PROS & CONS | GLOSSARY
| THINGS
TO CONSIDER
QUESTIONS
TO ASK THE FRANCHISOR | COMMONLY
ASKED QUESTIONS
 Why
is a franchise investment the best option when starting
a new business? The following section will help you
answer this question and will give you information on
the basics of franchising. We've included some facts,
a brief history, comments on the future of franchising,
a listing of pros and cons and a glossary of common
franchising terms. We hope that this will give you a
little background and basic knowledge of the world of
franchising to get you on your way.
I. FACTS
- There are an estimated 3,000 different franchisers
(companies) operating in the U.S. today.
- It is estimated that there are over 825,000 franchise
businesses across 300 business categories in the U.S. which provide nearly 18
million jobs and generate over $2.1 trillion to the economy.
- There are More than 300 different industries and business
categories that use the franchising business model as a means to distribute
goods and services.
- It is estimated that the franchise industry accounts for
approximately 50% of all retail sales in the US.
- A new franchise business opens every 8 minutes of every
business day.
- Approximately one out of every 12 businesses in the U.S. is
a franchise business.
- The average initial franchise investment is $250,000-
excluding real estate.
- The average royalty fees paid by franchisees range from 3%
to 6% of monthly gross sales.
- Most franchise companies have fewer than 100 units.
- The average length of a franchise contract is 10 years.
- Franchises become profitable faster than typical
start up businesses.
- A Gallup poll reported that nine out of ten franchise
owners say they consider their franchise to be either
somewhat or very successful.
- The report also found that overall satisfaction
in owning a franchise business was high among the
more than 1,000 franchise owners polled. "Nine
of 10 respondents' expectations were either exceeded
(18%), mostly met (48%) or somewhat met (24%)."
- The franchisees surveyed in this Gallup poll reported
substantial levels of gross income, defined as the
amount of money remaining after expenses are paid
but before paying taxes. The average gross income
reported was $91,630, and 25% of franchise owners
reported grossing $100,000 or more in the past year.
- According to a study by Arthur Andersen & Company
in 1991, of 366 franchise companies in 60 different
industries, nearly 86 percent of all franchise operations
that had opened in the previous five years were still
under the same ownership; only 3% of those businesses
were out of business.
- The U.S. Small Business Administration reports that
from 1978 to 1988, 62.2 percent of all new non-franchised
businesses were ended within the first six years of
their operation due to failure, bankruptcy, retirement
or other reasons.
II. HISTORY
 The
word "franchise" comes from Old French meaning
privilege or freedom. As economies evolved, so did the
concept of franchising. It is believed that our current
concept of franchising comes from the mid 1800s when
a major German ale brewer granted certain taverns the
exclusive right to sell their ale. Around the turn of
the century, the face of franchising looked very much
the same. This system essentially granted the right
to distribute and sell a product. At this time, the
trend-setting model was the franchising rights authored
by oil refineries and automobile companies.
Franchising in the United States was first used in
the 1860s by the Singer Sewing Machine Company. Singer
developed written franchise contracts for the distribution
of their sewing machines and was the first to implement
the predecessors of modern franchise agreements. After
WWII, millions of servicemen and women returned home,
and with that - the Baby Boom began. The large work
force demanded the opportunity to explore and develop
more and better business opportunities, which changed
the business and our economy forever. With these demands,
franchising evolved into the dominant and most successful
concept - business format franchising. In this type
of franchising, the franchisor (example: McDonald's)
not only allows the franchise to use its name and sell
its products or services, but also involves the total
transfer of a way of doing business. This includes marketing,
operating, technical training, management techniques
and expertise developed and perfected by the franchisor
(sometimes referred to as a "learning curve").
The franchisor will also provide on-going training and
support throughout the life of the franchise agreement.
III. FUTURE (Download IFA 2011 Economic Outlook Brochure)
Within the next several years, franchising will experience strong
growth and employ millions more people. This growth should be
anticipated based on the simple logic of the underlying concept.
Franchising offers success to aspiring, new business owners with the
least amount of risk. These systems will enable hundreds of thousands
of new business owners to realize the dream of successful business
ownership and financial independence. Like the US and world economies,
franchising is evolving. There will be even greater opportunities for
wealth creation among both franchisees and franchisors as this
evolution progresses. New franchises will be developed while the
existing systems become more fortified and continue to grow.
If you are ready to take the next step and go into
business for yourself or if you have an existing business
that you want to optimize, then you should look closely
at franchising as the vehicle to take you to where you
want to be in the 21st century. Largest Franchise Industries**
- Fast Food
- Retail
- Service
- Automotive
- Restaurants
- Maintenance
- Building & Construction
- Retail – Food
- Business Services
- Lodging
*Franchise Research
& Information – Background
From the 2003 Economic Impact of Franchised Business
conducted by PriceWaterhouseCoopers to measure economic
activity that occurred in 2001, the latest data available.
**From IFA Membership
Data 2007+ |
