Business Blog
Franchise Fundamentals: Debunking five myths about buying a franchise
For many people, buying a franchise has proven to be a good choice, but like any other financial decision, there is no one-size-fits-all answer to the question “Is a franchise right for me?” Buying a franchise involves a major financial outlay and owning one often requires an “all in” lifestyle commitment. If you’re thinking about whether your future could be in a franchise, follow the FTC Business Blog for a series we’re calling Franchise Fundamentals. We’ll explore some of the factors to consider as you investigate franchise opportunities. The first topic: debunking myths and misconceptions about becoming a franchisee.
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Myth #1: Being a franchisee is the same as owning your own business. Owning a franchise isn’t the same as being a business owner. In fact, the franchisor may control many aspects of your business – for example, your site location, your sales territory, the design of your retail establishment, and the products or services you can (and can’t) sell. Of course, the right franchisor may assist you with training and expertise, but that help comes with a price both in terms of finance and control.
Myth #2: Buying a franchise will give you “be your own boss” status. After years of earning a salary, many prospective entrepreneurs look to franchise ownership as a way to exercise autonomy. Not so fast. Franchise agreements often give franchisors authority not only over big-picture decisions at the outset, but also over some day-to-day operations – how you can advertise, what your sign must look like, where you buy supplies, etc. If part of your motivation for considering a franchise is to live that “be your own boss” lifestyle, investigate thoroughly first.
Myth #3: Liking a company’s products is the best indicator that you’ll achieve success as a franchisee. Successful franchisees often say it helps to like the product or service, but being a satisfied customer is no guarantee that a franchise is the right fit for you. Some franchises – say, auto repair or tax preparation – require technical expertise or special training. Are the skills you bring to the table a good fit for the franchise? And has your previous work experience given you the financial and management know-how essential for success?
Myth #4: Owning a franchise is an excellent source of passive income. Who unlocks the shop several hours before opening, turns off the lights at the end of a very long day, and is there in between to handle payroll, customer service, and maybe even routine maintenance? It’s often the franchisee. Even franchisees who choose to hire day-to-day managers will likely find that owning a franchise involves a major commitment of time, effort, and resources. That cruise-ship-and-golf-resort image some people have of franchise ownership just doesn’t square with reality.
Myth #5: Owning a franchise is a financial “sure thing.” The only sure thing in franchising or any other business model is that there’s no such thing as a sure thing. Spending your nest egg for a national name isn’t a guarantee of success. Certainly, your skills and commitment factor into the equation, but so do a lot of variables beyond your control – demand for the product or service, competition, and local and national economic conditions, to name just a few. What’s more, under your franchise agreement, you may have to pay the franchisor even if you’re losing money. Those are just some of the intangibles to consider if you’re thinking about a franchise.
Read A Consumer’s Guide to Buying a Franchise for more information.
Here are the five posts in the the Franchise Fundamentals series:
Great job on this, Lesley.
It's so important for franchise buyers to get a realistic look at franchising today.
Thank you for helping dispel some of the common myths.
The Franchise King®
Joel Libava
"Myths" 1 and 2 are misleading. Lesley Fair confuses "ownership" with being subject to certain restrictions on operation. The success of franchising depends on franchisees complying with brand standards so that consumers receive a consistent quality of products and services. Franchisees should expect these standards to be in place and that the franchisor will enforce them. That does not affect the "ownership" of the business. Franchisees "own" their businesses and are entitled to the profits and losses that they generate. (Shopping mall landlords restrict locations, hours of operation, products and services to be sold, advertising and many other aspects of business operation. Those restrictions to not affect "ownership."
"Myth 2" argues that because of the requirements of operating as a franchisee, that franchise owners are not their own "bosses." They hire and fire employees, and make the critical decisions about operating. businesses that affect profitability.
What Ms. Fair should be emphasizing is that prospective franchisees should take the time to familiarize themselves with the restrictions that a franchise can impose on franchisees. This information is generally provided within the Franchise Disclosure Documents the FTC requires franchisors to provide to prospective franchisees. FDDs include contact info for existing franchisees. Prospective franchisees should take advantage of this information and seek confirmation from them that their understanding of how a franchise works in practice measures up to the needs of the prospective franchisee.
In reply to "Myths" 1 and 2 are… by Carl E Zwisler
Good points Carl. If people would just do their homework, which is easy to do, and ask questions of franchisees and not just the franchisor and their consultant, and match their skills to the franchisor’s system (most miss that part sadly) we wouldn’t have to worry so much about myths.
In reply to "Myths" 1 and 2 are… by Carl E Zwisler
Well said Carl. As the Co-Founder of one of the leading franchise information companies Franchise Update Media, established in 1988 in my opinion Ms. Fair expresses a very one-sided and negative view of franchising. Franchising is not for everyone and we encourage anyone who is looking to buy a franchise to do their due diligence before they make their decision to become a franchisee. Our belief in the franchise business model is so strong that at the age of 68 my wife and I just signed our first franchise agreement. We're proud and optimistic to become franchisees.