When evaluating a franchise opportunity, one of the most important questions you need to ask yourself is, “Do I realistically think I will be able to earn a living?” Operating a franchise entails paying numerous expenses—including not only ordinary business expenses like wages and inventory but also royalty fees, advertising fund contributions and other franchisor-imposed costs. If you need to take out a loan to launch your franchise, this will add to your monthly costs (and your financial risk) as well.
What Does It Take to Build a Successful Franchise?
So, what does it take to build a successful franchise? Equally important (if not more so0, what happens if you can’t? Here are some fundamental considerations for prospective franchisees:
1. Decide On Your Role
Will you manage your franchise day-to-day? If not, hiring a manager is another cost you will need to factor into the equation. If you will manage your franchise, are you confident in your ability to grow a profitable business?
2. Be Prepared To Comply with the Franchise Agreement
As a franchisee, finding success necessarily involves complying with the franchise agreement. Are you prepared to maintain strict compliance—even if you disagree with the franchisor’s business decisions?
3. Be Prepared To Comply with the Operations Manual
Franchisees must strictly comply with their franchisors’ Operations Manuals as well. Many franchisors impose detailed requirements in their Operations Manual, and maintaining compliance can add to the challenges and stress of running a successful business.
4. Devote Your Time and Energy (and Resources) to the Business
Once you buy a franchise, you are in it for the long haul. You can’t get out early (in the vast majority of circumstances), and even if you could, you would likely do so at a substantial loss. With this in mind, are you prepared to devote your time and energy (and perhaps additional resources) to making your franchise profitable long-term?
5. Make Informed Business Decisions
Above all, finding success as a franchisee requires informed decision-making. As a franchisee, you must be equally adept at fitting into the franchisor’s system and building a business that stands out from the crowd.
Understanding the Risks of Franchise Failure
Does taking these steps guarantee success? Of course not. There is no guarantee that you will succeed as a franchisee. So, what if, despite your best efforts, your franchise ultimately fails?
This can be a very difficult scenario. If your franchise fails, not only will you need to find another way to earn a living—whether this involves reentering the job market, starting an independent business or trying again—but you will need to deal with your franchise agreement’s post-termination obligations as well. Depending on the terms of your agreement, this could include not only de-branding and returning your franchisor’s proprietary inventory and marketing materials but potentially paying “lost future royalties”. As a result, while it is possible to find success as a franchisee, buying a franchise is also inherently a high-risk endeavor.
Contact Us for a Free and Confidential Consultation About Your Franchise Opportunity
Are you thinking about buying a franchise? If so, we strongly encourage you to contact us for more information. For a free and confidential consultation about your franchise opportunity, please 202-293-3947 or tell us how we can reach you online today.
