In Part 1 of this two-part series, five franchise myths were explained. This article will continue to look at five other franchise myths.
Myth #6: Bigger Franchises Are Better
FALSE. It is no secret that a bigger franchise definitely gets you more customer recognition with its own loyal following but just because a franchise has many units doesn't mean all are turning out a profit. When looking at bigger franchises, the level of market saturation is especially pertinent when evaluating the available room for growth in your desired location. Furthermore, there's no guarantee that customers will come pouring through your doors because you are still competing with the surrounding competition. Resources and effort will still need to be invested into marketing your franchise business for customer generation and retention. Rather than just focusing your sights on bigger franchises, perhaps consider franchise opportunities that could provide you with the opportunity to highlight your skills too.
Myth #7: The Franchisor Handles The Business & Operational Setup Process
FALSE. Upon signing the franchise agreement, the franchisor is obligated to provide the required support and assistance to get your franchise unit up and running. While this is true, it doesn't mean the franchisor will provide a ready-to-go turnkey service (unless specified in writing). What the franchisor provides is a structured step-by-step guideline for operational and management aspects, along with training programs to transfer the necessary knowledge to you and your employees. All so to implement foundational systems to ensure the franchise unit is equipped for success. Some franchisors may even send a representative to help assist in overseeing the development of your franchise unit. Franchising is attractive because franchisees don't have to create everything from scratch. But be very clear on this fact - the franchisor only handholds you.
Myth #8: Setting Up A Franchise Costs Less Than Setting Up A New Business
FALSE. In addition to the initial investment required to set up the franchise unit, you will have to put up an upfront payment for the franchise fee, and subsequently other on-going payments. But what you get for these fees are established processes, systems and tools that would otherwise require your creation and implementation. One such example can be seen in the development of branding and marketing materials (e.g. logo, corporate identity, advertising platform, etc.). Of course, the costs could be lower if you choose to set up your own business while having the necessary knowledge to develop your own system and tools. But the additional payments you submit to the franchisor allow you to be associated with an established brand name with a proven business model and track record to show - something you would definitely not have if you set up a brand new business.
Myth #9: Franchisors Will Only Make Money If Franchisees Are Making Money
FALSE. If your franchise unit is doing well, it will result in increased profits to the franchisor through higher royalties and other on-going payments (assuming such payments are derived as a specified percentage of revenue) so this is one of the win-win situations that you may hear so often from franchise marketeers. But even if your franchise unit is not churning out profits, you will still be required to submit royalty payments to the franchisor. This is because franchisors typically calculate royalty from your top-line revenue, not profits. So if you're expecting there's no requirement to submit royalties (and other on-going payments) when you're not experiencing a profitable month, think again.
Myth #10: Franchisees Need To Quit Their Job To Own A Franchise
FALSE. This is usually not the case as many franchise systems are designed for flexibility with passive management rather than full-time attention. That being said, most franchisors will require franchisees to commit to a certain level of hands-on management to ensure franchisees are able to maintain the required consistency within the franchise system. Perhaps one of the reasons that the franchisor may have concerns regarding your employment status is when a conflict of interest is present (e.g. working for the franchisor's competitor).
The issues mentioned in Part 1 and Part 2 of this series are to dispel some commonly perceived misconceptions about franchising and provide basic insights into the nature between the franchisor-franchisee relationship. Whether it opens doors or creates barriers, prospective franchisees must understand that not all franchise opportunities are suitable for everyone and not everyone is suited to become a franchisee.