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Franchising
Pros and Cons 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.
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