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No job? Buy yourself a business

Jobs are still scarce, so the unemployed are reinventing themselves and becoming the majority of new franchise owners, industry sources say. The troubles in commercial real estate are making it easier by driving some landlords to negotiate — sometimes offering several months' free rent or paying for remodeling.

While banks continue their tight grip on lending, some franchisors are seeing a dip in investors and are responding by lowering fees and offering internal financing deals. But without a loan, a home-based franchise becomes an affordable option for those wanting a fresh start on their careers. Areas that are expected to increase in popularity: quick-service restaurants, real estate, senior care, eco-friendly businesses and health.

"When the economy slows, people think opportunities become harder to find," said Jason Mattes, a franchise development adviser in Coral Gables. "If you have an entrepreneurial spirit, now could be the best time."

Mattes is director of franchise development at Cruise Planners, where the fee is about $10,000 to start the home-based travel agency. Cruise Planners has added 200 new franchises in 2009, with 52 new units in Florida.

"I think people just aren't aware of all the opportunities out there," Mattes said. "They think of a Subway shop or a hamburger joint, so they feel it's not a path to look at because it's just too expensive."

• • •

MatchPoint franchise consultant Jim Sebastiano is advising people without a nest egg to head for home-based businesses because of the credit crunch. He has seen investors use their 401(k)s or IRAs to help finance stores.

There are more than 3,500 different franchises available, but Sebastiano found most people he speaks to can only name 15 from memory.

"Don't pooh-pooh any business until you do a little bit of research," Sebastiano advises. "At least know what you said 'no' to."

• • •

West Palm Beach resident Lisa Simpson, 47, reached out to a consultant after it became "mind-boggling" trying to sort through every option.

Simpson worked in banking for 26 years, and when her bank was recently acquired, she took a severance package to jump-start her dream of running a business. She filled out a franchise personality profile questionnaire to narrow her search. Her result: the painting business.

"I said, 'Painting? Really?' But the more I started looking into it, they had 300 franchises doing this, and they had a lot of training and support," Simpson said.

After paying $50,000 for the franchise fee, and an additional $20,000 toward direct mail, software and putting a logo on her truck, she now runs CertaPro Painters with her husband. It all came from her personal savings and that severance package — and she's hoping she doesn't have to dip into her home equity.

"Normally franchise businesses do quite well during recessions," said International Franchise Association spokeswoman Alisa Harrison. "This time it's different because of the available financing," Harrison said. "We actually ended up a little bit better in 2009 than what our forecast said, but it was still down because of financing."

• • •

Even experienced franchisees are having trouble getting loans. Raj Patel and his partner Rudy Puig have owned five Cold Stone Creamery shops in South Florida — opening their first in 2004 — and invested in a Panchero's Mexican Grill right before the economy went sour. Their Panchero's in Miami opened in January, but they had no loans to help with the costs.

"You could click your finger and say 'I need a loan' and pretty much it would happen. Now it's impossible," Patel said. "I approached at least five to six banks, and none of them wanted to do it."

Franchises began to fizzle in 2008, after growing by more than 40 percent since 2001. The IFA predicts 2 percent growth for 2010. Hotels are the only group that will continue to lag, but the categories of quick-service restaurants and real estate are supposed to see the biggest growth.

Other hot growth areas getting attention: anything dealing with senior care, being green and health.

6 things you need to know before starting a franchise

Before taking the plunge to open your own franchise, consider this advice from franchise consultants:

You'll be flying solo

Franchisees think they were getting a business in a box. . . . But after two weeks of training, you're on your own.

These people never had to sell the product before. They never did taxes. Never did payroll. Managing a business and all the aspects around the business is a major learning curve.

Franchisees are really buying themselves a job. They're not buying themselves a cash machine. Go into it expecting to make between $35,000 to $60,000 a year.

— Bill Reicherter, president of ZeeZone International in Parkland, a resource and networking Web site for franchises

Have a cash stash

The people best suited now, because of the credit crunch, have a nest egg saved up and are dipping into life savings. It's very scary to dip into that because there are no guarantees in the world of investing.

— Robert Zarco, franchise attorney with the law firm Zarco, Einhron, Salkowski & Brito in Miami

Money will be tight

Before opening a franchise, be sure to have money put away for living expenses that will last six months to a year.

You used to be able to get a loan with credit scores in the mid 600s, but it's much tougher today. We're seeing people really having to be over 700 for the most part.

— Jim Sebastiano, MatchPoint franchise consultant

Don't get suckered

Review the Franchise Disclosure Document very carefully and realize that not everything can be what it seems. It may say 90 percent of the stores are a success. They don't tell you that same store that's a success had five owners go through it in a few years. As long as the store stays open, it's a success in a franchise document.

Ask a lot of questions. Don't get sold on anything. I hate to say it, but with some franchises, if you're waving a check, they'll take it. A good franchise will put you through the wringer.

— Sebastiano

Watch out for resales that seem too good to be true. A resale can save you a lot of money — the equipment is already there and you already have a staff that understands the system. Sometimes

reasons to sell are normal — a spouse moving or the owner is retiring. But it could be because they are going broke. Whatever the reasons, they are going to paint a beautiful picture, and that picture could become someone else's tragedy.

— Reicherter

Do your research

People fail because they either got a bad location, or they didn't follow the program exactly. If you follow the program, you've got a 90 percent chance of success.

Find a good fit for your personality. For example, if you're afraid to talk to people, then don't buy a business that has a lot of sales in it.

Talk to other franchise owners before buying. Experience the product. Sit in a store.

— Sebastiano

Review existing and prior litigation between franchisors and franchisees. Are there constant disputes between parties? See if it's a system with constant battles, or if the human relationship is valued by the franchisor.

Have a franchise lawyer review liability disclaimer clauses. Some franchises will give you support, but if you fail, they had you sign a document saying you cannot rely on anything you were told.

— Zarco

Before you settle on a location, talk to other businesses in the area to find out their traffic. Do the customers work nearby or live nearby? Act like you're shopping. Ask how business is. See if they ever complain that there's another franchise across the street that's killing them. They'll tell you everything. They'll tell you about their kids. It's funny how they'll just open up and tell you anything.

— Reicherter

Be forewarned

As the franchisors start to hurt, it's possible they will reduce franchisee support staff.

— Reicherter

The economy has caused many franchisors to cut back. Ask what is happening to the advertising budget. Understand how the lack of advertising will impact your business.

— Zarco

No job? Buy yourself a business 02/06/10 [Last modified: Saturday, February 6, 2010 3:30am]
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