Franchising Pros And Cons
Tim 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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