10 Misconceptions About Owning A Franchise
- Nov 15, 2022
- 7 min read
Updated: Nov 16, 2022
Written by: Stacey Marmolejo, Executive Contributor
Executive Contributors at Brainz Magazine are handpicked and invited to contribute because of their knowledge and valuable insight within their area of expertise.
When it comes to owning your own business, a franchise may be the perfect option for you. After all, you get to reap all the benefits of being your own boss while relying on a tried and tested business model. However, among the great information available online is also a lot of misinformation about franchises. When you don't know what you don't know, it's easy to be duped.
I want to dispel some of the most common misconceptions about owning a franchise.
1. Franchises are expensive to start
There's a common misconception that franchises are expensive to start. While it's true that some franchise businesses require a significant upfront investment, there are many franchise opportunities available for those with limited capital.
The Small Business Administration reports that the average franchise fee is between $20,000 - $50,000 but there are plenty that are less expensive and plenty that are more expensive.
Of course, the exact amount you'll need to start your franchise will depend on the particular franchise you choose. However, with a wide range of franchise businesses to choose from, it's easy to find an opportunity that fits your budget.
So if you're thinking about starting a franchise business, don't let the cost discourage you.
2. Franchises are riskier than independent businesses
Many people believe that franchises are riskier than independent businesses. However, this is simply not the case. Franchises offer several advantages that can help to reduce the risk of business failure. For example,
Franchisees benefit from the experience and expertise of the franchisor.
They have access to proven business models and marketing strategies.
Franchisees receive ongoing training and support.
Franchisees have brand recognition from the day they open their doors.
As a result, franchisees are often better equipped to manage the challenges of running a business. Consequently, franchisees are no more risky than independent businesses. They may even be less so.
3. Franchises require a lot of work
When most people think of franchise businesses, they imagine long hours, grueling work weeks, and little opportunity for relaxation or enjoyment. However, this outdated perception is far from the truth. In reality, franchise businesses offer several benefits that can make them an attractive option for aspiring entrepreneurs. For starters, some franchises support absentee owners, so your work is limited.
Additionally, franchisees benefit from the proven business model and support of the franchisor. This can free up time and energy that would otherwise be spent on trial-and-error experimentation. Finally, many franchise businesses offer flexible work schedules that allow franchisees to enjoy a better work-life balance.
As a result, franchise businesses are not the high-pressure, high-stress enterprises that they are often made out to be. Instead, they offer many advantages that can appeal to a wide range of potential business owners.
4. Franchises are not flexible
There are generally four main drivers for why a person buys a franchise. Flexibility is one of the four. While some franchises are very stringent about how everything is done, other franchise businesses offer a great deal of flexibility, both in terms of how you operate your business and in terms of your growth potential.
For prospective franchisees who value flexibility, this is one of the biggest advantages of owning that particular franchise. There are 4,000 franchise opportunities out there, and knowing your motivators can help you make an informed decision.
5. Franchises are not suited for entrepreneurs
Nothing could be farther from the truth, especially for a first-time business owner. Franchise ownership teaches you how to run a business. It makes you focus on the financials (because you have to submit reports to the franchisor) and if you aren't a P&L (Profit & Loss Statement) or KPI (Key Performance Indicator) whiz, to begin with, you will be in short order.
The key is to find a franchise that is a good fit for you in terms of financial opportunity, flexibility, freedom, and fulfillment and takes advantage of your core competencies.
In other words, a franchise is the perfect first business for a first-time entrepreneur. For serial entrepreneurs, a franchise is a great way to put those skills and areas of expertise to work in order to scale. Again, selecting the right franchise is the key.
6. Franchises do not allow for creativity
This is a very old myth. There are franchises based on creative skills. For example, music and art education franchises. Or painting and drinking wine.
Don't be discouraged by the false notion that you'll have to sacrifice your creativity if you buy a franchise. Beyond the subject matter being a creative outlet, there are other franchises that require creativity to succeed. Think website design, marketing agency, interior design, home improvement, etc. While franchisees are bound by certain rules and regulations, there are a considerable number of franchises that rely on creativity to be successful.
