Surplus executives using severance

Sylvia Porter

March 25, 1991|By Sylvia Porter | Sylvia Porter,1991 Los Angeles Times Syndicate Times Mirror Square Los Angeles, Calif. 90053

Only a short time ago experts predicted there would be a growing surplus of business executives in the '90s. Their concern: How will these blocked baby-boomers be absorbed in the economy?

When big business last year began downsizing, the executives themselves responded.

"Many mid- to senior-level managers are taking their severance packages and 'buying' a job," reports John R. Reynolds of the International Franchise Association (IFA). More than before, people of all backgrounds are turning to franchised businesses as a way to get more control of their own future.

One factor that makes buying a franchise attractive to "white collar" managers looking for their own business opportunities is that service businesses are booming.

Service and "care" businesses dominate franchising, mirroring the pattern of the nation's needs: home care, health care, child care, educational products and services, automotive services, business aids and services, and the like. One of the more fascinating is janitorial services, packaged as "commercial maintenance executive" services by Jani-King International. The U.S. Department of Labor predicts maintenance will provide more jobs than any other area of employment through the decade.

The franchise market has attracted an influx of professional people and those with college degrees -- buyers who come into the field with greater financial resources. The result: franchise companies are thriving. They helped to create more than 30,000 new businesses last year, and now account for more than one-third of all U.S. retail sales annually. Sales by the nation's half-million franchised businesses will top three-quarter trillion dollars by year-end, says the IFA.

Franchising is close to being recession proof, according to the IFA. Nevertheless, the economic downturn has had an impact. Some franchise owners hit by shrinking sales are reported to be asking franchisers for concessions in their contracts.

Owning and operating a franchised business is not for the faint of heart. Although less than 5 percent of franchisees fail in any year, if you are among them you could lose everything you own. The initial investment can be small, or, depending on the business, exceed $100,000. You may receive no training, or training up to two years may be required, months during which you will have no income. You may be required to work 100-hour weeks, and so may some members of your family. Yet, the reward for some franchise owners has been personal incomes as high as $300,000.

How do you find out if franchising is right for you? How do you get answers to your questions about qualifications, legal advice, finances, names of franchise companies and the like? How do you get a list of franchise operators? Your best starting point is the "Franchise Opportunities Guide," published by the IFA. Send $15 plus $4 postage and handling to: IFA Publications, P.O. Box 1060, Evans City, Pa. 16033

Both franchisers and franchisees are becoming more selective. The franchise operators you approach will ask you probing questions. You, too, should ask the right questions, says Karin Somogyi, franchise sales executive of Adia Personnel Services, based in Menlo Park, Calif.:

L * Who is the franchiser? Is the company's track record good?

* Are franchises a natural extension of the company's business? Is its own financial investment significant?

* Has the franchise side of the business developed in a slow and steady or fast and expansive fashion?

* What marketing support does the franchiser provide?

* What kind of management training is available?

* Does the franchiser have strong quality and customer satisfaction programs in place?

* Is the franchiser a leader in its category?

As in any field where money is to be made, the franchise industry has its share of fraudulent and incompetent operators. You are making a major commitment of your assets and time, which warrants moving with caution. There is some legal protection, but your own "due diligence" is your best protection.

Be sure you have read and understand the prospectus, which is required by the Federal Trade Commission. Talk with other franchisees, being sure they will not merely parrot the franchise company's line. Consult a competent lawyer and accountant before you sign any papers or hand over any money. The franchise company's membership in the IFA assures you that it has agreed to abide by the law and the IFA code of ethics.

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