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Franchise Owners Find an Easy Path Into Business

September 29, 1985|LESLIE BERKMAN | Times Staff Writer

When Sara Addis invited her grown children's former baby sitter to recuperate at her home after an automobile ac cident, the 48-year-old El Paso housewife was impressed by the deluge of calls her house guest received from prospective employers.

Soon afterward, Addis founded a company to provide sitter, errand and companion services for the elderly, children and pets. The firm she started with six sitters in 1978 grew to 125 sitters and was grossing over $350,000 a year when she sold it in 1983. By then she had begun cloning her business concept by selling franchises to other entrepreneurs for $4,800 to $10,500 apiece and collecting a 7% royalty on their revenues. Currently 37 franchises bearing the "Sara Care" trademark are scattered nationwide, all but nine of which were formed within the last year.

Sara Care is just one example of an explosion of new franchise business opportunities that are luring in budding entrepreneurs ranging from housewives seeking gainful employment to Baby Boomers nearing middle age who are stuck in dead-end jobs and long to start businesses of their own.

The U.S. Commerce Department figures that the franchise industry accounts for a third of all retail sales and services in the nation, employs about 5.6 million Americans and posts revenues growing at the rate of about 10% a year. Separate employment figures are not kept for individual states, but California leads the nation in the number of franchise outlets, with 16,762 franchisee-owned and 5,651 franchiser-owned establishments, according to the Commerce Department.

While franchising continues to be dominated by automobile dealers, gas stations and fast-food chains, the newest growth consists of low-technology service businesses that can be established with less than a $75,000 investment and thus lie within the skill levels and financial means of middle America.

Such services are often geared to aid the two-wage-earner family that is eager to hire someone else to mow the lawn, clean and repair the house, baby-sit the children and watch after elderly parents. The criterion for success in such businesses is a willingness to do "good, all-American back-breaking work," says Jerry Wilkerson, president of a chain of franchised employment agencies called the Marshall Group.

Los Angeles-based Entrepreneur magazine last January reported that the seventh-fastest-growing franchise organization in the country, sandwiched behind McDonald's and ahead of Wendy's, was Long Beach-based Dial One, a 2 1/2-year-old network of about 750 trade and service franchises--from carpet cleaners to plumbers, pool cleaners and pest-control specialists.

Others moving into the franchise arena, Wilkerson says, are doctors, lawyers and dentists, whom he described as "notoriously bad business people." He said these professionals are increasingly buying into franchised chains of legal and medical clinics that offer help with office management.

Housewives, middle-level corporate executives and many young professionals share something in common--they have never run their own businesses. Franchising is attractive to them, because they hope that in exchange for paying franchise-initiation and royalty fees to the franchiser, they will receive a broad array of support services, including management training and advertising.

Franchising consultants tout the premise that a business novice can greatly reduce his risk of failure by buying a franchise. They cite Small Business Administration studies showing that 65% of all small businesses fail in the first five years. By contrast, they point to U.S. Commerce Department figures that indicate that fewer than 5% of franchises have failed since 1971.

Nonetheless, the consultants acknowledge that franchising is not a sure bet. They urge prospective franchise buyers to study financial and legal disclosures that the federal government requires franchisers to supply and to interview franchisees already within the chain they are thinking of joining.

Carol Green, who operates franchise-consulting and brokerage firms in Denver, says that those interested in buying franchises fall into three general categories: housewives entering the business world, corporate middle-management men and women 40 and older who fear they have no further opportunity for career advancement and top-ranking corporate executives who are in "no-growth industries" or are being forced into early retirement.

Most people seeking franchises, Green adds, want to invest $35,000 or less. Such a low cost would be out of the question in acquiring established product retailing franchises: McDonald's, for instance, says that a purchaser of one of its hamburger franchises can expect to pay start-up costs ranging from $298,000 to $352,000, at least 40% of which must be in non-borrowed cash.

But, Green says, it is possible to get into a new service franchise, which can sometimes be run out of the owner's home, for $35,000 or less.

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