If you ask the general public about their thoughts on franchises, you’re going to get a variety of answers. You may have heard that they take a large percentage for royalties and that franchisors are too controlling or you may have heard that the franchise owner barely works and gets to call the shots. You may have heard that people have lost tens of thousands investing into a franchise or that people have become millionaires owning multiple locations. The reality is that all of the above could be true. There are thousands of franchises out there and they can look very different.
Today we want to look at the reasons why people get into franchises in the first place; the benefits of being in a franchise system and things you can’t have or get in a “typical” job or even starting your own business from scratch. While the following may not be true about every single franchise out there, it should be accurate for a vast majority of the established franchises.
So what does a franchise really have to offer you? We’re going to narrow down into 4 topics that cover what we feel are the best benefits of getting into a franchise system.
- Minimized Risk
There are two major ways that a franchise system supports their franchisees: ongoing training and communication from corporate and a network of fellow franchise owners to rely on.
After you sign a franchise agreement, one of the first things that happens is you go to training. Typically this training is at the corporate headquarters and it varies from a few days to a couple weeks. Sometimes there is additional training that also happens in your franchise location with your own staff. Beyond the initial training that every single franchise will have, there will likely be ongoing training that happens. This could be virtual or there could be in person conferences that take place.
Many franchisors go beyond typical training and offer 24/7 support – offering a direct line to someone at corporate. I know of a handful of franchisors that will FaceTime the franchisee and walk them through something they need help with right away. They want their franchisees to succeed so that means offering them any support that is necessary to run the business and being available at the drop of a hat.
One of my favorite things about franchises is the support and community that you have among the fellow franchise owners. Some end up becoming best friends with their counterparts in different parts of the state or country. Being able to call up a friend that runs an identical business in a non-competing location is gold. Franchise owners are able to give each other tips, offer solutions, encouragement and support to the other owners in the system. Some franchise systems have a very tight-knit community that is all rooting for each other to be successful. This is not something you can immediately have access to if you built your own business from scratch. This support system is priceless.
Your view on this word will be based on what experiences you may already have with franchise systems – things you’ve heard or read. Some may see this word and think negatively. They may be thinking about the control that the franchise has on the owner – guidelines and rules. I see the word “control” and only see this as a positive. Let’s dive in and look at the different aspects of control.
You are the boss and you call the shots. When you are a franchise owner, your name is the one listed as the owner of that location. It’s your legal entity and you have 100% ownership of your business. This means you get to decide all personnel decisions – who gets hired, fired, promoted, etc. This also means you get to decide how you run your business. Sure, the franchise has given you a roadmap with processes, procedures, and systems to use, but it’s 100% up to you to follow those. Yes, there are a few “rules” you must follow and don’t get me wrong; if you deviate too far you can be at risk of losing your franchise. But it’s up to you to actually implement things. This means the success of your business lies in your hands. This feels like a huge win to me. You are the one that will determine if your business is successful or not. No one else.
This also means you get to control your hours worked. Are you going to spend 80 hours a week working? Or are you going to work 10 hours a week? I would hope that any new franchise owner realizes that the first few years of business are the most crucial and that you should put a lot of work and effort into building your business. But I also don’t think many people buy a franchise to just buy a job in which they are overworked and overwhelmed. Typically when we talk to people, their ultimate goal is to work hard and work “normal” hours for a few years and then be able to have the flexibility of stepping back once the business is stable – taking a more semi-passive approach to the business. This is very common and thankfully doable in a lot of franchise systems. But you are in control of those hours worked, from day 1 until the day you potentially sell.
I’ve started a few businesses from scratch. They were challenging, fun, and I learned a lot. What I learned most is that starting a business all on your own is very lonely and takes longer than you think. When you start something on your own you have to figure out everything, and I mean everything. From deciding what website platform to use, to branding and colors, your messaging, what softwares to use, who to hire and why, how to get your name out there, deciding what type of advertising and marketing will work best, etc. There are so many choices you have to make and each choice likely will take hours of research. Even after all of the research you’re still left wondering if you are making the right choice. Is this going to work? Am I wasting my money by testing this?
