I remember all the excitement that comes with the process of finding the right franchise to buy. Visiting franchise expos, talking with franchise owners, visiting franchisees’ stores, getting pitched by franchises’ marketing team… and so on.
All seem wonderful. All seem promising. All seem sure-fire.
I decided to pick one of the many. A business service center, the national leader and among the top in the franchising industry. Not only one, I decided to open in another location for the same franchise. At that time, I envisioned $$$ – double the $$$, double the enjoyment, and double the happiness.
Last year I closed down one location and had my franchisor to buy back the other one. What’s gone wrong?
What failed me: wrong reasons to buy a franchise
Forget all the wonderful franchise opportunities. Like I said, choosing and buying a franchise is easy; choosing the right one with the right reason is challenging.
Now, I recommend you to sit down and start to think – do I have the right reason to buy a franchise?
While you are at it, read my lips (or rather, read these words): Don’t buy a franchise for the sake of profitability.
Franchise is a real business (believe it or not, some consider franchises as magic money makers), and business ALWAYS involves risks. When some franchises pitch you that franchise failure rate is minimal, stay away from the franchises. Franchise units share a fair amount of failure risks, despite being lower than the non-franchise business.
If you aim for profitability, you will disappoint yourself. Not because franchises don’t make enough profit, but because what a franchisee should have is the ability to commit and share vision with the franchisor. Following guidelines and practicing what’s best means less-you and more-us. Profitability comes AFTER you are able to keep up with your franchisor. If you want to do things your way, DON’T buy a franchise.
Here are some notes to help you ponder your options:
- Franchising can make you rich IF you can do things your franchisor way.
- When making a financial projection, consider applying a ‘multiplier’ to your franchise financial forecast. If you aim to make $100,000 in sales, you need to up that to $125,000 with regard of franchise-related fees, such as royalty and marketing fees. Your franchise unit HAS TO make more than the comparable non-franchise unit in your industry with all the fees incurred.
- When buying a franchise, avoid thinking like an investor – put your money in and the profit will come to you automatically. Franchise is typically a ‘get-your-hands-dirty business’, and most franchises don’t allow you to be an absentee owner.
- Buying a franchise is buying the brand name and the system to help you succeed – buying a franchise is NOT buying a cash machine in which profitability can be guaranteed and is a sure thing.
- Franchising is about building relationship between you and your franchisor – if you don’t like to take professional advice and be guided on how you should run your franchise unit, you should start your own business, instead.
Franchising is great for the right people. Buying one with the wrong reason will only make you miserable (and financially strained), and this is not impacting you, but your franchisor and the other franchisees, as well. Think about it.
Ivan Widjaya
Pondering the right reasons to buy a franchise
Image by tinos
