Why Small Business Owners Should Be Skeptical About Franchising

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Franchising is an almost guaranteed way of launching a successful small company, right? Wrong.

Most entrepreneurs are sadly mistaken and become hypnotized when they hear the siren call of a franchise because they  believe that buying into a brand or an established operation means they have a greater chance of achieving success, but that’s not always the case. Franchises can pose a lot of potential challenges that could lead to client dissatisfaction, lower profits and eventually driving the owner out of business.

So before purchasing a franchise make sure you pay close attention to the following aspects:

Take notice of the success claims
The main reason entrepreneurs seek to purchase a franchise is because they believe that they have a greater chance of success. However, this is not always the case. A study conducted in 2007 revealed that franchise restaurants tend to go out of business at the same rate as independent restaurants, within the first three years of operation. According to another study conducted by the Small Business Administration, franchises defaulted at slightly higher numbers than nonfranchise businesses. Another study conducted in the early 1990s uncovered that independent young small businesses are more likely to survive than franchises who register more profit.

Be cautious of the operational numbers
More and more franchises seem to include aggregate operational numbers across all of their franchisees in the FDD (financial disclosure document), that is required in all states. This is great because it offers you a grasp on reality. Still, don’t regard it as face value. Determine the level where the franchises largely are. Should a franchiser desire to expand operations within your area and not many representative locations are available, then figures may not be all that important.

The brand can pose both a positive and negative impact over your business
The brand of the franchise could have a negative impact over your own business growth, because a negative experience in another franchisee’s place will indubitably be connected with your own business. This is not always the case, but accidents do happened, so, when something doesn’t go as planned at one franchise location, it can hurt every franchisee who owns one. Simply being associated with an outstanding name does not guarantee success. Also, the brand or name of a new or small franchiser might not be recognized by most people, thus leaving you to do all the heavy lifting as far as marketing is concerned.

Sole sources of equipment and goods can be quite expensive
Some franchisers insist that franchisees buy all their equipment, stock and goods from them. In some cases, this is a really bad idea. And while some franchisers can offer lower prices, there is always a lingering temptation to create another revenue source.

Some franchisers are not interested in you being successful
In my opinion, this is the biggest issue. Make sure to talk to lots of former franchise owners to see their experiences with the central franchiser. So if the experience is not all that positive, it is maybe because they did not offer enough guidance and assistance in some key areas. Or maybe the franchiser was willing to sign up anyone who had the money, even if that person did not possess prior experience in the industry and was likely to fail.

The person that wants you to succeed the most is you and only you. Guaranteed success is only a myth. In the business world, this concept doesn’t exist. By being skeptical and doing your research properly, you will be able to determine whether you’re making the right choice in purchasing that particular franchise.

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