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A Big Franchise Equals a Big Risk But Also a Bigger Reward -- If You Do It Right

Opening a large franchise location can be as terrifying as jumping off a high dive -- and just as fulfilling if you play your cards right.
A Big Franchise Equals a Big Risk But Also a Bigger Reward -- If You Do It Right
Image credit: BuddyFly | Getty Images

A high diving board in summer always seemed higher when you were the kid bouncing up and down at the end of that slender plank. Suddenly, the water looked far, far away. You shivered, despite the summer heat, as you heard your peers egging you on. You knew it was now or never: You jumped off into thin air with eyes squinted and heart thumping.

That's about the same level of fear that every new franchisee has with that first establishment.

Related: The 3 Scariest Things About Owning a Franchise

And if that establishment is a large franchise, chances are that its operation -- like that pool from the high dive --appears tmuch smaller from the outside than it actually is.

Yet even intrepid entrepreneurs are sometimes shocked by the intricacies of the day-to-day details involving in running such an operation. Still, plenty are taking the plunge, nevertheless. According to the International Franchise Association, 2017, by year's end, should see a 5.2 percent growth in franchising, totaling $426 billion in revenue.

Why are so many people who have never before owned or operated a franchise or even worked at one throwing themselves off the high dive? It’s the old story of reward versus risk: The bigger the risk, the bigger the reward. Of course, the trick here is to avoid an embarrassing belly flop, and instead to cut cleanly into welcoming waters with a satisfying splash.

Fear of franchising? You’re not alone.

Location. Staffing. Training. Inventory. Complex transactional software: They’re all part of the job.

As a franchisee, you’re on the hook for everything, from the amount of toilet paper you buy for the restroom to the signage displayed on your building. The position requires serious decision-making and time; no wonder it’s a scary prospect. Survival isn’t guaranteed, but then again, nothing is in business -- except quarterly taxes.

Other concerns of new franchise owners come in the form of legal issues, namely liability. What if someone gets hurt? It happens every day in companies of all shapes and sizes. A real estate franchise is no less susceptible to personal injury suits than a gym or a barbershop.

Related: How Do I Start a Franchise?

Then, there are the people working at the franchise who will operate the business and manage it from a high level. Hiring them will be a challenge. You not only have to vet the individuals you interview, but find them first -- and we all know how tough it can be to dig up raw or top talent.

Given these challenges, it’s easy to see why franchising leaves some entrepreneurs shaking in their boots. Yet each of these overwhelming worries can be mitigated when purchasing and running a large franchise. Here’s how:

1. Hire someone with management or operations experience.

Want to reduce the risk of being the sole person with expertise at your franchise? Bring someone on board who has complementary know-how. Teaming up with another owner or manager can prevent a lot of headaches. Plus, you’ll glean valuable information from the network of people in your franchise.

From corporate officers to fellow franchisees, these people will give you the inside scoop. Use what you hear to develop franchise goals and a solid plan to put them into action. A recent advice piece in the Houston Chronicle suggested screening, evaluating and investigating all franchise applicants thoroughly.

2. Train until you think you’ve trained enough -- then train some more.

High standards of safety and operational consistency require training. And sufficient training is a must for a large franchise. It lowers maintenance and insurance costs caused by employees incorrectly using equipment, and prepares them so there'll be fewer customer complaints.

A study by IBM found that adequate training improved customer satisfaction by 17 percent and reduced delivery time by 22 percent. Spending time and money on training may seem unnecessary, but it keeps turnover costs low for your franchise and helps retain workers who know what they’re doing.

Make regular inspections of your facilities with qualified professionals, and never take shortcuts. Take advantage of your franchisor division heads, who should spend quality time with you and your team. Make sure they place value on training and helping new (and seasoned) employees know the ropes to keep your franchise running smoothly.

3. Place the right people in the right positions.

That high schooler may have chutzpah and a natural knack for numbers, but he shouldn’t be your head manager or tax accountant. Develop hiring techniques that include asking questions about real-life scenarios. For instance, if you need an accountant, cover specific scenarios during the interview.

And when it comes to interviewing potential hires, consider having not one, but three, people interview each candidate: “the boss, the boss’ boss and a senior HR person or recruiter.”

4. Order inventory with a conservative mindset.

No franchisee can afford to be burdened by inventory; at the same time, it’s important to have enough on hand. As a franchise owner, you should get accounting and inventory numbers from other franchise locations. These figures will give you a good idea of what type and amount of inventory to carry.

Luckily, most large franchisors will give you an idea of what your opening inventory requirements should be. Still, opt for the lower side of the average; if inventory runs out faster than expected, you can steadily increase the quantities to equilibrium.

5. Vet potential locations carefully, and don’t open just one spot.

You could open the most amazing franchise on the planet, but if it’s in a terrible location, you’ll never make it to your one-year anniversary. Your objective is to find a place accessible to foot or road traffic and has good parking (if necessary). Be aware of your competitors: Are they located nearby? This can be positive or negative, depending on your franchise.

That said, don’t spend all your cash on your location. Save your liquid cash by negotiating the best price for your location, as well as a low-interest rate on your loan.

And don't stop at a single location. Research by Franchise Grade found that businesses studied that launched multiple locations simultaneously saw more successful growth than those launching one location at a time.

6. Spend money wisely on your marketing efforts.

Franchisees everywhere want to be frugal, but marketing isn’t the place to pinch pennies. In general, about 5 percent of total sales should go into marketing campaigns; you may even want to increase the percentage if you have a competitor who’s killing it on the marketing scene.

You can get more bang for your buck by using social media as one of your main marketing channels -- more than 55 percent of franchises polled in a 2016 HigherVisibility survey cited social media as their go-to marketing choice, and social media can be done in-house for very little.

It's also a good idea to go here the action is. For our company, getting out and hitting the streets when a park has just opened is the best way to attract customers; this is something we've tried to do regularly. Bottom line: Get customers in the door, and then let the guest experience take over -- arguably the truest form of marketing.

Related: Franchise Your Business in 7 Steps

Wouldn’t it be great if a magic formula existed for taking away all the risks associated with opening a business? It doesn’t. Maybe that’s well and good. After all, jumping off the high dive is much sweeter than choosing the lower one because of the adrenaline rush, not to mention the feeling of satisfaction when you climb, victorious, out of the pool.