To be or not to be, that is the question."
 
At least it was for Shakespeare. In the franchise industry, the question might better be phrased as, "To be granting exclusive territories or not to be, that is the question." And it is a big question--not only for the franchise company, but especially for you as a prospective franchisee.
 
One of the most important aspects of any franchise relationship involves the determination of the protected territory that will be allocated to the franchisee. The bottom-line purpose for having a protected territory is to ensure there won't be undue competition for the franchisee from the sales of products or services by another outlet using the same brand and/or operating system. The key word in the preceding sentence is "undue."

This subject is almost certainly the greatest cause of conflict in the franchise industry over the past 10 or 20 years. The goal of both parties--the franchisor and the franchisee--is generally to maximize the sales and profit performance of the units in their franchise system. What makes this issue so difficult is that there are two conflicting schools of thought in terms of how best to accomplish this goal.
 
One argument is that this goal is best met when the protected territory size is large enough to ensure there's virtually no chance that another outlet operating under the same brand or system will "cannibalize" any of the possible sales that might be achieved by another operating unit. The counter argument is based on the concept of maximizing total market share for the brand, in order to maximize the aggregate performance of all the units in the franchise system.
 
Either argument, taken to its extreme, becomes self-defeating. The challenge in achieving balance between these arguments is to reach a decision about the relative importance of brand awareness and consumer convenience in terms of driving sales and profits.
 
Most new franchisees (and many existing ones as well) intuitively believe in the merits of the first argument. The belief is that the elimination of any chance of cannibalizing sales would result in maximizing sales and profits from each existing unit, which is typically their goal.
 
If we carried this argument to its extreme, we would only have one McDonald's in all of Chicago, since any additional units might potentially cut into some sales that the one unit could have otherwise attained. Of course, if there were only one McDonald's in all of Chicago, most consumers wouldn't accept the inconvenience of traveling to it and most would also never have heard of the McDonald's brand, since the advertising budget of only one unit wouldn't allow for the ubiquitous level of advertising we have come to experience from this brand.
 
The second argument is typically favored by franchisors, perhaps because they usually make their money in royalty fees expressed as a percentage of gross sales so they have an economic incentive to see gross sales maximized. If we carried this argument to its extreme, it would mean putting a McDonald's on every street corner in all of Chicago. This would almost certainly create the highest possible gross sales from the marketplace and therefore maximize the income of the franchise company. Of course, this density of units would almost certainly cannibalize sales to the point where none of these outlets could operate profitably, and therefore this strategy would be unsustainable.
 
So what's the right answer? The fact is that it depends. It depends on the franchise system you are looking at. It depends on the product or service that underlies the business model of the franchise and how the product or service is marketed or sold. And, finally, it depends on you and the franchise company being able to determine an answer that you're both comfortable with.
 
The right answer for a McDonald's might be completely wrong for a Curves or a ChemDry or any other franchise, since they are all completely different businesses. This is a big reason why this issue is so difficult to deal with to everyone's satisfaction.
 
The answer is that a balance must be struck. This is no easy task, but it's a balance that creates the best overall situation for both the franchisees and the franchisor. Maximizing total aggregate sales volume, while at the same time protecting individual unit profitability, creates a rising tide that lifts all boats in the franchise system. Good franchisors are trying to achieve the highest market share and gross revenue possible, while also maintaining individual unit profitability at levels high enough to sufficiently compensate franchisees so they are willing to stay in business and continue building the brand with further units.
 
Unfortunately, this is not an exact science and even many well-meaning franchise companies can make errors in attempting to find this ideal balance. When this happens in a way that results in too many units being put into too small of a market area in too short a period of time, it often results in conflict and even litigation between franchisees and franchisors. When a mistake happens where protected territories are too large, it often results in slow growth of the brand and slow growth results for the franchisees.
 
As a general rule, you'll find that the larger and more successful a franchise system is, the smaller the protected territories are. That's not to say there are no protected territories in these systems, just that the protected territories are no larger than they have to be to create the proper balance for growing the system with a minimum of conflict.
 
If you are considering becoming a franchisee in any system, make sure to carefully investigate this issue before deciding to get the franchise. If the franchise does not have protected territories (or if you think they are too small) ask lots of questions before making a decision on the business and be prepared to walk away if you can't get comfortable with the answers. The fact is that it is very difficult to address the issue of protected territories after you become a franchisee, so get this important job done in advance.
 
