Franchise Speak

Ten Reasons to Buy A Franchise : Argued & Refuted

Evan Carmichael must accept advertising dollars from franchises, because his article about reasons to buy a franchise can be easily refuted and argued. 

Evan says: 1. Proven business: Opening a franchise comes with the advantage of knowing that this business has been successful in other locations. The idea and process of running this business have already been proven. Therefore the learning curve in operating the business can be virtually eliminated.

Reality says: Any franchise can claim a proven success record, with little or no regulation to keep them from doing so.  Not to mention regardless of having the processes and systems given to you, you still must learn how to implement them.  The typical training period for a franchise is a couple of days, and if it is actually a successful franchise, it will cost you 100’s of thousands of dollars to gain access.  Many franchises claim a successful business model, but that model could be specific to the one location and market they choose to highlight, while selectively removing information about the numerous failures.

Evan says: 2. Lower risk: Risk of failure is lower with a franchise than starting a brand new business. There is a much higher likelihood of success if the same business has done well in other areas.

Reality says: This is the biggest lie perpetrated by the franchise industry, and Evan clearly generalized the claim because of the scrutiny that is being given to this statistic lately.  One or two successful franchises have swung the numbers greatly, but just because a Subway or McDonalds is successful 90% of the time does not mean the franchise you’re looking at is.  Not to mention that even the statistics of these great franchise companies have been twisted and not fully disclosed, due to the fact that a territory and/or location is almost never considered a failure because when it goes out of business the location is remarketed and opened again by someone new. 

Evan says: 3. Established customer base: The brand name that comes with the franchise is already recognizable to consumers, without the franchisee (purchaser) having to spend a lot of money and time in establishing a new brand. The brand awareness provides security and trust to the customer who expects uniform quality to be provided. Therefore a customer base is already established.

Reality says:  This is true.  However is only applicable to a very small number of very expensive franchises.  For less expensive franchises they have most likely not had the success they are claiming.  For Evan to generalize this statement as if it applies to all franchises is completely irresponsible.   This is also the only thing that makes a franchise worth a single penny, so if you haven’t heard of your franchise before researching the company, this “brand” benefit has little or no value to your market and may not be worth the monthly royalties you’ll be paying, and could have put into advertising in your local market instead.

Evan says: 4. Marketing: The franchisee can benefit from any advertising or promotion that the franchisor (owner of the franchise) does at the national or local level, without absorbing the cost. The franchisor can also provide input to the franchisee on a local marketing plan.

Reality says: Without absorbing the cost!!!! Evan clearly forgot that all franchises require a monthly advertising fee on top of the monthly royalty fee.  Plus, in your franchise agreement you’ll read that they have total control over that marketing and that it may not be used to benefit your particular location.  So not only do you pay for it, but you also aren’t guaranteed that it will help you at all.  Wouldn’t it be better to just use that monthly fee in your local market, benefitting your local business, and your local economy?

Evan says:  5. Initial and ongoing support: Training and support is usually part of the deal. Since the franchise company has a vested interest in how well you do, ongoing training, system upgrades, product enhancements, and question and answer resources are provided. The franchisor offers experience to franchisee in such areas as accounting procedures, personnel and facility management, and business planning.

Reality says: A franchise has absolutely no vested interest in your success.  It only has a vested interest in keeping their royalty fee coming in, and that could be done through you or the next person who will handle your territory.  Not to mention, there is no requirement or no agreement in your franchise contract that forces them to do this, and absolutely no accountability to them if they fail to or if it actually helps you (in your local market) or not.  No matter what you still owe your royalty fees, irregardless of if the franchisor is pulling their weight. 

Evan says: 6. Exclusive territory: Rights are exclusive for the territory, with no other franchises sold in the same area as competition.

Reality says:  This is another large generalized mistake by Evan.  Read your agreement carefully.  It is almost guaranteed that the franchisor reserves the right to open where ever they want, and/or create a new business that does the same thing just with a different name in your territory, and this happens all the time.  If you find a successful market, the franchisor has full disclosure to your financials, and now knows where to establish a new business.  So you took all the risk, you showed them where it works, and now they plan to take full advantage of your knowledge, and worst of all YOU PAID THEM TO TAKE IT! 

Evan says: 7. Ease of funding: Many times obtaining financing for a franchise is easier since the franchise name and reputation are usually recognized by the lenders. Therefore, banks are more likely to fund the franchisee.

Reality says: Of course Evan has made another generalized statement that only applies to a very small percentage of actual franchises.  Yes, if you’re opening a McDonalds, but NO if you’re opening an Ink A Dink, Romp N’ Roll, or Young Chefs Academy or any other small franchise with little to no success record.

Evan says: 8. Purchasing power: Relationships with suppliers are already established; affording the opportunity to buy in bulk, enabling a great deal of savings for the business.

Reality says: WOW, Evan is completely glancing over one of the worst things about franchising.  A huge number of franchisors want to take complete advantage of you and your desire to work for yourself.  They will require you to purchase from vendors which they approve, and then receive a kickback from those vendors.  Therefore inflating your price and completely eliminating the “bulk buying power” that a business of your size should receive.   You are nothing but a profit center for the franchisor and they will take every opportunity to maximize that profit.

Evan says: 9. Pre-purchase information and research: The potential franchisee can make an informed decision because of information that can be obtained prior to purchase. The Federal Trade Commission requires franchisors to provide the franchisee with certain information including the company’s history, information about the officers, litigation history, audited financial statements, the franchise agreement, and a current list of franchises with owners’ names and contact information.

Reality says: The franchisor will provide you with an edited list of franchisors to call and talk to.  No doubt this list will be their most successful few and conveniently leave out the people who have already closed, and/or are close to closing.  The FTC investigates less than 6% of franchise complaints and you will have little recourse if you run into a problem.  Without a doubt your franchise agreement will force you to bring any litigation in the place and court system of the franchisors choice along other various road blocks to justice.  

Evan says: 10. Solid economic niche: Franchises cater to consumers’ specialized needs. Consumers tend to prefer doing business with companies that meet their specific needs and the franchise industry has been fitting the bill. Whether you purchase a franchise in an existing location or take on a new territory, the investment can prove to be well worth your while. If you are looking for more franchise information there are many web sites that offer free contact information for many franchises.

Reality says: What a fitting end to a completely generalized article about why to buy a franchise.  A completely inane, non-quantifiable, indescriptive filler.  Most likely because Evan couldn’t come up with a real reason number 10.

Bottom line: 

What do you get for your initial franchise, ongoing royalties, advertising, and vendor kick back fees?  You get the right to be obligated and the right for someone to take any success you have and credit it to themselves.  If you have the guts, instinct and talent to run a successful business… GUESS WHAT… you will be successful with or without the franchise.   The main difference being who will get credit for your success, and who’s making the most money from it.

The reasons to buy have been provided by: http://www.evancarmichael.com/Franchises/906/10-Reasons-to-Buy-a-Franchise.html