Business owners play the game of risk and return, and it’s no different for franchise owners. After all, whether you’re starting your own business from the ground-up or taking the reins on a business-unit from a franchisor, there’s always some risk involved. Franchising is different because some of the legwork is already done; you provide an initial investment, and the franchisor provides the business model framework, brand, systems, and marketing.
But is owning a franchise worth it at the end of the day, even with that initial starting help from an established franchise?
Take stock. Draw out Venn diagram circles. List columns of a pro/con list. If you want to increase the odds of creating a successful business, franchising requires you investigate the investment opportunity case-by-case. No franchise is the same. There’s no one-size fits all when it comes to making it work for you.
Is owning a franchise a good investment?
A franchise will require you to invest more than just money. As a franchisee, you’ll be responsible for labor, management, promotion, inventory, day-to-day operations, long-term planning, and everything else. The pros and cons of franchising have a lot to do with managing multiple responsibilities, investment, and evaluation—at the end of the quarter or year, was it worth it financially? Here are some ways to evaluate a franchise business model to get your pro/con list started.
Financing
The two primary fees to research in a franchise are start-up fees and royalties. Some franchises will require a lot of initial investment capital that may or may not be justified for your budget. As you shop for different franchises, investigate start-up fees that seem especially high: are royalty fees lower than usual and that initial fee makes up for it? Or is that franchise brand especially popular and likely to drive sales from the get-go? What does an average month look like in revenue for one of their franchises, and are the operating costs low? Have you talked to current franchisees about their monthly numbers?
Other franchises might have a low initial fee but will require steeper royalties from franchisees. List a pro/con list for this as you research the franchise: if the start-up fee is low, can I still profit from month-to-month if the royalties required are too much for the overall budget? If your month-to-month revenue is fairly small, how long do you expect to own the franchise?
Long-term, Short-term
When calculating a potential budget, franchisees need to know how long they expect to own the franchise. If your month-to-month investment has a low return, the business model will only make sense if you can survive for several years. If that’s the case, are you ready to make that investment in time? Or, do you believe the brand is strong enough to be successful for that long?
Can owning a franchise make you rich?
There’s no such thing as a guaranteed, get-rich-quick model—and any franchisor promising this is seeking the uninformed and naïve. Franchising requires calculated risk, timely investment, and a focus on development: how long after opening will it take to be profitable? Can I invest the money I’ve made into purchasing additional franchises? Can I grow a single franchise’s revenue through customer service and increased sales? Are there any depreciating values in my business model? Ignore these, and any hopes of getting rich disappear.
The problems with franchising occur when franchisees expect the brand to do the work—immediate business success and monetary gain because the brand already has a committed customer base.
Business owners look for the right balance of investment, payout, and risk. Add timeframe to that equation, and you begin to see how and why owners choose one business model over another. Franchising is a long-term investment that you have to manage and monitor month-over-month to measure growth to ensure the investment is worth it.
So, is owning a franchise worth it?
No tell-all anecdote will encompass the many different experiences franchisees have with their businesses: some will tell you it’s worth it and the hard work, investment, and risk pay off in the end. Others will tell you it’s just as much leg-work to start your own business. But the real way to know if a franchise is worth it is to spend the time researching options. The different start-up costs and the rationale behind them, the royalties required, the operating costs, the brand strategy, your geographical location—knowing these key factors will determine your likelihood of success.
How do you find the franchise model that makes all these work with your budget? Franchise.com provides a franchise database that keeps all this information housed in one website to provide franchise information from different parts of the country, including start-up costs and monthly royalties. This is a great resource for discovering the needed information we’ve discussed so far, and this will be a tool for you as you look for the franchise opportunity that’s right for you.
