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Franchises Offer Shortcuts, But Not Control
By Tim Knox, Wed Dec 7th
Q: I will be retiring this year at age 60 and intend to fulfillmy lifelong dream of owning my own business. I'm too old tostart from scratch, so I'm looking at several franchiseopportunities, including fast food, auto parts, and anaccounting service. What should I consider before choosing one?Anthony R. A: Congratulations on the retirement, Anthony, and on the newbusiness venture. As the old adage goes, when one door closes, adrive-through window often opens (or something like that). Given the franchise types you are considering the first thingyou should ask yourself is whether or not you want to spend yourgolden years cooking fries, selling mufflers, or doing taxes.
Franchising can be a great way to start a business career, butyou should make sure you're not just trading one job foranother. Unless you plan on being an absentee owner, which Ihighly discourage, you are gong to be working in the businessjust as an employee would, so be sure the business you choosedoesn't turn your lifelong dream into a never-ending nightmare. The primary advantage of buying into a franchise system is thatit allows you to enter business quicker with a proven system,while minimizing risk and increases the odds for success. The primary disadvantage is that you give up considerablefreedom in how the business operates. In many ways franchiseesare not really their own bosses because they are required tofollow the rules set down by the franchisor. Many franchise owners also quickly tire of asking: "Do you wantfries with that?" and become absentee owners, which usuallyleads to the business being sold or shut down. No matter what franchise you're considering, you should askyourself the following questions before making a decision: * Do you have past experience that pertains to the type offranchise you're thinking about buying? * Are you prepared towork long, hard hours? * Are you an effective manager? * Are youwilling to share your revenue with the franchisor? * Are youwilling to follow the franchisor's rules and regulations? * Andthe biggie: do you have access to the necessary capital toinvest in the franchise? The big franchises like McDonald's and Midas Muffler can costhundreds of thousands of dollars to buy into, but unless you area total business savant, the franchise is virtually guaranteedto succeed. It's true that even a McDonald's closes on occasion. Roy Crocspins in its grave when it happens, but happen it does, so keepthat in mind.
There are thousands of lower cost franchises thatyou can buy into, but the lower the investment typically meansthe risk of success is higher. As a rule, franchise operations are generally more successfulthan independent startups because they have a proven concept, aready market, an established customer base, and a business modelthat can be replicated over and over again. Less than 5% offranchises fail during the first few years as compared to an 80%failure rate of independent ventures. Many people have done very well as franchisees and often end upwith multiple franchise operations. Adversely, many have notdone so well because they bought into a franchise system thateither was not all it was purported to be or they discoveredthat they did not fit into the franchisee's mold. The key is to pick the franchise system that is right for you.Here are a few tips to help you do just that: * Purchase a franchise that complements your skills, workexperiences, and interests. Don't start a business in a fieldthat is totally foreign to you. * Plan on becoming an owner-operator versus an absentee owner.Absentee owners lose control and interest quickly and thefranchise suffers because of it. * Gather as much information as you can about the franchises youare interested in. You are considering investing a lot of moneyto buy into a system, so know who you are dealing with and whatyou are paying for. * Experience the product or service firsthand, as a customerwould. If you don't like the service you get at McDonald's,don't invest in a franchise thinking you can fix their problemsand run things better. You can't and you won't. * Interview other franchisees to gauge the franchiseesatisfaction level. * Ask how many franchises have closed and for what reason. * Ask about initial and long-term training and support. * Make sure the franchisor is profitable and financially sound. * Finally, do your due diligence. Request a disclosure documentthat includes in-depth information about the franchisor and if afranchisor refuses to produce such a document, take that as ahuge red flag and mark them off your list. About the author:Tim serves as the president and CEO of three successfultechnology companies and is the founder ofDropshipWholesale.net, an online organization dedicated to thesuccess of online and eBay entrepreneurs http://www.prosperityandprofits.com http://www.dropshipwholesale.net http://www.30dayblueprint.com
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