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Laid Off Workers Turning To Franchising

By CityTownInfo.com Staff

March 31, 2009

Downsized workers are starting new careers through franchising while investing their severance pay, savings or 401(k) funds into hefty startup costs.

The Wichita Business Journal reports that according to the International Franchise Association, the number of new franchises is expected to decline due to a lack of available financing. Nevertheless, said Alisa Harrison, vice president of communications and marketing, franchising is expected to remain a popular career for individuals who are out of work.

"You can go into business for yourself, but you aren't by yourself when you go into franchising," Harrison noted.

MSNBC.com cautions that franchising is not ideal for entrepreneurs: A franchise owner sells someone else's idea, and is required to follow strict rules for how to operate the franchise. Startup costs are expensive and franchisees typically must pay monthly royalties ranging from 5 to 8 percent. The industry is prone to scammers who demand money for business models that don't deliver on sales promises.

Moreover, franchises are still susceptible to the economic downturn. The Small Business Administration reported that 24 percent of franchises defaulted on their loans in fiscal year 2008.

But others have turned to franchising as a way to start their own businesses without beginning from scratch. Such was the case for Jim Symington from Atlanta, a former director of information technology for a manufacturing company. After consulting with a franchise broker and doing extensive research, he chose Mr. Handyman, a home maintenance and repair firm.

"Oddly enough, I found a fit I wouldn't have dreamed of," he told MSNBC. "I used to have a team of IT guys, and I would send them out of projects to fix things. But now instead of taking laptops, they'd be taking hammers."

Symington paid $68,000 in startup fees plus six months of working capital-about $40,000-to start the business. He received marketing materials and online resources from the franchisor and a territory of 90,000 homes.

Experts caution those interested in franchising to exercise due diligence, including looking at a franchiser's Franchise Disclosure Document. "It's always a good idea to be critical and do your homework," said Dan Rowe of Fransmart, a franchise development firm in Virginia, who was quoted in New York Newsday.

Adina Genn, a small business expert, advised asking the franchisor what is being done now to help franchisees in the current economic climate.

"When push comes to shove," she said, "Is the franchisor really there for you? You want to know what you're getting into."

Symington, who noted that running a franchise is a "ton of work," does not regret his decision.

"Having been in the corporate world, no matter how hard you pedal, your paycheck is the same," he said. "Now, if I pedal hard, I can go faster, make more money. It's kind of exciting."

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