Bringing a Foreign franchise to the United States

American franchises aren’t just reaching across the globe; foreign franchise opportunities are moving into the American market. Foreign franchises are drawn to the United States because of Americans’ acceptance of franchising as a profitable method of doing business and the vast market that can be reached within one country. Foreign franchises may be more willing to do a joint venture with an American company, but they’re also interested in working with a master franchisee. The United States is a huge market, and foreign franchisors can find various vehicles that will help them tap into it.

Foreign franchises are held to the same standards as American franchises. They must fit the American definition of a franchise and follow American laws. They have to offer a UFOC and register in the 14 states that require it. They attempt to find market advantages and build their brand, just like any other franchise.

International franchising is exhilarating but it has to be approached with the right mindset. It’s definitely not an ego trip. It should be approached carefully, with due diligence. It will always cost you more time than you plan on spending and it will always take you longer. It also will require more energy and money than you anticipate. But international expansion is worth the effort if you’re willing to stay the course. There are great benefits.

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Disadvantages of Being a Franchisee

For every advantage of the franchise system, there seems to be a disadvantage. This will turn off some of you, but, again, that’s fine. It’s better to realize now, before you’ve committed to a franchise, that it just doesn’t suit you. But, even if you do grab some great franchise opportunities and go ahead with buying them, you should be fully aware of the disadvantages of being a franchisee. These disadvantages include the following:

Loss of independence. Although some franchisees may be comforted by their franchisor’s rules and procedures, others will chafe against these constraints.

Start-up costs may be a burden. According to a recent IFA survey, 88 percent of franchisors charge an initial franchise fee of $40,000 or less. But this fee doesn’t cover other expenses such as real estate, payroll, equipment, insurance, and other needs. But these are usually the same type of expenses you would experience in starting your own business from scratch.

Franchising requires a long-term commitment. Think of franchising as an arranged marriage for about 15 to 20 years. Can you make this relationship work in the coming years? Will you resent paying royalties through the term of your partnership?

Room for innovation is limited. If you have a great idea, your franchisor may want to hear it. But you may not he able to act on all of your ideas.

Ongoing support may be less than promised. Determine the level of support you’ll get from the franchisor and if it’s ongoing or just during the start-up phase.

Expansion may be restricted. Your agreement with your franchisor will spell out if, when, or where you can acquire new units within your company or with another company.

The franchisor is the final decision maker in an unequal partnership. While you are the owner and are fairly autonomous, you are in a partnership with someone who is bigger and more powerful than you and often has the last word on disputes and disagreements as defined in your franchise agreement.

You must be open about your finances. You’ll have to open your books to the franchisor, and you may feel that your privacy is being invaded.

Another franchisee can affect your business. A good franchisor will terminate its franchise agreement with a substandard franchisee, but bad service at one unit can make customers think twice about patronizing yours.

You’ll give up control over many issues, including possibly the site of your establishment, your vendors, the services and product you offer, and your territory. Expect to be vetoed at times.

If you have read all of the disadvantages listed above, but believe that they’re worthwhile tradeoffs for the right to represent a particular product or service, you may be on the road to becoming a franchisee. Continue thinking about the pros and cons of franchising, and if you still feel comfortable, you could make a good franchisee.

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Characteristics of a Successful Franchisor

When you’re looking at prospective franchisors, you need to know what to look for. Keep these characteristics in mind as you do your research to find any franchise opportunities.

Well-managed franchisors have:

- A good product or service with a high reputation. The brand must be built on something solid.

- Broad geographic appeal. Your brand is worth more if more people across a wide area recognize it.

- Broad market appeal. The brand shouldn’t depend on a narrow or elite customer base.

- Growth potential. Sales and development shouldn’t be maxed out as you buy in.

- Utilization of trends, not fads. The brand must capitalize on upward trends, not fleeting fads.

- A well-developed support system. It’s in the franchisor’s best interests to see that each unit within the system is supported properly.

- Money. The franchisor must have enough capital to develop the system securely and at a healthy pace and still keep an eye on trends and market enhancements that can increase the value of the brand.

- Excellent training and ongoing support. Training and support are how franchisors convey their mission, operating system, and culture to their franchisees.

- Continual research and development. The franchisor is committed to offering the most up-to-date products and utilizing innovations within the system.

- A concern for individual unit economics. The franchisor should be committed to assist each unit to perform at its peak and attain profitability.

