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Franchising Pros And ConsTim Knox
Last week's question from Anthony R. on how to choose the
franchise that would best fulfill his life-long dream of owning
his own business sparked a number of emails from other readers
wanting to offer their two cents on the subject.
Some folks offered helpful insights and suggestions on how to
pick a franchise and a few things to watch out for, while other
emails came from current franchise owners asking me to help them
sell their operations to Anthony R.
Hmm, sounds like it's time to update the old business card once
again. Tim Knox: Franchise Broker At Large... Who knows, maybe I
can franchise the concept.
Last week I promised we'd take a closer look at a few of the
things you should look for when considering a franchise
opportunity. Keep in mind that there are thousands of franchise
opportunities that range from the low end opportunities
available for a few thousand dollars to the high end franchises
that cost hundreds of thousands of dollars.
The difference in price is reflected in many ways: the viability
of the opportunity, the level of training and support offered to
the franchisee, the track record and financial stability of the
franchisor, the success rate of the franchisees, and a dozen
other factors.
All a lower end franchisor might offer is a training manual and
the right to use their company name. Many also have very little
interest in weeding out potential franchisees. The truth is many
are in business just to collect franchise fees. They have little
interest in whether or not a franchisee actually succeeds. If
you have a pulse and a checkbook, you can become their
franchisee. And your pulse does not have to be that strong.
The higher end franchisors have very strict franchisee
requirements and will not allow just anyone to become a part of
their franchise system. They also go to much greater lengths to
ensure the success of their franchisees. They offer complete
hand holding from start to finish and remain heavily involved in
the business even after the doors open. Yes, you do pay dearly
for their assistance, but as the old saying goes, you get what
you pay for.
Here are a few things to look for in a franchise opportunity:
Turnkey operation This is the most appealing feature of many
franchise systems. Many of the top franchisors will scout the
best location for the business, build and equip the facility,
hire and train employees, put you through an extensive
management training system, then toss you the keys. Furthermore,
they will work closely with you for the first few months to help
make certain that you know what to do with the keys once they've
been tossed to you.
The majority of franchises don't offer such complete turnkey
packages, so be prepared to do much of the upfront work
yourself. Often it is up to you to find a location, negotiate
the lease, build out the space or erect a building, install the
equipment, hire and train a staff etc.
Proven track record and management system As mentioned earlier,
many of the lesser-known franchise systems offer you a training
manual, maybe a training video, and a few hours of telephone
support. Not the best way to learn how to run a business. A good
franchisor will provide you with thorough management training,
either at their facility or onsite at yours. Since one of the
reasons for buying into a franchise system is to tap into their
expertise and know-how, thorough training should be a foremost
consideration.
Customers waiting for the door to open I don't have the
statistics in my pocket to back this up, of course, but I'd bet
the farm that every time a new McDonald's opens its door, it's a
mere matter of minutes before the first Happy Meal is sold. Many
franchisors spend hundreds of millions of dollars on national ad
campaigns to promote brand awareness. This works great for the
franchisee who can literally have customers waiting for the
doors to open on the first day of business.
Always consider the downsides There are downsides to
franchising. Foremost is the high cost of entry. The top
franchise opportunities require considerable investment on the
front end, usually more of an investment than if the
entrepreneur started a similar venture on his own. You could
open an independent hamburger fast food restaurant for a
fraction of the McDonald's franchise fee, but you probably won't
sell as many hamburgers. What you're buying from McDonald's is
not just a fast food restaurant that sells hamburgers. What
you're buying is a brand, a reputation, and a proven business
system with ready to eat customers. Be prepared to pay a premium
for it.
Another downside is that when you buy into a franchise system
you often have to pay a percentage of your revenues back to the
franchisor. You might also be required to buy supplies from the
franchisor, including inventory, paperwork, software, computer
systems, and anything else the franchisor decides that they
should supply to you.
And there in lies the biggest downside of all. When you buy into
a franchise system you don't control your business, the
franchisor does. You have very little say-so in running the
business. You must follow their processes and procedures without
variation. And should you decide to get out of the business you
may not even be allowed to sell the franchise to just anyone.
The new owner would have to be approved by the franchisor before
a deal could be made final.
The bottomline, Anthony, is to do your homework and make sure
the franchise you choose fits your personality, your lifestyle,
and your pocket book.
About the author:
Tim Knox Entrepreneur, Author, Speaker
http://www.prosperityandprofit.com
http://www.dropshipwholesale.net http://www.smallbusinessqa.com
http://www.timknox.com
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