Franchising is a system of doing business. According to the International Franchise Association (IFA), the largest trade association representing franchising worldwide, over 65 industries have grown through franchising. Perhaps more importantly, franchising has allowed millions of would-be enterpreneurs to realize their dream of owing their own business. Today, franchise establishments employ over 8 million people and generate 170,000 new jobs into the U.S. economy. Countries from around the globe are clamoring for U.S. franchisors to establish territories in their countries, hoping this "engine of growth" can help grown their own economies.
They're out there and they want you. Franchise groups of all shapes and sizes recognize the power of the minority dollar and have begun to court the minority investor as fiercely as they battle for customers, financing and market share. An increased level of minority ownership and participation is the stated goal of several high-profile franchises.
It might be a jungle out there, but franchises are holding their own when it comes to growth and revenue potential for the individual owner. Mail Boxes Etc. will extend its network of outlets by over 300 units this year and by more than 350 units during 1998. Subway has opened 1000 restaurants each year for the past eight years and looks to continue that trend. Kieth Gerson, senior vice president for franchising and licensing with Mrs. Fields, anticipates adding more than 90 locations of various types over the next 12 months.
Coverall, a rising star in the commercial cleaning service niche is looking at a staggering 25 percent leap in annual revenue. The mature Dunkin' Donuts group expects same-store sales to increase at a comfortable 5% clip over the next few years.
Some of this steady expansion is fueled by minority investors. Stephen D. Warren, vice president of corporate affairs at Wendy's International, Inc., points to his organization's record in this area. "Twenty five percent growth over recent years has been targeted and focused at minority participation." He expects that Wendy's will add between 400 and 500 new stores during 1997 and that the level of minority ownership will continue to increase.
Why do franchisor want to grow with others, instead of get bigger alone? Fast expansion with minimum capital is the answer, says Mark Siebert, senior vice president of Francrop. a Chicago-based management consulting firm that specializes in franchising.
Show me the Money
Franchises are not magically immune from the bane of other types of entrepreneurial undertakings. The twin factors of financing and cash flow still spell the difference between success and failure. The approach to financing varies from group to group, but the common theme is simple. Financial arrangements are structured to reward both the franchisor and the franchisee with a return on their investments.
The initial cash investment can range from $100,000 for a Midas shop to a $75,000 ante for a McDonald's restaurant. Hanging out a Dunkin' Donuts sign requires an outlay of $200,000, while a...