Recession has given a surprising shot in the arm to the growth of franchise ownership.
Increasing executive layoffs mean a greater number of highly qualified Americans are considering franchises. Displaced workers often receive a cash payoff when they leave their original firm, and they are likely to have built up equity in their home which they can borrow against to get started.
As a result, the franchise industry is growing 6 percent to 10 percent annually.
Standards for buying into a franchise have become more difficult, and the more mature and successful a company is, the pickier it is. While the typical franchise can cost anywhere from $50,000 to $100,000, some cost more than $400,000 and others are as low as $4,000.
The growth of fast-food franchises has slowed considerably, while those providing business services, medical care and services aimed at Baby Boomers are on the rise. Hot franchises include MotoPhoto, Decorating Den Systems, Mailboxes Etc., Mr. Miniblind, Minuteman Press and The Discovery Zone, an indoor playground for kids.
"We're approached by many more professional managers whose jobs have been eliminated, and they like the fact that our business is recession-proof and blends independence with larger resources," said Michael Adler, president of MotoPhoto, a 352-store one-hour photo franchise chain based in Dayton, Ohio.
Make no mistake: Running a franchise is often grueling work. But it offers the allure of being an entrepreneur.
"I was looking for a career change and chance to work with my wife, Cathy, near the seashore, and we talked to four or five satisfied Auntie Anne's franchisees," said Daniel Testa, a former construction salesman and owner for the past year of an Auntie Anne's soft-pretzel franchise that operates in the summer in Sea Isle, N.J.
Franchise agreements establish control over items such as advertising, suppliers, renewal and sale rights, and most set royalty payments at 4 percent to 8 percent of monthly gross.
"Today's franchise terms tend to be shorter, most likely 5 or 10 years, depending on the size of the investment," said Michael Baum, executive vice president of Francorp Inc., a franchise consulting firm with offices in Chicago, New York and Los Angeles.
Three helpful publications available through the International Franchise Association, P.O. Box 1060, Evans City, Pa. 16033, are:
"The Franchise Opportunity Guide," lists companies by product or service, including franchisee qualifications, cash investment required, the business's history and address and telephone number of the firm. It costs $15 plus $5 for postage and handling.
"Investigate Before Investing," tells what questions to ask, what to expect and what laws and regulations apply. It costs $5 plus $5 for postage and handling.
"Franchises: A Dollars and Sense Guide for Evaluating Franchises and Projecting Franchise Earnings," by Washington, D.C., attorney Warren Lewis, offers sales and profit data on a number of franchises. It is $49.95 plus $5 for postage and handling.