Look at the UFOC to determine what protected territory is commonly granted to a franchisee. Also pay close attention to any rules you see in the UFOC concerning geographical restrictions on marketing or sales in the business, since these types of restrictions often provide as much or even more protection than the territory definition.
 
Give some careful thought to the business model of the franchise to determine what seems fair to you in terms of protecting your business if you become a franchisee. Consider how you will be marketing the business to attract customers. Will you have enough potential customers protected from marketing efforts of your fellow franchisees to be successful? Will there be enough units developed to create an advertising pool sufficient to drive the success of your business?
 
Finally, and most important, call a number of the existing franchisees and ask them what their opinion is about the balance being struck by the franchisor in relation to this critical issue. Forewarned is forearmed--take advantage of the franchisees who've gone down this path before you to find out if this critical issue is being handled properly by the franchise prior to investing in the franchise. If you take the time to make sure that the issue of protected territories is being addressed to your satisfaction prior to becoming a franchisee, you'll be a long way down the road to success in your new business.

By Jeff Elgin, Entrepreneur

For most franchises, the right location is key to success. The catch is that franchisor willingness to help find the site and negotiate the lease varies tremendously, says franchise consultant Michael H. Seid, co-author of Franchising for Dummies. When you're on the lookout for the perfect location for your shiny new franchise, here are three key considerations.

1. Get experienced support
Although your franchise agreement might include the rights to a particular geographic region, there are often umpteen potential sites. From strip malls to highway frontage, it's important to identify the best environment for your fledgling business to succeed. That analysis requires an experienced franchisor with a team that has studied the best environments for the franchise's success, and that works with experienced real estate brokers or a commercial broker network, Seid says.

"The franchisor is the one who defines the type of location, size of location, the tenants nearby, the traffic conditions and the cost," he says. "If I'm a potential franchisee, one of the first things I should be asking is, ‘How do you determine what type of location I'm going into and who is supporting me in getting there?'"

Doug Walker, a LaVida Massage franchisee in Tampa, Fla., found the parent company was exceptionally involved in the location selection and design. LaVida's franchise plan has distinct preferences about location, says company founder and CEO John Hoose. A typical location is approximately 2,400 square feet and located in a strip mall or other area with high levels of foot traffic and other consumer-oriented businesses, including a grocery store anchoring the complex.

Hoose says his company works with a large network of commercial real estate brokers to help franchisees find the best location in their areas. Once a location is found, floor plans are submitted to LaVida and, within 24 to 48 hours, the company produces sketches of the best possible space configurations for the franchise. Hoose says this process ensures the space is appropriate for a LaVida franchise and the landlord will be agreeable to the plans.

2. Analyze the area
A suitable building or shopping center is one part of the equation, but it's equally important to understand the area, including traffic patterns, demographics and even future building plans, Seid says.

Even if a location looks great on paper, it's important to inspect the traffic patterns around it. If it's too difficult to access, customers might not bother, he says.

Rick Franklin is no stranger to hunting for franchise sites. He and his wife own five Fantastic Sams hair salon locations--including one that's a Top 50 location--and plan to open a Jimmy John's Gourmet Sandwiches franchise in metro St. Louis, Mo. However, after building his first Fantastic Sams location, Franklin found that a new shopping center was being planned one mile away and included a hair salon.

"That really killed our first business," he says.

Since then, he found the contractor who handles the build-outs of his stores a great source of intelligence for new building projects. He also advises checking with the land use office of the municipality to find out about any new building projects--and the possible competition they might house.

Seid says having an understanding of an area's demographics is critical. His firm participated in a review of an ice cream franchise chain. He recalls one franchisee who was located in an Orthodox Jewish community but who didn't post signage that his ice cream was kosher--a very important consideration for many in the neighborhood.

"It was a market he didn't understand, so he couldn't work in that market," Seid says.

3. Sweat the lease details
While LaVida's Hoose gets involved with his franchisees right down to the details of lease and rent negotiation, other franchisors are not as aggressive when it comes to signing on the dotted line. Seid strongly recommends all franchisees retain legal counsel to review their leases to protect their best interests and ensure the lease allows for fulfillment of the franchise agreements, including space configuration, signage and other factors.

In Franklin's first lease negotiation, he didn't realize that signage on the property would incur extra charges. He left that out of the lease negotiation, and it ended up costing him more than he had planned.

