Top 10 Secret Fears of New Franchise Owners
What to Know Before You Buy
By Carol Tice
Contributor, Forbes.com
What keeps would-be franchise owners up at night? Many put up a brave front, but beneath the enthusiasm to buy into a proven system often lurks deep-seated fears.
Recently, I received a spreadsheet of over 300 answers prospective franchise owners gave to the question: “What’s your biggest fear about franchising?” The answers came from a questionnaire sent out to prospects by Arizona-based senior-living advisory franchise CarePatrol.
The most common answers CarePatrol received form a useful checklist of questions to ponder and answers to seek for anyone considering buying a franchise:
- I’ll lose my investment — it’s not uncommon for franchisees to contemplate funding their franchise purchase out of their 401(k) retirement account, a high-risk gambit. For many, their initial investment is a substantial sum they couldn’t easily earn again, if they lost it. Ask yourself what you would do if this fails — where would that leave you economically? How would you recover?
- I won’t make a profit, or profitability ramp will be too long — this in some ways can be worse than losing the business: You’re stuck toiling away in a franchise model that barely stays afloat, but doesn’t throw off enough cash to give you a meaningful income. Before it can become profitable, you may run out of money for operating cash. Ask hard questions about the ramp time — and ask existing and former franchisees, not just corporate.
- I won’t get the support and training I need — too many systems give franchise owners an initial week of training, but don’t offer much support after that. Make sure you know exactly what will happen if you run into trouble a month or six down the line. Most importantly, what is the franchisor’s game plan if you’re floundering?
- I won’t get a good territory/location – Many owners have gotten into a franchise, only to find they’ve chosen a dog location, or their territory is soon full of new competitors, or even corporate stores.
- The franchise offer is misleading or deceitful — the franchise industry continues to strive to improve its reputation, and the steady stream of lawsuits by existing franchisees who feel wronged doesn’t help. There’s no questions that a few franchises — especially new ones — may be doing a little creative accounting in their disclosure documents, in describing the results new owners can expect. Franchise shoppers are smart to vet carefully.
- The market is already saturated – Are there 12 different pest-control or math-tutoring franchises currently operating in your proposed territory? Or are there three other franchisees in this same concept already operating within your major city? It’s really important to find out.
- My skills and interests aren’t a fit for this business — this concern can be cured by shadowing a current owner for a day or two. You’ll figure out fast what you really do all day in that franchise model, and whether you’d enjoy that and it fits with your skill set.
- The up-front cost is onerous – The cost of getting into franchising has skyrocketed in recent years, particularly in fast food. There are plenty of low-cost franchises out there that you can operate from your kitchen table. If plunking down several hundred thousand dollars up-front sounds too risky or isn’t within your budget, you might want to check those out.
- The “unknowns” — these can include economic change, regulatory change, changing market or competitive conditions, and changing rules at the franchisor. There’s not a lot that can be done about these, since we can’t tell the future. But it’s worth running some ‘what ifs’ on how this business would fare if the economy tanked or laws were amended. Franchise chains that have changed the rules in the past may well change them again in the future — ask around and find out how the concept has evolved over time.
- Overwork and burnout – This is another concern where shadowing a current franchise owner can help you form a realistic picture of the necessary time commitment. Many aspiring franchisees imagine a turnkey business that will be an easy profit machine without their hands-on involvement — and a good many will learn, too late, that they are tragically mistaken.
This is also a solid list for franchisors looking to understand what reassurances would bring new owners on board, and the level of service and support they need to offer for franchise owners to be successful.
If a prospective franchise owner can get through all these concerns and feel confident about their answers, it’s probably a good fit and a good opportunity.