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Pros and Cons of Buyig a Franchise

Written by: Rick Bisio

Article Overview: This article is designed to give you a deeper understanding of the relative gives and takes of buying a franchise and will help you look at franchising within a balanced framework.

Pros and Cons of Buyig a Franchise

Buying a franchise doesn’t guarantee you will reach your goals for wealth and independence, but it does improve your chances! Here are six key advantages that franchising offers – and four potential pitfalls.

1. Buying a franchise increases your changes for success.
While business ownership is less risky than some other routes to wealth, it is still risky. Buying a franchise does not eliminate the risk, but it certainly goes an incredibly long way toward minimizing it. When you buy a franchise you gain access to a successful and replicable business model, as well as franchise education, on-going training and support. Someone else has figured out the product mix and pricing, the appropriate number of employees, the best equipment, the marketing materials, and so on. All this franchise information is turned over to you. Buying a franchise can eliminate years of start-up time and money.

2. Buying a franchise can be your route to wealth creation.
Business ownership is the best route to wealth creation. Read Rich Dad, Poor Dad, or any of the books recommended on my web site, educatedfranchisee.com, or see the charts on pages 63-70 of my book, The Educated Franchisee. If you choose the right franchise, follow the franchisor’s system, and take responsibility for your own success, you can make a handsome income, and build equity, potentially leaving you with some nice retirement funds when the time comes to sell your business.

3. It’s not too late.
People of all ages from all walks of life find success through franchising. It gives young people a solid business and franchise education. Perhaps more importantly, it can be a boon for those who feel “stuck.” Franchising offers a way out for people who don’t have the time and money to experiment. They can change careers and take charge of their own success.

4. Franchisees can afford marketing that works.
Effective advertising is expensive. An individual business owner who is not part of a franchise system is typically unable to spend enough on marketing. At a food franchises I worked for in the past, $20,000 was the budgeted amount for food photography! The photography was used in stores, menus, brochures – everywhere. And when that brochure is published, the food is perfect. It actually makes the customer’s mouth water. That is powerful. With all members of a franchise system contributing to the franchise marketing budget, great marketing is made possible.

5. Franchisees get volume pricing.
Individual business owners, especially those just starting out, don’t have much purchasing power. But when a whole franchise system is involved, prices come down. Franchise owners usually enjoy the benefits of deals the franchisor makes on behalf of the entire franchise system. These discounts may apply to equipment, supplies, materials, ingredients, store fixtures, and more.

6. You’re in business for yourself, but not by yourself.
When you have a question, you can call the franchisor. Many franchisors offer a team of support people who specialize in different areas of the business. You can speak to Mary about accounting one minute, and to Ken about equipment in the next minute. And you can share notes with all the other franchisees! That is how franchise systems – and individual franchise owners – become stronger and stronger. Good ideas are being generated by your fellow franchise owners every day, and as long as you have exclusive territories, there’s every reason for that franchise information to be shared.

So why doesn’t everyone buy a franchise?
Franchising is not for everyone. It’s critical that you assess you ability to do what is required in franchising. If you decide you can’t, that’s OK – some people aren’t cut out for it. Some people need to own their own independent business, or are happier as an employee of a big company with lots of support staff. The time to discover whether or not you have a high probability of being a good franchisee is before you buy a franchise. Here are some common pitfalls.

1. Failure to follow the system.
A franchisee must be willing to follow the franchisor’s system. If you are a maverick, if you always need to be right, if your ego is a little north of ‘healthy,’ you might not be happy or successful in a franchise. New franchisees who come in with a critical eye and start tweaking things lose the time advantage they just paid for. Then, when they’ve morphed the business away from the model they bought, the franchisor no longer knows how to support them. If you need to blaze your own trail with no restrictions and have trouble following a system, don’t buy a franchise.

2. Undercapitalization.
This is the most common reason that franchisees fail. Be prudent with your investment. There are calculated risks, and there are decisions based on hope. The former is the only route to take.

3. An aversion to fees.
Once franchisees are up and running, they generally begin to take credit for their success. Concurrently, their need for on-going support and training is decreasing. They may be relying less on the national marketing – now getting some volume of business by word of mouth. They may no longer see as much value in that national brand that helped them get to where they are. That certainly doesn’t mean that the value of the brand and the marketing has suddenly decreased. Additionally, it doesn’t take into account that most franchisors amortize the cost of training to ease the up-front financial burden on the franchisees - the first few years of training probably cost a lot more than the franchisees spent in royalties. But some franchisees reach a point where they resent the royalties, marketing fees, and product mark-ups. They rationalize that if they started their own business or bought a business opportunity they wouldn’t have to make those payments. That’s true. Nor would they have received the benefits. If you think you will resent paying the franchise fees, either convince yourself that you will remind yourself of the benefits, or look for another vehicle to get you where you want to go.

4. False Expectations
Being a business owner is difficult. Franchising offers many advantages, but it is not a magic answer. It is not a guarantee. You don’t buy a franchise and sit back and wait for the cash register to fill itself. It is entirely likely that early on there will be times when you will be unnerved, times you will need to tap into your savings, times you will have to cancel a vacation, times you wish you were not the go-to person. Some franchisees seem surprised that they no longer have a secretary, a travel department, and an on-site computer repair person. Some people see business ownership as bragging rights – and don’t understand that guts that go into creating the glory.

Franchising has helped millions of people achieve their goals – over some amount of time, after some amount of effort. To ensure that you join that group, take time to assess your goals, needs, motivations, and drive before you become a franchise owner. Be honest in your self assessments, and if you believe you can overcome some hurdles you will find yourself on the road to creating the life you’ve dreamed of.

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Article Tags: best route, boon, business owner, business ownership, buying a franchise, effective advertising, franchise education, franchise information, franchise system, franchisee, franchisees, franchisor, handsome income, marketing materials, potential pitfalls, retirement funds, rich dad poor dad, s system, walks of life, wealth creation



Related Forum Posts
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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