Should You Buy a Franchise Out of College?
While many young entrepreneurs are entertaining this question, the one word answer is no. Our expert explains why.
Lately, many young entrepreneurs have become interested in the idea of buying a franchise right out of college. Though this idea might sound appealing on the surface, unless you have other factors in your favor besides a college degree, I wouldn't recommend it. I've seen both franchisors and franchisees try this in the past with very mixed success rates.
Three to five years ago, a number of franchise companies were experimenting with the idea of marketing franchises to recent college graduates (with parents typically providing the financing). But in today's marketplace, strong franchise companies aren't showing much interest in recruiting new franchisees from the pool of recent graduates.
Why the change? The previous attempts to turn recent college graduates into franchisees failed for two main reasons:
- Abandonment. Franchisors found that young franchisees with no "skin in the game" in terms of personal cash investment were far more likely to give up whenever the going got tough and move on to something else. The parents were left owning a business they didn't want and expecting the franchise company to get them out of the situation.
- Employee Management. The simple fact is that most recent college graduates don't have any experience recruiting and retaining good employees. This is the single most important factor for success in most business-format franchise businesses. Everyone makes mistakes learning how to hire and manage effectively, but the franchisors were used to new franchisees who had already learned many of these lessons. Recent college graduates, meanwhile, were learning as they went along, and the mistakes had a negative impact on the business.
Still, if you're absolutely determined to buy a franchise right out of college, these points may help you gain a franchisor's acceptance:
- Get General Experience. The most valuable thing you can do to prepare for franchise ownership is to gain practical experience working with minimum-wage employees, especially in a management role. Even if you're just the assistant manager at a fast-food franchise, you'll soon gain real-world experience observing and dealing with employee issues. Putting together the work schedule, dealing with employees who don't show, dealing with employees who show but don't do the work, dealing with employees who are wonderful-these are all learned skills. Go to "school" right now ... on someone else's dime.
- Get Specific Experience. If you've identified the business concept you want to pursue, a wonderful strategy is to work in an existing franchise like the one you want to start. In as little as six months to a year, you can get a very good idea of what it takes to succeed and whether you really want to do what's required. Most good franchise companies are willing to support such a plan by referring you to an existing owner who can provide mentoring services in addition to employment.
- Have a Business Plan. The discipline of putting together an effective business plan forces you to anticipate potential challenges and figure out how you're going to deal with them in advance. Your business plan should address items such as the market for the product or service, the terms and methods for procuring (on favorable terms) all the supplies and fixtures you need for the business, investment and cost guides to make sure you have all the startup capital you need, and even pro forma projections to help you estimate your revenue and expenses from the business. You don't have to be a business major to prepare a solid business plan-just google the term, and you'll find a lot of resources to help you.
- Money Vs. Thanksgiving Dinner. An old adage says, "Never go into business with your friends or relatives." Yet you'll probably violate this maxim right off the bat, because most recent graduates need family to provide the capital necessary to start the business. You must openly discuss the possibility of investment loss and the way you plan to handle any conflicts between you and your lender prior to entering into business together. If you don't cover every contingency, you may end up not being invited home for the holidays, and no business idea is worth that price.
- Self-Assessment. My final advice is perhaps the most important. Spend sufficient time answering the question, "Is this really what you want to do?" Do you have the drive and the fire in the belly to succeed in your own business? Are you willing to deal with the obstacles and heartache that will certainly be part of such a task? Or are you thinking of this alternative because it sounds easier than going through the job interviews and getting interviewing some entry-level job like your fellow college graduates? Parents have questions to answer as well: Is this a well thought out business decision like any other investment you make, or are you just trying to buy your kid a job so they don't come back home to live after graduation?
These are tough, but significant, questions. The simple fact is that you can greatly increase your chances of success in franchising by starting early and working hard to address these issues. If the points listed above seem like chores, chances are, franchising's not for you. But if you see this list as exciting steps to true business success, you may just have what it takes to be a franchisee.