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?