Franchising gains popularity with entrepreneurs
Business owners say they enjoy the resources that come with a franchise
by Jill FitzSimmons


Businesswoman Deb Albright had already tried her hand at owning a sole proprietorship, a tree service in Montana, before relocating to Western Washington. This time around in the business world, however, she was looking for a business formula that already had been tested and proven to work.
Albright’s search led her to the world of franchising. She liked the idea of owning a business that already had an established name and support system, where the franchisee had done the hard work of researching what works and what didn’t. She’d even read studies that said franchises, on average, are in business longer than sole proprietorships.
Albright looked into several franchises before settling on Curves, the second most popular fitness franchise in this nation, according to Entrepreneur magazine. Curves is a good fit for her, says Albright, who first experienced the fitness business as a customer. Albright opened a Curves in Oak Harbor five years ago and soon after bought an already established Curves in Anacortes.
As someone who’s already built a business on her own, she says starting a new business this time around was different. “I would say it’s easier because the name is out there,” Albright says.
While sole proprietorships continue to dominate the American economy, the nation has seen the number of franchises steadily increasing since the 1950s. Franchise operations today account for nearly 50 percent of retail sales, according to industry estimates.
Entrepreneur magazine reports 2005 as the year that franchising became a trend. The total number of franchise units grew 11 percent from 2004 to 2005, according to the magazine, which puts out an annual list of the top 500 franchises. That’s compared to a 4 percent increase the year before.
The growth has been spurred by people who recognize franchising as a viable means to turn entrepreneurial dreams into reality, according to the magazine. From former corporate employees ready to run their own businesses to baby boomers not quite ready to retire, many people are attracted to franchising. Franchise owners interviewed for this story say the businesses offer advertising and buying efficiencies, as well as continuing support and training.
Still, there are some drawbacks to franchising. This is not an option for everyone, says Tom Dorr, director of the Small Business Development Center at Western Washington University in Bellingham. Dorr says the only way he would consider opening a franchise is if he knew the existing operation well and knew its profitability margin.
“It’s difficult to make a living wage in Whatcom County as a franchise,” Dorr says.

Franchising has its perks
You see them nearly everywhere you go, those names that we all know well, doing business in communities all around us. Names like McDonald’s, Jiffy Lube, Dairy Queen, Great Clips and Gold’s Gym. The top five franchises, respectively, in this nation are Subway, Quizno’s Subs, Curves, The UPS Store and Jackson Hewitt Tax Service, according to Entrepreneur magazine.
Franchises now groom us, feed us, clean our homes, educate our children, do our taxes, maintain our cars and even help us lose weight. Entrepreneur magazine projects the nation will see strong growth in the near future in franchise categories such as do-it-yourself meal preparation, eBay consignment stores, pets, kids specialty services, fitness and weight loss, home improvement and quick-service restaurants.
In a typical franchise, sometimes called a chain store, a successful company authorizes an individual or small group of entrepreneurs to use its name and products in exchange for a percentage of the sales revenue. The founding company then trains the new business owner and lends its marketing expertise and reputation. The entrepreneur who’s granted the franchise manages individual outlets and assumes most of the financial liabilities and risks.
While it can be somewhat more expensive to get into some franchise businesses then to start a business from scratch, franchises can be less costly to operate. That’s partly because franchises can take advantage of economies of scale in advertising, distribution and worker training.
For Candace White, managing owner of a Jackson Hewitt Tax Service in Bellingham since 2003, it’s that name recognition a business owners gets with a franchise that’s so valuable. White enjoys being backed by a large, corporate name and the advertising that comes with it. Franchise owners also get a support group they can lean on when they start a business. There is much networking among other Jackson Hewitt owners, as well as continuous training. While White worked at Jackson Hewitt before she bought it, after becoming the owner, there was extensive training to ensure she knew how to run the business from the ground up.
For a new business owner, franchising is probably an easy way to start up because you have so many resources, White says. If you have a question or find yourself in a bind, there’s always someone to call, she says.
In her industry, it can be hard to keep up with all the government rules and regulations, says Kathy Wefer, owner of The UPS Store in north Bellingham and Oak Harbor for the last five years. Mailboxes Etc., the franchisee, does this for her.
Wefer echoes much of White’s sentiments, saying she chose a franchise over a sole proprietorship because of the name recognition. Really, she says, what do people recognize more – The UPS Store or Kathy’s Store? While she could have provided all the same services on her own, now she does it under a much more marketable name.
She too enjoys the support behind a franchise. Upon buying the franchise, Wefer underwent a month of training. The first week was spent working at another franchise. Then the next two weeks she spent in corporate training in San Diego. That was followed by another week back in a store, putting what she had learned to use. The store continues to have ongoing meetings and trainings. There’s even a manual in the store if any questions needing immediate answers pop up during the day. All this makes her feel safer as a business owner.
“There’s that safety net,” Wefer says.

Royalty fees can be difficult
Perhaps the biggest negative when it comes to franchising are those royalty fees a business will pay to the corporation. In a sole proprietorship, the profits you make are all yours. In a franchise, you’ll be sharing them.
Dorr, who counsels businesses at the Small Business Development Center, says one of his clients pays 9.5 percent of his gross sales to the corporation every month. Dorr has seen these fees range from 3 percent to 12 percent. Typically, the average range is more like 7 percent to 10 percent, he says. This can be costly to some businesses. For example, a typical restaurant, fast food or high-end, will run 65 percent to 70 percent cost of goods. When you add a 7 percent or 10 percent franchise fee on top of that, that doesn’t leave much room for profits, Dorr says.
In Washington, a franchise also can be a challenge to own because the minimum wage here is one of the highest in the nation, Dorr adds. However, a franchise model doesn’t take this into account. And don’t forget Washington’s business and occupation (B&O) tax, which touches nearly every business. This too isn’t taken into account, Dorr says.
A franchise is for hands-on owners who want to tap into someone else’s learning curve or experience, Dorr says. The theory is that these franchises are like a “business in a box,” he says. You have that support system to fall back on. However, that also means you’re not the one making all the decisions in your business. Decisions such as what your business is going to look like, what it will sell, how it will advertise and what its territory will be are already made for you.
If you have a plan of how you’re going to run a business, then a franchise may not be the best for you because it may conflict with the corporate vision, Wefer says.
“You aren’t necessarily your own boss all the time,” she says.

Do your homework
Still, each of the franchise owners interviewed say they are happy with the choices they’ve made. They view franchising as a way to make a good living while working for themselves.
Just because you’re buying into an already established business, however, doesn’t mean you get to skip all that research that would have gone into a sole proprietorship, Albright says. She advises potential business owners to really do their homework before opening a franchise. Know who your customer base is. Know where and why other businesses have failed. “Before we opened, I called 20 different Curves,” she says.
White advises potential business owners to do a market analysis, on top of any information the corporation might offer, before buying a franchise to make sure it is a viable option. Don’t jump in before making sure the market share is there for you, she says.
Dorr also advises potential business owners to ask themselves what are the ways they can gain that same knowledge a corporation offers without having to pay so much of a fee. You need to look at how well established the franchise is in your territory. Ask them what are their experiences, both pro and con. The other question to ask is what will your financial statements look like with this franchise operation in Washington, which includes factoring in the minimum wage and B&O taxes, Dorr says.
“With a franchise, or any other business, you need to do your due diligence,” Wefer agrees.