ILast 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
onceagain.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 afranchise 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.
.
