A florist shop is one of more 5,000 franchise possibilities.

"Ninety percent of all franchises are still in business after five years. Sixty-two percent of all non-franchise startups have failed in that time." Frank Santo delivers some powerful numbers to people considering starting a business.

Santo, president of Franchise Option Group, provides free information to would-be franchisees, getting paid a finder's fee by companies when he connects the right new-business owners with an opportunity. He says part of his job is sorting through the 1,500 companies offering franchises to help an individual business owner choose.

Franchising works like this: You put up a large chunk of money. In return, you get to use the parent company's branding, systems, research and expertise to help you succeed. It's well suited to owners who might have a 401(k), home equity or savings to capitalize the new business, and it's a less risky investment than starting a new business from scratch.

"Unless you're really well off and can afford to make mistakes, with a franchise you pretty much know what you're in for, and they have the systems in place," Santo says.

A proven system

Franchises succeed because "they do have a proven system - you can go see one," he says. "It has to be a successful business in the first place before you can replicate it."

Franchising is not the place for you if you're an innovative, entrepreneurial maverick. "The major factor is to follow the proven system," Santo says. "The most frustrating thing that I hear from franchise companies is that people buy the franchise and then try to change it, to do it their way. The company has a proven system that they're selling and that you're paying for."

Besides the ability to work within a system, franchise owners need a strong work ethic and some kind of management experience - not necessarily in the same field as the new business, but just knowing how to deal with employees. "After that, it's probably location," Santo says, citing stiff competition on East and West Coast markets for prime business locations.

So how can you narrow down the choices available? "Your financial situation is going to be a big factor, what investment you're comfortable making. And then we can say 'What is it that you've always wanted to do?'" Santo says. "The food industry tends to be very expensive to get into. A lot of people are getting into senior care now, it's a booming market. I just closed a deal on an eBay auction store. That's been very lucrative. I did deals today for a dog-walking business and a locksmith business."

Growing franchise industries

According to the International Franchise Association, the industry categories in franchising that are expected to continue to experience rapid growth for the start of the new century are:


  • Service-related fields such as home repair and remodeling, carpet cleaning, household furnishings and various other maintenance and cleaning services.

  • Business support services including accounting, mail processing, advertising services, package wrapping and shipping, personnel and temporary help services and printing and copying services.

  • Automotive repairs and services such as quick-lube and tune-up.

  • Other areas such as environmental services, hair salons, health aids and services, computers, clothing, children's services, educational products and services and telecommunications services.

Getting started

Santo's franchisees tend to be former middle managers who have been downsized. Many of them do a lot of their own research before coming to him for help.

What if you don't have any money? Getting into franchising is "very easy, as long as you're capitalized," says Santo. "There's not a whole lot of financing out there. Someone who doesn't have a lot of money and isn't a homeowner is probably going to run into trouble. You want to start a McDonald's, you're going to need about a $5 million net worth."

Once you've made a decision to pursue a franchise opportunity, you'll need to hire an attorney who specializes in franchise law, and an accountant to help you figure out the startup finances. "There's typically a three-month ramp-up time before you start to see the business produce," says Santo. "The accountant can lay that out for you."

Should you buy an existing franchise or start a new one? "I would look at both. I would try to start a new one as long as the demographic works. The franchise will run all the demographic reports, and they're not going to let you open a franchise that doesn't have the right demographics. As you get your feet wet, then you might look at purchasing another store, as long as it's producing and doing well."