way? Do you enjoy working with people? Are you focused and decisive? Do you enjoy solving problems? Are you willing to work hard? These are some of the questions a franchisor may have for you and your answers will determine not only if you can qualify for a particular franchise but also if you will be a successful franchisee.
• Skills: Your skills are closely related to your personality. If you like working with people, chances are you will be good at it. Are you customer service focused? Can you lead a team of employees? Can you set and meet personal goals? Do you understand financial concepts? One attribute required by most franchisors is that you have business acumen and understand how the parts of a business contribute to the whole.
• Experience: Franchising is one area of business where your specific experience is less important than other factors. That's because of the excellent training provided by most franchise companies. In truth, many franchisors prefer franchisees without industry experience because it is easier to train someone in a franchisor's system than it is to "un-train" a franchisee that has ideas which may conflict with the way a franchise system works. Again, it is the overall business experience you've attained through life that will make you a "star" in a franchisor's eyes.

The goal for every franchisor is to have successful franchisees. As much as you may want to qualify for a franchise opportunity that interests you, remember that the franchisor has the background and experience to know what type of person makes a good franchisee in their sys