Should You Consider Becoming a Franchisee?
The franchise companies, facing what many consider the most difficult economic outlook that have seen, are offering packages of two for one, reduced tariffs and financing to attract new partners. They also are paying their existing franchises to help them spread the business.
The economic situation has discouraged many potential buyers of franchises who are afraid to take big financial risks, while others simply can not get the loans they need. Meanwhile, competition among owners of franchises is growing, giving investors more choices. There are currently some 3,000 different franchise concepts, according to the International Franchise Association.
In a survey of 150 companies franchises, aired recently, those polled said their franchise sales were approximately 72% below its targets for 2008, and interest on the part of candidates to acquire a franchise was 48 % Less, according to Franchise Update Media Group, based in San Jose, California.
However, although "close a deal is becoming a greater challenge," said Harold Kestenbaum, a lawyer in New York that specializes in franchising, companies must take care not to alienate those who already have franchises when offering discounts and other incentives to new partners.
"What are they going to think when they see that the price is lowered?" Asks Kestenbaum. As if this were not enough, the owners that existing franchises, particularly in retailing and services for the homeless, are suffering the impact of lower consumption of the public.
Doug Disney, founder and director of the Ceramic Tile Outlet franchise Always In Stock Inc., Argues that "in a slowed economy, it is necessary to be creative with their initiatives and ways of disseminating 'bids. As part of that effort, the company, based in California, hopes to help its potential partners to qualify for loans. For this, the company managed to enter the list of pre-approved suppliers of the Small Business Administration (SBA). While those interested in the franchise should be equally eligible for loans under its credit, assets and other financial measures, to join a company that has already been described by the SBA gives them an advantage.
Since September, Tile Outlet also offers a bonus of $ 2500 for existing partners that recommend to potential buyers. As a result, says Disney, the company received two recommendations in the past three weeks, and both candidates have already begun the process of purchasing the franchise.
In August, Emerald City Smoothie, based in Seattle, launched a campaign called "Buy One, Get One Free" (a Buy, take a free). The franchise holders can buy a local Emerald City Smoothie of about 800,000 square feet for $ 20,000 and receive a free one walking into a gym, an airport or in a small space retail.
When many banks adjust their lending criteria, Gold's Gym Franchising LLC, the franchise of gyms in Irving, Texas, is giving them more time to potential partners to obtain financing, to lengthen its development cycle from two years to three.
Another part of the effort to recruit Gold's Gym is to convince independent switch to the brand's Gold. "The economy in low makes it more difficult to build from scratch a beautiful Gold's gym," says Keith Albright, assistant director of franchising for Gold's Gym. "So, why not try to recruit competition and convince them to switch sides?". Since last year, managed about six conversions, bringing the total number of Gold's Gym franchises in the United States to 475.
So far this year, Interiors by Decorating Den, Maryland, said he had experienced a decline of 33% in the number of queries and requests for information it has received from potential partners, compared with a year ago.
In response, among other incentives, is offering finance up to 50% of the rate of the franchise (or a maximum of $ 15,000) to candidates who have a minimum of $ 55,000 in liquid capital. People can have the talent but not the capital to launch a franchise, said Kevin Atkinson, deputy director of program development for Decorating Den. Thus, the company expects to sign contracts with 180 new customers in the next year.
