- Want to Start a Lower-Risk Business? Become a Franchisee - June 23, 2021
The day I became a franchisor, the ceiling collapsed. Literally. I was at Kidville headquarters in New York City and had just signed the final documents. The phone rang, and the CEO answered it. He handed the phone to me and said, “This is your problem now.” A heavy truck had pulled into the parking lot at one of the facilities in New Jersey. There was a parking deck beneath, where the ceiling should have been secured by beams but wasn’t. The truck fell right through to the next level. Fortunately, I was able to advise and talk the advisee through the situation. No one was hurt, and the insurance took care of everything.
I tell this story not as a cautionary tale, but exactly the opposite. When you’re a franchise owner, you are guaranteed that someone always has your back — even when the ceiling collapses.
I have been in the franchise business for more than 15 years now, both as a franchisee and a franchisor, and I can attest that if you want to become a business owner and be your own boss with the least amount of risk, franchising could be for you.
Below, I will highlight five advantages of becoming a franchisee:
Eliminating the unknown
The most difficult part of starting any business is the unknown factor of whether or not this business is going to be successful.
According to the U.S. Bureau of Labor Statistics, about 20% of all U.S. small businesses do not survive their first year, and by the fifth year, about 50% have floundered or failed. By the tenth year, only a third of those businesses are still alive.
Businesses fail for many reasons (poor capital management, bad business plans, too much investment in infrastructure and not enough in talent, poor location, inadequate product, marketing to the wrong demographic, the list goes on), but the bottom line is that most businesses fail because the owners have never been in business before.
Entering into a franchise agreement eliminates the unknown factor. Once you sign the agreement to become a franchisee, you immediately tap into a network of tens, or hundreds, of years of cumulative knowledge of those who forged the way to build a known brand. There are systems in place that have been tried and tested. The business has been successful in other markets, and it’s worked well. This minimizes your risk right off the bat. You have a big leg-up from anyone who is starting his or her own business from scratch. That’s the beauty of franchising — you are buying into an operation that has been working for years, and you can trust it.
Becoming your own matchmaker
With a franchise, you can choose a business that matches your personality and your skills. This is a key ingredient to having a successful business.
When most people hear the word “franchise,” they think McDonald’s. So, it’s not surprising to learn that McDonald’s is indeed ranked the number one franchise in the U.S. However, you might be surprised to learn that the number six franchise in the U.S. is Ace Hardware, or that RE/MAX is number 19, and Interim HealthCare is number 20.
There are more than 700,000 franchises in the U.S. alone, ranging from restaurants to hotels to spas to schools to garages to pet stores to moving companies. H&R Block is a franchise. So is the UPS Store.
What suits you best? The more you like your work, the more likely you are to stick with your work, and the more likely you are to succeed in your work — again minimizing the risk of failure.
Being first in line for a business loan
What’s one of the most common reasons why businesses fail? Poor capital management. If the business is undercapitalized, the business will most likely fail before it has the opportunity to prove itself. However, when you’re buying a franchise, first and foremost, you’re going to get training from the franchisor, who’s had experience running these things. They have systems in place you can utilize, and this will minimize your management risk from both a lending perspective and capitalization perspective.
Most franchises are SBA-approved. You can get financing for the businesses, so you won’t be undercapitalized. SBA franchise loans are highly sought after, and you should begin there.
When a novice entrepreneur goes to the bank to get a loan, it’s like a cold call to a new client: they have no history to show. Funding startups is difficult, which is why most of them seek alternative forms of financing and not bank loans. Franchises are known entities. If you can pass a background check and have good credit, you should be able to easily secure a bank loan. But even if you have had past financial problems, there are plenty of loans for franchises you can consider.
Every franchise has a different financial structure, but you can ballpark that you will need at least $100,000 in liquid capital investment to begin, including franchise fees, which are necessary and vital to your success. Paying these fees entitles you to the brand, use of its intellectual property, trademarks and systems. You may also have to pay royalty fees, local or national fees, and technology fees.
Buying in to the branding
Establishing a business is difficult. Establishing a brand is 10 times more difficult. When you invest in a franchise, you also are investing in a business that has proven itself through a number of trials and errors.
People throw the word “brand” around willy-nilly, as if a brand is a tangible thing, like a beach ball or a logo; but a brand is so much more than that. It’s a promise the business makes to its customers. It’s the values the business holds and wants to share, and it’s the sum total of the mission and the goals of the business itself. At Tumbles, we say, “We want to shape the minds and bodies of the future.” And we mean it.
When a franchisee chooses a franchisor, they don’t have to spend endless hours and dollars figuring out what the company values are and what their mission is. The franchise has already wrapped that up nicely with a mission statement, tagline and logo. Yes, having a visual identity is part of the brand, but it is not the brand. That said, a franchisee will not have to spend valuable time and dollars to create a unique brand identity with logos and visual assets — not to mention third-party vendor relationships with preferred pricing agreements, systems and processes. Additional time and money is then freed up to spend on marketing the business, hiring highly-qualified employees and managing the operation.
Getting by with a lot of help from your friends
One of the best things about being part of a franchise is that even though you have your own business and you are your own boss, you are never alone because you have the structure of the franchise behind you. You will always be able to tap into the franchise network if you are having problems you can’t solve on your own.
Becoming a franchisee guarantees that you have a built-in support system, and not just with your franchisor, but also with your fellow franchisees. How many first-time business owners have these kinds of support structures?
There will always be people who are innovators or provocateurs with market-altering creative ideas and business plans that blow the rest of us out of the water. But few of us have the capital or resources to engage in or execute such risky ventures. Would you rather keep the ceiling where it is, or have someone to call when the ceiling is falling?