Buying a Franchise Business - Know Your Biz Model

Posted by Mr. Hachis | On: Dec 04 2012

Buying a Franchise Business can Only Work For You if You Really Understand the Business Model

Suggest to a non-business owner how he might quit his job and start a business of his own, and there's no way that he'll just jump at the idea. It scares people, the idea of starting their own business. Right away, they see how deep an involvement it is. Talk to those very same people about buying a franchise business though, and right away they see pretty images floating before them of shiny golden arches, a busy Jiffy Lube or a spanking clean Subway outlet, all of which imagery is set to a resounding background score that goes ka-ching! ka-ching! (or whatever sound it is that modern point-of-sale machines make).

What is it about buying a franchise business that seems to just get people's guards down? Are they often that good a deal?

The first thing that you need to notice about franchise businesses is that they tend to be advertised quite heavily. They advertise them on television and radio, and then there are the franchise expos that really try to reel you in. Anything that's that heavily advertised should you make you a little suspicious.

The first problem with entering the franchise business is just this – owning a franchise business is really as big a deal as opening a new business. The other problem there is that in the franchise model, you basically can't blow your nose without written permission from the corporate office.

For instance, McDonald's, like other restaurant franchises, has this rule that you are not allowed to use anything at all in your business that you don't directly buy from McDonald's. There was this one McDonald's franchisee who felt that maybe he could save a little money by not buying overpriced McDonald's napkins. He bought his own plain ones, and he got caught when McDonald's sent someone around to check. You can lose your franchise over something like that even if you've paid tens of thousands of dollars for it (or millions in the case of MacDonald's).

Any time you lock yourself into a deal where you completely depend on one supplier for everything or you go out of business, you should probably begin to suspect that this isn't a favorable situation. They control your whole life when the control your supply.

The upside is that you get to take advantage of their huge corporate advertising budget. Most people tend to think of how successful McDonald's is the moment they think of buying a franchise business. This is not the right way to think of it. While McDonald's franchisees make a lot of money, people with less well-known francisees don't. Subway franchisees most often find that they need to own two or three outlets to make even a modest income. If you go with something that's even less well-known, the going could be very difficult for you.

Many of these franchises disappear overnight and then they just vanish without a trace. There are thousands of small businessmen who lose their livelihoods because they bought into those businesses. But it's not always the fault of the main brand either. People don't often realize that there's only so much that the corporate advertising budget can do for them. If you choose a bad business plan, if you mismanage funds, if you don't train and manage your employees well, or if you don't choose a good location, you still could lose money. Even with the most famous franchise brands in the world.

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