Buying a Franchise – Is it Right for Me?
Buying a Franchise? Congratulations – we have both succeeded so far!
For you, reading this article means that you are contemplating the world of franchise ownership and have taken your first steps towards that goal. As for me, I have managed to catch your attention long enough to offer up some straight-forward advice on your franchise quest.
You won’t find a lot of fluff or hype about the successes of franchising in this article. What you will find are 10 mistakes or assumptions that people sometimes make while investigating or contemplating a franchised business. My goal with this article is to help you avoid buying a franchise at all – if franchising is not suited for you.
Franchising is definitely not for everyone. However there are hundreds of thousands of people who enjoy running their own business and the lifestyle that it offers.
As CEO and founder with nearly 30 years of franchise experience, I have witnessed great people enter into a franchise for all the wrong reasons, and in the end it has cost them dearly. On the flip side, I have seen great people enter into a franchise and have experienced success beyond their dreams. The difference between them often times – is whether they should have gotten involved with franchising at all.
Being an Entrepreneur vs. Frantrepreneur
Some Franchising Facts:
- Buying a franchise will put you light years ahead in terms of startup and development time.
- Franchising provides you the support and tools to help you reach your business goals.
- Buying a franchise will provide you training that would otherwise take years of experience to acquire.
- Regardless of how good you are at business – you have never owned and operated the type of franchise you are evaluating.
- When you decide to sell your business, a franchise brand has more value than “Fred’s Sub Sandwiches”.
Buying a franchise will put you light years ahead in terms of startup and development time.
Let’s face it! Running a business can be one of the hardest things you will ever do in your life. But before you even get to the running part of your business, you must decide which one is the best fit for you and then getyour doors open for customers. Before you even open your business, there are literally hundreds of details that need to be taken care of. Here are a few to think about:
- Your business plan
- Financing your business
- Marketing your business
- Real estate needs and selection
- Lease negotiation
- Real estate build-out (floor plan, architect, contractors, utilities, permits, etc.)
- Employees (hiring, operations, HR manuals, etc.)
- Store signage (permits, etc.)
- Initial inventory (floorplan, merchandising, etc.)
- Grand opening
- Computer and phone systems, point of sale, store music, etc.
- Employee training
- Operations manual
- Accounting requirements and setup
- And the list goes on and on and on…
So now the question is… Have you ever done ALL of this once before? Or maybe even twice? How about 25 times? Or even 100 times? Your potential franchisor has and that is a very compelling reason to buy one.
Franchise companies have store development and opening down to a science. What could take you months or longer on your own, can now be shortened down into weeks, or in some cases days – depending upon which franchise system you join. If you think about this in the right context – compare the savings in time to what you are paying upfront for a franchise fee.
The quicker you are open for business – the quicker the cash register starts to ring. The extra sales brought in by being open twelve months, six months or even a month sooner (depending upon the franchise concept) could easily exceed the initial franchise fee.
Bottom line! Franchising springboards you into getting your business open quicker and generating sales much faster than doing it on your own.
Franchising provides you the support and tools to help you reach your business goals.
Okay, let me paint a picture for you… When you are a non-franchised independent business – you are literally on your own. No one is there to support or care about you. When you have questions or run into problems with your business, who will you turn to? Your banker? He will ask you what you are going to do to fix it, not offer suggestions on how. Then he will put you on a watch list because he is nervous that you are going to default on your business loan. Not a good picture is it?
Franchise companies are not in the business of opening new locations just to watch them go down the tubes. Closed locations do not bode well for them in trying to grow a national brand. Good franchise companies will work with you in a proactive fashion to try and keep you from getting into trouble. As long as you are willing to work with them – they will coach you along the path of business growth.
If you do get into trouble, most franchise companies will work as hard as they can to help you make changes to bring stability back to your business. Remember, it is their brand on the sign and they do not want it to go dark either. Franchisees that listen and work with their franchisor can typically expect to have a viable business much longer than their counterparts that took the route of a non-franchised independent business.
Buying a franchise will provide you training that would otherwise take years of experience to acquire.
Again, franchisors have dealt with everyday business problems hundreds, or even thousands of times. Their training curriculum reflects that experience. More often than not, you will be trained by a number of executives, training staff in specialized areas, or even franchisees in the system. Initial training periods will vary depending on the franchise type and may also include on site training. Some franchises may even require you to work in an operating unit before you open or are even considered as a candidate for their system. This depth of training is not available outside of the franchise arena. And I certainly do not know any independent business owner that will train you to go into competition with him!
