The American Repossessor

I have been asked numerous times by company owners/presidents from varying industry sectors about franchising and what it entails.  One of the main questions asked is ‘can we make money?”  And my reply to that is….yes subject to the franchise.

There are many things to consider when considering becoming a franchisee, including the fact that you truly are ‘never your own boss’ as the franchisor usually, through contract, dictates the do’s and don’ts of the business.  You are bound by that contract to deliver a service/product in strict accordance to the contract.  Also, you have to pay a fee for the privilege of becoming a franchisee and thereafter, a monthly ‘royalty’ fee.  In addition, many franchisors tie you up in contract as to where you can purchase your supplies and indeed, how much you pay for them, often having to buy through them and pay extremely high prices for them.  Well, the franchisor has to make their money somewhere!

Geography plays a fundamental part in this too, as usually as a franchisee you are designated an area that you can do business within and you cannot overstep that boundary.  This factor can limit your income potential greatly and therefore, it should be one of your main considerations during the franchising  research process.  Ask the franchisor for a list of existing franchisors in your immediate and surrounding areas, as this will give you a good idea pre-purchase of your capabilities to do good business.  Obviously subject to the franchise you are looking to purchase, geography can curtail your income and profit levels.  Unfortunately, there are many franchisors, that look to maximize in selling too many off-shoots of their franchise in order that they make more money on each franchisee.  If the market place is saturated, then that should tell you not to invest in that area and look to another if you have the freedom of no geographical restrictions.

Did you know that over 80% of companies in the US are franchises? So it is a huge industry sector that many consider as an alternative to starting their own business from scratch.  In many instances, you are governed as to the clients you can have via the  franchisor’s ability to capture and retain clients.  And in my experience, many are poor at this.

Franchising is most definitely not an easy option to starting your own company, as there often are so many restrictions that even though you may have some good ideas yourself to maximize on profits, you will be limited to what you can do to add value to your own  franchise.

So beware of the glitzy marketing and the promises of making that fortune as  remember, there are many like you out there, fighting for the same business.

Another area to consider too, is purchasing or leasing equipment, vehicles etc., from companies associated with the franchise as again, their prices will be exorbitant in comparison to a free market supply.

Those are some of the negatives….now for some positives.

There are many franchises out there that are more than worth buying, so long as you have the money.  Take McDonalds for example.  I have yet to date to meet a franchisee that has purchased a McDonalds franchise that is not making money but their initial investment usually runs into hundreds of thousands for that privilege. 

You don’t have to worry about branding, your marketing, your site layout, your food suppliers etc., as this is all part of what you are purchasing with a reputable franchise such as McDonalds.  Also, your training and that of your employees  is met through the franchisor and all pertinent HR factors will be covered too. 

People need to eat and eat they do at McDonalds as their slogan of ‘serving 1 billion meals a day’ comes into play and that equates to a lot of money exchanging hands in all the franchises.

All I would say to you, is consider all your options before you go into this element of business as I have met as many unhappy franchisees as I have happy ones, and you certainly don’t want to be working hard, when you could be working smart – but smart for you!

Just as in any business sector, there are sharks  and you most definitely need to be aware of those, so to minimize risk and maximize on investing your hard earned money, do your homework and do it thoroughly.

Unfortunately, there are those unscrupulous characters out there that don’t have any  integrity, honesty and are less than professional in all that they do, so don’t fall victim to their smooth talking ways. 

Request the franchisor to provide you with at least 3 years of the most recent financial accounts and 3 years of future projections and let an independent professional such as a CPA, Business Advisor and/or Business Consultant review them.  At the same time, let them review the franchise contract that the franchisor wants you to sign and get an itemized breakdown of exactly what your monetary investment will buy.

Have  a business attorney that specializes in franchising, review all contracts, related documents and basically, any associated documentation relating to the franchise purchase.  Yes you will have to pay a fee for that, but it will be a small fee in comparison to what you are looking to invest – but well worth it to give you piece of mind.

With all that done and you still want to proceed…. Congratulations and welcome to the business world!