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
- In the year 2000, franchises made up an estimated
$1 trillion in annual retail sales.
- Franchises account for more than 40% of US retail
sales.
- More than 8 million people in the United States
are employed by a franchise.
- One out of every 12 US retail businesses is a franchise
establishment.
- Franchises become profitable faster than typical
start up businesses.
- In 1998 there were nearly $850 billion in sales
of franchised goods and services at over 700,000 US
franchise locations.
- 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.
- Statistics from the U.S. Department of Commerce
show that from 1971 to 1987, less than 5% of franchise
businesses were terminated on an annual basis.
- 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.
- There are an estimated 1,500 different franchisors
(franchise companies) operating in the U.S.
- There are more than 320,000 franchise retail outlets
in the U.S.
- The franchising industry employs over 8 million
people in the U.S.
- Annual U.S. retail franchise sales in 2000- 1 trillion
- The franchise industry accounts for 40% 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
- More than 75 different industries use franchising
as a means to distribute goods and services
- 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
- Top franchise industry- Fast Food
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
Within the next 10 years, franchising will comprise
over 50% of the retail economy and employ millions of
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.
Economic Impact of Franchising*
(2001)
- Franchised businesses generated jobs for more than
18 million Americans.
- They accounted for 9.5% of the private-sector economic
output.
- More than 760,000 franchised businesses generated
a total economic output of more than $1.53 trillion,
or nearly 10% of the US private-sector economy.
- Franchising generated one out of every seven jobs
in the private sector.
- The Businesses provided payrolls of $506 million,
or more the 11% of the nation’s private-sector
payroll.
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 2005
US Franchise Information and Facts
According to the IFA
- 767,483 franchise businesses exist
- Franchising generates 18 million jobs
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