You must clearly understand your motivation in buying a franchise before you take the plunge. Knowing exactly why you want to be a franchisee will help you gauge how prepared you are for the long hours and financial investment owning a franchise demands.
Are you considering buying a franchise because you are tired of working for someone else? Or are you angry that you are not advancing as fast as you think you deserve? Are you concerned that the field you are working in is at risk, and that you could be a victim? Would you be content working long hours in a business that you owned and where the future is somewhat more secure? If so, you are essentially looking to buy a job. This is probably the most common reality of many franchises, and can be a very successful strategy.
On the other hand, you may be seeking to create significant wealth, in the multi-million dollar net worth category. To accomplish this in the franchise world, you will need to become a multi-unit owner or “area developer.” This will require a higher level of management skill, more capital, and investing in a franchise that encourages its successful franchisees to own multiple units. Often, this is a rapidly growing franchise, or an established franchise system with reasonably high density of locations.
Finally, you may be seeking to make money by buying underperforming locations, fixing them up, and flipping them. Of all the reasons for purchasing a franchise, this one is by far the riskiest.
My strong recommendation is to exercise this strategy with privately held independent companies, generally with sales starting in the $1 to $2M annual sales range. The transaction costs are very high in smaller franchises, plus the franchisor will create a barrier to selling by requiring that the buyer become a franchisee prior to buying your business. If flipping is your passion, forget about franchises.
Write down your primary motivation for buying a franchise. Then, on a scale of 1 to 10, match the franchise opportunity you are evaluating to your primary motivation.
Take the Vacation Test
No, this doesn’t mean flying off to the Caribbean to see how you like it. In fact, forget about vacations for a couple of years. What this really means is getting to know the other franchisees in the system. You’re going to ask them lots of questions, and they will be your single most valuable resource before and during the time you own a franchise. Here’s the “vacation test”:
“Would I (we) like to take a week-long vacation on a remote island with these franchisees?”
If your answer is generally negative, run away from that franchise as fast as you can! The other factor to look at is how well the other franchisees are doing. Can they afford nice cars? Are they living in good neighborhoods? How much are they working in the business? Pay careful attention to how the other franchisees are doing economically. It’s definitely a strong indication of your future financial success.
Having been a franchisee for many years, I learned a number of things that a franchisor might not tell you upfront. These secrets that I am sharing with you might just be the secret to your success!
Secret #1: Most franchises are essentially “buying a job” with an average income range between $30,000 and $60,000 per year. And that’s only if there is no debt and the franchisee works long hours in the business.
Secret #2: If flipping businesses for profit is your goal, DO NOT BECOME A FRANCHISEE!
Mark Leonard is a franchise expert and former franchise owner who offers prospective franchisees an inside look at this unique business opportunity. He is the author of 7 Surefire Steps to Buying a Profit-Making Franchise. Mark is no longer affiliated with any franchise, and neither seeks nor receives any financial consideration from any franchisor. Visit Mark online at www.YourFranchiseMentor.com