A growing number of retirees are buying franchise businesses. That's because they have the cash and want to do something that gives structure and purpose to their lives, says Jim Amos, president and chief executive officer of the Mail Boxes Etc. franchise and chairman of the International Franchise Association IFA,www.franchise.org. Popular franchises include home decorating, home improvement, postal centers, temporary staffing agencies and accounting businesses.
When you own a franchise, you sell branded goods and services and receive marketing and training support from the parent company. You can pay anywhere from about $30,000 to $400,000 for your business and usually pay royalty and advertising fees to the franchise company. As a franchisee, you are an independent contractor.
Before you sign on, consider the following tips from those already in the business.
Identify goals. For example, how much money are you willing to invest? How much income do you need? How much time do you want to spend working? Do you want to work from home? Are you willing to hire and manage employees?
Many franchise companies — called franchisors — use consultants to help them find franchisees. One company, FranChoice (1-952-942-5561), will match your goals with potential franchisors at no cost to you. You can find a list of consultants at the IFA's site.
Assess the risk. Franchising may be less risky than starting your own business, but success or failure still depends largely on you. Franchisors will provide support but won't bail you out.
Do the necessary research. You must evaluate several franchises and their potential. Search for potential candidates on the IFA's Web site, or order a copy of IFA's Franchise Opportunities Guide. It's a comprehensive directory of 2,000 franchises and is available for $23 by calling 1-800-543-1038.
The Federal Trade Commission also has useful information about buying a franchise. Go to its Web site, www.ftc.gov, or call 1-877-382-4357.
Once you've located a promising business, ask about its franchisee failure rate — anything over 3 percent is a red flag — and recent litigation with franchisees. The FTC's Franchise Rule gives you the right to documents that disclose each franchise's history of litigation. You can find the rule on the FTC's site, which also has a list of states that have passed franchise-disclosure laws.
Hire a lawyer. Consult with a lawyer who specializes in franchises before you sign a contract. The IFA maintains a list on its Web site.