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Common Franchise Myths

Guest post by: John Henning

Article Overview: There are many myths and misunderstandings in the franchise industry. Today I am going to uncover and explain a few of the more common ones. Whether you are buying a franchise tomorrow or are just starting your research today, it is important that you know what is real, what is rumor & what is opinion.

Common Franchise Myths

There are many myths and misunderstandings in the franchise industry. Today I am going to uncover and explain a few of the more common ones. Whether you are buying a franchise tomorrow or are just starting your research today, it is important that you know what is real, what is rumor & what is opinion.

Myth 1. I'll only be successful if I find the right business

Many of us define "right" as what we're already good at. But don't limit yourself. Define your transferable skills from the corporate world: delegation, management, marketing, etc. If you had those skills in one type of business, you can easily use them in another. Don't assume that just because you are good at what you do now that you would be a good franchise owner in that industry. For example there is little correlation between being able to fix a transmission and being able to run a transmission franchise.

Myth 2: I can only be successful doing something I love

Your franchise business is a vehicle to the lifestyle you're seeking. If you limit your choices to what you're familiar with or good at, you're placing yourself at a major disadvantage by ignoring a huge number of possibilities that are outside your realm of past business experience. When researching a franchise, make sure to write down what kind of business model you want to operate and discuss that information with a franchise professional.

Myth 3: I'll instantly know the right opportunity when I see it

Many people want to fall in love with their business at first sight. That's an emotional decision, not a career choice. You have to take the time to learn about the details and nuances of an opportunity to understand its potential. You simply can't do that when you make a determination based only on what you feel today. If you love trees does that mean you would be great at owning a tree trimming franchise? Of course not. Now that doesn't mean you couldn't be successful in a tree trimming franchise, but don't limit yourself to only what you love.

Myth 4: I can't be in a business that I don't know anything about

Of course you can. It's natural to want to stay in your comfort zone and stick to areas you have experience in. But as a franchise owner, your job is running and growing your business, no matter what it is. Remember, you have transferable skills. That's your strength. You can hire people who know the details. Your road to success is buying into and learning the franchise system--which is already a proven model--and then using your talents to make it grow.

Myth 5: There is no freedom in a franchise because corporate dictates everything

This is one of the most common myths about franchise ownership. In actuality, there is tons of room for individuality. The franchisor "dictates" only one thing: the basic system--the framework, that's because it has already been proven successful. Beyond that, you're in charge. You're managing your business. You decide who to hire and fire, how to market your location and how to promote it regionally. Keep in mind that the franchisor wants you to succeed, because if you don't, they don't. It's a win-win situation.

Myth 6: Franchises stifle creativity

Again, this is generally untrue. The only limitations you have are those that have already been proven to generate income. This might include signage, uniforms, formulas, protocol, and so on--the basics that allow you to represent the brand and your own location as professionally as possible. But it's completely up to you to think up new ideas and make suggestions to corporate. In fact, most franchise parent companies encourage suggestions, because that is where they get many of their best ideas. McDonald's corporate, for example, didn't come up with the inspiration to start selling breakfast. The concept of the Egg McMuffin was developed by a franchisee.

Myth 7: I can't afford a franchise

Sure you can, if you look at it for what it is: an investment in your future. Most franchises can be established for well under $100,000, and some can be started for as little as $10,000 to $20,000.

Your only payments to the parent company are a one-time franchise fee and weekly or monthly royalties, which are disclosed prior to buying the franchise these royalties are usually offset by increased revenues and faster ramp up times due to the business being part of a system.

Beyond that, your out-of-pocket expenses are the same as they would be for any business--salaries, local advertising, inventory etc. The difference is you have the support and training of the franchisor, which will help you ramp up to full speed far more quickly that you could on your own.

Myth 8: Franchises are always successful

Can franchises still fail? Sure they can. But the vast majority of the time this is due to the owner deviating from the system and cutting corners by using inferior materials or altering formulas. The key to making it as a franchisee is consistency. If you don't adhere to the groundwork--which, once again, is in place because it works--your chances of success will drop dramatically. You want to leave the habits from the corporate world where they are and bring along your marketable and transferable skills.

All told, there are more than 900,000 franchised business in the country, which account for over 11 million jobs nationwide. They produce $2.31 trillion (yes, trillion with a "t") in total economic output and represent over $660 billion in private-sector salaries. Those figures are tough to argue with, but that doesn't mean there aren't failures.

Regardless of the franchise if you don't follow the system your chance of success would be the same as if you had opened the business independently and tried to do things on your own, which is around 20%.

