Top 7 Reasons to NOT Buy a Franchise
I have spoken with hundreds of franchise owners over the last decade. Some did very well, some did OK, and some lost everything. Why is that and who is not a good candidate to buy a franchise?
Number 7 reason you shouldn't buy a franchise: You are an entrepreneur or innovator at heart. Franchising has very specific systems and processes you need to follow. The system is the reason you paid a lot of money to buy the franchise. If you have the type of personality that always wants to change things, always wants to tinker with how things are run, owning a franchise will be frustrating and frustrated people dont make money. If you buy a franchise be 100% committed to do things exactly as outlined in your operations manual even if you think you could do it better.
Number 6 - You think franchising is easy. It isnt. Some aspects are easier than starting a business from scratch, yes, but running a franchise is still a lot of work. People who go into a franchise thinking it is going to be easier than their job often get overwhelmed and do poorly. If someone selling a franchise tells you how easy it is to operate, that should be a red flag. As part of your diligence you should speak with franchise owners to get their feedback.
Number 5 You are an emotional decision maker. Some people make decisions based on data and facts while others are more emotionally driven. Unfortunately emotional buyers often gravitate to certain businesses for the wrong reason. The happy coffee shop vision, the frozen yogurt fantasy, the pet shop dream. Not that these businesses cant do well in the right environment, but emotional buyers often ignore any negative data as to not be wrenched away from their fantasy. Coffee shop? High competition and failure rates and endless employee attrition, Pet franchises may involve more sales and networking that being around pets. Some franchises in less glamorous sectors can earn much more money if a person is willing to keep an open mind. There's unique negatives and challenges in every franchise be sure to consider them before you buy.
Number 4 Your skills are not suited to operational model. Some franchises need good managers, like fast food. You need to be able to work with lots of different personalities, not get annoyed easily and be continually hiring and firing pretty much forever. B2B franchises involve selling to other businesses. Cleaning Franchises require you to go out and do estimates. Be honest about your abilities, don't just assume you'll be a superstar as that can be a costly mistake. The most important part of buying a franchise is matching your skills, local market demand and other factors to the right franchise. If you need help call Franchise City!
Number 5 is buying based on name. It's Subway, its 7-Eleven, it's Wendy's, they are huge so it must be a good opportunity. So many people just buy a name because they are familiar with it. This is familiarity bias, and is another mental mistake most people are programmed to make. If you think the bigger a franchise the lower the failure rate that is absolutely not always the case.
Number 6 is Buying into the Hype. We covered before on the channel how wrong these industry toplists and awards often are, and many awards are simply bought and paid for. Even the franchise 500 is inaccurate - link to that video above. Do not ever assume because some random website or even a well known awards platform suggests a franchise that means it is good. We demonstrated in that video how many of them are actually terrible. And that goes double for these "veteran" or first responder lists most of those are misleading or shady as well.
Last but not least do not buy a franchise if you are undercapitalized. When you look at a franchise the company will send you an FDD, or franchise disclosure. In that disclosure it shows you everything you'll need to invest in, including supplies, materials, rent etc. as well as approximately how much everything will cost. In most cases they will include 3 months of working capital which many buyers assume is likely the break-even point or around when they will reach profitability. Absolutely not true in fact many franchises can take a year or longer before seeing any profit, so dont use this number as a maximum or you could run out of money. The problem is you cant even ask the franchise company that question because legally they can't discuss financials unless they have disclosed that specific information in their FDD. Franchise owners however are not bound by this law so its a good idea to ask them about their experience of time to breakeven. We have a list of important questions to ask both the franchise and franchise owners in our free library of tools so always call Franchise City before you buy https://www.franchise.city/our-services
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