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Home » Operations

Why franchising might not be right for you

Earlier this year my wife and I flew  to New York. Despite 22inch fall of snow overnight (yep, you read that right), we had a fabulous weekend and in between the various snow showers, my wife and I escaped into Barnes and Noble on 86th & Lexington Avenue, just down from Bloomingdale’s, for a coffee.

Whilst we were in there I was browsing the magazines rack and I picked up a copy of Inc Magazine. I’ve long been a fan of the Inc.com website, but as far as I’m aware you can’t buy Inc magazine in the UK (not that I’ve found anyway).

Inc’s a great magazine full of very inspiring stories about people who’ve done amazing things and built up businesses from nothing. It even features some unusual twists like the interview with Lorraine Earle of Johnny Cupcakes, the doting mother who runs the back office on behalf of her son, the business’ founder.Very inspiring stuff.

Towards the back of the magazine there’s a whole section on Franchise businesses and reviews of types of franchise business, articles on financing franchise businesses, plus pages of adverts for franchises for sales.

A franchise for those not aware, is where you buy a business blueprint from a successful business (think McDonald’s, Dunkin’ Doughnut’s, Chips Away (car paint repair and Countrywide (grounds maintenance) etc) and in return for the cash you basically get the premises, equipment, training and stock.  In return you buy the stock from the franchisor and typically pay an annual license fee, which can be either a fixed amount or a percentage of your turnover.

For many people they get the opportunity to buy into a proven success story.   If they become successful they can buy more franchise outlets and replicate their success.

You’ll probably find it easier to get funding too. As banks love lending on Franchise businesses because they have a proven success story and they can see the results that other francisees have achieved.

But hold on a minute

Successful businesses are successful because they follow a plan, execute it and repeat. Which means you get to follow the plan. If you buy a McDonald’s franchise for example, the exterior signage will be specified by McDonald’s, the colours of the walls, the furniture, the cleaning products and of course the way you make the burgers and of course how you “have a nice day”.

Oh yes,  the clothes you wear will be specified by McDonalds too. It’s called a uniform.

Last time I worked in an environment like this it was called a job.

But with a franchise, not only do you get to have a job, but you pay for the privilege by investing in the franchise, mortgaging your home or sacrificing your redundancy payment.

With some of the smaller franchises you’re also reliant on the master franchisor or license owner (the business that sells you your franchise) not to go bust or to continue to provide you your stock and invest in marketing the business and passing you leads.

Before you know where you are you’re on the treadmill again, but you’re paying for the privilege by investing your savings in it.

Now, as we discussed in the what kind of entrepreneur are you? Having a job does not allow you to fund your lifestyle, it takes away time from your family or doing what you love. It  stops you taking a holiday or vacation whenever you want, you loose your freedom.

A franchise fails all the tests of doing business the Tomato Way. We want your business to generate income regardless of the hours you work – we don’t want you trading your hours for $’s.  Above all, we want your business to work without you. We want you to be generating passive income.

Tell us what you think in the comments below. Have you ever invested in franchise businesses?

Empire Building Kit

9 Comments »

  • Moon Hussain said:

    Matthew, sweet point of view regarding franchises. I love INC and another magazine (forget the name)–sometimes they can be inspirational.

    Btw, I posted my Su.pr related post already and credited you for the inspiration.

  • Steve said:

    I do not have a franchise and don’t think I ever will (never say never). I totally agree that something like Mickie D’s would be way to much like a J-O-B for my tastes.

    There are some interesting (and much less expensive) home based franchises that shouldn’t be completely ignored. What you get is a proven business model and plan and free advertising of the brand name.

    Of course there is risk that they could go under, which is something you could not control. But for some of these the price is right (like 2K$ US).

    I don’t think it is something “I” would ever want to do, but it could be a great thing for some people.

  • Joshua Black | The Underdog Millionaire said:

    Matthew,

    Brilliant post. The way that you show your readership how to stand on their own two feet is something to be commended.

    Franchises are for people that don’t want to acess that creative side of their mind… to just be handed the keys and to drone on with purchasing a new job that they now own, instead of really owning a business.

    -Joshua Black
    The Underdog Millionaire

  • Matthew Needham said:

    Thanks Joshua for stopping by and commenting.

    To be fair, many people; plumbers, webdesigners, hair dressers etc all have jobs and not businesses, but what we’re trying to encourage within this tribe is for people to create businesses on auto pilot. Businesses which work without them.

  • Shiraz Makadam said:

    I couldn’t agree more! I’ve been looking at franchises here in SA, and the more I study what’s on offer and the investment required, I just can’t see the logic. I want a business of my own not a job…

  • Matthew Needham said:

    Hi Shiraz, thanks for the comment. What sort of business do you have in mind?

  • Shiraz Makadam said:

    Hi Matthew. I was just looking around for anything interesting and exciting, prepared to work hard but opportunity that can ‘set me free’. Certainly didn’t find it in franchising. O annual local expo happening again this weekend, think I’ll give it a miss…

  • Matthew Needham said:

    Hi Shiraz,

    I think Franchising is a great business model, but for the franchisor. It almost becomes passive income which is exactly what you’re trying to establish I’m sure. I don’t know if you’ve already seen it, but in my resources area I include a free downloadable business plan template which might be useful for you http://bigredtomatocompany.co.uk/business-growth-tools/ to formulate your ideas and get off to a flying start.
    Matthew

  • Rothman @ Food Cart Franchise Philippines said:

    Stumbled over here while searching for information for my next posts. :)

    In contrast with your example, though, McDonalds and other very successful brands for that matter, could be the least thing you can call a J-O-B. Franchisees can hire managers who will wear that uniform, who can do the hiring of rank and file employees.

    It does need a hands on work though. It applies to all income, even passive. Bloggers still need to make posts, owners of tangible businesses still need to pick up the business.