If you’re thinking about getting in on the franchise game, you may believe that your biggest question would be whether to open a donut shop or a car wash.
But according to Joel Libava, franchise expert and advisor, the real question is whether you should buy a franchise at all.
While franchises are growing in popularity; over 100 franchise systems being opened each year, the sad reality is that many people enter into franchise agreements, thinking it’s a fool-proof plan for success. But the fact is that franchises still fail at about the same rate as independent businesses. “Twenty years from their start, less than 20 percent of the franchisers will still be around,” says Professor Scott Shane of Case Western Reserve University. “In fact, of the more than 200 new franchise systems established in the United States each year, 25 percent don’t even make it to their first anniversary.”
A lack of proper screening by the franchisor combined with a general unawareness of the franchisee’s part are contributing to this problem.
Franchising isn’t something that should be rushed into. Unlike small independent businesses, which can often be started with minimal capital and then scaled organically as the company grows, franchising generally requires a significant up-front investment. Then there’s the fact that many franchises don’t show a profit for the first year --or more; and preparing financially for this situation is something that many franchisees tend to overlook.
If you’re considering franchising, it’s important to seek out information from independent, unbiased sources, and make sure you look into the risks and benefits objectively. Taking the time to conduct thorough research and becoming well-informed can help to mitigate a number of problems right from the start. Here are a few questions you should ask yourself before you embark on this journey.
Do you know what you’re in for?
First and foremost, make sure you have realistic expectations. Franchises are a business in a box, and you’re buying into an already-successful business model, but that doesn’t mean that it’s going to be all smooth sailing, and it certainly doesn’t imply that it will be easy. In order for your franchise to be a success, you’re going to have to put just as much work into the venture as you would when starting an independent business. Make sure you’re willing to put in the time and effort before you start.
Are you willing to follow the system?
Franchises are systems-based businesses, and in order to find success as a franchisee, you have to be prepared to stick with the system. “If franchises didn’t have rules, they wouldn’t be franchises; they’d be independent small businesses,” says Joel Labava. The very essence of a franchise is consistency. If you’re not happy to follow someone else’s blueprint, you may be better suited to a different type of venture.
Related: The Basics of Buying a Franchise
Are you a people person?
Do you work well with others? Franchising means spending a significant amount of time interacting with your franchisor, fellow franchisees, customers, employees, and vendors, and great interpersonal skills are a requirement. If you find dealing with others to be drudgery and don’t have a track record of great relationships, you’ll want to pass on being a franchise owner.
Can you afford it?
Buying a franchise because you need a job is one of the worst reasons to start a franchise. Franchises are expensive, and require a significant amount of funding up front before you can get started. You’ll have to cover the start-up costs, and have enough capital to fall back on until the franchise begins to make a profit. In many cases, this is at least a year. You’ll want to make sure you have enough reserves to cover operating costs, and living expenses during this time.
Will you enjoy it?
Finally, the all-important question; are you sure that owning a franchisee is something that you’ll genuinely enjoy? While being a franchisee can be a great opportunity for some people, for others, it’s a terrible idea. Most franchise contracts run five to ten years; that’s a long time to be locked into a job that you hate. If you don’t relish the thought of following someone else’s system, and immersing yourself full-time into running a business, franchising isn’t for you.
Still think you have what it takes to be a franchisee? Great! Before you dive in though, you’ll want to make sure you’ve learned everything you can about franchising, and thoroughly understand what you’re getting into. Here are a few resources you’ll want to check out.
Related: Franchise Your Business in 7 Steps
The franchise king
The Franchise King, Joel Libava offers great advice to would-be franchisers and is a must-stop site if you’re trying to decide if franchising’s right for you. Libava runs a blog, and he’s is the author of the helpful book Become a Franchise Owner!. He also offers franchise consultations in case you’d like further guidance.
International Franchise Organization
The International Franchise Organization (IFO) is another great resource for those who are interested in owning a franchise. Their About section contains a number of informative articles covering everything from the advantages and disadvantages of owning a franchise, to advice on investigating your options.
Franchise Euphoria is an excellent podcast, covering a range of topics of interest. Join Josh Brown, franchise lawyer and entrepreneur as he helps entrepreneurs and business owners start, grow and build profitable businesses.
Franchising can be an amazing opportunity, but it certainly isn’t for everyone. Before taking the leap make sure you’ve thoroughly researched every nuance of this business model, and aren’t operating under the persuasion of an over-eager seller, or buying into any hype. At its core, franchising can be a great way to capitalize on a need in the market, and is ideal for those who want to enjoy running their own business, without spending the time and pain of trying to grow a company on their own. Just make sure you’re realistic in your expectations, and confident that franchising is the best option for you.Are you considering franchising? Is it a business model that interests you?