Franchising is a great opportunity to take a proven business model that has produced financial success and run it as your own business. While there are many wildly inaccurate statistics about success rates for franchises all over the internet, in general “a franchise is a lower risk proposition than investing in a pure start-up,” according to Joel Libava, the The Franchise King.
One of things that concerns me the most about entrepreneurs who invest in franchises is the belief that, “if you buy a franchise, you cannot fail.” This is fallacy, and is simply not true. Any business can fail. The question is whether your particular franchise opportunity puts you in a better position for success than if you attempted to start a similar business on your own. When you buy into a franchise you are buying a turnkey system. Your continual implementation of that system will determine how successful you will be in business. Starting any business is a risk, but I believe fear of failure is a healthy motivator in business.
Key benefits of a owning a franchise includes – you are buying an established brand, with an instant client base, with operations procedures already in place. You do not have go through the labor intensive task of launching a new brand, establishing procedures, testing and marketing products or establishing a distribution network. However, you must operate your business exactly as the formula describes it and pay a royalty and/or licensing fee to the parent company.
Buying a franchise that is already established can be a lucrative business, but there are drawbacks.
It can be very expensive. In some cases, especially for the marquee franchises, you must be able and willing to purchase three franchises, not just one. This significantly limits the individuals who can afford to buy a franchise.
The price is substantial and the return on investment slow. It can take more than three years to break even and up to five years to turn a profit.
You are at the mercy of the parent marketing department. They will determine the marketing done in your area.
You share in your parent company’s negative publicity. Remember, that issue with lettuce that Taco Bell had two years ago? Well, nobody was eating at any Taco Bell until the restaurant chain cleared up the issue.
The deal with owning a franchise is that the rules/operating procedures must be followed. The uniforms and store set up are set in stone, your main suppliers will be predetermined and franchise fees must be paid. If you think you want to put your personal stamp on your business, a franchise might not be for you.
There are some terrific small franchise opportunities that you can invest in for under $50,000. The following websites are great resources for researching franchise businesses.
www.franchiseopportunities.com
There are so many business opportunities in franchising, that anyone can find one to fit their situation: the key is research. Like with any business, you must take into account the skills you have and the skills you will need to run your franchise. Consider working for another franchise before purchasing your own. Those franchise agreements are really intense legally binding contracts, so be sure to engage an attorney that specializes in franchise agreements. Here are some other questions to consider:
How much capital do you have to purchase a franchise?
How much capital do you have to actually operate the business?
Will you need financing?
How much training and continued support is offered?
How much control will you want to have over the business?
A franchise opportunity could be the perfect business for you. Once you understand your personal and financial capabilities then you will be able to find the franchise business that suits your situation. Evaluate your net worth, personal skills, the market you are interested in, and be sure to talk to other franchise operators to research the best franchise business for you.
Do you know of any additional franchising pros and cons? I want to hear why you think franchising is the way to go to start a business.
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Melinda Emerson, “SmallBizLady”, is a Veteran Entrepreneur, Small Business Expert and Social Media Coach who hosts #SmallBizChat on Twitter. #Smallbizchat is the trusted resource on Twitter to discuss everything entrepreneurs need to know about launching and running a profitable small business. Melinda’s first book, Become Your Own Boss in 12 Months! A Month-by-Month Guide to Start a Business that Works! is scheduled to be released by Adams Media in Feb 2010.
Melinda,
Thank you so much for the mention! Good job on the article, too…:)
The Franchise King
Joel Libava
.-= Joel Libava´s last blog ..My Franchise Business Advice For The Week Of October 19th, 2009 =-.
Joel–
Thank you so much for your comment. I have been a fan of yours on Twitter for a while as @franchiseking. I consider you the expert on franchising, so I am glad you liked my article.
Keep doing what you do.
Best–
Melinda Emerson
@smallbizlady
Melinda:
This is a great post. You’ve summarized the major points nicely and you brought to the reader’s attention a very important point: Buying a franchise is not an assurance of success. It can greatly improve your chances, but it is not an insurance policy. There are many variables involved in the success of a franchisee, and some important ones are often overlooked such as the beliefs and the readiness of the franchisee.
You mention that the key is research. And you are absolutely right. The research however needs to be internal as well as external. If you want to invest in a franchise, thoroughly research the company and the business AND also go inward. Go beyond the traditional inventory of skills and experience and examine what you really want in life, indentify the beliefs that may impede your ability to succeed in the franchise and learn to replace those beliefs with those that will support your success.
Again, wonderful post Melinda!
.-= Lizette Pirtle´s last blog ..Franchisees —Do You Need to Change Your Lenses? =-.
Lizette–
Thank you so much for your comment. The key in any business is research, but that especially true for a franchise business as all franchises are not created equal.
@expansionexpert I love what you do on Twitter.
Continued success in your business.
Melinda