Herman: John L. Herman Jr., Author

Are You Franchise Shopping?

When people are tired of their job, or worried about losing it as their employer slowly swirls the drain, they often look to franchises to perhaps try their hand as a business owner. And I applaud that thinking all the time.

Franchises offer a blueprint for the business owner who is more “manager” than “entrepreneur” type. If you love following a system that works, and you can put in the time others have who are succeeding, then start checking out franchisees in that system and go-for-it!

But…please do some homework before diving off the board and into the half-full, or half-empty pool. When JIFFY LUBE was in the early stages, and they had crossed the 1,000 unit mark…I spoke with the franchisor…because we were selling an auto related franchise at that time. And, although many franchises were making money, more than half…over five hundred…were losing money. And that meant the Franchisor was in trouble because half the stores were not able to pay their royalties. POOF, the Franchisor went bust and had to be sold. The motoring public hardly noticed a new owner but many early investors who bought their franchises went under.

If you want to buy a franchise find out how many existing franchises are for sale. Find out if the home office has a buy-back plan for failed franchises. And find out what makes you think you will win while others are losing. You won’t turn a loser into a winner just because you are better looking!

And, check that royalty rate. What are you getting for your money…and is it reasonable. If they get more than you expect to make, then move on to something else. Are you just buying a job that pays someone almost the same as you make, while you are doing all the work? Does the Franchisor really have the clout to help you for the money up front, and the royalty you will pay? Or, could you use that same amount to market your new start-up business as an independent new company. Who knows…maybe by starting your own company doing what you would have as a franchisee might make you a candidate to one day become a Franchisor! One of my consulting clients just signed up to sell franchises using her methods developed as an independent. And despite a crowded field of competing franchises in her field…I predict the fact that because she can show a six figure income real possibility for new investors…she will double her income in the next two years, and spread the down-side risk beyond just herself.

• Posted: 18 September 2008
• Comments: 1
• Category: Starting a business

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