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Franchise Ownership – 5 Common Myths

           

Franchise OwnershipTrying to figure out if franchise ownership is right for you can be very confusing. You will find websites that paint a very grim picture and tell you not to become a franchise owner, while others make franchising sound like a “walk in the park.” As is often the case, the truth lies somewhere in the middle. Starting a business, franchise or not, is no easy undertaking and it’s not to be entered into without careful consideration.

If you are looking at franchising as a business model, here are five common myths or misconceptions about franchise businesses that you should be aware of when making your decision.

MYTH 1: Franchise Brokers Work for Me for Free

A majority of the franchise brokers work for the various franchisors that they represent. They don’t work for you. Their payment typically comes as a commission from the franchisor, as high as $15,000 or more, but only after you buy the franchise.

Franchise brokers’ typically only get paid if you buy a franchise from one of the franchisors with which they have an agreement. The latter half of that sentence is worth repeating – “buy a franchise from one of the franchisors with which they have an agreement.” That means your choices are limited by those franchisors willing to pay the broker. Don’t for a second think brokers are working for you and represent all possible options if they are paid by the franchisors.

If you choose to work with a franchise broker, ask them to present to you a list of franchisors with which they have an established agreement.  Make sure the list includes contact information for the franchise sales manager and then call ten or so randomly to confirm.


MYTH 2:
Franchise Ownership Greatly Increases My Chance for Success

This may have been true in the past, but in today’s highly competitive and saturated markets, success is highly dependent on the type of business you choose, franchise or not, and the skills you bring to the table.

The US-based Small Business Association (SBA) 2011 Load Default Rate report provides data showing franchise loan default rates are nearly equal to non-franchise businesses in the same category. You have to evaluate the business opportunity and then compare it with your own strengths and weaknesses. Only then can you determine if you are a good fit for franchising.

The key takeaway is that any business is going to require hard work, dedication and basic business skills for success. Don’t consider buying a franchise because you think it is going to greatly increase your chance for success and make up for your shortcomings, as that will likely not be the case.


MYTH 3:
Buying the Latest Hot Franchise is a Good Idea

It is human nature to chase the latest, hot item. There is even a name for it – crowd mentality. Whether it is the latest fashion or the latest high-flying stock, crowds flock, the price goes up and everyone has to have it. I think it is safe to say that many of us have learned a lesson or two along the way about how today’s fad can quickly become tomorrow’s leftovers. Whether a franchise is today’s fad or tomorrow’s future, only time will tell.

The key lesson here is not to buy a franchise just because it seems like everyone else is buying. Stick to the basics and evaluate the franchise just as you would any other. Don’t get caught up in the hype and make sure the franchise is right for you and your area.


MYTH 4:
Buying a Franchise is Cheaper than Starting My Own Business

You need to look closely at each franchise to determine the costs associated with the startup and compare that with building your business from scratch. Remember, a franchisor charges you for their knowledge and experience in the business in the form of a franchise fee and you also pay for ongoing support, training and other items as a royalty payment.

You need to examine the advantages and disadvantages of a franchise business and look specifically at what each franchisor offers. This is an important analysis as it will either clearly show you the value of buying the franchise or help you to discover that for some franchises it is best to go it alone.


MYTH 5:
Franchisors Squash Franchise Owners Creativity

Show me a franchisee that says the franchisors limits their creativity and I will show you a person that is likely not a good fit for franchising. There are exceptions to this statement, but if you:

  • have a very creative mind,
  • are the type of person that likes to constantly change things, and
  • don’t like following rules

. . . then you likely are not a good fit for franchising. A franchisor needs someone that is focused on understanding and following the processes already established, not someone that thinks they can do it better. Do you have the personality type for franchising? You need to answer this question before jumping into your search.

Franchise ownership may be a great option for you or you may find that you are not a good fit for franchising. Do you homework and evaluate more than one option for starting a business. Remember, every franchise is different and evaluating a franchise based on the benefits it provides you and how it compliments your skills and experience is critical. What may be a good fit for other franchise owners may not be a good fit for you.

 

What do you think?  Have a question you would like us to answer?  Start or join the discussion by adding your comments or questions in the box below.

About the Author, Daren Coudriet

Daren is best described as an entrepreneur. He has an intimate understanding of business, franchising and what it takes to be a successful franchisee in today's competitive world. He has served in the roles of franchisee, area representative and franchisor advisor. He is the founder of FranchiseWeb360.
 
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