A lot of research goes into selecting just the right franchise to invest in.  The more time that you spend looking into prospective franchisors, the better your chances of making a smart decision that you will be satisfied with 10-15 years down the line.  There are a lot of important questions to ask and a lot of people to approach with those questions.
If you take the information of your prospective franchisors at face value, then you are setting yourself up for disaster.  Franchisors have one main goal – selling their brand.  Franchisors need investors buying franchises if they want to profit.  As such, they are most often inclined to focus on the benefits of signing up with them and gloss over the negative.
Of course, if there is negative to be seen, then much of it will be there in plain sight for those discerning enough to look for it.  No matter how much a franchisor might wish to gloss over negatives, if the company’s franchise owners have had problems with them, then there are probably some telling clues in the Franchise Disclosure Document.
Any franchisor is legally obligated to disclose through their FDD any litigation against the company brought by franchisees.  This is true regardless of whether the case went in favor of the franchisor or the franchisee.  Even in those instances where lawsuits went in favor of the franchisor, those cases can shed light into issues that may arise with that franchisor should you choose to pursue franchise ownership.
On the other hand, if there are no lawsuits listed and a franchisor has been in franchising for some period of time, then there is another important question you should ask.  No matter how great a franchisor might be, there isn’t much chance that no franchisee has had a serious grievance even once over the life of the franchising company.
A lack of litigation should be a red flag that the franchisor may have a mediation and arbitration clause in the franchising agreement.  If you suspect that this might be the case, then it is something you should definitely investigate.  Mediation and arbitration clauses, though rare, can have a major impact on franchisees.
Arbitration is, essentially, a truncated lawsuit.  Rather than taking a complaint into court, both sides agree before hand to be bound by the decision of an arbitrator or arbitrators.  Arbitration happens more or less in the same way as a court case, with both sides presenting their cases.  An arbitrator then decides how the two parties should proceed.  Mediation is much the same, but is less formal and less binding.
Mediation and arbitration are not bad, in and of themselves, but such clauses can severely limit the recourses available to a franchisee should trouble with the franchisor arise.  Such clauses prohibit pursuit of litigation (other than by violation of contract).  As such, if you feel that you have been wronged by your franchisor, you may find yourself obligated to adhere to an arbitrated ruling that quite likely would not be in your favor.

Ideally, franchising is a mutually beneficial arrangement.  On one side, the franchising organization grows and prospers by offering investors the chance to use its successful name and business model in return for royalties and franchising fees.  On the other side, franchise owners get the opportunity to start a business that has a greater chance of success than an independent business would and comes with a pre-existing customer base.
It seems that with so much to gain on both sides that there could be little cause for complaint from either party.  Of course, that isn’t at all realistic.  The truth is that franchisors and their franchisees bump heads regularly.  Any franchising company whose Franchise Disclosure Document doesn’t list at least a few lawsuits hasn’t been franchising very long.  Franchisor/franchisee disputes are so common, in fact, that a whole subset of legal council has arisen to cater to parties on both sides.
However, in most instances it does not serve a franchisor well to allow things to progress to the point of litigation.  As mentioned, those suits all have to go into the franchisor’s FDD.  Even if the case goes in favor of the franchisor, having those complaints levied by franchisees does not look good for potential investors.
In order to prevent litigation, franchisors may attempt to resolve conflicts through other channels first.  In fact, many franchising agreements may even include mediation and arbitration clauses which obligate franchisees to pursue resolution through this channels before, or in lieu of, pursuing legal recourse.  However, such clauses are not the norm.
Mediation and arbitration clauses are not common because of one simple fact.  When push comes to shove, the franchisor can almost always out-gun the franchisee in court.  So, while the franchisor may prefer to avoid litigation, if it feels that its chances of coming out ahead through mediation or arbitration are week, then it may prefer to take the hit of the FDD suit disclosure and go for the win in court.
Those franchisors who do not contractually obligate their franchisees to pursue mediation and arbitration are often still inclined to push those means of resolution.  Again, avoiding litigation is best for the franchisor in almost all instances (except those wherein the franchisor probably really is in the wrong).  This does not mean that mediation and arbitration cannot work in favor of the franchisee, though.
In fact, mediation or arbitration, either one, is often mutually beneficial to both parties.  It, of course, allows the franchisor to avoid potentially embarrassing litigation.  For the franchisee, it provides a means of having his or her complaint heard and addressed without the expense of going to court.  Since arbitration is generally binding, as per agreement before arbitration, it can be just as effective as litigation.
Though mediation is generally not binding (unless both parties agree to abide by it after the fact), it can still provide a channel to allow franchisor and franchisee to reach a mutual understanding and agreement without escalating the conflict beyond the point of repair.  Generally, by the time a dispute reaches court there is no longer any chance of maintaining a working relationship.  Mediation and arbitration both allow conflicts to be addressed while preserving the franchisor/franchisee relationship.

