Misconceptions in Franchising
Franchising is a business growth model that has been around since the 1890’s. Franchising has contributed to generating employment, stimulating the economy and contributing to the financial success of millions of individuals around the world. It has made it easier for anyone with strong desire to get into business for themselves but not by themselves. The franchise growth model has dramatically influenced the economy and has been responsible for generating employment. Every year there are many individuals just like you who take steps to improve their lives by becoming a franchisee.
Despite this undisputed success, I am constantly surprised that there continues to be misconceptions or a lack of knowledge regarding franchising. Over my 30 plus years involved in franchising, I have noted many individuals avoid franchising as a result of these misunderstandings, while others acquire a franchise for the wrong reasons. By understanding franchising you will be in a better position to make an informed decision and determine if franchising is right for you.
Some of the most common misconceptions are as follows:
Misconception: Franchising is too expensive
Often entrepreneurs will not consider a franchise for they feel it is too expensive. They can save money and reduce operating costs by doing the business on their own. They have heard of franchises requiring an investment in the millions of dollars. This is true, especially of some food and retail franchises that require costly equipment, furniture and leasehold improvements. However, today there are franchises available in almost any industry. Some home based franchises require an investment as low as $10,000. One has to access the opportunity that best fits with their budget and will bring them personal satisfaction, based on their needs and financial constraints.
Misconception: Franchisors will sell the franchise to anyone who has the money
That may have been the case a long time ago when franchising was just getting started but franchisors have now learned that this is not how to build a successful brand. Yes, franchisees are investing their time, effort and savings. But the franchisor is also investing time, effort and their brand. It is a mutual decision-making process with good franchisors being selective as to whom they award the franchise to. Both parties must do their due diligence to ensure that this is the right decision and the new franchisee has the best chance for success. This success enhances the value of the brand.
Misconception: Franchising does not allow for creativity
Some entrepreneurs will avoid investing in a franchise for they feel that their creativity would be hindered by the franchisor putting too many restrictions on the business and forcing complete compliance with the business operating system. In some cases, this is true, and it does require consideration. Franchising may not be right for some people. The reality, however, is that most franchises allow for franchisees to adapt the concept to their market and permit creativity to benefit the system. Many franchisors will allow controlled variations on the system and permit the brand to evolve and develop with the input of franchisees. It is one of the benefits of franchising, where the combined experiences of the franchisees can come up with improvements to the business model that will benefit the system as a whole. The degree of creativity permitted will vary from franchise to franchise, with new emerging systems allowing the most creativity. Research the franchise you are looking at to confirm what is permitted and within what framework.
Misconception: As an owner, I can do whatever I want
Just as many franchisors do allow for creativity, it does not allow for the opposite extreme where a franchisee can do whatever it wants once it has acquired the franchise. This misconception stems from an ownership mentality. You must be aware that as a franchisee you are granted a license to operate the franchisor’s business model and use its brand. It is a license to use but does not constitute ownership. A franchisee does not buy the name and logo but simply acquires the right to use it within the guidelines set out in the license agreement and the operation manuals. A strong franchisor will maintain control over the use in order to protect the integrity of the brand. Uniformity is important to develop the brand and allow the customer to have a consistent experience between franchised locations. At the same time the franchise business model does evolve over time to be competitive and franchisors will typically seek input from franchisees and ensures that all locations are evolving together.
Misconception: A franchise will eliminate risk
Some entrepreneurs acquire a franchise thinking that they will eliminate risk and be automatically successful. Some misinformed franchisees have false expectations, thinking that they can just open the doors, sit back, and the profits will start rolling in immediately. A good franchise will only reduce the risk. It provides a road map of a proven business formula. It still requires hard work and commitment to building your business. Different franchises will grow at different rates. You need to determine prior to opening your business what will be your growth rate and what will be required on your part to make it successful. Be sure that you are prepared to make the commitment and have set aside sufficient working capital to finance the initial months of the business while allowing you to pay your personal bills. A good franchisor will assist you in the review process and will have you go through an application process to determine if you have the necessary skills to be successful in their particular franchise.
Misconception: The more you invest the greater your dollar return
This misconception stems from an investor mentality. It is normal for an investor to expect that if you invest a million dollars you will get a greater dollar return than if you invest $10,000. This formula has not proven to be the case in franchising. You can make a substantial return on a low investment. Unlike the stock market and other passive investments, a franchise investment and its returns are largely dependent upon you and your ability to implement the business model and effectively manage the business. To accurately assess what the return will be you will want to investigate the franchise thoroughly as well as access your abilities and skills as they relate to the needs of the business. Do not rely solely upon projections if they are provided to you by the franchisor. Contact numerous existing franchisees within the franchised system to find out what profits they are experiencing.
DO YOUR HOMEWORK
Franchising has had huge success and has allowed many individuals to achieve their dream and goals. Don’t make your business decision based on misinformation or misconceptions. Not all franchises are the same. Take your time to do your due diligence and find the opportunity that is right for you. Talk to existing franchisees of the system. Use the resources of a franchise consultant, a lawyer and an accountant.
Ultimately the business should be a vehicle for you to achieve what you want out of life. Everyone’s dreams and aspirations are different. Today, prospective franchisees have a variety of different franchises to choose from. Identify the opportunity that will bring you the dollar returns you need and want, that is a business that will provide you with the lifestyle you are looking for and has the uniformity to provide the benefits of a strong brand.
Wayne Maillet is a franchise management consultant and founder of the consulting company Franchise Specialists. Respected within franchise circles, he brings a realistic, practical understanding of business and franchising. This article is based on excerpts from his book, Franchising Demystified. The book can be ordered through most book retailers or directly from the publisher at www.franchisingdemystified.com . From choosing the right franchise, to the renewal of your agreement, Franchising Demystified will help you make the right decision and maximize your investment.