Exploring the Franchising Option

Small Business Guide

By Linda Stein, Contributing Writer On Nov 9, 2015

From restaurants to doggie day care, there are franchise opportunities for nearly every interest and price range.

Take Connie Pizzaro, who opened Oasis Senior Advisors in May after a career in information technology. Pizarro wanted to own her own business and she knew she’d like to work with either children or senior citizens. With the help of FranNet of New Jersey, she zeroed in on Oasis Senior Advisors, which provides counseling for the elderly and their families, matching them to assisted living and memory care.

“I wanted something that had a proven business model,” Pizarro says. If she needs help or training, she can get it from the corporate office. “I thought a franchise would give me the best of both worlds. I go and visit the seniors where they are.”

Pizzaro doesn’t need to rent an office, either, but can instead work from her Somerset County house.

“It makes it a lot easier to start, and reduces your expenses,” she says. “I don’t have to worry about finding a place to rent or lease.”

So far, business is good.

“I’m really enjoying it. This plays to my strength and passion. My passion is helping people,” Pizarro says. “If the person has never been a business owner before, I would definitely recommend they start a franchise.”

But franchises aren’t for everybody, says Jack Armstrong president of FranNet of New Jersey.

“If you’re very creative, you might find it very limiting,” Armstrong says. However, if you’ve never owned a business, “you have a structured system that has been proven many times around the country, [showing] what’s good and what’s bad. Once you buy it, you’re following the system.”

Armstrong adds that would-be franchisees need to consider this: “Can you see yourself doing this every day? Would you be bored?”

By buying a franchise, you have a “protected territory,” he says. And the founding company helps market your business.

“There’s tremendous operational support,” he says.

However, that’s not free. The franchisee pays the franchisor an upfront fee and a royalty that’s usually five percent, he says.

“They pay a royalty based on gross sales. You have to pay that royalty whether you’re profitable or not,” Armstrong says.

Ideally, a franchisee should have “some kind of background in management,” Armstrong says. “The franchisor is going to train you on their systems. If you are not good with people, that’s a problem. Make sure you’re getting what you want. The more experienced people are training you in how to run a business.”

New Jersey’s high population density and comparative wealth make it a great place to do business, he says. However, on the negative side, there are more government regulations and higher taxes than some other states, he says. But overall, “the pros outweigh the cons.”

Although the minimum wage is higher in New Jersey than some other states, businesses can charge more to make up for it.

“If employees are doing a good job, they get off that minimum wage very quickly,” he says.

New Jersey is already saturated with some franchises, such as fast food and other restaurants. Instead of taking that route, consider service economy businesses, which tend to have hours from Monday to Friday, while the food business is seven days a week, “which can be tough,” Armstrong says. And, as with Oasis Senior Advisors, some franchises can be home-based, which saves on start-up costs.

Costs are another consideration. New franchise owners typically put 20 to 30 percent down and finance the rest. In addition, the potential franchisee should meet with an attorney who specializes in franchises to vet the franchise contract. He or she should also meet with an accountant. Franchise owners will need to decide whether to form a corporation or limited partnership.

Adam Siegelheim, a lawyer with Stark & Stark who specializes in franchising, says, “There are two aspects of a franchise that make it unique from your ordinary small business. No. 1 is the branding.”

Perhaps you have a great recipe for donuts that’s been in your family for years and “everybody tells you it’s the greatest donut they’ve ever tasted. So you open up a donut shop and Dunkin’ Donuts opens up across the street.”

Because Dunkin’ Donuts is a well-known national brand, more people will go there, he says.

“It’s hard to compete with that,” Siegelheim says. “When you open up a franchise, you’re also buying systems. So you’re not reinventing the wheel.” The franchisor has tested the systems and found out what works well and what doesn’t, he says. But that can also be a downside because the franchisee has to follow those systems because the franchisor wants to protect its brand. “If you’re truly an entrepreneur, then franchising may not be the best fit.”

Another consideration is how much money the would-be franchisor has to spend. If it’s $300,000, “you’re not opening up a hotel or a full-service restaurant with a bar,” Siegelheim says. Also think about what type of franchise you’d be good at running.

“That gets tricky,” he says. For example, if you want to work with children and own a franchise related to children, you’ll probably be spending more time doing paperwork, marketing and running the business than interfacing with kids.

“Playing with children is not on that list,” Siegelheim says. “It’s similar with a fast food franchise. You’re not flipping burgers. You’re in the back office working with payroll or employee scheduling.”

Another tip is to sit down with the franchisor or an attorney to understand the “regulatory landscape that applies to a particular business,” he says.

John Holub, president of the New Jersey Retail Merchants Association, says, “Obviously, one benefit of a franchise is you’re not starting from the ground up. You’re starting as a recognizable brand. It affords people the opportunity to hit the ground running.”

With a franchise, “the price points to enter vary a lot, from reasonable to more expensive,” Holub says. People can find their niche franchise because there are a wide range of franchise opportunities to choose from, he says.

 

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