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ECONOMICS REPORT - Franchises - 2004-01-08

Broadcast: January 9, 2003

This is Bob Doughty with the VOA Special English Economics Report.

Success does not come easily to a small business. The United States Small Business Administration says fifty percent fail in the first year. The government agency says ninety-five percent of small businesses fail within five years.

Many owners believe one way to improve their chance of success is to buy an already recognized business through a franchise. A franchise provides a name and products that people know. One of the best known franchising companies in the world, for example, is McDonald’s.

A person who wants to start a franchise must pay a fee. This amount of money depends on how much the franchising company expects the new business to earn. To open a McDonald’s franchise costs at least five-hundred-thousand dollars in fees.

Franchise fees for some other companies are only a few thousand dollars. However, store space, goods and other things needed to operate a franchise may cost a lot more.

Franchise buyers agree to pay a percentage of their earnings every year for the right to operate the business. They also must agree to pay for marketing efforts. A percentage of earnings goes to national advertising. Another percentage may go to local advertising.

The franchising company must approve where the new business will be. The contract agreement will also require the owner to observe a number of rules. These may restrict where the new franchise can do business. Contracts usually remain in effect for as long as twenty years.

Franchise owners must be prepared to work hard. But experts also say that some companies provide only limited training and other support. They say owners should make sure they understand what they can expect, and what is expected of them.

In the United States there are more than three-hundred thousand small business franchises. The Wall Street Journal says franchises operate in about seventy-five industries. They produce one-million-million dollars in sales a year. And they employ one in every sixteen Americans workers.

Franchises are a very big kind of small business. Like any other kind of business, though, there is no guarantee of success.

There is an International Franchise Association. The Web site for the group is franchise-dot-o-r-g.

This VOA Special English Economics Report was written by Mario Ritter. This is Bob Doughty.