When career turns down, franchising is option

Eve Tahmincioglu • Profile • E-mail

Taso Louloudis knew the construction industry he and his wife Kim worked in was suffering, but neither expected they’d both lose their jobs in the same year.

Kim was laid off from her job at Engineered Homes in Orlando in May, and Taso lost his job as construction manager for Rey Homes on Nov. 7, his birthday.

“I’ve been doing construction my entire life, working my way up from subcontractor to a point where I was the boss that did hiring and firing,” Taso said.

At age 50, with only a high school diploma, he realized his career choices were limited.

So Louloudis and his wife turned to franchising.

More and more laid off workers are considering franchising as an alternative to working for someone else, according to experts in the industry.

Some see franchising as an easy way to entrepreneurship and economic independence. But becoming a successful franchisee takes a lot of hard work and money. It could take years before you’re able to replace your income.

Because the Louloudises love pets — they have four dogs and five cats at home, many of whom are rescue animals — they embarked on finding a pet-related business.

They considered a host of options, including doggie daycare and pet sitting, but decided against starting their own company from the ground up due to the intense competition for such services in their area.

They now own a Fetch! Pet Care, a franchise that offers in-home pet sitting services.

The Louloudises bought the franchise for $13,000, plus the cost of a flight to Fetch’s headquarters in Walnut Creek, Calif., for training. They expect to bring in sales of about $50,000 by the end of this year.

Should you open a franchise?
If you really have the heart of an entrepreneur, franchising is probably not for you. First off, it’s not your business idea that you nurture and grow. You’ll have to follow a strict playbook of operating the franchise. Often agreements are written so you can’t even sell the franchise operation without the approval from the franchise company, said Walter Zweifler of Zweifler Financial Research, which analyzes franchising opportunities for investors.

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The industry also falls prey to scammers who try to get money upfront for a business model that never delivers on sales promises.

Even if you find a legitimate franchise, keep in mind that franchising isn’t recession-proof. The number of franchisees defaulting on Small Business Administration-based loans jumped 24 percent in fiscal year 2008, according to the federal agency.

That said, franchising might be something out-of-work individuals with money to risk and a desire to run their own business may want to consider. But it requires a lot of research and intense due diligence before signing on the franchisee line.

One big challenge is getting the money to pay for the upfront fees franchise companies typically need, between $15,000 and $60,000 for most franchises, said Rieva Lesonsky, franchise adviser for AllBusiness.com. In today’s economy, getting a loan from a bank is going to be tough, so some applicants are use their own savings or severance pay to start a business.

In addition, an increasing number of individuals are tapping into their retirement funds, many of which have been battered by the sinking stock market, to foot the bill.

In some cases, people are choosing to roll over their 401(k) and IRA plans from their former employers into a new franchise and then use those funds for operations, a fairly new practice that may run afoul of tax laws.

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