Starting Your Own Business, Is Franchising Right for You?

Is a Franchise the Right Business Decision for You?Most of us who spent years in the corporate world have seen or experienced the ‘right-sizing’ of the company that they worked for. Over the last 10 years, it was no longer enough to be doing a good job to ensure that you continued your employment with the corporation; you could just be in the wrong department, division, or team when the business leaders and financial analysts executed their right-sizing strategies.If this sounds familiar to you, you may know of someone who after leaving the corporate world has decided that they wanted to have a business of their own. The first thing most people think of when they start investigating having their own business, is of becoming a franchisee of a well known brand. There are definite advantages to doing this.Aside from having an easily recognizable name, most franchisors will assist you with financing, marketing, store location selection, equipment, supplier purchasing contracts, and POS systems. For someone looking for backend support of their business, these things can be important.There are drawbacks to going the franchise route though.What if you want to select the products that you offer? If you are a creative individual, you may want to create some of your own, unique products or recipes. What if you want to decide not only what you sell, but what hours you are open, what POS system you want to use? What if the marketing offered by the franchisor is too generic or keyed to a specific geographic region not applicable to you? What if you have a preference for the type of hardware, computer system, store layout, or equipment to be utilized? In most cases, as a franchisee you cannot use your own judgement regarding any of these elements. In most cases, you are required to follow the franchisor’s direction and use his sources for everything.Perhaps most important, franchisors almost always charge a percentage of your gross revenue as a monthly royalty. The harder you work, the more money they keep. According to recent research by Kelly K. Spors and Kevin Salwen, “Some franchisors simply require their franchisees to pay so much in royalties and fees or other operational costs, that it’s very difficult to be profitable. Beyond that, when a franchisee fails, a franchisor may make it extremely difficult and costly to get out of its contract.”But isn’t it true that a franchise is more successful than an independent business?
A study by a researcher at Wayne State University found that 62% of franchises were open for business after four years, compared with 68% of independent businesses. And franchises were also found to be less profitable in those early years.Becoming a franchisee can be a wise business decision for some. For others, trusting their own business sense and creativity can lead them to the decision to open their own independent business.