Myths vs Facts when Deciding if Franchising is Right for You – part 1

There are a lot of myths and misconceptions about business ownership and probably more still about franchising. To help you decide if franchising might be right for you, let’s separatesome myths from facts.Here, we’ll look specifically at the myths related to franchising and money…

MYTH:Franchising isn’t for me because franchise businesses are too expensive
FACT: According to a survey by Franchise Times, over 50% of all franchise opportunities have a total investment of less than $100,000total. Close to another 33% require investments of less than $250,000. Typically you will need to invest at least $50,000 of your own liquid capital –and also your actual cash investment may besomewhere between 30-50% of the total investment.

MYTH: Franchising isn’t for me because I can’t wait 2-3 years to make money
FACT: The earnings vary dramatically among different franchises, but a broad sweeping generalization would be to expect the business to break even in some 6-12 months and then begin to return some level of income to the owner. There are businesses in which the owner can start to earn a 6 figure income in year 1, some that take 2-3 years, and there are others that will neverearn the owner that kind of income. It’s important to do your research to make sure the franchise you invest in has the potential to meet your goals.

MYTH: If I can’t earn what I’m earning in my corporate job, it’s not worth it
FACT:Before you make thatabsolute determination, you might want to look again. First, it’s not necessarily what you make…it’s what you get to keep. Business owners have tax benefits that enable the owner to have greater spending power with their gross profit than they would from a paycheck by taking advantage of legal tax benefits in which the business can pay for things on a pre-tax basis. Secondly, how much can you sell your job for when you leave it? You business should be developing equity that may better help you reach your retirement goals than simply contributing to a 401k plan.

MYTH: Franchising isn’t for me because I don’t want to just “buy myself a job”
FACT: The goal of many franchise owners is actually notto work intheir business, but to work onthe business. In his book, “Rich Dad’s Cash Flow Quadrant,” Robert Kiyosaki gives the definition of wealth as a relative term depending on how many days you can notgo to work and still maintain the same standard of living. By that definition, the goal of franchise ownership is to have a business that extends beyond your own contributions so that you will still be able to receive income if you are not involved on a full time basis.

MYTH: : Franchising isn’t for me because I can’t replace my big corporate incomewithout investing a lot of money
FACT: There is no automatic correlation between the amount you invest and the amount you can make. There are business opportunities with a total investment of less than $100,000 that can net the owner more than some $1 million investments. One way to minimize your risk is to find the business that will get you to your goals and to invest as little as possible.

MYTH: The Franchisor makes all the money
FACT: Not so! The upfront franchise fee frequently does little more than cover the franchisors cost of getting the new franchisee into business (their time in training, helping with site selection, manuals, support, etc.). As for ongoing royalties, franchisors know that franchisees have a nasty tendency to ask “what have you done for me lately?” And they know that they have to provide ongoing value for the fees they are paid. So the royalties cover their ongoing support costs and, yes, they do make some profit as well (that’s why you’re going into business too, right?)But in a strong franchise system, you should be able to look at the fees that you are paying and be confident that it would cost you more independently than what you are paying the franchisor if youyourselfhad to create the systems they have yourself; create the branding yourself; and get the ongoing support from another source that the franchisor is providing.

Next week we’ll look at some of the other myths about franchising –what the opportunities are and what makes a “good” franchise.