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BusinessColumnistsJamie Herzlich

Do the homework when choosing a franchise

It isn't easy starting a business from scratch.

   That's why many new entrepreneurs opt to buy into a franchise, which offers the security of being part of an already established system.

   Still, purchasing a franchise can be costly, and considering the current economic climate, you need to make sure you're buying into the right concept, say experts.

   "It's always a good idea to be critical and do your homework," says Dan Rowe of Fransmart, an Alexandria, Va.-based franchise development firm.

   To start, you need to take a hard look at your skills and personality and assess the kind of franchises you think best suit you.

   "Look for something you feel comfortable with that you know you can handle," advises franchise attorney Harold Kestenbaum, counsel to the law firm of Ruskin Moscou Faltischek in Uniondale.

   For instance, if you're used to a 9-to-5 work schedule, you may not want to buy into a concept that requires you to be available around the clock, explains Kestenbaum, co-author of "So You Want To Franchise Your Business" (Entrepreneur Press; $19.95).

   "Ask yourself, Is this something you can do physically and mentally?" says Paul Facella, president of Inside Management Ltd., a business consulting firm in Lynbrook.  "You need to know what you're getting into. "

   There's plenty of information out there, says Facella, a former regional vice president of McDonald's Corp. and co-author of "Everything I Know About Business I Learned at McDonald's" (McGraw-Hill; $24.95).  Check the Web and talk to professional organizations in that field, he suggests.

   To be sure, the amount of financing you can get may help narrow your choices, considering how tight capital is these days.  In general, the home-based and service-oriented franchise concepts are less costly than ones that require a physical storefront, says Kestenbaum.

   "Most home-based businesses cost under $100,000 to buy into because there is no brick and mortar," he notes.

   For John and Kimberly Falvey of Rockville Centre, cost was a consideration when they were sizing up potential franchises.

   "We didn't want to spend more than $100,000," says John, 43, a downsized Wall Street specialist broker, who recently purchased a Ductz franchise with his wife for more than $50,000.  They bought the rights for two-thirds of Nassau County and will be operational with the home-based indoor HVAC and duct cleaning business by May.

   To help make their search easier, they worked with FranChoice, a franchise company that matches people based on skills and personality with franchise opportunities.

   "We wanted to look for businesses that weren't a luxury item or service," says Tom Scarda, a Wantagh-based consultant for FranChoice that worked with the Falveys.

   Given the economy, he's been trying to match his clients with more "recession-proof, service-based businesses" like emergency home restoration.

   Of course, there's no guarantee that any business is truly recession proof.  

   The best you can do is to exercise due diligence.

   This includes making sure you look at a franchiser's Franchise Disclosure Document, which contains pertinent franchiser information, including its financials.  Also, always make sure to talk to other franchisees already in the system.

   Don't just call the names the franchiser gives you, says Rowe.  And don't be afraid to ask the franchiser hard questions, says Adina Genn, a Port Washington-based small-business expert who co-wrote the McDonald's book with Facella.

   Ask the franchiser questions, such as if a franchisee was struggling, what would the company do to help and, specifically, what is being done now to help franchisees in this tough economic climate, she says.

   "When push comes to shove is the franchiser really there for you? "  Genn asks.  "You want to know what you're getting into. "

There are about 900,000 individual franchise units in the United States, contributing $2.3 trillion to the nation's private-sector economy.

   Franchise businesses span across 85 industries, including automotive, pet care and senior care.

   When purchasing a franchise, expect to pay the franchiser a one-time fee to cover startup costs (varies for each franchise), as well as monthly royalties typically ranging from 5 percent to 8 percent of your annual gross revenue.  

   Sources: International Franchise Association; Harold Kestenbaum


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