Should You Buy a Franchise?

Photo (cc) by dno1967b

Franchises offer buyers the opportunity to own a successful business without having to create the blueprint from scratch. Assuming you’re in the right market and you’re a good manager, success will likely follow suit.

Sounds appealing, but there are a number of factors you must consider before you buy in. In the video below, Money Talks News finance expert Stacy Johnson discusses the nation’s top franchises, and why investing in a franchise may be the best way to fulfill your entrepreneurial dreams.

Take a look, then meet me on the other side for information about how to determine if the model best suits your needs.

What is a franchise?

Under this business model, the franchisor licenses its trademarks and business system to the entrepreneur in exchange for a one-time franchise fee, royalties and advertising fees. In essence, you will receive a blueprint and live assistance to help you every step of the way, from securing the location to hiring employees and acquiring customers.

Benefits of ownership

Before signing on the dotted line, you will have access to pertinent information and disclosures to foster your decision-making process. It will include key factors, such as historical overall performance and operational trends at existing establishments. And that is just one of the major perks of buying into a franchise.

Here are a few others:

Limited risk. Starting a business is a major gamble, but at least you’ll have an idea of what you’re getting into. Of course, your initial investment is at risk, but the chances of losing it all heavily rests on your inability to put the tools they have provided you to good use.

Brand awareness. As a franchisee, you are in essence buying the complete package, so customers are familiar with your entity and know what to expect when buying products or patronizing your services. Unlike other startup ventures, you won’t have to spend months, or maybe years, raising awareness of your offerings and bringing recognition to your brand.

Continuing education. The franchisor won’t just leave you hanging, or lost in a deep blue sea full of predators anxiously awaiting to devour you. Instead, they pass any valuable information on that will help boost your bottom line and theirs. They are getting a piece of the pie, so it makes no sense at all for them to withhold information, resulting in missed opportunities and potential profits. This valuable information is disseminated through conferences, virtual training and reference manuals.

If you hit a major bump in the road, there should be a toll-free number to call and speak with a representative for additional assistance.

Lower marketing expenditures. Since your brand is already established, you won’t have to spend a lot of extra funds trying to get noticed in the marketplace with fancy logos, advertising campaigns and trademarks. You know what that means — more money in the bank for you.

Potential drawbacks

Contracts, contracts and more contracts. Not happy with a particular policy or procedure? Well, when you signed on the dotted line, there were terms and conditions that you committed to following. And depending on the parent company, there may not be any room for negotiation.

Too much structure. This goes hand in hand with contracts. If there isn’t much room in the company structure to let your creative juices flow, you’re simply out of luck. The chain wants your cheeseburger to taste just like those at all of the other stores it contracts with. If you don’t like that idea, it’s a clear indicator that the franchise model may not be for you.

Fluctuating earnings. Although most franchisors give you a blueprint with a track record that will practically guarantee success, that doesn’t protect you from rough patches. That’s why it’s best to do your homework. Will you be able to increase your prices when the cost of your supplies goes up or are you locked in? Are you responsible for expensive upgrades at the franchisor’s whim?

Entrepreneur.com recommends that you:

Work with a good CPA to prepare a cash-flow projection for the business before you take the plunge. Know how long it will take to break even and turn a profit, as well as the amount of salary you’ll realistically be able to pay yourself.

Image. No matter how hard you work, your success can depend on how other franchisees run their sites or whether company headquarters uniformly enforces standards. If the chain gets a reputation for a lack of cleanliness or undercooked food, you’ll suffer too.

A closer look at startup costs

Unless you have many thousands of dollars lying around, this is the factor that could make or break your chances of investing in a franchise. In fact, franchisors require that you have a net worth of a specified amount and a certain amount of cash available.

There’s a reason for that. In addition to the franchise fee, other startup costs include:

  • Wages. The parent company will give you an idea of how many employees you need to get things up and running.
  • Equipment.
  • The building.
  • Inventory. This is another expense not covered by the initial franchise fee.

Top 10 franchises

Still hyped about the opportunity to join the ranks of fellow business owners in your area as a franchisee? Here are the results of Entrepreneur magazine’s top 10 franchises for 2014, along with the range of the initial capital outlay required to get up and running, according to Entrepreneur.

