Not everything you hear about franchising is correct, but that doesn't stop some people from acting on it. As a franchise consultant for more than 30 years, I've probably heard it all.
I recall a client from Nova Scotia who shared with me his inaccurate, but very common, perceptions of franchising; most of them money related and none new to my ears. Fortunately, he wasn't the dogmatic type. I took the time to listen to his statements and he was kind enough to listen as I corrected him. Here's what we talked about.
Myth #1: Buying a franchise is expensive.
Of all the myths I hear, this one is the strangest. The success rate of franchised businesses far exceeds that of independents, partly because the relationships between franchisors and suppliers can save franchisees so much money. Independent businesspeople also lack mentors and as such, are more likely to misspend the money they have. However, when you purchase a franchise from a successful franchisor, you can rest assured you have sufficient working capital to get started. If you didn't, the franchisor would not have offered you the contract.
Myth #2: Franchise money myths.
To begin with, 'a lot of money' means different things to different people. Some franchisees are satisfied making enough money to live comfortably and stabilize their futures. Other franchisees want to be rich. Their personal circumstances or spending habits may require them to make several times as much as the average person. For this latter group, a reasonably profitable franchise may still not make 'a lot.'
Further, while we all need enough cash to cover our needs, success can be measured in a variety of ways. For some franchisees, it is not simply about dollars, but equally about personal satisfaction derived from their businesses. For others, personal satisfaction is derived from making money. That can also be a goal.
Your franchise can probably give you whatever income you want—assuming you're a good operator and able to work hard. Prior to buying a particular franchise, speak with current franchisees to ensure your economic and personal needs can be met.
Myth #3: Only the franchisor makes money.
A financially healthy franchisor is necessary to the success of your franchise system. However, it is in your franchisor's best interest to have franchisees who are also financially strong. Here's why: talented, prospective franchisees will not squander their work ethic on a franchise system that does not support its own. Therefore, these prospects will perform due dilligence before they buy; paying special attention to the opinions of current franchisees. If those franchisees are just scraping by, they will have little good to say about the franchisor. Success attracts talent, which breeds more success.
Myth #4: Franchisors lend you money.
Some franchisors offer limited financing, but none of these companies are in the banking business. In other words, you'll be expected to secure your own financing from a bank. The bank, of course, only lends to qualified candidates. Your chances are best if you possess a net worth in excess of the amount you wish to borrow, in addition to a good credit rating.
Myth #5: The more money you invest, the more your franchise will make.
This is absolutely false, but I hear it all the time—probably because in most parts of life, expensive products or services are higher quality than cheap ones. This is true for cars, wine, nice restaurants and all-inclusive spas. However, buying a business is different.
Let me give an example. Franchisee #1 buys a franchised restaurant for $800,000, while franchisee #2 buys a home-based, consulting franchise for $50,000. While the former costs far more, it may actually make less money, especially when overhead is factored in. Successful people buy the franchise they are interested in running and do not assume cash going in equals cash going out.
