Wyoming Business Tips for May 9

May 3, 2010

A weekly look at Wyoming business questions from the Wyoming Small Business Development Center, part of WyomingEntrepreneur.Biz, a collection of business assistance programs at the University of Wyoming.

By Michael Lambert, Wyoming Entrepreneur Market Research Center manager

"I would like to start a business and franchises sound like a good deal. How do I know which franchise is best?" Merle, Sheridan

For many people, operating a franchise is a good way to start up a business.

In a franchise, you pay the franchiser for the right to use the chain name and for assistance in setting up the business. This help varies by franchise, but may include help in selecting a location, training in operations, advice on management, marketing and personnel and other assistance.

By operating a franchise, the new owner can capitalize on the use of a well-known brand of goods or services. In general, the risk level is lower than starting a business from scratch because of the company's establishment. However, franchises are not free and depending on the business, the startup costs may be higher than going at it alone. With a franchise, the new owner may lose a portion of the business's control because the franchise requirements must be made.

Most chains charge a franchise fee, which may run into the thousands of dollars. They also may require approval of site, building, products sold, accounting procedures and there could be territory restrictions.

In a recent CNN.com article, the top 10 franchises financed by the Small Business Administration were Subway, Quiznos, the UPS Store, Cold Stone Creamery, Dairy Queen, Dunkin Donuts, Super 8 Motels, Days Inn, Curves for Women and Matco Tools.

The franchise failure rates ran from 36 percent for Matco Tools to 4 percent for Super 8 Motels. Franchises in the same industry can have widely different failure rates.

CNN shows that Subway restaurants (the most popular franchise the past 10 years) failed at a rate of 7 percent, while Quiznos (the second-most popular franchise) had a 25-percent failure rate. Cold Stone Creameries failed at 31 percent, while Dairy Queens failed at an 8-percent rate.

The bottom line -- do your homework. Find what fees are involved, what type of assistance you will receive and what the failure rate is. A great source of help for evaluating franchises can be found at the SBDC's Franchise Information Clearinghouse at http://www.sbdcnet.org/SBIC/franchise.php.

A blog version of this article and an opportunity to post comments is available at http://www.wyomingentrepreneur.typepad.com/blog/.

The WSBDC is a partnership of the U.S. Small Business Administration, the Wyoming Business Council and the University of Wyoming. To ask a question, call 1-800-348-5194, e-mail wsbdc@uwyo.edu or write 1000 E. University Ave., Dept. 3922, Laramie, WY 82071-3922.

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