  1. Anytime Fitness — $56,299 to $353,900. The franchise fee is $20,999 to $26,999.
  2. Hampton Hotels — $3.7 million to $13.5 million. The franchise fee is $65,000.
  3. Subway — $85,700 – $262,850. The franchise fee is $15,000.
  4. Supercuts — $108,750 to $203,600. The franchise fee is $29,500.
  5. Jimmy John’s Gourmet Sandwiches — $300,500 to $489,500. The franchise fee is $35,000.
  6. 7-Eleven — $50,000 to $1.63 million. The franchise fee ranges from $20,000 to $1 million.
  7. Servpro — $138,550 to $187,200. The franchise fee is $44,000.
  8. Denny’s — $1.1 million to $2.6 million. The franchise fee is $40,000.
  9. Pizza Hut — $297,000 to $2.1 million. The franchise fee is $25,000.
  10. Dunkin’ Donuts — $294,000 to $1.5 million. The franchise fee ranges from $40,000 to $90,000.

Before you move forward, please check with your respective state’s department of revenue for business registration requirements to ensure you comply with both state and federal law.

Need more information about franchises? Check out the following resources:

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
9 Genius Storage Solutions for Your Home
9 Genius Storage Solutions for Your Home

These creative products on Amazon will hide unsightly clutter while saving space.

Here’s the Average Retirement Age in Your State
Here’s the Average Retirement Age in Your State

Are you on track to retire at the same age as most residents of your state?

Don’t Toss These 7 Household Items — Sell Them
Don’t Toss These 7 Household Items — Sell Them

Here’s how to earn cash as you give new life to these unwanted items.

8 Products to Reduce Anxiety and Stress
8 Products to Reduce Anxiety and Stress

Current events have you feeling anxious? These Amazon products can take the edge off.

8 Ways to Slash the Cost of Homeowners Insurance
8 Ways to Slash the Cost of Homeowners Insurance

Reviewing this critical insurance policy takes a little effort, but it pays off big.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
7 Kirkland Signature Items to Avoid at Costco
7 Kirkland Signature Items to Avoid at Costco

Even if it seems you save a bundle buying Costco’s Kirkland Signature brand products, they may not be the bargain they appear to be.

Am I Eligible for My Mother’s Social Security Benefit?
Am I Eligible for My Mother’s Social Security Benefit?

Can an adult daughter tap into her late mother’s benefit?

These Major Appliances Got the Worst Reviews in 2020
These Major Appliances Got the Worst Reviews in 2020

Consumer Reports says these home products got the worst ratings from experts.

9 Things You’ll Never See at Costco Again
9 Things You’ll Never See at Costco Again

The warehouse store offers an enormous selection, but these products aren’t coming back.

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

This Surprise Factor Can Raise Your Risk of Dementia
This Surprise Factor Can Raise Your Risk of Dementia

Nearly half of U.S. residents may face this threat.

Organize Your Home With These 10 Thrift Store Finds
Organize Your Home With These 10 Thrift Store Finds

Resolve to be clutter-free in 2021 with these secondhand purchases.

11 Laws You Could Be Breaking Without Knowing It
11 Laws You Could Be Breaking Without Knowing It

Seriously? Fibbing about the weather is a crime? This and other little-known legal traps await the unwary.

Is This Treatable Condition Causing Your High Blood Pressure?
Is This Treatable Condition Causing Your High Blood Pressure?

Researchers say too many doctors are overlooking this potential source of hypertension.

15 States With the Largest Homeless Populations
15 States With the Largest Homeless Populations

Some of the states with the highest rates of homelessness might surprise you.

13 Things Seniors Can Get for Free — or Almost Free
13 Things Seniors Can Get for Free — or Almost Free

There are many ways to get cheap or free services and goods after reaching a certain age.

These Are the 3 Best Used Cars You Can Buy
These Are the 3 Best Used Cars You Can Buy

These vehicles boast reliability, safety and long-lasting value.

6 Legal Documents Retirees Need — but Don’t Have
6 Legal Documents Retirees Need — but Don’t Have

Few retirees have all of these documents that are crucial to their golden years — especially during a pandemic.

3 Cable TV Companies Hiking Prices for 2021
3 Cable TV Companies Hiking Prices for 2021

Still married to your cable company? Hold on to your wallet!

Internet Providers Can’t Charge You for This Anymore
Internet Providers Can’t Charge You for This Anymore

Starting this month, your ISP no longer can bill you for this fee.

8 Tips for Retiring Comfortably on Social Security Alone
8 Tips for Retiring Comfortably on Social Security Alone

It’s never too early to start learning how to live well while living on less.

11 Generic Products You Should Buy at Costco
11 Generic Products You Should Buy at Costco

Not all generics are worthwhile, but these are among the best from Costco’s Kirkland Signature brand.

15 Painless Ways You Can Cut Costs in 2021
15 Painless Ways You Can Cut Costs in 2021

Follow these tips to save, so you’ll have money for things that really matter.

9 Small Expenses That Are Bleeding Your Budget Dry
9 Small Expenses That Are Bleeding Your Budget Dry

Keep more of future paychecks by eliminating these budget-busting unnecessary expenses.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.