The successful franchisors will be able to meet these standards for most franchisees. (But remember both franchisees and franchisors must do their part.) Look for these criteria when you’re looking at franchise opportunities and franchise systems to buy into. If you’re thinking about turning your own business into a franchise, make sure you’ve covered these points, too. All the best!

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Why Franchise Your Business?

Life is all about pursuing one’s dreams in a manner that has integrity. Success is the progressive realization of a worthwhile dream. Some of that dream may involve building a business. You can do this as an employee, as an independent entrepreneur, as a franchisee, or as a franchisor.

Franchisors find that the relationships that connect a franchise community will work best for its particular business type. The franchisor’s responsibility in the relationship is to offer a sound business concept and operating system, capital to grow the business, a marketing framework and strategy to grow the brand, complete training and support in running the business, a plan to anticipate and increase growth within the targeted market, and a culture that franchisees can respect. The franchisee’s responsibility is to operate the business according to the franchisor’s standards, find and work with customers, and supply capital to the franchisor in the form of initial franchise fees and ongoing royalty payments. When this relationship works, it’s unbeatable. When it sours, it can adversely affect a lot of people.

However, this arrangement doesn’t necessarily have to apply to all businesses. All businesses would not make suitable franchises. If a business is built around the owner’s personality and not a product or service that’s easily replicated, it probably should not be a franchise. If it doesn’t have broad geographical appeal and is more suited to fit local clients’ needs, it probably should not be a franchise. If the product or service doesn’t reach a growing market, then it also should probably not be franchised.

However, for some businesses, franchising can be a ticket to smart growth - growth that is necessary to building the business. Franchising will allow those who buy into franchise opportunities - the system - the franchisees - to build out the business, making the franchise more efficient and profitable, which allows franchisees to become wealthier. These businesses will use the initial franchise fees to build the system’s units and infrastructure, which gives it an advantage over other companies that rely on private investors for their capital.

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Advantages of Being a Franchisee in Franchise Business

There are many advantages for being a franchisee. Some of the advantages include the following:

The business has been tested. You’re buying into a company with a proven track record, established system of operating, and recognizable brand. Even if your brand or service is relatively new to the market, the franchisor has done the hard work of developing the product or service and overall vision.

You don’t have to come up with a new business idea. Business procedures and the format have been developed, so you don’t need to start from scratch.

Franchises inspire trust. Consumers are comfortable with a familiar, recognizable brand that they can rely on, especially when they’re far from home or flipping through the Yellow Pages.

High standards ensure quality, uniformity, predictability and this increases the consumer’s comfort level with your brand’s product or service.

You’ve got a helping hand. Ongoing support from your franchisor and other franchisees in the system helps you get through the start-up phase and the rough patches you may encounter. Everyone in the system has a vested interest in your success. A failed franchise is a black mark on the entire system.

Training and preparation - You and your staff will be well trained, both in business procedures and technical requirements.

You’ve got integrity. Federal and sometimes state regulations help assure you and your clients that your franchise is legitimate.

Pride of ownership. It’s an old but true idea that you will work harder for yourself than for a boss. There’s nothing like knowing that you are “independently owning and operating” your own establishment.

You have more tools at your disposal for investing in a franchised business, including the requirement that you receive the names and phone numbers of current and former franchisees.

Start-up costs are fairly predictable and you can verify actual experiences by talking to current and former franchisees.

When looking at the many advantages of the franchise system, you may wonder how many entrepreneurs make it without the help of a strong franchise relationship. Franchises truly are powerhouses. So, find some the best franchise opportunities and start your franchise business right away!

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Franchisee Advisory Councils

To help ensure that franchisors are attending to their many franchisees, many have set up support structures that allow franchisees to have input into the franchise system’s operations. Some franchisors create franchisee advisory councils, or FACs, which take care of franchisees’ concerns and provide a forum for discussion.

FACs grew out of the recognition that franchisors and franchisees should have clear channels of communication. FACs rarely have the power to set policy, but they collaborate in policy making by providing advice and consent. They can help identify franchise opportunities and problems presented in franchise outlets. After all, the franchisees are on the front lines of the business and experience the effects of decisions made by the franchisor. There is wisdom in listening to those who interact with the customer daily.

To be effective, a FAC should be fairly independent; it shouldn’t uniformly agree or disagree with the franchisor’s wishes. Those in the franchisor’s organization should listen to the franchisees’ ideas and criticisms, and the franchisor must follow through on the promises that are made and respond to every issue raised. Both the members of the FAC and the franchisor’s staff should see this forum as a way to problem solve, not just register complaints.