It is not as easy to find franchising now as it was a few years ago, and with the current economic state, it may not be for some time. There are still options available to those who seek out funding to purchase their franchises, however, before doing so, it is absolutely vital to have your finances in order. Once you have taken a long hard look at both your assets and your liabilities, then it is time to seek out that funding. Here, we’ll go into a few examples of how to finance your franchise.

Usually, if you do have decent credit and a bit of collateral to put towards the loan, a conventional loan may still yet be an option for some. In order to obtain a commercial loan, however, you will definitely need to have your finances in order as well as being able to make the lender realize what a great opportunity the franchise, and your ability to manage your own branch of it are.

Some franchise companies finance from within, but it does not happen often. Finding out if your franchise company will offer this sort of loan is fairly easy, as it is usually contained in the Franchise Disclosure Document. Usually, there has to be a solid reason that the franchisor would lend you the capital- perhaps potential gains in a new market or if you are very experienced. In order to raise your chances of being able to use this option, make sure that you are strongly qualified and can outline that to the franchisor. If this isn’t an option, sometimes they are able to refer potential franchisees to lenders who may be able to help.

There are usually options in grants or through the various small business programs. If you are ready to do paperwork, you will find that the time and effort just may work out for you. The state government often also offers help for small businesses or franchises, as well as the small business organizations in various areas. The actual Small Business Association does not lend to borrowers, however, they do guarantee parts of loans made by those lenders who they approve and you may find that there is a loan program that works for you. If you find a franchise that is approved by the SBA, you have a much better chance at this option and usually this option is much more timely and simple.

Another option is using a home equity loan, or borrowing against your house. If you have enough equity in your home, this can be a good source of funding for your franchise. However, the risk here is that you are essentially risking your home. If you make sure that you are able to get with a franchise that shows potential, this can lessen the risk but it is always there, so you have to be very careful. These are a few different ways that you can obtain funding for your franchise, there are others out there available if you do your homework, but these are the ones that most people find the greatest amount of success in.

There are many great benefits to franchising, and that’s something that most people would agree on. However, many people, while doing great research and seriously looking into the franchises that interest them, never sit down to ask themselves about their own goals. There are a number of things that come in to play in order to make for a successful franchisee, and quite a few traits that make a world of difference. Apart from being ready and having the capital, there are some other, deeper questions that you may want to ask yourself before you decide that franchising is right for you.

One of the biggest problems that people come up against in franchising is they do not really realize that with the benefits of being able to use the brand name, and the proven business system- there’s the rub. Using a proven system of business, you have to adhere to someone else’s rules. While this is actually a huge part of what makes franchising such a great option, it’s not for everyone. If you find that you have difficulty sticking to a routine system of doing things, it may be that franchising is not for you.

Do you have issues with sales? If you feel like being your own boss will mean that you don’t have to work with sales, you may not realize how vital being an adequate salesperson is to any business. Being able to knock on some doors and get things started is a very important part of being a business owner, especially in the early days. Depending on the franchise that you go into, sales may be a much bigger aspect of the overall business than you think and it is a good thing to bear in mind.

Another issue is not so much one of personality, but one of finance. Many find that they did not plan ahead and end up in a world of trouble on this one. You may have enough to invest, but do you have enough to support yourself during the start up period? No matter how profitable a franchise may be, or how profitable it may claim to be, having a cushion set aside is an intelligent thing to do. Being absolutely sure that you have this in order makes sure that everything goes smoothly and you are not struggling.

Lastly, if you have not talked to people who are involved in franchises in general, give it a shot. More often than not they are happy to relay their experiences and this may make you feel a bit better about your choice- but it may also change your mind. Being able to decide before you do a great deal of research on franchises if you really feel that is the option that would best suit both you and your lifestyle is an important step that some miss. All too often, the rush of being able to have their own business comes into play and first making an assessment of yourself, your family, your lifestyle and your overall goals and dreams may make a big difference in where you take it.

For a franchise to succeed, the franchise owner cannot simply rely on the widespread marketing campaigns carried out by the franchisor.  Certainly those advertising campaigns do help the individual franchisee in most instances, but there are other factors that must be overcome within any given community.  The franchise owner may start his or her business with a certain degree of brand recognition and acceptance, but he or she still faces the task of raising community support for the new business.