7. Franchises are not recession-proof
While you won't be immune to a recession simply because you own a franchise, there are elements of owning a franchise that helps you weather the storm better than an independent business.
One of the biggest advantages that franchises have during a recession is that they have an established brand so when the potential customer market shrinks, those with brand recognition generally fare better.
Additionally, franchisees often have access to important resources, such as financial assistance and marketing support, which can help them weather the storm during a recession. However, it should be noted that not all franchises are equally equipped to handle a recession.
For example, luxury brands (franchise or independent) may suffer more during an economic downturn than those who offer essential services.
Conversely, there are franchises that enjoy greater success during a recession. Think about repair services (repair instead of replace mentality), child care and health care (these needs don't go away during a recession), and business-to-business services like technical support, digital advertising, and tax preparation. There's even a funeral home franchise and we all know that death and taxes are the only two certainties in life!
8. Franchises are not easy to sell
Selling a franchise business is not much different than selling an independent business. Be sure the valuation is solid and hire a business broker who understands franchising.
Some buyers prefer to buy an established franchise business because they want the built-in revenue AND the support of a franchisor.
The best part is, when it’s time to sell the business, a franchise is valued 10-20% more than an independent business that sells the same products/services.
One caveat of selling a franchise is that the Franchisor generally has the right of first refusal, so when you receive an offer from a buyer, you must present that to the Franchisor and they can choose to buy your location for that same price. The second caveat is that the buyer must be a qualified buyer in the eyes of the Franchisor. In other words, they have to meet the same criteria with the Franchisor as you did when you initially purchased the franchise.
9. Franchises are not suitable for all types of businesses
With 4,000 franchises in 250+ industries, it's obvious just by the numbers that there's a franchise for pretty much every type of business. Brick and mortar. Online. Work from Home. Business-to-Business. Business-to-Consumer. Product based. Service based. Owner/Operator or Absentee Owner.
10. Franchises have a high failure rate
The reality is that franchises have no higher failure rates than any other small business. Yet, it's also the reality that there's no evidence that it has a lower failure rate either. There's a statistic floating around the web, and being promoted by many in the franchise industry, that states that franchises have a 90% success rate. This is INACCURATE. It's one of those human errors that made its way to the web and content developers continue to pick it up and use it without researching its validity.
But ‒ does it really matter what industry rates are? Wouldn't you rather know the success/failure rate of the specific franchise you are interested in? And THAT is an easy piece of data to get.
You simply ask your franchise sales rep. If they don't know the answer off the top of their head, they can get it for you. And if they say they can't, that tells you something right there.
11. (Bonus) Franchises are the same as MLMs (Multi-Level Marketing)
I’m always surprised when I encounter someone who believes a franchise is an MLM. At first, I thought it was just that one person. However, I’ve had several people say that to me. Therefore, I want to make sure that you know, franchising is one type of business model while multi-level marketing is a different type of business model.
One last thought to ease your mind: Franchises are highly regulated Before 1971, the franchise industry was not regulated.
The State of California, to protect its residents who purchased a franchise, passed a franchise disclosure regulation that all franchisors had to follow in order to operate in the State of California.
Eight years later the Federal Trade Commission followed California’s lead and introduced the UFOC: Uniform Franchise Offering Circular nationally.
In 2007, the FTC updated the document and it became the Franchise Disclosure Document, which is what is used today.
Stacey Marmolejo, Executive Contributor Brainz Magazine
Stacey Marmolejo is a Career Transition Coach. She helps people who want to leave their job to own their own business. She is the creator of Franchise Prep Academy which provides unbiased courses on all you need to know to buy the franchise business that is right for you. After 25 years of climbing the corporate ladder, Stacey gave up a prestigious Senior Vice President position with a national firm to purchase a start-up franchise.16 years later, as one of the Top 10% of franchisees, she successfully sold her franchise business and now dedicates her time to helping others who want to pursue a similar path to career success and life happiness.