FACs can be set up in a number of ways, and they usually evolve according to the needs of each franchise system. Franchisees tend to be sceptical about the effectiveness of a FAC, so members should be patient with their progress. Members can be selected in a number of ways, but they should be elected from the field at large. Terms should be staggered so that there’s continuity, although there should be some sort of term limits so that there’s always new blood in the system. The meetings should be scheduled regularly and should be accessible to all members.

In addition, franchisors should show that they’re willing to contribute to the success of the FAC. They should allocate resources for it, such as funds, staff, and administration. The franchisor should also pay the travelling expenses for the members, some of whom may have to come a long way to attend the meetings.

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The Power of Franchise Businesses

Franchise businesses encompass an enormous number of people and companies. When you’re starting to think about grabbing franchise opportunities and getting involved in this way of doing business, you need to be well informed. The International Franchise Association (IFA) has commissioned studies of franchising to help you understand what it’s all about and what franchising can do.

A study commissioned by the IFA Educational Foundation was conducted by PricewaterhouseCoopers and was published in March 2004. Its findings were astounding. Titled “The Economic Impact of Franchised Businesses in the United States,” it found that franchises provide close to 10 million jobs with a $229 billion payroll and operate 760,000 franchised business units. But the impact of this business goes much further, because franchises stimulate the rest of the economy with their mighty purchasing power and awesome output. They generate $1.53 trillion of economic output, greater than the gross domestic product of China.

The study also found that franchised businesses operate in every state and every congressional district, which can be a factor when lobbying the government regarding legislation that can affect franchising. It also found that the most jobs and greatest payrolls from franchising were in California, Texas, Florida, and Illinois. Franchising had the greatest impact on the economies of Nevada, Arizona, New Mexico, Florida, and Mississippi. Information about the industries affected by franchising was also obtained. The study stated that “business services accounted for more establishments, met a greater payroll, and generated more output than any other single line of business. Quick-service restaurants hired more people.” It also found that franchising had the most significant impact on the sectors of quick-service restaurants, lodging, retail food, and table/full service restaurants.

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Franchise Business Educational Opportunities

You may need some proper education before making your franchise opportunities a success. Good news is an important arm of the International Franchise Association (IFA) is the Educational Foundation, which was formed in 1983. This tax-exempt organization has a mission: “increasing the knowledge and professional standards of all members of the franchising community; educating the next generation of franchising practitioners; increasing recognition of franchising’s key role in the free enterprise system; and providing comprehensive information and research about important developments and trends in franchising.”

To accomplish this mission, the Educational Foundation has set up a number of online courses for both franchisees and franchisors. Anyone can work his or her way through these courses and receive a certificate of achievement at the end. These courses are highly recommended as knowledge is power, and in business, it’s mandatory.

The IFA’s online courses include the following:

  • Franchise Basics is targeted to those who are interested in becoming a franchisee. It explains the process as well as what the franchising relationship is all about. It also helps potential franchisees evaluate whether this choice is truly for them.
  • Franchise Sales Compliance is more technical and is geared toward executives,franchise sellers, paralegals, and lawyers who are involved in the sales of franchises. It helps them understand the legal and business issues that go into franchise sales.
  • Practical Financial Management for Growing Business offers tools to enhance financial analysis and management.
  • Diversity Today educates franchisors about the importance of creating and maintaining a diverse workplace. The course is made up of four sections: What is Diversity?, Workplace Fundamentals, Marketplace Fundamentals, and Developing a Diversity Plan for Your Company.
  • Selection and Development of Top Performers is a Caliper Course that shows how the best people can be recruited for franchises, whether they work in the boardroom or at a franchise.

The IFA also administers the Franchise Sales Law Enforcement Program in partnership with the Federal Trade Commission. Through this program, franchisors can learn more about franchise regulations and potential violations. Participation is voluntary, but, again, I highly recommend it. Franchisors who have committed technical and minor violations of the FTC rule may be given an opportunity to undergo the training in lieu of an FTC enforcement action.
In addition to all of these great programs is IFA-University.com, which offers courses to IFA members. Successfully completing the courses earns members credits toward the Certified Franchising Executive (CFE) designation. The courses at IFA-University.com include: business and accounting; communications; diversity management; franchising courses; free courses; HR and recruiting; industrial skills; IT and technology; management skills; negotiating; OSHA compliance; personal skills, growth, and interest; project management fundamentals; project management professional; sales and customer service; and team performance. There is a fee for these courses and proceeds go to the IFA Educational Foundation.

