One of the things I hear over and over from distressed franchisees is that they purchased a franchise because it was a “proven business model.” Now, I don’t blame most franchisees for this thought process as they head into their franchise business purchase. The franchise industry has done a remarkable job of marketing itself where people are preconceived to believe franchises are proven business models. Second, some franchises have been in business for a long time which naturally leads someone to believe it is a proven business model. After all, a franchise would not be in business for a long time if it were not proven, right?
But here are some important things to consider when buying a franchise:
- Please know and understand that franchises fail at approximately the same rate as other business opportunities. When you understand this fact you will know that franchises are not necessarily “proven business models.” Even franchisees from very successful franchises do fail. DO NOT go into a franchise opportunity thinking you will be successful based upon the business model alone.
- How long has the franchise been in business? If the franchise is relatively new, does it have a history of operating multiple locations as an independent business? How successful were those independent businesses? If the franchisor has not operated multiple locations in a successful manner, how can the business model possibly been proven?
- Is the franchise business model trending in the right direction? There are many franchises that have been in existence for many years, sometimes decades. But be careful. Some of these franchises are not trending in the right direction. They are losing franchisees. Franchisees are struggling. If you see a franchise that used to have multiple locations in your area, but now it is down to one, that could be a really bad sign. You need to investigate and perform due diligence on the trends of the franchise and how franchisees are doing financially.
The issue is that all franchisors are not created equal. There’s no guarantee that the franchisor has developed a successful business model or is able to sustain that business model into the future. In fact, many franchise business models are not successful at all. The truth is many franchises out on the market may have no real system, no brand recognition, no marketing plan or perhaps even little to no business experience with the franchise owners.
Don’t get into the mindset that you’ll receive a turnkey operation that will run itself. You will need to work your tail off to make your franchise operations work. If you don’t, you are almost sure to fail. Unfortunately, I’ve seen way too many people who didn’t understand this before they bought a franchise. Franchising does not guarantee success. Don’t automatically assume that just because a business has franchised that it is successful, or that the franchise can create success for you. Because at the end of the day your success will most assuredly rest upon your shoulders.