Most people probably don't understand franchising enough to know exactly what it means for them or what they get out of the deal. There could be misconceptions about franchise ownership that may create barriers for people or in a more serious scenario, lead to expensive mistakes. To help provide baseline insights into franchising, here's a look at 10 common franchise myths to help you understand franchising a little much better before signing away that cheque.
Myth #1: Franchisees Will Only Be Successful Doing What They Love Or Are Good At
FALSE. One of the main advantages of franchising is to allow people without the necessary knowledge and skills to start a business in an unfamiliar industry, with established training programs to facilitate this process. By limiting the choices of franchises to your personal areas of interests or skills, you are robbing yourself of the opportunity to explore possibilities that are outside your experience or interests. Don't ignore the fact that you have transferable skills (e.g. HR management, sales & marketing, etc.) from your past experience and could implement those in any business. If there's any additional gaps, you could always hire someone with a talent to plug that. Also, being a fan of a company's product or service and operating that business are two different things altogether. Don't make emotional decisions but evaluate how your past experience and skills could come in handy to help you break into that new horizon.
Myth #2: Franchise Agreements Are Non-negotiable
FALSE. The franchise agreement officially signifies your status as a franchisee and also governs the relationship between you and the franchisor. Despite what most people believe about contracts, a franchise agreement is actually a customized document for the franchisee's needs and wants - all to be made known during the negotiations phase. In order to maintain consistency within the franchise system, franchisors will typically not initiate to make changes to their franchise agreement but most are willing to include special clauses as long as it is within reasonable boundaries. So don't be afraid to ask because there is room for some creative negotiations.
Myth #3: Franchisors Will Handle All Marketing Initiatives
FALSE. Most franchisors will have in place certain marketing initiatives (national, regional or even global) that would benefit all units under the same brand, most franchisees will still need to engage in marketing activities for their own territory. In fact, most franchisors require their franchisees to allocate a stipulated amount on marketing activities each month on their own territory. On top of that, some franchisors will also require regular payments for collective marketing purposes but there is no guarantee that it will be spent on any particular location, country or region. Although accountability of fund expenditure will be provided, franchisors will typically have full discretion on where and how to spend this money.
Myth #4: Franchisees Don't Have Freedom
FALSE. One of the most widespread misconceptions about franchising is the franchisor dictates every action that franchisees perform. In a franchise system, you are required to operate the business (e.g. pricing level, main product/service offerings, etc.) and uphold the brand name (e.g. signage, unit appearance, customer experience, etc.) in accordance to the guidelines and protocols provided. This is to ensure that you represent the business as professionally as possible with the goal being customers able to recognize the unit as part of the brand instantly. In other words, the franchisor dictates the operational framework but beyond that you are free to manage the business in your own way and take on your own marketing initiatives, among other autonomies. Furthermore, most franchisors actually welcome innovative suggestions and encourage franchisees to submit ideas. But keep in mind, always obtain the franchisor's written permission before implementing any new ideas.
Myth: 5: Franchisees Don't Have An Exit Strategy Until Expiration Of The Franchise Agreement
FALSE. As with almost all contracts, franchise agreements are binding and provides for a stipulated period with an expiration date. Yet if you would like to exit the relationship before the expiration date, transferring or selling ownership of the franchise to another party is an option. However, this is conditional - meaning all conditions set forth by the franchisor must be satisfied before you are able to proceed. In addition, you will most likely have to incur all additional associated costs (e.g. training of the new franchisee and staff, legal costs for transfer of ownership, etc.). More significantly, this can only be executed upon approval from the franchisor and such approval is at the franchisor's discretion.