Local Merchant Antagonism

The need for the franchise to thoroughly establish itself and gain community acceptance is especially relevant in smaller, rural areas.  In these locations there is a greater trend toward viewing franchises as “outsider” business that has come in to take business from local merchants and to hurt the community.  For the most part, those who espouse such views fail to consider whether or not the franchise owner is actually someone local, or even to view what the franchise may be bringing into the community – such as commerce and jobs.

It falls to the franchisee to remind the community that just because his or her business carries a brand name does not mean that it is not a valuable part of the local business community.  Establishing a positive image means more than weathering the storm of local resentment and hoping that, in time, the business will be accepted.  Rather, it requires a proactive stance on the part of the franchise owner; a commitment to becoming involved in the community in a positive and beneficial way.

Offsetting Negative Marketing

Sometimes a franchise owner may find that the marketing strategies of his or her franchisor have actually worked against his or her franchise.  This is a rarity, but it does happen.  Franchisors, seeking to benefit the majority of franchises, may advertise in manners that do not appeal in all localities and may even create a negative image of the franchise on a local level.

In these instances, the franchise owner may find, even if a good rapport with the community has already been established, that he or she must redouble the efforts of the franchise to stay connected with the community.  The franchise owner should distance his or her franchise from the national marketing campaign as much as possible.  If they are required to display ads that might be perceived as distasteful within their communities, franchise owners would do well to consult with the franchising organization and see if alternative marketing might be acceptable.  The individual franchise owner must find ways to very publicly embrace local values, even if the franchising organization does not.

Becoming Visible

As with most things, the public is inclined to believe what they hear until given reason to think otherwise.  Therefore, in areas where franchises are seen as antagonistic to the business community, or where marketing campaigns have presented the franchise as antagonistic to the values of the community, the franchisee must find ways to change his or her franchise’s individual presentation.

This can only be accomplished through community action.  By becoming an active and contributing part of the community and by supporting community action, a franchise owner can overcome preconceived notions or misperceptions about the franchise and become a thriving part of the community.

It has been said, on more than one occasion, that what is good for the franchisee is good for the franchisor.  This is certainly true in a very general sense.  After all, the more profitable the individual franchises become, the more alluring the franchisor becomes in the eyes of new investors.  Since each new franchise is a source of royalties and other income for the franchising company, the franchisor has a steep interest in boosting its appeal by boosting the success of its existing franchises.

As we say, though, this mutually beneficial arrangement is only true in the broadest sense.  When taken to the level of the individual franchise owner’s relationship with the franchisor, the truth may be somewhat different.  While the franchisor may, overall, act in the best interest of the majority of franchisees, the individual franchisee may, at times, find him or herself at odds with the franchising company.  This can be most easily seen in the area of marketing.

Marketing Strategy

As stated, the franchisor’s aim in marketing campaigns is to benefit the broadest range of its franchises.  This is not a light undertaking, and many franchisors expend a great amount of money and energy into marketing research to determine just what tactics will be most likely to succeed for the greatest number of franchisees.  On the franchisees’ end, there is probably little or no involvement into the process of developing marketing strategy.  This is simply one of the cost of franchising for the individual owner.

Marketing Conflict

Conflict arises when the marketing techniques hit upon by the franchisor as most likely to benefit the greatest number of franchises actually work against a percentage of its franchise owners.  Quite simply, what plays well in one region may not be well received in another.  In these instances, the goals of the franchisor come into direct conflict with those of a small group within their organization.

The CKE Example

A rather prominent example of this can be seen in advertising campaign carried out by CKE to promote business in the franchisor’s Carl’s Jr. and Hardee’s fast-food chains.  CKE, deeming that the child/parent market was fairly well cornered by competitors such as McDonalds, decided to target the less sought after demographic (in the fast-food industry) of young men.  To accomplish this aim, they ran a series of advertisements featuring prominent female celebrities in risqué outfits and scenarios, designed to appeal to the average young male.

While these advertisements played remarkably well in most areas and many of the franchise locations saw the anticipated boom in young male customers, some franchises actually suffered from the ad campaign.  In the south and in other typically conservative areas the ads were not received well and many franchisees in those areas found themselves under attack rather than raking in profits.  So, though the campaigns could be construed as an overall success for the Carl’s Jr. and Hardee’s brands, a number of franchise owners saw their business decline because of them.  However, such incidents are not the rule, but rather are the exception to it.

