(MONEY Magazine) – Although he was making good money as a paper salesman in Chicago last year, Dave Kehlor, 30, knew he was destined to run his own business. Luckily for him, his wife Eunice, 29, had caught the entrepreneurial bug too, after working in sales for IBM and then the CompuServe on-line network. So last March, after saving enough cash to chuck their combined $125,000 income and cushy corporate benefits, the couple bought an Express Personnel Services franchise in Dave's home town, Indianapolis. "We could have started a business from scratch," explains Dave. "But by purchasing a franchise, we eliminated two years of figuring out all the nagging details for ourselves."

The Kehlors (shown at right) admittedly knew nothing about running an employment agency when they decided to start theirs. Not a problem: Express, a 12-year-old international employment firm, gave them three weeks' training at its Oklahoma City corporate headquarters and helped them with key business challenges such as finding a top location in a growing business district, setting up a bookkeeping system and perfecting their interviewing techniques. In return, the Kehlors paid $30,000 in start-up costs, including a one-time franchise fee of $17,500, which they withdrew from their savings account. In order to get the additional $70,000 that Express required to meet ongoing business and living expenses, the Kehlors also took out a $43,000, 11.95% home-equity credit line.

Here's how the arrangement works: The companies with which the Kehlors place temporary employees make payments to Express corporate headquarters directly; Express then returns gross profits to the couple every month, minus royalties totaling about 9% of their sales from placing temporary employees and about 1% for permanent hires, plus an advertising fee of about 0.13% of sales. (The royalty is the fee a franchisee pays the franchisor for use of the company trademark, its operating system and support.) Like most franchisors, Express doesn't disseminate average profit figures of its franchisees. But the Kehlors already turned a $2,000 net profit in their third month and believe they can make an annual net profit of $125,000 or more in about three years.

Like thousands of American entrepreneurs, the Kehlors are trying to cash in on the current franchising boom. Today, franchisees run 600,000 outlets of 5,000 franchise companies in 65 industries, from home and office cleaning (ServiceMaster) to ice cream and fast food (Dairy Queen) to tax preparation (H&R Block). Total sales have more than doubled in the past decade to an estimated $970 billion in 1994--more than the gross national products of Argentina, China, Denmark and Senegal combined. Says Don DeBolt, president of the International Franchise Association, a trade group in Washington, D.C.: "Franchising's appeal is that it lets people go into business for themselves but not by themselves."

Don't be misled by zealous franchisors into thinking that franchising guarantees financial prosperity, though. While many fran chises offer great opportunities, "the industry has become so popular that you're going to find some charlatans mixed in with the good guys," warns Leonard Swartz, worldwide managing director of Franchise Services for the Big Six accounting firm Arthur Andersen. This warning is underscored by a recent crackdown by the Federal Trade Commission and 20 state regulators on shady business opportunities, including a handful of marginal franchises. So take heed: The sheer number of fledgling, unproven choices--one new franchise company opens for business practically every day--makes it more important than ever to do your homework before shelling out the $150,000 in typical start-up and operating costs for the first six months or so.

To help you buy a franchise the right way, Money interviewed more than three dozen experts, including attorneys, consultants, academics and franchisees. Their advice:

Make sure you understand how tough it is to succeed. Your biggest concern before becoming a franchisee shouldn't be whether you'll wind up working for a crook but whether you can make a decent living--or even survive financially. Timothy Bates, a labor and urban affairs professor at Detroit's Wayne State University, found that only 65% of the 1,276 franchise locations he surveyed in 1987 were still operating under the same owner in 1991. "There is a mistaken perception that franchises are guaranteed," says Bates. "Like any business start-up, making them prosper takes careful planning and years of intense work."

Although buying a franchise can jump-start your entree to entrepreneurship, getting into the black may take two years or more of grueling 65- to 80-hour workweeks. (Of course, you may be drawing a small salary during that time.) For example, the Kehlors now toil in their employment agency from 7 a.m. to at least 8 p.m. during the week, catching up on paperwork for another five hours on Sunday.

"Lifestyle shock is common with new franchisees," says Jeffrey Kolton, president of FranData, a research firm in Washington, D.C. "Many owners become overwhelmed by the hundreds of minute decisions they must make every day." That may be because more than 35% of all new franchises are sold to corporate refugees, like the Kehlors, who have long relied on a staff to do the filing, answer the phones and take care of dozens of other mundane duties every day. By contrast, owning and operating a franchise may force you to do the grunt work. (To see if you're cut out to be a franchisee, take the quiz at right.)

