What are the Risks and Benefits of Buying a Business Franchise?
Before you take that big step that all small business owners desire to eventually make – quitting their current position wherever they work – you need to invest some time to consider the pros and cons of starting a small business. To begin with, you need to evaluate whether or not you want to own your own independent company. Business ownership is like nothing else out there. So, your goal would be to invest in a business system in an attempt to cash in on an already successful business endeavor. For many people, this is a simple choice, as the franchise method is undoubtedly an almost fool-proof investment for someone looking to enjoy the good life as a business owner. However, you need to be careful of some of the pitfalls that all business owners have to overcome if they want their venture to be successful.
Can A Franchise Really Fail?
Every year a vast number of startup businesses fail. While a business franchise is vulnerable to failure but more difficult to do so. It is still possible to drive a franchise into the ground if you do not know what you are doing. With a business franchise, you have in place all of the tools for success right up front. You have an award-winning product, great advertising support from the main offices, and a well-known brand. So, as long as you can balance the books correctly, hire competent workers and stay in tune with what the customer wants, you are almost guaranteed to have a successful business.
However, on the other hand, you have no control over the other people who happen to own the same franchise in a different part of town. So, one single lousy franchisee can Sully the excellent reputation of the remainder. This negative impact reduces sales and may result in closing the doors of your business franchise altogether. In the end, though, if you want the responsibility of opening your own business, but you have no idea where to begin, then a business franchise is the way to go.
So We Got That Down
OK, you are ready to go. Let’s borrow some information from an article by Jeff Elgin at entrepreneur in his post Is the Price Right? The date is a little old from 2006, but the information will give you a flavor of the hill you must climb.
Buy The Numbers
• Initial Franchise Fees. Most franchise companies require a new franchisee to pay a one-time initial fee to become a franchisee. This fee can be as low as $10,000 to $15,000 or as high as the sky–in some cases well over $100,000. The average or typical initial franchise fee for a single unit is about $20,000 or $35,000.
• Royalties or Ongoing Franchise Fees. Franchisees usually pay an ongoing franchise fee or royalty. This fee is typically expressed as a percentage of the gross revenue of the franchised business but can also be a fixed periodic amount, such as $500 per month, regardless of income. The average or typical royalty percentage in a franchise is 5 to 6 percent of volume, but these fees can range from a small fraction of 1 to 50 percent or more of revenue, depending on the franchise.
• Marketing Fees. Franchises often require participation in a standard advertising or marketing fund. This fund is frequently a national program, but it can also have a regional or local market focus. As with royalty fees, this can be a fixed contribution but is more often a percentage of revenue in the 1 to 4 percent range.
• Required Purchases of Products or Services. Some franchisors also require that a franchisee purchase certain designated products or services either from the franchisor or from affiliated entities of the franchise company. The thing to watch for in this situation is whether the pricing is competitive or not.
• Other. There are no additional typical or common fees or costs, so if you see anything else in a franchise disclosure, check it very carefully to make sure it’s appropriate.
Are You Kidding Me?
Are you following all this? Do you hear fee and fee, and oh, by the way, charge? That’s the side expense. We have not included the actual business expenses like property cost, inventory cost, people (employee) cost.
Do I see the dollar bills spin in your head and out your wallet? I thought so.
Franchise ownership is excellent. It works. But don’t go into it without some serious cash at your disposal, or you will never get that bird off the ground.
Not Always The Best Idea
I thought about this. No, let me say I did this in another investment venture that did not work for me. I joined up with a great concept. The product offered was a needed and well-received niche solving a common problem in a unique way focusing on a local market. Little did I know that my target market was losing employment as the community it served was shrinking. With no disposable income, my franchise venture was not a priority for families spending their money.
So even a well planned and soundly executed business plan can be brought down with forces out of its control.
I am not here to scare you about franchise investment. If that is your desire and plan, be sure you investigate the system thoroughly and the market you desire to serve well. Consider your plan “b” when plan “a” looks nothing like what you outline on paper. Get counsel and input from others who are also in the same market.
Not For Most Of Us
This Retirement Recovery System is not going to recommend pursuing a franchise. Although many of the same principles will apply the market, and the plan is different. I am going to encourage you to get involved with a system that has proven to work. Learn the methods and techniques of the system. And as necessary, become a student of someone who is already and consistently doing what you are attempting to do. You have heard the saying, “don’t reinvent the wheel?” That applies here. Systems have been developed by others before us to encode a proven plan to accomplish a task. Did you start writing your computer program to get your machine going? Or maybe did you instead rely on one that someone else put together tested and polished before you got there? Bill Gates and the boys and girls at Microsoft, maybe? You get the picture. Using someone else’s efforts is ok. It’s a good thing. We help each other along that way. When we “stand on the shoulders of Giants,” we really can see farther. I a similar fashion, we will be in a position to help those who follow us. That is what we are all about in this venture we are on.
A Franchise State of Mind
So I wanted to touch on franchising because I know it pops into your head when you think about retirement income. That’s a good thing. But do you indeed have the money and the time to get it going? Are you young enough to fight those battles? For most of us, I would say know. But I will say I will be a great cheerleader for you if that is the direction you want to follow.
However, for the rest of us, we will walk a different path. We still want residual income. We do want reproducible results. So where do we go from here?
Well, we need to have our venture to contain a system. It should not carry the cost of a traditional franchise. It should be reproducible so that anyone could follow the steps and expect the same outcome. It should have teachers and mentors to follow. It should not require all of our time to make it work. Does that about sum it up?
You’ll Have To Catch Me On Another Post
I hate to disappoint, but I am going to jump off right here. My focus in this post was on franchises. I have given you some reasons why I think they are great. I have also tried to open your eyes to the “dark side” of this investment. I don’t believe that this is the right choice for most of us. I don’t want to lead you in that direction.
For those that “just can’t wait” for the next post; For the impatient like me who “just want to get on with it.” Let me send you to a training webinar that I want you to sit in on. This is a reproducible system that does not have the cost of a traditional franchise. That does have teachers and mentors that will show you the steps needed to be successful. This system is being practiced by those teaching the steps. It generates residual income in a reproducible way. So let the Retirementrecoverysystem.com recommends learning through this webinar.
Find me on another post.
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