At the heart of franchising is the root concept of taking a business model that has proven effective and distributing it so that other aspiring business owners can reproduce it.  For a franchise to be successful, it must mirror the bulk of the key aspects of the original company, or reflect the changes implemented by the franchisor across all franchises.  This requires uniformity, not just of appearance and procedure but of each franchise’s products and/or services.

To achieve a uniformity of products or services across a wide geographical range of franchises, a franchisor may place certain restrictions on franchise owners regarding acceptable sources of supplies.  This control may range from strict guidelines as to what vendors may be used, to simple guidelines regarding product quality.  There are a number of basic models employed by franchisors to ensure uniformity and any, or a combination of several types, may be used by any given franchisor.

Unrestrictive

In some instances a franchisor may completely forgo setting restrictions on what vendors or distributors its franchisees may use.  Rather, the franchisor will establish guidelines concerning the quality of product used and guidelines for the products and services provided by the franchisee.  The franchise is free to pursue its own supply sources, so long as the standards of the franchisor are upheld.  This model, however, is relatively uncommon.

Franchisor as Supplier

A slightly more common model of supply and distribution features the franchising organization playing the role of supplier and distributor for its franchises.  Though this is the most effective means of ensuring absolute uniformity across all franchises, it is really only an effective approach for relatively small franchising organizations.  Larger franchisors attempting to fill the role of supplier could quickly find that the bulk of the company’s resources are wrapped up in the supply and distribution end and the focus is taken away from franchise development.

Approved Vendors

For larger franchising organizations, the approved vendor-distributor model often works best.  This method allows a greater control of uniformity than the non-restrictive model, but does not put the burden of supply and distribution on the franchisor.  Instead, the franchisor seeks out vendors that meet the quality standards of the franchisor and franchisees are contractually obligated to obtain supplies only from these approved vendors and distributors.

Purchasing Cooperatives

Many well established franchisors may choose to allow and encourage their franchisees to establish purchasing cooperatives in conjunction with obtaining supplies from approved vendors.  As with the above mentioned model, the franchisor has final say over which vendors and distributors the franchise owners may use for obtaining supplies.  However, under this model the purchasing cooperative of franchisees bargains collectively, on behalf of franchisees, to purchase supplies in bulk.

By this method, franchisees are able to enjoy greater purchasing power and can obtain supplies at reduced prices.  Franchisees purchase their supplies directly through the cooperative, paying into the cooperative rather than to the individual vendors.  The purchasing cooperative can then oversee the distribution, or bargain for distribution via the supplier.

As a restaurant owner you are undoubtedly all too familiar with the ongoing struggle to find ways to contain and reduce costs in your business.  Though cost management is always an important aspect of the success of your business, it is becomes even more important when the economy begins to suffer as it has over the past few years.  As more and more restaurants begin shutting their doors for good, it becomes even more important to be smart about the way that we run our businesses so as to avoid joining those who have failed.

When every single penny counts you cannot afford to leave any stone unturned in your quest to maximize profits by reducing costs.  There are a number of cost management measures that many fail to notice.  One of these lies in the area of insurance.

Insurance is an absolute necessity.  Not only are you legally obligated to carry certain coverages, but it is just good sense to protect yourself and your business.  Though we all hope that we will never have cause to utilize those costly plans, it is certainly an instance of “better to have it and not need it than to need it and not have it”.  There are ways to reduce your insurance cost without sacrificing the amount of coverage that you carry, though.

One of the most obvious ways to drop the cost of the insurance you carry as a business owner is to raise your premiums.  You can potentially save a lot of money this way, especially if you are fortunate enough to not have to file claims.  The best way to protect yourself if you choose to do this is to set aside the difference between what you would be paying for a lower deductible and what you pay for the higher deductible.  By setting aside money in this way you can cushion yourself should you find yourself needing to pay out of pocket.

Of course, should you find yourself not needing to cover those deductibles, then so much the better.  The best way to do this is to crack down on safety issues in your establishment.  Knuckling down about safety in your restaurant can work in your favor in several ways.

Most obviously, if you are doing everything in your power to prevent accidents from occurring in your place of business then you stand a much better chance of avoiding having to pay out those costly deductibles.  This means that the money you set back, which you saved from your reduced insurance payments, is money for your business – a net gain.

Improved safety works in favor of your business in another way, though.  Businesses that report few or no workplace injuries become eligible for further reductions in the cost of their insurance policies.  In fact, by just reporting less than average workplace injury claims you may be able to save as much as 25% off of your insurance premiums.

