Are Franchises Worth The Money?

I guess that if you happen to be the successful multi-unit franchise owner of a popular chain of restaurants , the answer would p
November 09, 2009

I guess that if you happen to be the successful multi-unit franchise owner of a popular chain of restaurants, the answer would probably be yes.  

On the flipside, if you just sunk $250k into a franchise offering that turned out to be a two year fad, and you are in year four, you would probably say that the franchise you invested in was not worth the money. Here’s an example.

Let’s talk about what you actually get with a franchise offering;
  • Their operating  system
  • Their experience
  • Formal training
  • Technology
  • Purchasing power
  • Branding/Marketing
  • A network of other franchise owners

Those seven things look small on paper, but in reality, they are huge. Let’s go through them.

You are buying their system.  You don’t have to invent one. It’s been invented already. Your hope is that   it’s a proven system, and it’s turn-key-ready-to go.

They have experienced the trials and tribulations of a pure start-up business, in most cases.  Let’s use a pizza franchise for an example, since it’s an easy one to visualize.  Joey and Sal have been in the pizza business for years. (Before they decided to franchise their business) The early years consisted of things like getting their sauce just right, choosing locations for their pizza places, experimenting with different menu add-ons, figuring out how to hire the right people, keeping the books together, and making sure that the expenses stayed in line. It wasn’t easy. They made a lot of mistakes that you won’t have to.

They will teach you everything you need to know about running the business, A-Z. They know.  They’ve done it.  They will provide you with an operations manual. Everything you need to know is in there. You don’t have to write one.

Let’s assume that this franchise needs some type of technology to run. It may be a POS or a fully networked computer system that they’ll need to help install. Some franchisors even have their own customized software that will help with everything from payroll to scheduling.

If you happen to purchase a 7-Eleven franchise, I think it’s safe to wager that you’ll be paying a lot less for a case of donuts than the local deli up the street is. That’s what purchasing power is.

Some folks I work with are definitely more comfortable looking into franchise opportunities that are familiar. (If the name of the franchise is recognizable, it’s branded) These same people feel that buying a franchise that is well-branded, lowers their risk.  Sometimes that may be true, but I’d rather see someone invest in a franchise because they match up to it well. In other words, folks that have strong sales skills should probably invest in a franchise that allows them to capitalize on those skills. However, it is really important to have a brand.

You’ll also learn how you need to market your operation. If the franchisor has it together, you should be able to follow their marketing plan, and quickly get paying customers. It should be that easy.

One of the best parts of becoming a franchise owner is the network of other franchisees, who share some things in common;

  • They took a risk, and like you, they wrote a check to get into this business
  • They want to succeed, big time. They want a piece of the American Dream.
  • They go through the same things that you go through on a daily basis. They can “relate.”

You do get a lot when you purchase a franchise, but it’s not free.  You pay an upfront franchise fee for the rights to use the system, and you pay ongoing royalties to the franchisor.  (A % of your gross sales)

Ultimately, you’ll need to decide whether or not a franchise business is right for you, and if it’s worth it.

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About the Author: Joel Libava is President and Life Changer of Franchise Selection Specialists. He blogs at The Franchise King Blog.