As you can see, the International Franchise Association is hard at work for its members, from studying the economic power of this type of business model to offering courses on how to get started in franchising. Anyone connected to franchising should get involved in this great organization.

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Matching Franchisees with Best Franchise Opportunities

How to find franchisors that offer best franchise opportunities?

If you think you would make a good franchisee, the next step is finding franchisors that offer franchise opportunities that match your skills and interests and fit your budget and financial needs. This requires a fair amount of research. After all, buying a franchise is a very big purchase and your livelihood will depend on it. Extra care during the research phase of selecting a franchise will definitely pay off down the road.

Fortunately, franchisors want to find you as much as you want to find them, so if you think they’re hard to find, they’re just hiding in plain sight. Franchisors can be found in a number of ways.

First, franchisors are organized professionals, so seek out the International Franchise Association (www.franchise.org) for its member listings. The IFA is the world’s largest clearinghouse on information about franchises, so if you can’t find a franchisor through this organization, beware. You’ll also find easy-to-use online tools to evaluate its members, too. The IFA does much more than this, but you can start your search with its data.

Franchisors are also listed for sale with business brokers. These intermediaries can match you with businesses for sale. However, they earn a commission on sales, so they may put their own interests before yours just to make the sale. The brokers FranChoice, FranNet, and Entrepreneur Source are examples of sound brokers. Each promotes itself as a consultant. The good brokers do their best to recommend good solutions for you and their franchisor client. Use of a broker can be helpful because the ultimate cost of the franchise should be no more expensive than initially dealing with the franchisor directly. The franchisor pays the commission to the broker, just like the home seller.

Franchisors often have websites, so a thorough Internet search will turn up franchises you may have overlooked. You can also find supplemental information about your targeted franchisor on its corporate website.

Franchises for sale are often advertised in the classified section of your local newspaper, and also in publications such as USA Today, Franchise Times, Franchising II and The Wall Street Journal. In any mature franchising system, there will be new franchises to be offered as well as existing ones that need to change owners. But he sure that you know exactly why the current franchisee is selling and if location or product is a problem, beware.

Franchisors often find franchisees through expos or franchising shows. While these can oftentimes be overwhelming, you can make contact with many franchisors at one of these events and become aware of options you may have overlooked.

These are some of the ways you can find potential franchisors. But remember these are your first steps, and it’s in your best interest to examine every aspect of the franchisor and your agreement.

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The Pitfalls People Face in Franchises

Franchise opportunities exist all over the world today. In fact, franchises are essentially what the whole world is made up of if one is to truly think about all the different opportunities that exist. Considering the fact that one company alone probably has thousands of franchises already located in the United States and around the world, it is definitely safe to say that over 5 to 10 million franchise outlets exist throughout many parts and corners of the world! There are definitely advantages to owning your own franchise of a company because it is essentially like owning a smaller portion of the company itself. Franchise owners get to keep most of the profits that come into their business in exchange for usually a modest royalty fee of their profits that get sent back to the company headquarters.

On the other hand, though, there can be some downsides to owning a franchise. The first downside to owning your own franchise is that you won?t actually own your own company even though you?ll own your own store or other company location! Many people have the desire to actually open up their own store and create a company all by themselves, but owning a franchise is not what that?s all about.

In fact, you are essentially paying for a copyright allowance to be able to use the reputation of the company that you?re working for! Indeed, by owning a franchise you are essentially working for that company. Why else does McDonald?s or Burger King require part of the profits from your franchise? A franchisee owner is essentially working their franchise location in order to send more profits back to the company headquarters, even though that?s not the way that many would like to think about it.

Another downside to owning a franchise, though, could possibly be the contract that you?ve locked yourself into. Considering the fact that the average contract length for a franchise store owner is usually 15 to 20 years at the onset it would truly make it difficult to get out of if a franchise owner was having trouble getting the popularity of the franchise store off of the ground in the first place. Furthermore, there may actually be hefty breach of contract fees as well if, in fact, your franchise doesn?t do as well as projected and fails within the first few years!

The help and resources that a franchise owner might receive from the company may not be worth everything that is paid to the company headquarters as well! Many company headquarters actually have giant startup fees, annual fees, and royalties that must be shared with them, but if the franchise store owner is not able to get adequate help or training then the whole opportunity may be lost in the first place.

Considering all of these things before going down the road of opening up your own franchise is very important. Not only is it important to make sure you understand all the implications of owning a franchise, but making sure one understands the total commitment is also important!

Find out a lot more about the Franchise world at franchises.

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