Furthermore, for the privilege of becoming a franchisee you will probably receive--get this--a cut in pay. According to a 1990-91 joint survey by DePaul University and Francorp, a franchise consulting firm in Olympia Fields, Ill., the average franchise buyer had a gross income of $66,000 before opening his or her outlet. Yet a typical single-unit franchisee can expect to make just $35,000 to $40,000 a year, estimates Ann Dugan, director of the Small Business Development Center at the Katz Graduate School of Business of the University of Pittsburgh. "That's certainly a decent living," says Dugan, "but it may be less than many fast-track corporate escapees are willing to live with." (As a rule, you can make serious money only if you own a string of franchises--say, $1 million or more a year with several lucrative McDonald's outlets.)

The trade-off of less immediate income for more ultimate autonomy was one that Duane Canada, 46, and his wife Joan, 49 (pictured on page 113), were happy to make. In 1990, the couple gave up a combined $120,000 income from their middle-management jobs with the Chicago office of TransAmerica, an insurance and financial services company. "We were fed up with the office politics and hundreds of hours spent on projects that went nowhere," explains Duane. "It got so we dreaded going to work every day."

The Canadas moved to Las Vegas, lured by its supercharged economy and zero inches of snow. In June 1991 they opened the Great Frame Up, a do-it-yourself and custom-framing franchise (135 outlets nationwide), in a neighborhood shopping center. Their initial investment of $125,000-$48,000 from savings and $77,000 from a 11.25% variable-rate Small Business Administration-guaranteed loan--covered the $19,500 franchise fee (since raised to $25,000), their 10-year lease, inventory, equipment, licenses and other miscellaneous expenses. In addition, the couple pay a royalty of 6% of gross sales plus 2% for advertising. Last year, they brought home $55,000 of their $240,000 in revenues. "Sure, we took a big pay cut," says Duane. "But we enjoy ourselves a lot more. How can you put a price tag on that?"

Be prepared to come up with plenty of cash. Luckily for the Canadas, their choice of franchise was within their budget. But the primary obstacle for most would-be franchisees is cost. Unless you're a high roller, forget about running a McDonald's, whose total start-up costs can run to $500,000 or more. But plenty of franchises can be had for anywhere from $30,000 to $100,000. Examples: a Maid Brigade cleaning service (about $32,500), a Computertots computer education center for kids ($31,000 to $37,500) and a Takeout Taxi food delivery outlet (about $72,350 to $95,700). For the franchise fees and other key figures of 12 of the biggest franchises, see the table on page 121. The Franchise Opportunities Guide, published by the International Franchise Association, gives you facts on more than 1,500 franchises ($21; 800-543-1038).

To get a general sense of start-up costs for any franchise you're considering, study the disclosure document that franchisors are required by law to provide prospective franchisees at least 10 days prior to a purchase. This 50- to 100-page eye-strainer--usually called the Uniform Franchise Offering Circular (UFOC)-lists the costs for such items as the one-time franchise fee (typically $25,000), ongoing royalties (typically 2% to 10% of revenues), and estimates for necessary equipment, training and inventory. Unfortunately, franchisors usually note such a broad range of potential expenses--depending on factors like the store's location and whether you'll need to construct a new building--that it may be difficult to determine precisely how much cash you'll need.

Moreover, those costs don't include everything you'll have to cough up, such as a lawyer's fee to review the franchise contract (about $500 to $2,000), liability and workers' compensation insurance ($2,000 to $5,000 or more per year) and business licenses (as much as $250,000 for a restaurant liquor license in New Jersey, for example). Make sure you have enough money to cover the high end of the franchisor's estimate--as well as reserves to live on for at least six months.

When it comes to financing, most franchisees rely on savings, a home-equity loan or cash from family and friends. Few franchisors lend money, though many will recommend cooperating banks offering loans at variable rates often two to three percentage points above prime, making the rate 10.75% to 11.75% today. (For more about raising capital, see "Smart Ways to Raise Money to Get Your Business Rolling" in the June issue of Money.)

