5 Myths of Franchise Ownership
The downside of telling your family and friends that you’re going to buy a franchise is that they will want to tell you what they know about franchising, and usually what they know is wrong!
Myth #1. “When you become a franchisee you’re just buying yourself a job.” Really? Here’s how to politely inquire about the sanity of the person who spouts that myth in your presence: “And how many employees do you know who sold their jobs once they decided to retire?” A franchise is a license of ownership. If you hold the license, you own the business. No, you do not own the trademark or the trade secrets, or even the operations manual, but you own something of greater value: the customer list. Some franchise agreements state that the franchisor owns the customer list. That’s a point for negotiation. You at least want to clarify that you, and you alone, own the right to sell the customer list to another franchisee, approved by the franchisor. Have you ever heard of an employee selling his/her job for a cash payment? No. But franchisees do it almost every day.
Myth #2. “Buying a franchise is a good idea because it’s like putting a plane on autopilot. You don’t have to do much because the franchisor has set up the business to succeed for you.” Again: Really? Then how do you explain failed franchises? Some franchises do, in fact, fail. And maybe it’s because the franchisees placed the business on autopilot. As frightening as it sounds, that concept works for pilots, but it does not work for franchisees. While a franchisor transfers knowledge to franchisees through training programs and operations manuals, the franchisee still has to do the work. Every day!
Myth #3. “The US Government said 97% of franchises succeed!” No it didn’t. Years ago, the US Department of Commerce conducted annual franchise surveys and found that 97% of franchises “survived” from year to year. What did that mean? It meant 97% of franchise agreements remained enforce year after year. However, a bankrupt franchisee was counted as a surviving franchisee, as were franchisees who had never broken even. Even though these surveys haven’t been conducted for more than 20 years, some overzealous people changed the word “survive” to “success” and populated the erroneous information in cyberspace. Don’t believe it.
Myth #4. “Franchisors make it easy to buy a franchise, but then they make it impossible for you to sell your franchise.” Then how do you explain the booming market for selling existing franchises? Many new franchisees choose not to build a franchise from the ground up. They look for established franchises that already have a customer base and already produce revenue, including profits. Besides, franchisors are required by US law to reveal the requirements for selling a franchise in the company’s disclosure document. If you own a desirable business, especially one that generates profits, you can sell it!
Myth #5. “Franchisors make all their money from the upfront franchise fee. They don’t care if you ever succeed. Once you pay their flat fee, they could care less about you.” One last time: Really? Ask a franchisor to show you how much profit is in the franchise fee, even a flat fee, i.e. $50,000 or more. Most franchisors keep little to none of the franchise fee. Good franchisors re-invest the franchise fee in the new franchisee’s education. They also pay hefty sales commissions out of those fees. Good franchisors earn their profits from the franchisee royalty flow. Consequently, good franchisors do indeed care about the success of their franchisees. Your job is to make sure you find a “good” franchisor.
There are numerous other myths about franchising, but these five are often repeated and make no sense. Of course, you won’t know what makes sense about franchising until you spend some time exploring the concept. And we’re here to help you!
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