After two years of selling real estate in the Washington area, Jonathan Kramer felt it was time for a change. At 26, he also had experience in sports broadcasting, but neither that nor real estate is a booming field this year.
But without a finance or accounting background, Kramer balked at the idea of starting a company from scratch. He started shopping around for a franchise.
So are many people these days. John Reynolds, a spokesman for the International Franchise Association, predicted that this year will bring a lot of potential franchisees out of the woodwork.
Over the past couple of years, he said, "There has been a downsizing of the Fortune 500-type companies that make up a business, industrial and commerce segment of our economy. That slowing down ... has resulted in many more people in the middle range of those companies looking for other alternatives."
Kramer found his own alternative through a cousin in New York who became his investing partner. The cousin introduced him to the president of Rent-a-Wreck, a Los Angeles-based discount rental car franchiser that buys its fleet from used-car dealers.
Kramer met with other Rent-a-Wreck executives who advised him to investigate the company by talking with its franchisees. He came away convinced.
"Theirs is a program that's going to work," Kramer said. "If I just put up a sign that said 'Kramer's Used Car Rental' it's not going to have any name recognition."
Paying $8,000 for franchise rights and promising to hand back 6.5 percent of his receipts for royalties and advertising costs, Kramer went to Los Angeles for a week of training. Along with other would-be franchisees, he learned how to pick a location, negotiate with used-car dealers, find employees, set prices and keep books.
He also learned that more than 90 percent of his business would come from the telephone Yellow Pages, so he gave himself six weeks to get the operation running before the ad came out last week.
During the relatively slow month of September, when most of the customers who came in had called the Rent-a-Wreck 800-number to find out if there were a branch in this area, Kramer spent his time learning the ins and outs of his paperwork, working on a pricing strategy and taking an auto mechanics class.
By the time his Rockville office opened in September, he had run up more than $30,000 in start-up costs -- most of it for buying cars. When the Yellow Pages ad came out last week, he had invested more than $60,000.
Kramer said he expects to spend another $30,000 on cars before the end of the year. But he also expects his franchise to be turning a profit by then, a short turnaround for a new operation.
Just the same, there are risks. And they are heightened by the same economic conditions that drive people such as Kramer to start their own businesses.
"Franchisees are hit even more than other small businesses in times of recession because of the unique relationship between franchisee and franchisor. You have two business organizations competing for the same profits at the same time," said Bennie Thayer, a former franchisee who has tried unsuccessfully to organize an association of franchisees to help them by using networking and lobbying.
Since franchise contracts are generally written in favor of franchisors, they can control their franchisees by withholding or reducing support, demanding costly alterations or refusing to renew contracts with franchisees to collect fees from a new operator, according to Dean Sager, a member of the House Small Business Committee staff who specializes in franchising.
"Franchising offers great opportunities at the beginning of a relationship," Sager said. But increasingly, he said, franchisees are finding themselves taken advantage of by franchisors if the company is not committed to making the franchisee succeed.
So far, Kramer said, his experience with Rent-a-Wreck has been positive. The company sold him the know-how to start his own business, taught him the ropes and introduced him to other franchisees around the country who can help him when questions arise. But he has yet to see if he will face some of the typical problems of franchise owners.
Checking out the corporation before investing in a franchise is the best protection against such problems, experts say.
Interviewing other franchisees, as Kramer did, and having the contract read by a lawyer and an accountant also are among the best ways to avoid problems.