Buying franchise appeals to white-collar workers

March 09, 1991|By Mary Rowland | Mary Rowland,New York Times News Service

Like many executives today, James J. Oden took a look at his life -- a job as director of corporate accounting for Philip Morris in New York, a wife and two kids in New Canaan, Conn. -- and found his work and commute wanting. And like an increasing number of them, he devised a plan to get out of the corporate world and into his own business.

Mr. Oden, 43, believed his company had too many people on the payroll, and he figured a way his department could be reorganized -- without him.

The company was happy to save money and gave him a lump-sum payment, which he used last September to buy a franchise in Charlotte, N.C., with Tom's Foods, a Georgia-based distributor of snack foods for vending machines and convenience stores.

By early next year, he expects to be earning what he made in the corporate world, although he will not say what that is.

Buying a franchise appeals to many white-collar workers because they see it as an opportunity to be independent -- but not too independent.

The franchiser supplies training, advertising, a brand name and image. "In the purest sense, a franchise allows someone to buy himself a better job in which he has security and is in control," says Craig S. Slavin, director of franchise consulting for Arthur Andersen & Co. in Chicago.

Not surprisingly, the current corporate restructuring has driven rising numbers of managers and professionals into the franchise business. A survey by De Paul University and Francorp, a Chicago consulting company whose clients are franchisers, asked 300 franchisers whether they saw an increase in particular categories of people buying franchises in the last five years.

In 1990, 80 percent said they saw more "corporate dropouts"; in 1989, none reported that.

"Our clients are selling more franchises to white-collar workers because of corporate downsizings, layoffs and the recession," said Patrick J. Boroian, president of Francorp.

Franchises range in price from a couple of thousand dollars to several million. "But there are a number of franchises that almost anyone can afford," says Jim Burns, head of franchise consulting in the Schaumburg, Ill., office of McGladrey & Pullen, an accounting firm. "If you have $25,000 to $50,000 in cash plus the ability to finance another $50,000, you will be able to take your pick."

Buying an existing franchise, as Mr. Oden did, is the least risky proposition, Mr. Boroian said. "It's like buying stock in IBM," he said.

Well, perhaps. But because most franchises are sold, rather than folded, when trouble develops, there are no statistics on failure rates.

And any franchise requires hard work. For example, Mr. Oden, who bought 11 routes in the Charlotte area, not only manages the business and handles the payroll but also does repair work on the trucks and delivers potato chips from time to time.

Picking the right franchise is no easy matter. Most people who buy franchises do so during times of personal crisis, which often causes them to make an emotional decision.

"People think of buying a franchise because they are displaced executives, about to be laid off or going through a divorce," Mr. Slavin said. "They tend to look at it from a personal standpoint rather than thinking about what they're suited for."

One mistake they make is picking a franchise product that they like rather than looking at the numbers.

If you're thinking of buying a franchise, think about what you like to do and what you're good at. Do you intend to run the business? Do you like to sell? Do you have special knowledge? For example, Mr. Oden decided he wanted to be in the consumer products business, which he knew, but did not want a retail operation.

There are about 3,100 American franchises in 65 industries, according to Mr. Boroian. The Franchise Opportunities Guide, published by the International Franchise Association in Washington, lists 2,400 in 60 industries.

Mr. Boroian said one of the fastest growing areas is home-based franchise businesses -- sales, tax preparation, business consulting, business and computer services and distributorships. All you need are a computer, a fax machine and a phone.

When you've narrowed your choices down to a certain type of franchise, look at the franchiser. Call and ask for a franchise kit, which includes market research and prospects for the business, and verify all of it.

Obviously, consider initial costs and the on-going royalty fee, which you pay to the franchiser. "Evaluate the services provided," said Warren Williams, a partner in the Houston office of Ernst & Young. "Look at the number of support people on staff and the length of time they've been in business."

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