Franchise Buying Guide

True Confessions

Wondering what it's really like to buy a franchise? Seven entrepreneurs tell all about their experiences as franchisees.
Presented by Guidant Financial
Guidant Financial specializes in helping entrepreneurs purchase new franchises using their retirement funds.

Walk a mile in a franchisee's shoes, and you'll find that it could be a walk in the park--or over crushed glass. We figured the best way to know exactly what the franchisee experience is like is to hear it straight from the source. So we asked seven franchisees, ranging from happy to disgruntled, to anonymously share their unadulterated thoughts, opinions and advice.

And just in case you're not convinced by the franchisees, we also got two experts to speak out: Michael Seid, founder of franchise advisory firm MSA Worldwide and co-author of Franchising for Dummies, and Robert Zarco, founding senior partner of Zarco Einhorn & Salkowski P.A. in Miami, a law firm that represents unhappy franchisees and has been involved with over 350 franchise systems worldwide. (Seid's and Zarco's advice appears in italics; all franchisees names, which are in bold, have been changed.)

Happy Days!

One aspect that David liked about the moving-service franchise he purchased in Alpharetta, Georgia, was its size: "If it's not a big franchise, it's easier to feel you're not just a number in the system, and the market's not saturated."

Seid: Smaller franchisors can't afford to let the first couple of franchisees fail, so they tend to get very personalized and over-serviced. That's good and bad--more good for the franchisee. A [smaller] franchisor may be struggling with critical-mass issues and be unable to [offer] TV advertising or proper brand advertising, so it really depends.

In his first year, David set the national record for first-year revenue--largely due to the time he invested. "I worked my tail off that first year or two--seven days a week, 12 hours a day," recalls David. As a new franchisee, don't expect easy hours.

Seid: We say in the Dummies book that if your family does not buy in, you're going to fail. The pressure of not seeing the family during the early days is deadly. We strongly recommend people self-assess before buying.

Phillip is a particularly happy inkjet and laser-toner cartridge recycling franchisee in Santa Rosa, California, because his franchise "gives [him] an opportunity to give back to the community and planet." Before buying, Phillip had to know that the franchisor's key employees were committed to these ideals. While researching a franchise, he says, you should ask who's on the board of directors, running the day-to-day operations and providing support.

Seid: You have to look at whether management is entrepreneurial enough to stay ahead of the curve, especially when dealing with a technology-related product.

Sometimes a franchisor allows franchisees to purchase supplies only from approved vendors. The franchisor then receives a percentage of those sales. Phillip's franchise doesn't require this; instead, it suggests several vendors and even negotiates discounted prices. "The only way the franchisor makes money is if we make money," reasons Phillip. "Find out if there's an approved vendor list, and how expansive it is. Ask the franchisor, 'Is this a discount?' and, 'Do you negotiate?'" Franchisors do have to let you know if they restrict you to approved vendors--it's in Item 8 of the Uniform Franchise Offering Circular.

Seid: If I, as the franchisee, am buying something for $1 and the franchisor can buy it for 50 cents and sell it to me for 75 cents, I'm thrilled--as long as they're not losing the ability to get me the lowest price by having fewer vendors.

A former entrepreneur, Sean is now a happy ramp-rental and sales franchisee in North Olmsted, Ohio, but he warns others not to equate being a franchisee with entrepreneurship: "A true entrepreneur wants to build from the ground up, but the franchise has already been built by the franchisor. You have to work within their system, even though you do, in a sense, run your own business."

Seid: Franchisees are not entrepreneurs. They're entrepreneurlites at best. An entrepreneur wants to chart his own course. Franchisees have to follow a set of rules, and they cannot violate a franchisor's brand. If you have to have things your way or think the franchisor's product needs to be improved or changed, you should start your own business.

While Sean's franchise was marketed as homebased, the franchisor made the logistical considerations clear, and Sean ended up renting storage space for the ramps. Make sure you find out exactly what a homebased franchise entails.

Seid: Ask, "Are there any zoning requirements? Do I need a van? What kinds of deliveries are coming in? Are customers coming to my house?"

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This article was originally published in the June 2005 print edition of Entrepreneur with the headline: True Confessions.

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