Bottom Line/Personal: One of the most popular ways for people to start a business is to consider buying a franchise. But what are the things that people need to consider? Because it’s not just a snap.
Nancy Collamer: You’re right, a lot of people do think about that, because the advantage of it is that while it’s not turnkey, you do get a proven business model. You’re given training, typically. You get the marketing materials. Rather than having to start a business totally from scratch, you’re given a pretty good base to work from, which means that you can usually hit the ground running and get things open a lot sooner.
Bottom Line: And is it also something that works well if you’re good operationally, but not necessarily so good from a marketing point of view, basically the franchise says, “Here’s your business in a box. We’ve done the marketing for you, so all you have to do is hire and manage and produce.”
Collamer: That’s right. Certainly with the larger franchises, there’s immediate brand recognition. Not so true with the smaller franchises, and I think that’s a point that people need to think about, is that franchises these days – it’s not just McDonald’s and Dunkin’ Donuts.
There are franchises that you can buy for less than $10,000, and they offer everything from places where you can go and have a glass of wine and paint to pet supply franchises or cleaning franchises – all different types of things. So they can offer a great opportunity, but there are definitely some downsides.
First thing that you need to think about is, are you someone who’s okay working in someone else’s system? You’ve got to follow their rules and regulations. You are your own boss, but you’re not the head boss.
Bottom Line: Not quite.
Collamer: Not quite, yeah. So that’s certainly one thing. Second thing is, it can be very expensive to buy into a franchise, and it’s not just the initial buy-in fee; it’s also the ongoing obligations, the ongoing royalty fees that you might be paying. So it’s a very serious financial decision.
Bottom Line: Is there, I’ll call it an average number? You said that some of them are as little as $10,000; if you buy a McDonald’s, it’s probably well into the six figures or more.
Bottom Line: So is there some median or range of budgeting that people should think about before they consider buying a franchise?
Collamer: Not really. They really do range from $5,000 to hundreds of thousands of dollars. So it really pays to investigate the options before you decide on a franchise.
Something else I would say that you really have to think about is that, again, while you’re the boss, you don’t get to control everything. If there is a problem with the brand nationally, if they get bad press, if there’s another franchisee who does something wrong, you’re going to have to deal with that. And that can be a very difficult situation.
So at the end of the day, this is a serious business decision, and I always advise people to do your homework, take your time in making a decision, and also be sure that you go see both an accountant and a lawyer before you decide to sign on the dotted line.
Bottom Line: Are there any best resources, either books in particular that you’re aware of or franchise websites or brokers that we can guide people to?
Collamer: I happen to love Entrepreneur Magazine. If you go to Entrepreneur.com online, they have lots of information about franchises, and you can filter the search a number of different ways. Then, when you find some that look interesting to you, do your homework. Call up some of the other franchisees and ask them about their experience. This is one area where you really, really want to take the time before you make a decision.
Bottom Line: Fabulous. Thanks, Nancy Collamer.
Collamer: You’re welcome.