Many people buy a franchise because they feel they don't know how to effectively start a business without a lot of help.
Franchises offer support and systems already in place that are meant to help you start your business in an efficient and effective way. There seems to be a perception that buying a franchise is a much lower business risk than starting a business from scratch. While this is true in many cases, it is by no means risk free as there is also real risk with franchises. In many cases, help from your franchisers is there during your grand opening. It is one of the strongest benefits about franchising.
One of the myths of franchises is that they are "turnkeys." It is still up to the owner to manage the day-to-day operations and make the franchise work financially.
I worked with a struggling, established franchise in a very small North Carolina town. The franchiser charged them the same fees as their franchises in large cities such as L.A. and Chicago.
With a much smaller market, the business couldn't generate enough revenue to pay their franchise fees and earn a reasonable profit. Many franchisers do not differentiate their franchise fees for the size of the market. Always check with franchise owners in similar size markets to see how they are doing before making the leap. Another key factor is whether or not you will have exclusivity in your geographic market. Having the same franchise a few miles down the road will make it much harder to be successful.
If you are considering buying a service franchise where you have to physically travel to your clients, always check out the "density" of your potential geographic market. I worked with a client in a small Southern town who considered a service franchise where they would have to take their service to pre-schools in the area.
In analyzing the number of pre-schools within a 50 mile radius, I identified that it would require an average of 30 minutes of travel time between preschools.
This would only enable them to provide four service sessions per school day as well as cost more than $75 a week in gasoline costs. Given the franchise cost, their investment in equipment and operating costs, the franchise didn't appear to be attractive in that kind of market.
Franchises can be a good investment, but a lot of research and analysis must be done before making the leap. One crucial question is whether or not the "national brand advertising" will benefit you versus the same cost for local market advertising.
The key question is how strong is the franchise "brand name" versus competitors. Will the brand name generate enough additional business to cover their franchise fees and turn you a good profit versus going it alone?
Consult with other franchise owners in similar sized markets, evaluate your location for traffic and evaluate the drawing card power of the "brand name" and look at the cost of the franchise fee relative to your market size before making the plunge.
Bob Papes is a local business expert and the author of two books, "Management During an Economic Crisis" and "Turnaround." His email address is: [email protected].
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