Franchise Investing | Consider These Pros and Cons Before You Invest

Anyone who saw the movie “The Blind Side” got a look at the dream world of investing in and owning a franchise. If you didn’t see the movie, it’s the story of a white family in the South rescuing a gifted African-American football player from the ghetto by taking him into their home and enrolling him in a private school. This family was able to do that because the father owned several fast-food franchises.

In addition to a huge home, plenty of money for private school tuition (for three—he had two children of his own), the lead male character also was able to get his family free food whenever it felt so inclined to drive through one of his franchises.

It looked like an idyllic life—free grub, tons of money, all of the franchises running smoothly and making huge profits. That appeared to be the case for the entrepreneur who helped to raise Michael Oher, now manning the offensive line for the Baltimore Ravens in the NFL. Yet, it is certain that the owner of those franchises would have tales to tell about the ups and downs of franchise investing, and you should be aware of them, too, before you sink your money into a franchise in search of riches and freebies.

Here are some of the pros and cons of franchise investing for you to consider before you invest and make the leap from a dreary 9-to-5 job to the “exciting” world of running a franchise. First, the pros:

  • A franchise already has a proven business model. It is not at all like starting a business from scratch. In most cases, a franchise has an established brand and a corporate image. The business must have been on solid ground in order to expand into franchises, so you are joining a team that was winning at one time, at least. The business has a history of success and has tried various methods and models to keep profits coming, and its name is already out in the public arena, saving you a huge step that most small business owners have to take—establishing an identity with the buying public.
  • Because the business has reached the point of breaking into franchises, the franchisor has, in all likelihood, done all that s/he can to reduce the risk for new investors. That doesn’t mean that there is no risk, but the amounts put up to invest in franchises can turn out to be far smaller than the amounts that other first-time entrepreneurs sink into their business ideas. The franchisor is striking while the iron is hot, and s/he wants to make investment in a franchise as appealing as possible. In most cases, that means reduced risk for you, the potential investor.
  • The franchise is part of an already-established network that allows its owners to buy in bulk from large suppliers at excellent rates. In effect, another huge step for a small business has already been taken—finding dependable suppliers at the best prices.
  • Other advantages include an easier time getting financing (banks tend to favor franchises), a guaranteed exclusive territory for your franchise (although competitors with similar offerings are free to move in next door!) and a nice mix of marketing support and independence that can help you put your stamp on your franchise’s image and success.

Now, for the cons:

  • For the true maverick, franchising can feel a bit restrictive, as you are handed huge manuals loaded with rules and operating procedures, thus limiting your input. Franchises must have a high degree of uniformity to protect the brand, which could feel very constricting. That alone can be a big con; it can feel larger still if the market shifts and your franchise is slow to react, which could bring the whole ship down.
  •  You will have to pay regular royalty fees to the franchisor, which might feel a little like sharecropping or feudal farming to some. You need to check the fine print on your contract and mentally prepare for these fees.
  • Taking over a franchise also means that you are getting married to the franchisor. Before you invest, have you done your research on him/her? You will need to have a high degree of belief in the franchisor for the marriage to work. If you begin to discover certain things about the franchisor that you are not crazy about, it could create a very difficult business and personal relationship.
  • Despite what “The Blind Side” showed, investing in a franchise can mean looong hours with calls late at night involving someone not showing up for a shift or a troublesome customer who refuses to leave the restaurant. Franchising can become a 24/7 occupation if you get involved in the day-to-day operations.

In summary, franchise investing can be quite profitable and fairly simple, especially if you are not directly involved in running the franchise. However, there are several potential pitfalls that need to be researched and considered before you invest money into a given franchise.

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