Are you interested in starting your own business? If so, then the prospect of buying and owning a franchise has probably crossed your mind at some point. Franchises are appealing because they take the guesswork and risk out of starting a business. At first glance, they might seem safe. However, buying a franchise carries its share of risks.
For example, purchasing your franchise requires a big upfront investment. In the event that your business doesn’t thrive like you expected, you could be sitting on a lot of debt and a failed enterprise. If you’ve got that entrepreneurial edge to you, though, then a little chance is probably exciting.
So that you have a clear understanding of what it takes to be a franchise owner, we’ve covered the pros and cons for you below.
The Advantages of Franchising
Buying a franchise is advantageous if you’re not interested in starting your own small business from scratch. You’ll skip that whole startup and bootstrapping phase and jump straight into turning a profit instead. Of course, there are more advantages to being a franchisee than just making money.
Here are a few of the perks the franchise system offers to business owners:
LOWER LONG-TERM RISK
When you purchase your franchise, you lock yourself into an agreement with your franchisor
. Part of that agreement involves helping you set out with a strong footing so you can increase your likelihood of success. You’ll adopt an established, successful business model and rely on the corporation’s resources rather than your own. Because franchises tend to be lucrative investments, you’ll probably have no problem securing a loan as well.
ESTABLISHED CUSTOMER BASE
As a franchise owner, the initial groundwork of establishing a customer base is done for you. Operating under the auspices of a parent franchise means that advertising, marketing, and branding are taken care of as well. That frees you up to run your business more efficiently.
Franchisors will want to make sure your location is profitable. This means they’ll likely get involved in helping every aspect of your business thrive — especially when you’re starting out. From finding a franchise location and construction to helping you make your grand opening a success, you’ll find they can offer support.
WORKING BUSINESS MODEL AND TRAINING SYSTEMS
What makes franchises so efficient is their replicable business models. From upper management to the newly hired 16-year old who just landed their first job, there are training programs in place to ensure each level of the business is properly trained and staffed. You don’t have to go about hiring and training blindly, nor should you as a part of a franchise system.
GREATER RETURN ON INVESTMENT
Franchises are everywhere because they tend to be lucrative. This is especially true of international chains like McDonald’s, Taco Bell, and any other fast-food titan you can think of. As the franchise owner, you can rest assured knowing that you will rake in the profits and make a comfortable living. According to Glassdoor, the average franchise owner makes $60,000 a year
, and top performers make over $100,000.
The Disadvantages of Franchising
Of course, buying a franchise also has its disadvantages. As a franchise owner, you ultimately relinquish your creative freedom, the ability to weigh in on important, big-picture decisions, and other key responsibilities that are typically appealing to many self-starter business owners.
Here are some reasons to think twice before investing in a franchise:
Franchise owners aren’t required to be transparent about profitability, and sometimes only provide average figures of their establishments before deductions are taken out. CNBC looked into the profitability of franchisees
and found that many bought into the franchise system with unrealistic financial expectations in mind. The underlying issue is that potential business owners only look at top-line revenues of a franchise opportunity without thinking about the net profit after all business expenses are deducted.
STEEP STARTUP COSTS
Ever heard the phrase, “go big or go home”? That’s definitely the case when buying a franchise. Most franchises charge an initial, non-refundable franchise fee. Those fees can be as low as $10,000 or exceed $100,000. Most tend to cost somewhere between $20,000-$50,000.
Royalty fees are another reality you’ll have to get used to as a franchisee. Typically, the franchisor requires either a monthly or quarterly royalty fee to be paid. The amount varies depending on the company, but industry averages tend to range from 4-9% of your gross sales. You also need to consider advertising fees, which are usually lower than royalty fees. If you don’t like the idea of paying rent, then you should really think hard before buying a franchise.
Have you ever seen four Starbucks facing each other at the same intersection? They’re each franchises vying for the same customer base — and they work under the same parent company. While this certainly works well for brand awareness, those sister locations are direct competition. Now, think of every Subway, McDonald’s, Dunkin’, and other major chains you’ve seen across the street from one another. Is that a risk you’re willing to take?
LACK OF CREATIVE FREEDOM
As a franchisee, you’ll ultimately be accountable to your franchisor. Sure, you’ll have the benefit of creating your own schedule, establishing relationships with your employees, and defining a workflow that appeals to you, but you also relinquish your creative freedom and the ability to operate under your own terms.
How to be a Franchise Owner in 9 Steps
Now that you have a better understanding of the intricacies of owning a franchise, here’s a breakdown of how to start a franchise
in nine easy steps:
1. Determine the type of franchise you want to open. You want to find the best franchise in terms of profitability, but you should also keep your own happiness in mind. If you’re a health nut, it would make more sense to open a Jamba Juice than a McDonald’s. Catch our drift?
2. Use online portals to find franchise business opportunities. The best way to learn about franchise opportunities in your area is to use online resources. Here’s a list of sites you should check up on regularly if you’re looking to buy your own business:
3. Examine the terms and conditions of the franchise. This is to help you determine if a franchise business is a fit and how much an investment would set you back.
4. Research the parent company’s Franchise Disclosure Document (FDD) to make sure this is a company you’d be comfortable working under. While the company can’t disclose financials, you can read their FDD to get an idea of their profitability, or how much they charge for royalty fees (specifically, review items 5, 6, and 7).
5. Find a viable location. Location is key. This is even more crucial for a franchise. You’ll want to be where the people are so they can see your signage and buy your product or services.
6. Contact the parent company about becoming a franchisee. Once you’ve found some realistic locations and settled on a company you like, you need to contact the company. You can find the right contact info on their corporate website usually under an “About Us” or a “Contact Us” page.
7. See if you qualify for funding.
Just like buying a house or car, you may need to make sure you qualify for a loan to get your business up and running. There are online calculators you can use to get a general idea of your status, like this free one from Benetrends Financial
8. Apply for a loan. This is a big step, and you usually need to pay the franchise fee before you can sign anything with the parent company. You can secure a loan through a bank, get an SBA loan, or even discuss financing the loan through your potential franchisor.
9. Follow the parent company’s next steps. Once you’ve gotten the nod from the parent company and paid your fee, all you need to do is follow their instructions to get started.
Still Interested in Starting Your Own Business?
Are you hesitant to buy into a franchise? It’s daunting and costs a lot of money upfront. If you value autonomy and the idea of really being your own boss
, you can still start your own business — franchising just isn’t the way to do it
We get it — you want to be profitable, and you also want to be proud of what you’ve built and achieved with your own hands. That’s where Main Street can help. We train you up so you’re equipped with the knowledge and resources you need to be successful.
We enlist all of our new business owners in a step-by-step training method
designed to give you both the confidence and skills you need to run your own successful venture. Here are a few perks you can bank on:
No signup fee: Pocket the money you’d spend on a franchise fee and join Main Street, where we won’t charge you for signing up or training.
True autonomy: Choose a business name and decide for yourself how you want your company to run.
Top training: We connect you to world-class business development coaches, 500+ training modules, and an online community for support.
Equity: When you choose Main Street, we choose to make you a partner, too. Buy company equity at insider rates and enjoy the profit.
Excited yet? Check out our New Owner Program
to get started. We’ll help you get started on the path to owning your own profitable painting business.