franchise myths

Franchise Ownership Myths

International Trade Administration (ITA), had published 2016 Franchising report.  As per the report, Franchise businesses continue to grow faster than the rest of the U.S. economy. The Franchise Business Economic Outlook: 2015 report released in January 2016 notes that franchising will outperform the U.S. economy for the sixth consecutive year in terms of overall growth. Although most people associate franchising with big companies, such as McDonald’s, Subway and Hertz, the overwhelming majority of franchise owners are actually small to medium-sized businesses. Most franchise owners only own one unit (establishment) and employ less than 30 people. Because of the efficiency of the franchise model, most franchisors are also small or mid-sized businesses.
Franchising is key driver for our economy
It is responsible for one in seven jobs in the United States, and accounts for 50 percent of all retail sales that will take place in our country across 75 industries.4 In the United States, there are over 780,000 franchise businesses that directly employ over 8.8 million people and account for over $890 billion in direct economic output.
The franchising model is a unique business model that continues to be misunderstood. According to Aziz Hashim, Chairman of the International Franchise Association and Managing Partner of NRD Capital Management, “The model does not require previous business experience to own a business, create jobs and contribute to the local economy and communities”.

Let me clear some of the misunderstandings, I am calling Myths.

Myth:  I’ll only be successful if I find the right business
Many of us define “right” as what we’re already good at. But don’t limit yourself. Define your transferable skills from the corporate world: delegation, management, marketing, etc. If you had them in one type of business, you can easily use them in another. At end of the day every business needs, Sales & Marketing, Finance & Accounting, Human Resources (staffing) and Ongoing operations. Each one of us has transferrable skills within any or all of these areas.Myth: I can only be successful If I have background 

Believe it or not, businesses based on an owner’s background have the highest failure rate. Your franchise business is a vehicle to the lifestyle you’re seeking. If you limit your choices to what you’re familiar with or good at, you’re placing yourself at a major disadvantage by ignoring a huge number of possibilities that are outside your realm of past business experience.

Myth: I’ll instantly know the right opportunity when I see it
Many people want to fall in love with their business at first sight. If that happens then it is good but you have to
evaluate each opportunity based on set criteria. Otherwise it is an emotional decision, not a career choice. You have to take the time to learn about the details and nuances of an opportunity to understand its potential. You simply can’t do that when you make a determination based only on what you feel today.

Myth: there’s no flexibility in a franchise. Franchisor dictates everything

This is one of the most pervasive myths about franchise ownership. In actuality, there’s tons of room for individuality. The franchisor “dictates” only one thing: the basic system–the framework, if you –that’s already proven successful. They implement limitations you have are those that have already been proven to generate income. This might include signage, uniforms, formulas, protocol, and so on–the basics that allow you to represent the brand and your own location as professionally as possible.Beyond that, you’re in charge. You’re managing your business. You decide who to hire and fire, how to market your location and how to promote it regionally. It’s completely up to you to think up new ideas and make suggestions to corporate. In fact, most franchise parent companies encourage suggestions, because it’s where they get many of their best ideas. McDonald’s corporate, for example, didn’t come up with the inspiration to start selling breakfast. The concept of the Egg McMuffin was developed by a franchisee.  Keep in mind that the franchisor wants you to succeed because if you don’t, they don’t. It’s a win-win situation.

Myth 7: I can’t afford a franchise – They have lot of additional overheads
Sure you can, if you look at it for what it is: an investment in your future. Most franchises can be established for well under $100,000, and some can be started for as little as $12,000. Your only payments to the parent company are a one-time franchise fee and weekly or monthly royalties, which are usually determined on a case-by-case basis. Beyond that, your out-of-pocket expenses are the same as they’d be for any business–salaries, local advertising, etc. The difference is you have the support and training of the franchisor, which will help you ramp up to full speed far more quickly than you could on your own. It is true that Franchisor’s are charging a royalty, however, most of those are being used to provide support and infrastructure. Continue to develop new products or services that will make you more profitable.

Myth: I’ll have to quit my job to become a franchisee
Many franchise concepts are specifically designed for people who are working other jobs.  In fact, a large percentage of franchisors are allowing semi-passive investors as long as they are hiring a full-time manager to manage the business. This is a better option as you can hire someone to oversee your business while you working and gradually transition to becoming your own boss.

Can franchises still fail? Sure they can. But the vast majority of the time this is due to the owner deviating from the system and cutting corners by using inferior materials or altering formulas. The key to making it as a franchisee is consistency. If you don’t adhere to the groundwork–which, once again, is in place because it works–your chances of success will drop dramatically. You want to leave the habits from the corporate world where they are and bring along your marketable and transferable skills.

Rajiv Shah – Franchise broker

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