Nolo.com features an article titled: Ten Good Reasons Not to Buy a Franchise.
According to the author, there are ten compelling reasons NOT to buy a
1. Questionable profitability. Most franchisors do not provide much
information to potential franchisees regarding earnings possibilities, making it
difficult to assess how lucrative investment in the company could be. Even the
franchisors who do supply this information usually only give average sales
figures and profits before expenses are deducted, numbers that aren’t very
helpful when trying to determine if your individual franchise will be
A valid point. However, couldn’t the same be said about any investment? Even when the franchisor provides earnings information, it is no guarantee of future earnings, just a snapshot of what happened in the past. What information and guarantees are available when you
start your own independent business? As incomplete as the information might be regarding a franchise,
at least you can find out how the same exact concept you’ll be running is doing
in other markets. The best source of sales and profit information is the
company’s franchisees, not the franchisor.
Do your homework, do extensive research and, most importantly, gain a thorough understanding of the numbers before embarking on any new business venture, including cost of goods, profitability threshholds and fluctuations that can occur. But keep in mind that every venture is a risk, no matter how tried and true it seems. And remember, if historical performance data gave us a guarantee of future earnings, we’d all be millionaires in the stock market.
Relentless marketer Sean Kelly is a 20 year veteran of the franchise industry, and founder of the award-winning marketing firm IdeaFarm. In 2006, he founded the FranBest franchise networkbest franchise opportunities, the top new franchises, franchise marketing, franchise public relations and small business marketing. Contact him at seankelly[at]ideafarm.net.