Business knowledge takes hard knocks to learn. Your potential franchisor has been through this. Training is an often overlooked asset that you receive when you purchase a franchise. If you had to pay for the combined knowledge that your franchisor has gleaned from their years of hard knocks and their system best practices -believe me it would be much more than what you are paying for the franchise fee.
Regardless of how good you are at business – you have never owned and operated the type of franchise you are evaluating.
This topic is one of my favorites because it involves ego. Let’s face it – we all have one whether it is large or small. When buying a franchise, check your ego at the door.Even if you have been in business for years,there are particulars and nuances about the concept you are looking to buy that only people who have ran one will know.
This is a business that you are buying and it involves a great deal of forward vision to keep it going. Let’s use computer repair as an example. If you are a great tech and have all of the credentials in the world – does that mean you know how to run a business?Probably not. If you purchase a franchise and get caught up doing the tech work, you never have time to advance the business. In other words, if you work “IN” the business,you can’t work “ON” the business.
When evaluating a franchise – open your mind, approach the opportunity in a learning fashion and the whole process will be much smoother and more enjoyable for you.
When you decide to sell your business,a franchise brand has more value than“Fred’s Sub Sandwiches”.
Sorry if your name is Fred – but I have a method to my madness. When it comes to selling an existing business, a national or even a semi-national brand name is typically easier to sell and will bring a higher return than an independent business. The reason why is, generally as a non-franchised independent business, the business itself is sometimes so tied to the original owner’s know-how (sometimes even in name) that often times without the original owner, the business does not survive after the sale.
A franchise has much tighter operations, procedures, systems, marketing, purchasing, and brand equity (customer awareness) built throughout the system. As well, all new owners must go through formalized initial training, which often takes the existing business to even greater heights. Most franchise companies will assist their owners in selling their business and will advertise it to their pool of potential new franchisees looking to enter the system.
Bottom line… SUBWAY® has a greater resale value than an independently owned Fred’s Sub Sandwiches location. Even though it was a guy named Fred that started SUBWAY®.
- If you’re a wheel inventor – franchising is not for you! If you can make the franchisor’s wheel turn faster – you’re one step closer to success.
- When evaluating a franchise concept, ask them about their startup, development and build out assistance. You will find most of them are quite sophisticated in this area.
- Really think about the on-going assistance you will receive, versus what you will endure on your own as an independent. It will add years to the life of your business.
- When attending training, leave your ego at home.
- Try to focus on starting and building a business, not working in one.
Avoid the Top 10 Mistakes People Make When Researching Franchises
Being an Entrepreneur vs.Frantrepreneur
- Franchise systems don’t want their wheel reinvented; they want people who can make the wheel turn faster.
Confusing a franchise with a job
- If you only want to work 8-5, don’t apply for a franchise.
Assuming you can just try it out awhile
- Franchise Agreements typically average ten years in length, so be prepared for along-term business.
Not being financially prepared for the investment
- Starting a business takes cold hard cash- be ready for that.
Working in the business
- Not on it- Franchise systems want business builders – not business workers.
Going it alone
- You will be doomed for failure if your spouse or partner does not support your business interests.
Sticking to what you know
- What you’re good at doing today, may not always be the best franchise for you.
Having lone wolf syndrome
- Franchising is about consistency and teamwork – you will need to get along with others.
Not sharing your information
- Be prepared to share personal and financial information with a franchise company.
Expecting automatic success
- Franchise systems provide you the tools – you still need to use them and build a business.
The preceding article is an excerpt from the handbook Buying a Franchise – Is it Right for Me? by Lonnie Helgerson, CFE.
Lonnie Helgerson is the author of the bestselling book in franchising Five Pennies: Ten Rules to Successfully Build a Franchise Mega-Brand and Maximize System Profits and the handbook Buying a Franchise – Is it Right for Me? With nearly 30 years in franchising,Lonnie has worked with many major brands including Super 8 Motels®and Ident-A-Kid®. He pioneered the technology sector in franchising, founding Computer Doctor®, the first franchise of its kind. Currently, Lonnie serves as the CEO of Helgerson Franchise Group, a platform company that owns and operates franchise brands and provides franchise services for new, emerging, and mature franchise systems.
An accomplished speaker, trainer and facilitator with a national presence, Lonnie has been a frequent presenter for the International Franchise Association,Franchisor Association of Florida and other franchise and business groups.For more information contact Lonnie Helgerson at: