MERRIMACK – Vince Milley, 60, owned and operated the Whitefield Station Pub and Eatery in Whitefield for three years before he decided to open a Quiznos franchise with his daughter Tracy Sheldon, 34.

"We always wanted to do something together," Tracy Sheldon said.

The father and daughter opened the sub shop at 7 Continental Blvd. in Merrimack in June. Business has so far been profitable and they are planning to open a second location on Route 101A in Amherst.

Experts say their story is not uncommon. Franchises are becoming an increasingly significant force in the modern economy.

The franchise system is a relatively new economic experiment -- no more than 100 years old, says the International Franchise Association.

The IFA and Pricewaterhouse Coopers conducted the first comprehensive study on franchises in 2003 and concluded that more than 760,000 franchised businesses generate a total economic output of $1.53 trillion annually or 10 percent of the U.S. private sector economy.

IFA conducted a follow-up study in August, Profiles of Franchising, and found that in the three years since the previous study, 900 new brands had been introduced to the estimated 1,500 known to exist.

"Franchises are growing at a very rapid rate," said IFA spokesman Amy Bannon.

The benefits

The merits of the franchise system are still widely debated, and the sustainability of any single franchise can depend upon variables, many of which are specific to the contractual agreements of individual corporations, said Udo Schlentrich, founder of the William Rosenberg International Center of Franchises at University of New Hampshire.

Franchises offer support systems and market-tested products -- the benefits of working under the wings of a corporation -- while enabling owners to set their own hours and financial goals -- the attraction of self-employment, Schlentrich said.

Vince Milley, who opened the Quiznos store in Merrimack, agrees.

"It makes it easier, reduces risks and gives you a network of consultants," he said.

Quiznos provides guidance and training through the stages of start-up, a market-tested product line, national advertising, business plans, suggested pricing tiers, and negotiates bulk purchasing and provides ongoing consultation, he said.

Milley estimates that he spends 70 hours working each week, while his daughter insists that they each work roughly 80 hours a week, but for all of their hard work, the payoffs have so far been handsome -- 150 to 200 customers walk through their doors each day.

Investments

The support systems and proven product lines of franchises can require entrepreneurs to produce initial investments and to go through a process of due diligence -- contacting other franchisees and looking at similar markets -- to see for themselves if the contract is reasonable, Schlentrich said.

Quiznos charged Milley $25,000 to purchase its license, and he says he paid more than $87,000 for company-issued restaurant equipment, tables, kitchen utensils, shirts and aprons. He paid $120,000 for the renovation and construction of the building where his franchise operates, and as an independent contractor, he will have to pay his own health insurance.

Milley refinanced some of his real estate holdings to purchase his franchise, but many entrepreneurs open their businesses with small business loans.

Brand awareness

"The greatest value a franchise provides is its brand name and thunder," said Schlentrich. "The franchise system has been strengthened so much because financial institutions do not want to provide loans for the pancake recipe that you created. The banks want to invest in a proven track record."

There are additional costs as well.

Schlentrich says that franchise agreements can bind owners to royalties on sales with indemnity clauses that protect the corporation and parent company from liabilities and financial failures -- if the franchise goes in debt, or worse yet into bankruptcy, the parent companies may not be liable.

He said, in addition, that many corporations secure profits by withdrawing them from gross profit margins prior to the coverage of operating expenses, a protective mechanism that adds security to the corporation, and inadvertently, greater risk to the franchisee.

Royalties

The contractual obligations of royalty payments are diverse, he added, with some companies taking a greater share of profits upfront, and others collecting dividends after expenses have been paid.

Milley pays a 10 percent royalty on all sales, while other corporations require no initial investment in return for royalties that are slightly higher.

College Pro Painting, a subsidiary of The Franchise Company, also issues franchises in New Hampshire.

"We've been growing fairly consistently for the last 10 to 15 years with greater productivity," said president of the eastern division Brian Honeyman.

College Pro requires a minimal investment -- $200 to $300 -- and provides training, support services, a call center, liability insurance and advisors, he said.

The corporation collects royalties of 10 to 21 percent from each project, he said.

Those profits are taken from gross accounts, before the franchisee has paid for paint, brushes and other supplies and paid its workers.

College Pro franchisees are responsible to clear royalties and overhead, and corporate recommends that franchisees pay employees $10 per hour.

Advisory boards

The most stable of franchises provide representation for franchisees in the form of advisory boards in many different departments of labor, Schlentrich said.

There can be advisory boards for marketing and product development, and these boards take information and suggestions from franchises under consideration for amendment.

Down side

Tension can build between corporations and franchises, when the corporations do not adapt quickly enough to critical information coming from the franchises.

"Companies go through life-cycles," Schlentrich said. "McDonald's caused some tension in its system years ago because they did not renew their product lines quickly enough."

Tensions can also result from encroachment, when corporations issue too many franchises in a single area and deflate the sales of existing operations, however there is a renewed benefit because franchisees to use their collective strength to embark on a heavy media campaign, he said.