Owning a Franchise Business: The Downsides
A franchise business? How could that be a bad choice? Unfortunately behind the brand recognition hides some ugly truths that show the downsides of owning a franchise business.
Anyone who has considered opening there own business has most likely at some point considered jumping into a franchise business model. With all the hype and supposed ease of a turnkey opportunity, it can become very attractive to those who aren’t well versed in the arena.
You see the thing is the hype and sales pitches are exactly that: there to lure you into how easy it can really be to own your own business! Just pay this small franchise key and start rolling in the money! Well it’s certainly true that some franchise fees can be as little as $10,000 but most of them aren’t even well known enough to gain the benefit of brand recognition.
So to get the perks of the big brand name you’re more likely to have to shell out 50, 75 or even more than $100,000 and that’s just the franchise fee.
What Do You Get for Paying a Franchise Fee
Now this may come as a shocker to many but all you get for that franchise fee, get ready for it, is the right to use their brand new in a given market!
That’s right, you don’t get a custom built building, a warehouse full of supplies or even a name tag sporting their logo on it. Please do not get it misconstrued, not all franchise opportunities are bad and there are definitely so times where owning one is the best option you can get but tread very lightly because if you’re not in that situation you may want to reconsider.
So Now Do I Get to Start My Franchise Business?
Sorry in advance for the let down but no you don’t. Next you’ll need to locate an existing property or have one custom built from scratch to the specifications of the parent company.
So if you were thinking of a great old building to pop that burger joint into, you’ll have to guess again. The corporate structure is one of replication and structure, in other words it has to be their way or not at all. This is an area many would-be franchisees over look in their planning. They dive in, pay that franchise fee and don’t realize they will most likely need far more capital than they had prior to paying the fee. Mostly like the costs after the franchise fee will far exceed that cost.
Pulling from personal experience, some years back a friend of mine decide to open a franchise of a popular sub sandwich shop. Needless to say he got in cheap and paid under $35,000 for the franchise fee, unfortunately it ended costing him the remortgaging of his house to renovate the space for the business which came in at a total of over $150,000.
He indeed went through the process and swallowed the huge amount of debt, but what did he get out of it? Currently he is making about $30-$40,000 a year in net profits. You’d expect a lot more, don’t you think?
I Paid the Franchise Fees and the Building Costs!
At this point you figure you’re in the clear and it’s time for money making! Time to cut costs where they may need it and get increasing that profit, right? Wrong! Part of the franchise agreement also requires you to only buy supplies and promotional materials from the company themselves (another cash cow for them).
You can’t serve with a different tray, different cups or even a different advertising campaign. You’re now part of their system and the only option is to abide by it. That’s another downside of a franchise business, aside from the astronomical costs, you do not gain the personal freedoms that come with being a business owner.
In essence you paid all of that money for the brand recognition and to become a general manager of a location of theirs. Of course you do get that net profit though after all expenses are paid, just don’t forget the company has to be paid a yearly percentage as well. Did you think the franchise fee was all they would want? Not at all!
They expect you to pay them every single year you’re in business and it never ends. 40 years into owning it and you’ll still be paying the price. As you can see, there are certainly a plethora of downsides to owning a franchise business but it can still be a great opportunity for some.
Who the Hell Would Want a Franchise?
The ideal franchise business owner is the type of person who simply wants to own a business but doesn’t necessarily have the personal passion of owning a business. Lets say for example that you just retired from your job and have a pile of retirement money waiting to be burnt through to try to extend it and hopefully add more to it.
You don’t necessarily have a vision for a business or any certain idea or trade that is your dream you wish to make come true. Put simply you just want to manage a business and get a chunk of the profits. You’d be a prime candidate for a franchise business. If structure, similar to that of a corporate job or that of a general manager is the working situation you excel at then you’d also be a great potential owner.
Another great personality type for a franchisee is the type of person who loves to work hard regardless of what it’s on and through their dedication solely, reap the rewards. On the other hand if you are a true blue entrepreneur with a vision and a passion for a certain product, service or idea, than you’ll probably drive yourself to the brink of insanity working in the franchise business world.
So before any of you dive on into investing that savings or pulling that monster loan to get yourself a franchise, analyze exactly what it is you want out of owning your own business and what is important to you. Doing so will save you a lot of money, frustration and time all wrapped up into one sweet little package.