Size up a franchise carefully before you commit. Once you sign up to become a franchisee, you're typically on the hook for royalties for five to 20 years. The only ways to get out are to sell or to default on the contract--the latter move is less than ideal in part because it may hurt your credit rating. So, don't risk your life savings until you're confident the franchise company possesses the following six traits:

1. It's in a field you'll enjoy working in for years to come. Simply enjoying or respecting a franchise's products isn't enough. After all, devouring a tasty gyro sandwich occasionally doesn't mean you'll like sweating over a fiery grill six days a week. "If you hate early hours, don't buy a bagel shop," adds Carl Ahrens Price, a lawyer in Haddonfield, N.J. who advises franchisees. Instead, imitate the clear-eyed Kehlors: They went with Express largely because they enjoy working with people and were confident that their sales experience would help them win new clients.

2. It provides quality goods or services. Your franchise can be only as successful as the products that you're peddling. If you're interested in running a bakery, for example, select the franchise that has the best muffin recipes around.

3. The company has an established reputation. While a Burger King sign alone may be enough to get drivers to slam on the brakes, a neon "Sam's Burgers" may not get the same reaction. Obviously, the more recognizable and respected your brand name is, the bigger the advantage you'll have over the no-name competition. While not everyone can afford a BK franchise, there are excellent alternatives. (For several examples, see "Three Franchisors That Make the Grade" on page 116.)

4. The franchisor has a bright future. Some of the hottest franchises these days cater to baby boomers and their growing children (such as play center Gymboree) or push gourmet java (like the Coffee Beanery). But today's fad could be tomorrow's flop--especially for franchises limited to selling a single product. That's why experts say you should be cautious about the trend du jour and instead choose a franchise with a growing, sustainable market. Sources such as American Demographics magazine may help.

5. It offers thorough training and on going franchisee support. These elements can be crucial, as Duane and Joan Canada found. Their franchise package from the Great Frame Up included an intensive five-week training session that covered the basics of sales, accounting and frame making. The franchisor also let the Canadas call the training center for answers to dozens of questions on such topics as inventory and special orders. "They gave us their name and taught us their system," says Duane. "All we had to add was our intelligence and hard work."

6. It provides an acceptable franchise contract. Says Susan P. Kezios, president of the American Franchisee Association in Chicago: "Franchise contracts are legal works of art that favor the franchisor." The UFOC contracts specify rules such as where you (the franchisee) must buy supplies, where you can arbitrate a dispute with the franchisor and how quickly you must fix common problems, like a dirty bathroom or malfunctioning neon sign. (For advice on reading the fine print commonly found in franchise contracts, see the box on page 122.)

No matter what a franchisor promises verbally, if it's not spelled out in the contract, it's not binding. That's why you should never--repeat, never--sign a contract without having your own franchisee attorney review it. To find a qualified lawyer near you, call the American Association of Franchisees and Dealers at 800-733-9858.

Perhaps the best way to check out a franchise is by speaking with current and former franchisees. By law, franchisors must include in their UFOCs the names and addresses of at least 100 of them (or of all the franchisees, if there are fewer than 100). Call or visit as many as you can, ideally a dozen or more, including several who are no longer part of the organization. "People who left the clan really know where the bodies are buried," says Robert L. Purvin, chairman of the American Association of Franchisees and Dealers. Ask franchisees about their average revenues and profits, the support that franchisors actually delivered and the challenges they faced.

As Dan Ceglia, 53, of Cherry Hill, N.J. (pictured on the cover of this section and on page 125) proves, you needn't stop there. After taking a $400,000 buy-out as CEO of an electrical contracting firm in 1990, he set out to buy what he considered the best printing franchise in America. So he spent the next month scrutinizing the operations of six franchisors in the field. Then he took a cross-country trek to visit the corporate headquarters of all six and meet with either the CEO or the highest-ranking executive available.

While talking with the head of franchise sales for Sir Speedy in Laguna Hills, Calif., Ceglia made his decision. "He didn't paint an overly rosy picture of the long hours I'd be working and what I'd be earning. He gave me a realistic idea of what I'd be facing," Ceglia says. "I was impressed by Sir Speedy's people and confident about joining their team."

Ceglia opened his Marlton, N.J. Sir Speedy in September 1991, paying start-up costs of $90,000. Since then his annual gross sales have more than doubled from $320,000 in 1992 to an estimated $730,000 this year. Because he is paying down debt on more than $100,000 worth of printing equipment, Ceglia probably will take home only about $30,000 this year. But he expects to pay himself a $100,000 salary within two to three years. Now that he has seven employees, including a full-time manager, Ceglia spends much of his 60-hour workweek in his private office orchestrating his next move: starting another business. Franchising, Ceglia says, was the only way he could have succeeded in the printing business: "Without the support of Sir Speedy's people and my fellow franchisees, I'm positive I would've failed."