What is a franchise? Is it good for me?


Franchises are everywhere, but sometimes are disguised as sole proprietor affairs. A franchise is simply a business that is owned by an existing company that hires local owners to operate within their community. Think 7-11. If you have lived in a neighborhood for a length of time, the local 7-11 probably has had a number of owners. The product lines have remained the same for the most part, but the layout and prices have stayed the same. Each owner has an investment in the operation and profitability of their local store, but they do not own it.

The question is whether a franchise is a serious consideration for you. There are obvious advantages. The first is that it is a ready-made business. You will have to pay a franchise fee to get started, and there are mandatory training classes you will have to attend before you are allowed to start the business. But overall, the company takes care of the business. They will have accountants come in to do the books and any issues such as security are handled by the company. So, once you complete the training and pay the franchise fee, you can begin working immediately.

Having a quick start means that you can start seeing a consistent income immediately. Contrasted to starting up your own business, you do not have to develop a customer base. When choosing a famous brand name franchise such as 7-11, the advertising is taken care of and people immediately trust the products you sell because of the household name. You may have to build local advertising, but anyone who sees your franchise name is a potential customer.

You will have to do your own ordering of products, but since there is a standard list to choose from, it is a simple process. You will also have the freedom to hire your own employees, subject to the company hiring policies, but basically you have control of one of your most important assets – your employees. Most people realize the turnover rates for franchise employees are usually high (think McDonald’s) so expect this reality to come to your door as well.

But not all is roses. Besides the potentially high turnover rate, franchises can lose business because of something that happens in another location 1000 miles away. Fast food restaurants have had their public perception tainted through employee negligence or outright criminal behavior. Because you are connected by brand name more than your personal ownership, your success will rise and fall based on the public perception of the company.

Finally, you are really only half of the business because you are tethered to the company. Even if you are successful in the operation, the company may choose to close down the store. A decision to change one of your most profitable product lines is out of your control. So before walking down the franchise path, keep in mind that there is a built in safety and success factor, but the final decisions are primarily made at the corporate level.