This post explains some of the risks of owning a franchise along with steps you can take to decide if you can overcome uncertainty and enjoy revenue from whichever franchises you might be considering.
RANDY PLACE is the author of “Your One-Minute Job Finding Coach: how to find a job and manage your career while coping with the hassles of it all.”
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Should disenfranchised employees buy into franchises?
You need to consider this question at the beginning of your benefits package, not towards its end.
Owning a franchise is a risky business. Even though the Federal Trade Commission’s (FTC) rules requires franchisors to provide more information to a prospective franchisee, it doesn’t give you the data needed the most—documented financial projections.
Here are some of the items the FTC does not require franchisors to tell you about:
- Earning claims such as projections of what your franchise will make
- The franchisee’s right to sue the franchisor for a violation of the FTC rule, “private right to action”
- Lawsuits against them
- Contact information for former franchise owners who have closed shop during the past year
- The pitfalls of buying territories that are not exclusive
You need this pertinent information in order to decide if investing in a franchise is for you.
Before investing your life savings, mortgaging your house, and withdrawing your 401K to enter the franchising world, prepare a checklist of questions you need answers to. Here’s a list of eight questions, answers to which will give you information you need:
- Have you reviewed the franchise contract for your lawyer’s approval?
- It the franchisor giving you an exclusive territory for the length of your contract?
- How long has the franchise been in operation?
- Does the franchiser offer you a training program, advertising support, credit, signage, and point of purchase materials?
- Will the franchisor give you names of a dozen of its franchise owners? You need to talk dissatisfied owners as well as the happy campers.
- Have you talked with some of those owners to ask about how the franchisee likes the business?
- Have you inquired if the franchisee is getting the promised support from the Company?
From answers to these questions, you’ll learn what you need to know beforehand about some of the problems associated with owning a particular franchise. So before deciding to invest from 50-thousand dollars to over a million that’s needed to own a franchise, ask your lawyer to dig deeper for more information.
You can uncover lots of information about the franchise you’re considering through the American Association of Franchisees and Dealers. There’s a long list of franchises to choose from. Some are good. Others are rip-offs.
When you investigate carefully to get answers you need to make an intelligent decision, you could become the franchisee of a lucrative franchise. That’s how to make money franchising.
Let’s return to the question, “to buy or not to buy a franchise?” As I stated earlier, it is a risky business. But aren’t some risks associated with making any investment? The good news about investing in a franchise is that around 80 percent of them succeed.
You’ll find more information about franchising in the chapter titled “Flying Solo” in my book mentioned above—Your One-Minute Job Finding Coach. CLICK HERE to order in paperback or to download your Kindle copy now.
Copyright ©2016 by Ransom (Randy) Place