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Is a franchise the best business investment? In the opinion of this 15 year veteran of online only sales, the answer is a resounding NO. Here’s what you must know if considering a franchise.
Early on our family looked to start a business serving the local community, offering a shipping service. Researched and reviewed all the different franchise opportunities, the costs and weighed the benefits over the downside. Here’s what we found:
ADVANTAGES:
- The manual on how its done. Most franchise opportunities will give you great deal of information on how the process works from beginning to end. This includes start up procedures, planning, negotiating deals with vendors and landlords, etc.
- Network of discounted [level-premier-free]supplies or services.
- National or regional advertising, marketing and brand awareness.
- Territory protection for some franchises.
- Structured meetings, get-togethers or communications and newsletters to motivate the discouraged.
- Massively structured call centers.
- Trademark and/or copyright protections.
DISADVANTAGES:
- Strict guidelines that do not allow flexiblity for market, customer base or found opportunity.
- High starting fees and deposits. To secure some franchises, you may have to pay deposits or “buy-ins” of $35,000 – $180,000.
- Recurring fees and royalties that you have to pay.
- Advertising royalties that you have to pay.
- Reporting and monitoring similar to having a job and a boss.
- Additional legal restrictions and provisions to what you can and cannot do.
- Miss a payment and you could lose your franchise.
- Franchise can offer you certain business, use it or lose it even if its not real profitable. Some “business” that the franchise has arranged for your location may be lined with false promises in order to secure the sale, something you may find difficult or impossible to meet.
- You must ask permission before you think or act. If you own a pet grooming franchise business, you may restricted from selling pet supplies, or start a pet sitting service or anything without the franchises permission.
- Franchises usually have deep pockets due to the many franchisees and royalties and they flaunt to their franchisees that they have a legal team with teeth. Dogs are encouraged to stay in their kennels!
- If you fail or go out of business, the franchise fees will more than likely haunt you for a long time.
- Some franchises handle sales for you and then take time remitting your dues.
- Franchises have wonderful documented studies and statistics – unfortunately its not always true, is often dated and obsolete.
SUMMARY:
There is an interesting website to summarize my thoughts about a Franchise, Unhappyfranchisee.com. This website has some great insight on various franchises. Franchise tales are long with lawsuits and claims of non-performance and lofty expectations. Anytime you rely on someone else to perform for you in business, you are setting yourself up for failure. Having a mentor or someone you can mirror is one thing. Going it alone with a plan is another. But signing up with a franchise, paying a constant and burdensome portion of the hard-earned profits and then having to maintain the business within the strict parameters of the franchise, hurts. And it hurts forever.
My choice is to go it alone. Every question that can be answered by the convenience of a franchise manual can be answered with the brilliant research of an hungry entrepreneur. It requires work, but if you align yourself with someone who knows the market or has succeeded in a similar market and you can mirror that person, your success ratio will skyrocket. And you will have to pay no royalties!
SAFE SUGGESTIONS:
- Be an Informed Franchise Investor. Read, read and tear apart the company, the complaints online and get a gut check before investing.
- Read the Franchise small print, all of it and before signing.
- Who else is a Franchisee with this company? Contact them and see how they are doing – listen to the ums and ahs, read between their pauses. Remember, they could be sued for telling the truth.
- Define what happens if it simply does not work.
- Don’t invest in a franchise.
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