There are other hidden charges. For example, Raymond W. Titus--CEO of United Franchise Group, the West Palm Beach, Fla.-based franchisor of sign franchise Signarama and embroidery franchise EmbroidMe--won't let franchisees lease space in a facility that requires "percentage rents," which set rents based on revenue. Titus also looks for potential problems, such as ensuring that facilities for his signage franchisees have enough power.

Franklin warns about common area maintenance (CAM) fees, which require tenants to contribute to the maintenance of common areas. These should be capped and allocated by square footage rented and not by occupancy levels, he warns.

But franchisors can use their muscle to find hidden concessions, too. Hoose and his brokers try to help franchisees look for "build-out money," where a landlord will fund a portion of the construction on the property in exchange for a specific lease period or other concessions. Since the economic downturn, he finds this money easier to negotiate and has helped franchisees secure as much as $40,000 to $50,000.

Even if your franchisor gives you exceptional support in each of these areas, it's important for franchisees to protect themselves, hire their own legal counsel and do their own due diligence, Seid says. Ensuring your interests are protected, while benefitting from an experienced and supportive franchisor and commercial real estate broker, gives you the best opportunity to find, negotiate and lease the best location.

By Gwen Moran, Entrepreneur

We've all seen statistics on how new businesses tend to crash and burn, which is probably the last thing you want to think about if you're over age 50 and thinking of going from employee to entrepreneur.

Not that the appetite for risk disappears at age 51, but most people starting a business at this point in their lives are in it for more than the adventure. Being your own boss is a satisfying concept. Control of your destiny is another. And you may have dreams of padding the retirement income and having a profit engine to pass on to your children.

For many dream chasers, opening a franchise may be a smart career move, allowing them to open a business and draw on the experience of those who have already run it.

Doug Schadle, the CEO of Rhino 7 Franchise Development Corp., a franchise consultancy in Apex, N.C., believes that the odds of failure for a franchise are low. "If you follow the system the franchisor has set up for you, you're probably going to make a lot more than by trusting the stock market," he says.

There are lots of glowing reports of franchise success, but statistics are undependable. It is still possible to fail, which Schadle readily acknowledges. "Even the best-designed business models will not always work for everyone," he says. "Buying a franchised business is a risk that will require real effort to be successful."

Local newspapers periodically report on lawsuits and squabbles between franchisees and their parent firms. UnhappyFranchisee.com posts gripes about scams and rip-offs. All of which is why nobody should make the decision to franchise lightly.

"There is a false expectation out there ... that all you have to do is turn the key, open the door to the business and the magic will happen," says Joel Libava, who runs a website called the Franchise King and advises people who are thinking of buying a franchise.

"The magic can happen — if you work really hard and choose the right opportunity," says Libava. "But there's no guarantee that just because there's a blueprint already in place, that you'll be successful."

So before you commit to a franchise, ask yourself three questions:

Is this business a good match for me?

Not every franchise is ideal for someone over 50. Issues of health and energy may arise.

Unless you're truly loaded, you're probably going to start out as an "owner-operator," meaning working long hours in a very hands-on way. There will be times when you're running a cash register, driving a truck, mopping a floor or doing whatever grunt work the business calls for.

At age 53, you may be up to going in at 4 a.m. because your manager didn't show. But is that something you'll want to be doing at 63, or 73?

Your goal will be to build your franchise business to a point where you're what's known as "owner-management": Your staff handles most of the details of running the show, leaving you free to tend to the big issues, as well as spend time with the grandkids or run off to Europe. It can take a long time to reach this goal.

So if you're looking at a franchise, don't forget to consider how the business might grow and evolve as your own life changes.

Is this an appropriate risk?

Always keep in mind that you'll be risking money from your retirement nest egg. If your franchise goes under and takes your money with it, will you have enough left to live comfortably?

A company that is just beginning to franchise itself is obviously more of a gamble than one celebrating its 40th anniversary. If you go with a relatively new company, you could be buying into a flawed business model that burns through your investment funds and leaves you on the street.

An existing franchise that has been operating successfully in a location for years will be much easier to run than one that you are opening yourself and doesn't yet have trusted and competent employees or a customer base. But an existing, successful franchise may also be more expensive.

Do I have enough money?

It's not uncommon to invest $50,000, $100,000 or much more when buying your own Subway, Great Clips, UPS Store, Ace Hardware or one of the thousands of other franchises out there. And you'll probably need extremely good credit as well. Not everyone gets to play in the franchise game. And if you do, choose well.

Here are five franchises that owners consider friendly for 50-plus.

Click here to read more.

By Geoff Williams, AARP