Franchise Buying Guide

He Said, She Said

Our experts weigh in on the ups and downs of buying a franchise fresh out of college.
Presented by Guidant Financial
Guidant Financial specializes in helping entrepreneurs purchase new franchises using their retirement funds.

Few and Far Between
Save for the occasional diamond in the rough, recent grads have a lot to learn before buying a franchise.
By Jeff Elgin

Virtually all the franchisors I've discussed this with agree--and my experiences and observations validate--that the short answer to this question is "very rarely."

Many franchises have experimented with this development strategy at one time or another. The most common approach is one in which the new graduate operates the franchise while the parents put up the necessary funds. Though there have certainly been some success stories with this approach, they are few, and the problems that arise for franchisors are plentiful.

The challenge is twofold: First, most recent college graduates don't have the financial resources to fund a franchise startup, so someone else has to put up the money for the new business. Second, many lack the life experience and motivation necessary to run a business effectively and stick with it when times get tough.

Any startup will occasionally run into problems that involve long hours and/or missed paychecks for the owner, in addition to the stress that comes with being the boss. Franchisors and parents have learned the hard way that when the going gets tough, someone with no skin in the game is more likely to bail on the business and do something easier, like find a job with a dependable source of income. This course of action can leave the silent partners with their entire investment at high risk and the franchisor with an abandoned unit.

There is also the challenge of managing employees. Most franchise systems are set up with the expectation that franchisees will have a fair amount of practical management and life experience that they can draw from when running the business. But most recent college graduates have very little, if any, practical experience recruiting, retaining and managing employees.

This disconnect can cause a number of problems, because selecting the right employees and managing them properly are often the most important elements of running a franchise successfully. Many of us can recall dozens of mistakes we made when first gaining experience in this important area of management. But we had the advantage of being part of an organization stable enough to withstand any issues created by our mistakes. It doesn't take a stretch of the imagination to assume that most recent college graduates are going to make just as many mistakes. The difference is that these mistakes will be made in an environment that is much less forgiving for themselves, their parents and the franchisors. Starting a franchise is difficult enough without the added risk of inexperience.

There are certainly exceptions to the generalizations made here. If a recent college graduate has been demonstrating certain businesslike habits for years, he or she might be a great candidate for owning a franchise. One such habit is saving money and investing it wisely--even if the amounts are not impressive, this shows a fiscal conservatism that's rare in young people today. Another good indicator is an early passion for or participation in entrepreneurial activities, such as starting a landscaping business while in high school or college. Prospects should also have lots of leadership experience--situations where they accomplished tasks through the efforts of others, whose activities they directed.

The best advice for recent college graduates interested in starting their own franchises is to find a job, gain practical experience in the work force and save money. In a few years, they'll be in a much better position to take advantage of the benefits that can come from pursuing the American dream through owning a franchise.

Jeff Elgin has almost 20 years of experience in franchising, both as a franchisee and a senior franchise company executive. He's currently the CEO of FranChoice Inc., a company that provides free consulting to consumers looking for a franchise that best matches their needs.

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This article was originally published in the January 2008 print edition of Entrepreneur with the headline: He Said, She Said.

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