Pros and Cons of Owning a Franchise Business
How exciting it is to decide to start a business of your own. You are going to be your own boss. You are going to make lots of money. You have decided to buy a franchise; after all they have all the systems in place and must have worked out all the bugs. What you lack in inexperience of running your own business, they have figured out. They will train you, help set up the business and even train your staff. Everything is going to be fantastic or is it?
I have personally owned or been a partner in several franchise businesses, not as a working partner in the franchise but as an investor and managing partner. I have made lots of money in some franchises and I have made no money or lost money in other franchises. Please learn from my experience. It is free.
I will start by talking about the franchises that I made millions in. My husband and I built and operate several very successful hotel franchises. After doing the due diligence we carefully selected locations and the franchise. These projects were multi million dollar projects so found investors to partner with us (hopefully as silent partners) and contribute the equity required by the mortgage company to be able to fund the project. At first I would invest a small amount of cash and perhaps own 2% of the project and gradually I worked my ownership portion up to as much as 22%. This was over the course of 10 years. Would I recommend an investment in a hotel franchise? Yes I would if after the due diligence it looks like it will be a good investment. Out of the 20 some hotels that I have invested in, only 2 turned out to not make any money and until they are sold, which at this time they are not, the investment cannot be deemed a loss yet.
The disadvantages of this franchise for you may be that you are looking to create a job for yourself, but with many partners you only have control if you own 51%. A large amount of money is required for this. We had managing partners that we fired for nonperformance so they only bought themselves a position for awhile. Incidentally to remove them as manager we ended up buying them out.
These are long-term investments. You may see a cash return on your investment in 2 to 3 years or it may take 10 years or longer to see a cash return.
The franchises that I invested in that made no money or even lost money is restaurants. We did alright at first. My husband and I would hire a manager and make them a partner and again raise capital with other investors. The businesses did alright as long as the managing partner stayed but they never made more than a salary so in a few years got complacent and moved on to something they though would be more lucrative. We were left with the business and had to find a manager to run it. In short after about 5 years of feeding the business we sold it or closed it down. They only way we made money with these businesses were by being the landlord of the business real estate. Unfortunately our investors usually did not want to be a part of this arm of the business so they were lucky if they got their initial capital investment out.