Myth 9: Earnings claims

There are 2 main things everyone wants to know right up front. How much does it cost and how much can I make. The first one is easy, the franchisor is required to disclose to you in writing how much the franchise cost is on average. This is generally done via the Franchise Disclosure Documents or FDD. Usually you will get these documents after you complete a franchise application.

The second part, how much can I make, is a bit tougher and is usually a hang up point for many buyers. This is natural. Rest assured, you will be able to gather plenty of data throughout the process. On the downside, many times a franchisor won't make an earnings claim because they don't want to be held liable if you don't make that much money, makes sense right?

It actually goes beyond that. Franchising is regulated by the FTC and the FTC says that a franchisor is not allowed to make a verbal earnings claim outside of what is published in their written franchise disclosure documents.

Since it is difficult to audit individual franchise owner's P&L's it is generally hard to publish actual profit numbers on a yearly basis in the FDD.

That being said, the best place to get real numbers is from the existing franchisees themselves, but don't jump the gun, there are a few reasons you don't want to rush into your local store and tell them you are opening a franchise. For one, franchisees become very territorial and two, the franchisor wants you to understand the business model before bothering their owners.

So be patient, you will get the information you need, but it does take a bit of time and effort.

Myth 10: The higher the price, the more you make

In most cases the cost of the franchise has nothing to do with the amount of money you make. The price of admission is usually based on various factors such as: real estate, inventory, working capital, equipment etc...

A business that has no inventory can make just as much money as a business that has $200k in inventory. The difference being that the first business would usually cost a lot less.

Just because you have to buy $50,000 in equipment to operate your business does not necessarily factor into a higher percentage of profit.

The best thing to do is compare business models. Find a few businesses that make sense and then explore them based on potential and not just on the cost of the franchise fee.

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Article Tags: franchise



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Re: Enticing Franchises - Top 9 List - All Franchise listed above are in millions of dollars. Do you have the list of Franchise in thousands
Re: Info for would be franchisers... - [quote="Sebastien":1d29sdv1]Like Franchise Times, Franchise Update is a very practical magazine. There is no blah blah, just straight facts that anyone in the franchise community can relate to. I just want to mention that all these magazines are NOT franchisee oriented. I mean these magazines are for franchise professionals. If you're looking to buy a franchise, you won't find much information in there. To answer your question, getting published in Franchise Times was fairly easy. I don't want to brag too much but I think I am known in the franchise industry. I was the marketing guy at Franchise.com for a few years before joining my new company, the World Franchising Network. So people know me and I have a very good relationship with Nancy Weingartner, the Managing Editor at Franchise Times. I was talking with her at the last Franchise Expo South in Miami and she mentioned she'd like me to be profiled. I was like "ok, sure!". I like this franchise executive profile thing in Franchise Times as it is rarely BS. People are usually really natural in there.[/quote:1d29sdv1] Thanks for the follow up Sebastien! And I can't say that I'm surprised that networking with the right people and managing your relationships with them properly are the keys to being published. I guess the old adage holds true of "it's not who you know, but who knows you" that's important.
how much for a franchise fee? - Dear Colleague There is no easy answer to this question. Things to consider: [list=] The sizeof the Franchise Clent base Expected Turnover Intellectual Property costs (recoup) Number of Franchises Number of employees Original Set up costs Franchise admin costs An example: A franchise that I was involved in setting was to a simple "lawn mowing/home repair" franchise. The Franchise included national/local advertising - preparation of client lists - general admin - central accounting etc The Franchise involved 300-500 clients - and an annual turnover of about $300,000 . The annual franchise fee was $30,000. Hope that this gives you some idea Take care Ian[/list]
Re: Franchise Surveys - Another good tool to researching a franchise is to speak with their existing franchisees. This contact information is included in most Franchise Disclosure Documents. In order to get a Franchise Disclosure Document or FDD as it is often referred to, you will have to complete a basic franchise application. The franchisor will then usually provide you with the FDD at that time. Included in that book of information is a list of the existing franchisees, the contract, the investment information etc... This information is required by Federal Law to be disclosed to your prior to making a purchase. So be sure to do your research and start with the Franchise Documents to get the initial information.
Re: Info for would be franchisers... - [quote="Sebastien":2gam0klq][quote="BuzzAroundBooks":2gam0klq]Like Franchise Times, Franchise Update is a very practical magazine. There is no blah blah, just straight facts that anyone in the franchise community can relate to.[/quote:2gam0klq][/quote:2gam0klq] That is really what I look for in any industry publication. We lead busy lives and when people fill their magazines with fluff, not only does it benefit no one, but it makes us truly appreciate those that don't. Thanks!


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