Could You Profit With a Franchise? Consider These 11 Pros and Cons

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If you have dreamed about being an entrepreneur -- and ditching the 9-to-5 grind -- running a franchise could be the perfect fit for you -- or not. Here's what you need to know.

Are you tired of taking orders from someone else? Are you sure you could do a better job than your boss? Does the idea of introducing yourself as the owner sound appealing?

You might have the makings of an entrepreneur.

The only problem, you say, is you have zero business experience and no clue where to start. In that case, a franchise may be the solution to your problem. A franchise is essentially a ready-made business. They give you the product, sometimes the location, the advertising, the training. In short, they do the heavy lifting. And you can focus your energy in an area that interests you — franchises exist in every sector, including convenience and other retail stores, fitness centers, hair salons and spas, restaurants, bars and carwashes, to name just a few.

You need to come up with the cash to buy into the business, but when you invest, at least you know that the model has worked elsewhere.

I talked with Devin Conner, a consultant with Franchise Marketing Systems, to give Money Talks News readers the skinny on the world of franchises. Let’s start with …

6 benefits of franchises

1. You can piggyback on others’ success

Nonwarit / Shutterstock.comNonwarit / Shutterstock.com

A franchise is essentially a ready-made business. In exchange for your investment, the franchise company sometimes assigns you a location and gives you a proven product, advertising and training. Your contribution: your time, money and labor.

2. Choose from a variety of businesses

Blueguy / Shutterstock.comBlueguy / Shutterstock.com

Whether you want to open a hotel or offer in-home care for seniors, there is a franchise for you. Franchise Marketing Systems reports there are an estimated 3,000 franchisors in the United States. Here are the top five franchises in Entrepreneur Magazine’s Annual Franchise 500 rankings for 2016, and the initial investment required to join each:

  1. Jimmy John’s Sandwiches: $326,000 to $555,000
  2. Hampton Hotels: $4.2 million to $7.8 million
  3. Supercuts: $144,000 to $294,000
  4. Servpro (insurance/disaster restoration): $156,000 to $210,000
  5. Subway: $117,000 to $263,000

Franchise business owners can choose to go with a new company or select an established brand. Established franchises may have a more polished plan, greater customer base and a proven track record. On the other hand, new franchisors may be very invested in ensuring their first few franchises succeed. That could mean more one-on-one attention and assistance in getting your business off the ground.

Our franchise specialist Conner says there are three things to look for in a franchise business:

  • A strong vision from the franchisor
  • Strong training support
  • Firm boundaries between franchisors and franchisees

“Sometimes you see franchisors who have trouble taking themselves out of the business,” Conner says about that last point.

3. No business background? No problem

 Sorbis / Shutterstock.comSorbis / Shutterstock.com

One of the biggest benefits of a franchise is that it offers a turnkey way to start a business. New owners don’t need an MBA either.

The first step to becoming a franchise owner is to contact the business that interests you. Typically, you’ll spend a full day with the owner to get a feel for the company, and then your financials and background will be vetted. If everything checks out, you’ll be formally presented with a franchise agreement.

“Having some business background would absolutely help,” Conner says, “[but] if the franchise is put together correctly, anyone should be able to figure it out.”

4. You can earn a decent income

 Sorbis / Shutterstock.comSorbis / Shutterstock.com

You may not get rich, but the chances are you’ll make a decent living. Franchise owners, on average, earned $67,000 a year in 2014, according to the jobs site Indeed.com. Of course that means many franchise owners made more — and many others made less.

5. You’ll enjoy training and support

goodluz / Shutterstock.comgoodluz / Shutterstock.com

A good franchise should provide assistance with:

  • Daily operations
  • Marketing
  • Location scouting
  • Training
  • Customer base development
  • Market analysis

This isn’t to say a franchise owner simply has to show up and count the money. Owners are still responsible for growing their business, but the franchise should provide an easy-to-follow blueprint to make that growth happen. “You don’t have to figure out the market on your own,” Conner says.

6. It can be really fun

mavo / Shutterstock.commavo / Shutterstock.com

Entrepreneur Magazine names Anytime Fitness as the nation’s 10th top franchise (by initial investment: $63,000 to $418,000).

Brian Kleinschmidt, who owns three Anytime Fitness franchises in the Tampa, Florida, area offers this advice: Finding a business you love will help you succeed. He, for instance, loves watching customers become healthier and stronger.

“I’ve got a lady at one of my gyms, she’s lost 200-plus pounds, and to see someone genuinely not only change their life but save their life, is the reason I got into this business,” Kleinschmidt tells Money Talks News. “It’s more about people than it is profits. But the profits come if you take care of the people.”

The downside

A franchise business is not for everyone, though. Buying into someone else’s vision and success model means that, depending on your personality, this might not be the right fit for you. Here are five potential drawbacks:

1. You’re following a template

 Takamex / Shutterstock.comTakamex / Shutterstock.com

If you envision yourself in a business in which you have the unfettered ability to do what you want, skip a franchise. Businesses operated under a franchise model often have to follow specific guidelines when it comes to marketing, pricing and operations. In addition, they may be limited to operating and advertising in a specific area. And If you want your business to grow, you may have to buy another franchise location to do so.

2. Upfront costs can be high

Volodymyr Goinyk / Shutterstock.comVolodymyr Goinyk / Shutterstock.com

As you’ve seen, there can be steep costs associated with starting a franchise, including costs you wouldn’t have with your own business, like the price of purchasing into the company. You’ll probably need to go without a salary while you receive training, set up the business and hire employees. Once you do take in money, you’ll face expenses like payroll, rent, inventory, marketing and advertising, utilities and repaying any money you have borrowed. Your initial goal should be simply to generate enough income to cover your costs, meaning that it could be a while before you can take a salary.

Restaurants deliver some of the highest franchise returns, but they also have some of the highest startup costs, reports Entrepreneur Magazine.

Most food franchises require a significant investment to get started. Food preparation stations, sinks, stoves and ovens, grease disposal systems, venting requirements, customer seating and bathroom areas — the list goes on.

Mobile businesses, like mobile pet grooming, blinds installation, tech support or handyman services, require much smaller initial investments.

3. Be ready to share your revenue

 Rawpixel.com / Shutterstock.com Rawpixel.com / Shutterstock.com

One feature of the franchise business model is that franchisees must share their revenue with corporate headquarters.

4. You must be all in, all the time

Jes2u.photo / Shutterstock.comJes2u.photo / Shutterstock.com

Being a business owner is an exciting prospect, but don’t make big plans for your spare time just yet. You may be saying goodbye to the 9-to-5, but you could be saying hello to the 5-to-9. That would be 5 a.m. to 9 p.m.

5. You may not be cut out for it

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You don’t have to be an extrovert, but, depending on the business you choose, it may definitely help. Many franchise businesses require a lot of person-to-person contact. Sales, marketing and schmoozing with customers and suppliers may be a larger part of your work than you’d imagine.

Have you explored franchises or other self-owned business opportunities? Share your experiences with us in comments below or on our Facebook page.

Marilyn Lewis contributed to this post.

Stacy Johnson

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