Is Franchising for You?

Franchising is a $1.3 trillion industry in North America that includes many of the best known consumer and commercial brand names.  It is a low risk way to start your own business.

Franchising is a proven and very popular way to start a business, because you are buying into a system and processes that already operate successfully.  You also buy “instant credibility” when you invest in a well known franchise

Am I willing and able to take responsibilities of managing my own business?  While Franchisors providing ongoing training and support, franchises must manage their business, which means long hours and hard work.  Typical work weeks are 60 to 70 hours, and prospective entrepreneurs must be willing to handle a wide range of duties from hiring and firing employees to pacifying unsatisfied customers.

Will I enjoy the franchise?  Future franchisees should invest in a business that is an industry they will enjoy for the next 10 years, which is the typical length of most contracts.  They should determine their interest and the types of businesses they might enjoy.

Am I willing to completely follow the Franchisor’s system?  When a franchisee displays the sign and trademark of a franchise, he or she is telling customers they can expect the same experience as in every other location of that system.  That, in fact, is the key to franchising’s success.   People who do not like to conform to a predetermined formula should be very careful about buying a franchise.

Am I good at interacting with people?  Strong relationships must be built with the staff at corporate headquarters, upon which prospective franchisees will be relying for help for the life of their contract agreement.  Also, one franchise owner who fails to meet the system’s customer service standards can be detriment to the entire system, whose reputation is on the line.

Can I afford the franchise?  One of the major causes of business failure is under capitalization.  While the franchisor will be able to give a good idea of start-up costs, the prospective franchisee will need enough money to not only open the business but run it until it turns a profit.  For some, that may take a year or longer.

Have I studied all the legal documents?  Franchisors are required to prepare and make available a comprehensive disclosure document that contains more than 20 items of information about the company, the names of its founders and top executives, details about previous or pending litigation, and the names of current franchisees and those who have left the system within the past 12 months.  Prospective franchisees should study this document carefully with the help of an attorney trained in franchise law.  As a protective measure, federal law stipulates that no franchise can accept payment from a franchisee without providing a minimum of 10 days to review all disclosure documents.

Does the franchise I am considering have a track record of success?  The prospective franchisee should get to know the principal directors of the company he or she is considering; i.e., learn their business background and how profitable their franchise has been.  The disclosure document contains this information.  It is a good idea to have an accountant review the company’s financial analysis and examine how long it has been in business.  A new franchise may offer the opportunity to get in on the ground floor of a cutting-edge concept, but it might also remain that the franchisor has not had sufficient experience to fully develop the system.

Are other franchisee’s generally happy and successful?  The disclosure document will list all other franchise owners.  It is worth the time it takes to contact a number of them to ask if they have received adequate training, if they would buy the franchise again, if their business is profitable and they have any advice.

Do I have family support?  Managing a franchise is a full time job requiring sacrifices of personal and family time.  Family members must understand that the franchisee will have demands on his or her time and should be supportive of the decision to buy a franchise.

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