Is Franchising a Fit for You? Crucial Questions to Ask Before You Buy Before taking the leap make sure you've thoroughly researched every nuance of this business model.
By Entrepreneur Staff Edited by Jason Fell
Key Takeaways
- Many people enter into franchise agreements believing it's a surefire path to success. However, franchises can fail at similar rates as independent businesses.
- Unlike small independent businesses that might need minimal capital and grow organically, franchising generally involves a substantial upfront investment.
- It's essential for potential franchisees to conduct extensive research and seek information from independent, unbiased sources to understand the risks and benefits
If you're thinking about getting in on the franchise game, you may believe that your biggest question would be whether to open a donut shop or a car wash.
But according to Joel Libava, franchise expert and advisor, the real question is whether you should buy a franchise at all.
Franchising does not mean automatic success
While franchises are growing in popularity, the sad reality is that many people enter into franchise agreements thinking it's a foolproof plan for success. But the fact is that franchises still fail at about the same rate as independent businesses.
A lack of proper screening by the franchisor and a franchisee's general unawareness are contributing to this problem.
Related: 20 Franchises You Can Launch for Less Than $50,000
Franchises and independent businesses are not equal
Franchising isn't something that should be rushed into. Unlike small independent businesses, which can often be started with minimal capital and then scaled organically as the company grows, franchising generally requires a significant up-front investment. Then there's the fact that many franchises don't show a profit for the first year (or more)—and preparing financially for this situation is something that many franchisees tend to overlook.
Research is paramount
If you're considering franchising, it's important to seek out information from independent, unbiased sources and look into the risks and benefits objectively. Taking the time to conduct thorough research and becoming well-informed can help to mitigate a number of problems right from the start. Here are a few resources that can help you:
- The Franchise King. Joel Libava, The Franchise King, offers great advice to would-be franchisers and is a must-stop site if you're trying to decide if franchising's right for you.
- International Franchise Association. The International Franchise Association (IFA) is another great resource for those who are interested in owning a franchise. Their About section contains a number of informative articles.
- Franchise Euphoria. Franchise Euphoria is an excellent podcast covering various topics of interest. Join Josh Brown, franchise lawyer and entrepreneur as he helps entrepreneurs and business owners start, grow and build profitable businesses.
Do you know what you're in for?
First and foremost, make sure you have realistic expectations. A franchise is like a business in a box—and even though you're buying into a successfully proven business model, that doesn't mean that it's going to be all smooth sailing. And it certainly doesn't imply that it will be easy.
For your franchise to succeed, you will have to put just as much work into the venture as you would when starting an independent business. Ensure you're willing to put in the time and effort before starting.
Are you willing to follow the system?
Franchises are systems-based businesses. So to succeed as a franchisee, you have to be prepared to stick with the system. "If franchises didn't have rules, they wouldn't be franchises; they'd be independent small businesses," says Joel Labava.
The very essence of a franchise is consistency. If you're not happy to follow someone else's blueprint, you may be better suited to a different type of venture.
Related: The Basics of Buying a Franchise
Are you a people person?
Do you work well with others? Franchising means spending significant time interacting with your franchisor, fellow franchisees, customers, employees and vendors, so great interpersonal skills are a requirement. If you find dealing with others to be drudgery and don't have a track record of great relationships, you'll want to pass on being a franchise owner.
Can you afford it?
Buying a franchise because you need a job is one of the worst reasons to start a franchise. Franchises are expensive and require a significant amount of funding upfront before you can get started. You'll have to cover the start-up costs and have enough capital to fall back on until the franchise begins to make a profit. In many cases, this is at least a year. You'll want to ensure you have enough reserves to cover operating costs and living expenses during this time.
Will you enjoy it?
Finally, the all-important question: Are you sure that owning a franchise is something that you'll genuinely enjoy? While being a franchisee can be a great opportunity for some people, for others, it's a terrible idea. Most franchise contracts run five to ten years; that's a long time to be locked into a job that you hate. If you don't relish the thought of following someone else's system and immersing yourself full-time into running a business, franchising isn't for you.
Related: Franchise Your Business in 7 Steps
At its core, franchising can be a great way to capitalize on a need in the market and is ideal for those who want to enjoy running their own business without spending the time and pain of trying to grow a company on their own. Just make sure you're realistic in your expectations and confident that franchising is the best option for you.