Finally, shop around for insurance often.  At least once a year, when it comes time to renew, take a look around and see who is offering the best rates.  Never make the mistake of simply renewing with your current company just because they are who you have always used.

There has been a pretty popular movement in recent years, especially in more rural areas, to support local business.  Certainly this is a very noble aim and one that should be supported by anyone who wants to see their community prosper.  However, in the push to support local business, many franchise owners are thrown under the bus of public opinion.
To say that franchises are not local business is misleading and misguided at best.  In fact, such assertions are patently false in a great majority of cases.  Just because a franchise’s franchising organization may be located in a far distant city says very little about where the profits from that business are going.
The fact of the matter is, well over half of individuals who decide to purchase a franchise go into business within the community in which they live.  This means that the franchise owner is, in fact, local business.  However, if this simple truth is not sufficient to quiet those who would see franchises driven out of communities simply because they pay a small percentage of their profits to a corporate office for use of a brand name, then more facts are warranted in support of franchises as local businesses.
Beyond being owned by individuals from the communities in which they operate, franchises also draw their workforce from that same community.  What may be perceived as taking away business from one local businessman is simply providing business for another, as well as providing jobs for many others within the community.  Because franchises are more likely to succeed than independent businesses, anyway, the jobs of those employed by these franchises can be viewed as more secure as well.
Furthermore, the simple fact that a franchise operates under a corporate logo does not mean that they, in some form or fashion, necessarily exist outside of the normal business community within an area.  Though a franchisor may establish regulations regarding the quality of goods purchased by its franchisees, or may even establish guidelines about specific vendors and suppliers that may be used, in many cases those vendors and suppliers deemed acceptable fall within the locale of the franchise.
For a franchisor to insist that franchisee use products from across the country when a vendor within the region may be just as well suited is hardly sensible.  This is especially true in the cases of fast-food franchises, where a high degree of product freshness is necessary.  Therefore, to assume that franchises are eschewing the services and products of other local vendors is not true in all cases and should not be used as a blanket accusation against franchising as a whole.
The simple truth is that franchises do represent, more often than not, local business.  Yes, the name may be national.  However, the owner, the employees and even the supplies are most often local.  The franchise bolsters the economy of the community and the franchisee most likely keeps his or her money in the same bank that supplied the loan to establish the franchise.  Franchises are every bit as much a part of the communities in which the operate as the most provincial “Mom and Pop” type of establishment.

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When most of us think about franchise ownership we think about the big names, the monster of franchising like McDonalds.  As such, most of us view franchise ownership as impractical, if not completely out of reach.  After all, to even be considered for ownership of a McDonalds one needs to have a net worth several times greater than many of us could realistically hope to achieve.

Fortunately, for those wishing to go into business and to still have the security and benefit that comes along with franchising, there are other options.  Though the big name franchises certainly are worth the investment if you have the capital, there are more affordable options for those of us with more average finances.  In fact, there are a great number of franchising organization that offer franchises that can be run right from the home.

When you hear “home-based business” you may be inclined to think of the numerous spam e-mails you have undoubtedly received which promise to make you rich by just licking envelopes or posting ads.  Any intelligent individual will quickly recognize such “get rich quick schemes” as the scams that they really are.  There are, however, very legitimate and very profitable home based businesses for those looking to, not necessarily get rich, but to get comfortable by putting honest work into running their own businesses.

There are a number of benefits that go along with owning a small, home-based franchise.  These benefits, of course, exist on top of the already evident benefits of franchise ownership over independent ownership.  For the investor looking to grow a business off of a limited amount of capital, some of these small franchise options can be very appealing indeed.

For starters, just as implied, small franchises are infinitely more affordable to establish.  Whereas a major fast-food chain can cost several hundreds of thousands of dollars, many small home-based businesses can be started up for well below $100,000.  These businesses are not just inexpensive to start-up, either.  For the most part they operate at much lower overheads as well.

A steady business that operates at a low overhead begins to show a profit much more quickly.  The sooner your business begins showing a solid return on your investment, the quicker you are on your way to financial independence and stability.  Most small franchises begin showing a solid profit after only a year or two, as opposed to larger businesses that may take 5 years or more to become fiscally sound.

Operating a business from home makes one eligible for a number of tax benefits as well.  As you may be aware, the expenses of doing business may be eligible for tax deductions.  When you run your business from home, then portions of your rent/mortgage, utilities and the like become eligible business expenses as well.
Small home-based franchises are generally much easier to administrate as well.  In fact, most are entirely owner-operated.  This means no employees and no employee paychecks.  The owner has only him or herself to worry about and is answerable only to his or her franchisor.