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Franchise Ownership is One of 7 Most Overrated Businesses

Franchise ownership

Franchise ownership

I stumbled on an article on Yahoo! Small Business, that (again) put franchise ownership as one of 7 most overrated businesses.

Kelly K. Spors and Kevin Salwen, the article writers, have conversed with small business experts to identify the overrated businesses. Other than franchise ownership, the other six are: Restaurants, direct sales, online retail, high-end retail, independent consulting and traffic-driven websites.

The culprit that put franchise ownership on the list is, again, the franchise agreement. “…too many people don’t understand the risks associated with franchising and sign restrictive franchise agreements without thoroughly researching their franchisor and their contractual obligations.”

With all due respect – While small business experts can say whatever they want, but I don’t agree that franchise ownership is overrated. I, however, agree that the statement above about franchise agreement bears some truth. But first, let us explore some reasons presented from the articles.

Some examples: Some franchisors do allow franchisees to open stores too close with other franchisees or they require franchisees to pay so much fees and royalties that profiting from the business is becoming difficult. The article also mentioned that bailing out from franchise contract will be difficult and costly.

Some more explanations from the article: It is a myth that franchises are more successful than independent business. Even more, franchises were also found to be less profitable in the first 4 years of operation, compared to the independent business.

The real culprit that gives franchise ownership bad rep

As I mentioned above, the franchise agreement is where ‘all evils originates.’ But just like in any agreements, there are at least two entities involved: the franchisor and the franchisee. Blaming one but not the other is unfair and unprofessional.

Behold, here is the fact: The blame is on some franchisees – The franchise buyer, the investor, the one-who-has-money-to-invest – who are not doing their job to research the franchise opportunities well and blindly invest their money on them.

Exclusive franchise territories, fees and royalties, exits and many more are regulated (and should be regulated) extensively in the franchise agreement – It’s franchisee candidate’s responsibility to read and understand the agreement before signing it – It’s just logic and common sense.

Just like in any other forms of investing – stock investing, forex investing, business startup, franchise ownership, real estate investing, etc. – You, as an investor, are required to have the knowledge on something that you will put your money into. Otherwise, you are just gambling and might better off for you to go to casino instead of investing in anything riskier – seriously.

Yet, the media and experts blame stock brokers, forex trading companies, including franchise ownership, trying to ‘cover up’ the fact that the investors are the one to blame for losing their own money.

“It takes two to tango” is the appropriate words to describe franchise ownership (and any other investing activities) – It’s the franchisors’ obligation to present the right information. It’s also the franchisees’ obligation to do their due-diligence before buying a franchise.

So, instead of blaming franchisors for franchise units’ failure, franchisees need to get themselves well-informed about the fact and myth of franchising.

And yes, franchising is not a business type that has 95% success rate. Seek the truth first before spending any dime on anything.

Ivan Widjaya
Franchise ownership
Image by NNECAPA.

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