Business Franchising

BFT212 BUSINESS FRANCHISING & LICENSING CHAPTER 3 (RECOGNIZING FRANCHISING OPPORTUNITIES)

Ten Myths of Franchising

1. Franchising is the safest way to go into business because franchises never fail Although the failure rate for franchises is lower than that of independent businesses, there are no guarantees of success. Franchises can-and do-fail. Potential franchises must exercise the same degree of caution in judging the risk of a franchise as they would any other business. 2. I’ll be able to open my franchise for less money than the franchisor estimates Launching a business, including a franchise, normally takes more money and more time than entrepreneurs estimate. Be prepared. One franchisee of a retail computer store advises. “If a franchisor tells you, you’ll need $100,000 to get started, you better have $150,000.” 3. The bigger the franchise organization, the more successful I’ll be Bigger is not always better in the franchise business. Some of the largest franchise operations are struggling to maintain their growth rates because the best locations are already taken and their markets have become saturated. Market saturation is a significant problem for many large franchises, and smaller franchises are accounting for much of the growth in the industry. Early franchisees in new franchise systems often can negotiate better deals and receive more individual attention from the franchisor than those who purchase units in well-established systems. 4. I’ll use 80 percent of the franchisor’s business system, but I’ll improve on it by substituting my experience and know-how When franchisees buy a franchise, they are buying, in essence, the franchisor’s experience and knowledge. Why pay all of that money to a franchisor if you aren’t willing to use their system? When franchisors screen potential franchisees, they look for people who are willing to fit into their systems rather than fiercely independent entrepreneurs. Franchisors have spent years building the...