To Be a Franchise, or not Be a Franchise, that is the Question

There are a lot of mixed emotions out there when it comes to owning a franchised business or not owning one. My advice is to try not to let emotions get in your way of making the right decision.

There are many very successful franchises out the like McDonalds and a few not so successful ones, so franchising isn’t always the answer.

One example I tell people asking why they should consider a franchise is this; If I were to start Dave’s Take and Bake Pizza, would I have customers the first day and how successful would I be. Then consider if I opened a Papa Murphy’s Take and Bake Pizza franchise store, I’d probably have a line waiting for the doors to open the first day.

So a brand can make a big difference. It speaks to consistent quality, good training and a proven model. Franchises without those three things often fail.

Another difference I have been making a mental note on is management. I have noticed that many successful franchises train and promote the owners to be managers first and worker bees second. Managers that greet customers, actively market the business, go to local events, associations and clubs tend to have more successful businesses than where the owner is just another employee behind the counter, chair or tool bench. It’s hard to lead when you are caught up in the day to day operations.

So a franchise can be the right answer, but then again not. How does a person find a franchise opportunity that is right for them? Here are some thoughts;
Location is important. Even the best franchise will fail in a bad location.
Franchise support is important. Before you can sign up as a franchise owner, most often you have to meet with the franchisor and review a UFOC. This document spells out the ground rules. You must wait 10 days before you can sign a UFOC, so take the time to read it and get council to help you with the terms.
Shop the same franchise in different locations. Is the quality and service the same? This will speak to the training by the franchisor and the district management. A Big Mac is the same in Chicago as it is in Tokyo, Japan!
Is the franchisor more focused on opening stores or helping existing ones? Two years ago McDonalds shifted their focus from opening stores to improving what they already had. They were one of the few positive stock market trends last year and you have probably noticed the difference at your local favorite Mickey D’s.
Is there critical mass in your area? Two issues here; 1. Will you be the first one so that the brand means nothing in the area? 2. Is there so much market saturation that same brand stores take business from each other?
Does the franchise offer something unique or is it an also ran?
Do you need specialized skills to operate the business or are management skills and a good system all you need?
Check around, do local franchisees own more than one store. Good indicator of success.

Franchisors charge royalties and advertising fees. Royalties can be in the 5% to 7% of sales range. This pays for the brand name, franchisor support, software and district management to help train your employees, etc. Advertising fees are in the 3% to 5% range and cover national advertising and maybe some local coop advertising. Read the UFOC to be exactly sure on these.

These royalties and ad fees often amount to 11% of total sales. Sounds high, but if the brand name drives customers to your business, management training and software help you run a profitable operation and support helps you keep the consistency, then the fees are well worth every penny.

Last thought or observation; If you already know everything and a franchisor can’t teach you anything and you never plan to attend a local meeting or franchisor training or support session, then franchising in not for you. If on the other hand you have some skills and can follow a good plan, a franchise business can be a gold mine.