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The 5 Most Frequently Asked Questions About a Franchise – And Why They’re Not the Right Questions

Every day we talk with prospective investors who are considering franchise opportunities. Over the years we have heard most of these – so we thought it would be a good idea to share our thoughts on why these questions, while they may make sense on the surface, aren’t the right questions you should be asking.

 

What’s hot right now?

If by what’s “hot” you mean what is selling quickly?   There is a brand right now that is selling over 100 territories a year.  I won’t name names.  Very few brands have the corporate infrastructure to support that many franchisees that are all trying to open in the same time frame.  Predictably, this brand is rumored to be rife with problems. Problems getting opened, problems that they hadn’t anticipated requiring franchisees to increase their investment and numerous other issues.  Quiznos was famously once the “hottest” franchise.  Ask anyone you know who bought into that brand if they are happy with their choice.  Or just google what went down there.

How much will I make?

Franchise sales are regulated by the Federal Trade Commission.  No one knows how much money YOU will make given we don’t know your strengths as an operator, or how good your location (that ultimately you select – although corporate will provide guidance) will be, or countless other variables.  In any system there are approximately 30% of the franchisee’s hitting it out of the park, 50-60% or so achieving their objectives – and 10-20% or so really struggling.   Which group do you think you will fall in?  You can see the problem with making income promises.  However – most good brands today will give you some idea (of gross revenue and maybe even net) in their item 19 of their Franchise Disclosure Document based on averages of some sort.  You will fill in the rest of your pro forma by the hard work of speaking with franchisees and making some projections for yourself – with an honest view of your skillsets, capital available for marketing and territory demographics.  But let’s face it – it will still be a best guess.

When will I see a return on (or of) my investment?

See question # 2

What are some passive business opportunities?

I regret to inform you that there is no magic business that you can simply throw your money at and it will begin to throw off cash.  Owning a franchise business (or any other) is not a passive investment.  Stocks and bonds and mutual funds are passive investments.  There are business models that advertise themselves as “semi absentee”.  That is often code for: don’t give up your job, because an absentee business does not cash flow or do as well as a business where you throw in your sweat and time.  Period.  If you want a mostly passive investment perhaps you should consider vending machines.  Which also require some time placing them, moving them when they underperform and performing maintenance.

Why should I pay a franchise fee and royalties?

The short answer is if you have the “big idea” for a cool business concept, the wherewithal to do all the research on the CRM and technology you’ll need to run your business, the marketing savvy to know how to best market your business, and the ability to ride out the inevitable “trial and error” period (which could be as long as 3- 5 years) – then by all means DON’T invest in a franchise.  If you are a true entrepreneurial guy or gal who likes to do things your way – franchising is most definitely not for you.

 

Contact us for a conversation about the questions you SHOULD be asking, and we can give you access to our psychometric assessment specifically designed to see not only if franchising IS for you, but what type of business might be a good fit.

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