A franchise system minimizes your risk because you are buying all of the mistakes they’ve made and you’re buying the years they have already spent building the business. This means decreased ramp-up time for you and you can hit the ground running. Most franchises that you buy are going to come with a website already made. They will likely also be putting out weekly content for you on social media and they may be handling all of your marketing and advertising for you. If they don’t do it for you, then they will be giving you the directions of what and how and all you need to do is implement. You won’t be spending months testing your marketing and advertising.
They should have a proven model that works. They know how to sell their products or services. They know the best ways to keep your overhead expenses down. They know who you should hire and how to find those people. You’re essentially handed a roadmap of how to run your business. There isn’t a ton of guesswork that is left for you to figure out. Sure, there will be some aspects of flexibility about the business model. What works in a colder part of the country may not work as well in a warmer climate. What works in a densely populated area may not work in a more remote area. But guess what? There are likely other franchise owners in similar demographics and climates to you and you can find out what works best for them.
After reading all of this you may be wondering how much opportunity to try new things you’ll even have. Don’t worry, there are still plenty of ways to make your business your own. You’ll be creating your own culture for your business. How you work and respond to your employees and customers is all yours. If you have a creative marketing idea or a new strategy, you can collaborate with corporate and maybe test something new that could be rolled out to the whole system. One of the benefits of working with a franchise broker is that we have inside knowledge into each of these franchise systems. We know what they have to offer and what they are looking for in an ideal candidate. If you want a more collaborative franchise, we can find that for you.
Back to minimizing risk – some other benefits the franchise can offer is they have capital behind them to have the best and latest technologies. They also have buying power and partnerships with certain vendors. This enables you access to the best resources at the best prices. And lastly, if you buy into a franchise that isn’t brand new – then you already will have some brand recognition that will help you get customers more quickly.
Maybe I should have started with this topic. Everyone wants to know, how much money can I make owning a franchise? The short answer is it depends. It depends on your location, but most of all it depends on you and your efforts, mindset, and hard work.
Before we talk about financial performance, let’s briefly touch on funding. One major benefit to a franchise is that most franchises are already registered with the SBA. Getting an SBA loan for a franchise is going to be exponentially easier than getting an SBA loan for a new start up. We can talk about funding options in a different article, but as long as you meet the qualifications for an SBA loan, then most people have no problems getting funded for their franchise.
The franchise industry is highly regulated. This means that a franchise is required to have a Franchise Disclosure Document (FDD). Within the FDD are many items that refer to different aspects of the business. Things like the start up costs, ongoing costs, territory, etc. The Item 19 refers to the financial performance of the system. A franchise system is allowed to disclose NO financial information at all, or on the flip side, they can choose to disclose as much information as possible – even down to EBITDA numbers so you can see what the franchise owners are potentially making. Some franchises will disclose average gross revenues, top quartiles, break it down by location, showing a detailed breakdown of operating expenses, and more. Why does this matter? It means you can see your potential. You can sometimes see what the worst franchises in the system are making and what the best ones are making. This helps inform your decision since you can get an idea of what could be possible for you. Do you think you’d be a top performer, somewhere in the middle or a bottom performer? If it’s the latter, then you really shouldn’t even be considering a franchise in the first place. But unless you’re buying an existing business, there’s no other way to get this financial information from a new business idea that you may have. When you start something from scratch – there is no way to predict your income. At least with a franchise, you can see what other franchise owners are doing and see if that would fit your income goals.
It’s hard to fit all of the benefits of a franchise into just one article, so please know that this does not encompass everything that franchises have to offer. Also, please know that not every franchise is the same. There are a handful of franchises that likely don’t offer all of what we covered today. Usually you’ll be able to pick that up yourself, but using a franchise broker can definitely help sort through the hundreds of franchises out there.
If after reading this you are excited to learn more about what opportunities are out there, we’d love to chat with you! As franchise brokers, our job is to find out what you want and need from a franchise. Once we have a good understanding of what that is, then we will look at our inventory and do territory checks to see what is available in your area. Once you decide which franchises you want to have a conversation with then we are here to coach you along the way.