Is Franchising Scary?
Financial: If the cost of the franchise development program may put the business at risk without franchise sales, or if the reason to franchise is to “save” a struggling business, perhaps the decision to franchise should be postponed.
Otherwise, the cost of a franchise development program is not normally excessive for successful businesses. Starting a franchise program is much less costly than expanding to a new city or starting a new department. The start-up costs are manageable, and fixed overhead is minimal. Most franchisors will recover the initial franchise set-up costs when they sell just one or two franchises, and will then generate income, oftentimes substantial income.
Franchisees: One of the purposes of the Franchise Disclosure Document (FDD) is to provide the franchisee with enough information to be able to make an informed decision about buying the franchise. If the FDD is clearly and properly written and followed, misunderstandings by franchisees will be minimized, and thus potential franchisee problems can be reduced.
Summary: Operating any business has certain concerns, and franchising does not necessarily increase those concerns. Business owners take on some risk when they sign leases, hire employees, and operate a business. But business risks can usually be managed with good planning and decisions. Franchising can be a very desirable business decision because it provides a new profit area.
When developed in an orderly and proper manner, franchising offers an outstanding opportunity for growth and income. We do not believe that becoming a franchisor involves much more risk than any other business activity, and that it should not be considered as scary. The challenges can be considered to be small compared to the income potential.