Nolo.com published an article entitled: Ten Good Reasons Not to Buy a Franchise. So why would I – a franchise marketer by trade – not only call attention to this heretical document, but highlight each reason in 10 commanding posts?
It’s simple: Despite what much of the entrepreneurial press would have you believe, there are good franchise opportunities, bad franchise opportunities and downright somebody-gonna-burn-in-hell-over-this franchise opportunities. By the same token, there are smart franchise prospects with realistic expectations, doe-eyed sheep franchise shoppers ready for a good shearing, and franchisees that fate hath ordained be separated from all worldly goods with all due speed.
My goal is to help the smart, realistic franchise prospects willing to ask the hard questions find the solid franchise organizations willing and eager to answer them. No good franchisor wants their franchisees to feel that they’ve started their venture without both eyes open.
According to the Nolo article, the second of the ten compelling reasons NOT to buy a
2. High start-up costs. Before opening your franchise, you may be
required to pay a non-refundable initial franchise fee, which can cost from
several thousand to several hundred thousand dollars. In addition to the initial
fee, there are also usually high start-up costs associated with furnishing your
franchise with the necessary inventory and equipment. It can easily take several
years to recoup the expenses connected with getting your franchise off the
This is a great point, as the franchisees on the aptly named Unhappy Franchisee site will attest. Especially beware of non-refundable fees paid up-front. (Or that matter, refundable
fees up front). Franchise Pick contains many stories of dozens of Cuppy’s Coffee & Java Jo’z “depositers” whose $30K – $40K “refundable” deposits were not escrowed and were unavailable for return.
Franchisors often require purchase or lease of only new equipment, which is sometimes justified and sometimes not. Some franchisors require the
purchase of brand new, top-of-the-line equipment. If you are opening a pizza
place in a small, rural town, you can save a bundle purchasing used equipment
and be more profitable at a lower volume. You’d be better purchasing a
franchise that would allow you that flexibility, or even going it alone as an
Franchisees such as Contours Express and Butterfly Life fitness owners have alleged that their franchisor grossly underrepresented the funds necessary to open and operate their franchises. This can be a result of inexperience, or the unknown of a newly minted concept, or, in some cases, intentional duplicity.
Go in with both eyes open and enough funding in place for your “worst case” scenario. But keep in mind that higher-than-expected start-up costs are not unique to franchising. A GOOD franchise will SAVE you money by saving you from the costly mistakes of your own inexperience.
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.