Your Burning Franchise Questions

Making the Transition From Corporate Life
I am currently working a corporate job and am planning to buy a franchise, but I'm not sure how to time the transition. Should I sign the franchise agreement and purchase the franchise before quitting my full-time job?

Yes, absolutely. More important than that, you've got to realize that the franchise is not going to immediately [produce] the cash you used to get as a paycheck. It's going to lose some money. It's kind of nice to have health benefits, make home payments and buy groceries. So if you're in a relationship, both of you shouldn't quit your jobs. Somebody should keep their job until the business can produce enough income to support the family. That may be a year, that may be 10 years, but at least that income is coming in. You can always hire someone [to help with the franchise], but you don't want to give up your health benefits.

While you keep your full-time job, you can go to franchisor training for two weeks using your vacation time. A lot of people do that. You can work weekends to find locations. You can do a lot of [preparation] and not give up your job and your paycheck. I recommend to people that if they have unlimited wealth and they can leave their job, sure--it's much better to have a clean mind and focus on the business. But in the real world, Johnny and Janie want to have breakfast, and you want to be able to make decisions without having the pressure on you. As long as you have a paycheck coming in, you can pass up that site that looks pretty good and wait for the site that looks really good. If you don't have a job and need a paycheck really quickly, you may take that B site instead of waiting for the A site.

I have some personal savings, but have not yet started saving for my retirement. Would you suggest investing the savings I do have in a franchise, and using the franchise as an investment I can live off of in retirement, rather than investing in a 401(k) or an IRA?

It depends on how old you are and how close you are to retirement, and on whether you are a risk-taker or not. And again, it comes down to how secure [the investment is]. If you're in your 30s, it's a different answer than if you're in your 50s. In your 30s, you're entitled to make mistakes. If you don't make mistakes in your 20s or 30s, you'll have a miserable retirement, because you would've taken no risks in your life. So if I'm in my 20s or 30s, the answer is, "Absolutely I'm going into it, because if I screw up, I can get a job and I'll rebuild." If I'm in my 50s, living with my children in my 70s if I foul up is not going to make me feel good, and that's what I'm facing.

Overall, the answer is yes [but if you're in your 50s, be extra careful]. A business is something you can sell when you're ready to retire, and when you sell a business that has a great cash flow and is under a great brand, that is a heck of a retirement. That's better than any 401(k) I know of. Would I be doing it with an Average Joe franchise? No. Would I do it with a solid brand? Yes.

I have started to research a franchise I'm interested in, and most of the franchisees I've talked to are happy with their investment. However, there's a small group of disgruntled franchisees who are very bitter and vocal against the franchisor. How much weight should I give these franchisees' opinions in my overall decision?

A lot, but in every franchise system, [some] people are unhappy. There are unhappy McDonald's franchisees and unhappy Wendy's franchisees. But you have to listen to why people are unhappy. You should always call the people who have left the system. I tell people they should call every franchisee. If that's unreasonable, they should at least call a few of the franchisees in the system and find out what is going on, [and then] call as many of the people as possible who have left the system to find out why they left. Understand that those people are going to have a negative viewpoint. But it's important to know why. They're not all irrational, but you have to listen to the specific [reasons] why they're unhappy. If they're unhappy because the franchisor wouldn't let them do things their own way, that's a good franchisor. [It's] protecting the brand. They're just bad franchisees. If, on the other hand, the franchisor didn't provide them with field service, [it] didn't provide them with the contracts that were promised, if every time they spoke to the franchisor, the franchisor threatened to sue them, I'd listen to that, too. I certainly would not ignore the people who aren't happy.

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This article was originally published in the June 2006 print edition of Entrepreneur with the headline: Your Burning Questions.

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