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.

learn more about Jeff Elgin

By Jeff Elgin • Dec 28, 2004

Opinions expressed by Entrepreneur contributors are their own.

Lately, many young entrepreneurs have become interested in theidea of buying a franchise right out of college. Though this ideamight sound appealing on the surface, unless you have other factorsin your favor besides a college degree, I wouldn't recommendit. I've seen both franchisors and franchisees try this in thepast with very mixed success rates.

Three to five years ago, a number of franchise companies wereexperimenting with the idea of marketing franchises to recentcollege graduates (with parents typically providing the financing).But in today's marketplace, strong franchise companiesaren't showing much interest in recruiting new franchisees fromthe pool of recent graduates.

Why the change? The previous attempts to turn recent collegegraduates into franchisees failed for two main reasons:

  1. Abandonment. Franchisors found that young franchiseeswith no "skin in the game" in terms of personal cashinvestment were far more likely to give up whenever the going gottough and move on to something else. The parents were left owning abusiness they didn't want and expecting the franchise companyto get them out of the situation.
  2. Employee Management. The simple fact is that most recentcollege graduates don't have any experience recruiting andretaining good employees. This is the single most important factorfor success in most business-format franchise businesses. Everyonemakes mistakes learning how to hire and manage effectively, but thefranchisors were used to new franchisees who had already learnedmany of these lessons. Recent college graduates, meanwhile, werelearning as they went along, and the mistakes had a negative impacton the business.

Still, if you're absolutely determined to buy a franchiseright out of college, these points may help you gain afranchisor's acceptance:

  • Get General Experience. The most valuable thing you cando to prepare for franchise ownership is to gain practicalexperience working with minimum-wage employees, especially in amanagement role. Even if you're just the assistant manager at afast-food franchise, you'll soon gain real-world experienceobserving and dealing with employee issues. Putting together thework schedule, dealing with employees who don't show, dealingwith employees who show but don't do the work, dealing withemployees 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 thebusiness concept you want to pursue, a wonderful strategy is towork in an existing franchise like the one you want to start. In aslittle as six months to a year, you can get a very good idea ofwhat it takes to succeed and whether you really want to dowhat's required. Most good franchise companies are willing tosupport such a plan by referring you to an existing owner who canprovide mentoring services in addition to employment.
  • Have a Business Plan. The discipline of putting togetheran effective business plan forces you to anticipate potentialchallenges and figure out how you're going to deal with them inadvance. Your business plan should address items such as the marketfor the product or service, the terms and methods for procuring (onfavorable terms) all the supplies and fixtures you need for thebusiness, investment and cost guides to make sure you have all thestartup capital you need, and even pro forma projections to helpyou estimate your revenue and expenses from the business. Youdon't have to be a business major to prepare a solid businessplan-just google the term, and you'll find a lot of resourcesto 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 capitalnecessary to start the business. You must openly discuss thepossibility of investment loss and the way you plan to handle anyconflicts between you and your lender prior to entering intobusiness together. If you don't cover every contingency, youmay end up not being invited home for the holidays, and no businessidea is worth that price.
  • Self-Assessment. My final advice is perhaps the mostimportant. Spend sufficient time answering the question, "Isthis really what you want to do?" Do you have the drive andthe fire in the belly to succeed in your own business? Are youwilling to deal with the obstacles and heartache that willcertainly be part of such a task? Or are you thinking of thisalternative because it sounds easier than going through the jobinterviews and getting interviewing some entry-level job like yourfellow college graduates? Parents have questions to answer as well:Is this a well thought out business decision like any otherinvestment you make, or are you just trying to buy your kid a jobso they don't come back home to live after graduation?

These are tough, but significant, questions. The simple fact isthat you can greatly increase your chances of success infranchising by starting early and working hard to address theseissues. If the points listed above seem like chores, chances are,franchising's not for you. But if you see this list as excitingsteps to true business success, you may just have what it takes tobe a franchisee.

Jeff Elgin

Jeff Elgin has almost 20 years of experience 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 meets their needs.

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