If you’re thinking about getting in on the franchise game, you may believe that your biggest question would be whether to open a donut shop or a car wash.
But according to Joel Libava, franchise expert and advisor, the real question is whether you should buy a franchise at all.
While franchises are growing in popularity; over 100 franchise systems being opened each year, the sad reality is that many people enter into franchise agreements, thinking it’s a fool-proof plan for success. But the fact is that franchises still fail at about the same rate as independent businesses. “Twenty years from their start, less than 20 percent of the franchisers will still be around,” says Professor Scott Shane of Case Western Reserve University. “In fact, of the more than 200 new franchise systems established in the United States each year, 25 percent don’t even make it to their first anniversary.”
A lack of proper screening by the franchisor combined with a general unawareness of the franchisee’s part are contributing to this problem.
Franchising isn’t something that should be rushed into. Unlike small independent businesses, which can often be started with minimal capital and then scaled organically as the company grows, franchising generally requires a significant up-front investment. Then there’s the fact that many franchises don’t show a profit for the first year --or more; and preparing financially for this situation is something that many franchisees tend to overlook.
If you’re considering franchising, it’s important to seek out information from independent, unbiased sources, and make sure you look into the risks and benefits objectively. Taking the time to conduct thorough research and becoming well-informed can help to mitigate a number of problems right from the start. Here are a few questions you should ask yourself before you embark on this journey.
Do you know what you’re in for?
First and foremost, make sure you have realistic expectations. Franchises are a business in a box, and you’re buying into an already-successful business model, but that doesn’t mean that it’s going to be all smooth sailing, and it certainly doesn’t imply that it will be easy. In order for your franchise to be a success, you’re going to have to put just as much work into the venture as you would when starting an independent business. Make sure you’re willing to put in the time and effort before you start.
Are you willing to follow the system?
Franchises are systems-based businesses, and in order to find success as a franchisee, you have to be prepared to stick with the system. “If franchises didn’t have rules, they wouldn’t be franchises; they’d be independent small businesses,” says Joel Labava. The very essence of a franchise is consistency. If you’re not happy to follow someone else’s blueprint, you may be better suited to a different type of venture.
Source: Entrepreneur Magazine
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