Shopping for a Franchise? Read This First

Despite worries of an economic downturn, franchising is one sector that is poised for another year of solid growth.

The franchise industry is going from strength to strength, documenting rude health and continuing prosperity.

According to president and CEO of the International Franchise Association (IFA), Robert Cresanti:

“The franchise sector will continue to grow at rates that exceed the economy-wide growth of industries where franchises are concentrated.”

"These [franchise] companies have cultures that tend to grow and rise because they meet consumer needs in various spaces, whether it's dog walking or hotels you prefer to stay at [and] as a function of that, it usually scales up."

So, it's not unusual to wonder why people hesitate when thinking about buying a franchise....

So, why People Hesitate to Buy Franchises

Nolo Law reports people hold back from franchise investments because of unknown earning potential. Franchisors might be willing to share average earnings and gross earnings before expenses, but they tend to hold back on specific net profit reports. They are, after all, trying to sell something. Ask for details; if you don't get them, walk away and move on to the next franchise opportunity.

To get around this - ask for details; if you don't get them, walk away and move on to the next franchise opportunity.

Prepare Long-Term Payroll Tax

A major obstacle of early franchise development is establishing the employee base. Payroll taxes are a set of taxes that vary from state to state, and even municipality to municipality. A smart strategy is to outsource payroll services, hire the services of certified public accountant, or employ a bookkeeper and provide him or her with the software to manage payroll.

A payroll service can keep track of accurate numbers and forms. According to Intuit, small business payroll tax plans can calculate Medicare, Social Security and federal and state taxes.

Franchise-Specific Startup Loans

The Small Business Administration (SBA) reports that as of January 2013, there is an 18 percent lending shortfall in franchising. The credit squeeze is leaving many people unsure of how to proceed with financing, but outside-the-box thinking is developing amid economic frustrations. The industry is seeing a spike in companies specializing in providing franchise-specific loans.

Franchise America Finance services clients with custom lending options for both franchisees and franchisors.
Some franchise companies offer their own financing. Massage Envy, UPS Store and Gold's Gym offer loan options for franchisees looking to invest in a more non-traditional format. The SBA estimates that about 75 to 100 major franchise companies offer their own financing options.

No matter what strategy is employed, franchise owners are expected to study their terms in detail. The Franchise Disclosure Document is a pivotal source, and you should hire an attorney to help you understand the terms before you commit.

Melanie Luff

About the author

Mel wrote for all titles in the Dynamis stable including, and as well as other global industry publications.