Myths and Facts about Franchising!
With so much attention paid to the franchisees that don’t make it (succeed) and so little attention given to the successful franchisees, I thought I would share from my personal experience the Myths and Facts about franchising;
- Myth: Not all Franchises fail to make it.
My Experience: The success rate of franchising has been very difficult to calculate. Partially due to the fact that so many brands who have incredible track records and only a few who have imploded with tremendous failures. The SBA keeps track of “failures” based on the number of closed franchise units disclosed in the franchisor’s own Franchise Disclosure Document (FDD). The majority of brands have failure rates of less than 10%. If franchise brand’s rate exceeds the 10% failure rate, the Franchise Brand may loose its SBA approval which means that the banks will no longer lend to this franchisor’s franchise candidates.
- Myth: Franchises Failure is the fault of the Franchisor:
My Experience: As easy as it is to blame a franchisor, you have to look at the franchisees. Some franchisors may have also awarded too many franchises to people who do not qualify but expressed eagerness to join and were accepted into the business.
Even in the worst franchise brands with huge failure rates, there are well run franchise units with positive, driven, hardworking franchisees that still succeed. So if many people fail in a system is it the System fault? It can be, but most likely the large amount of failures in the brand stem from a changing market place, site selection errors, or a change in the overall economy.
- Myth: Franchisors only care about collecting Franchise Fees.
My Experience: There are a small minority of franchise brands who do this. The majority I talk to spend almost 100% of the franchisee fee on franchise marketing materials, development payroll, online/offline advertising, tradeshows and training. The franchise fee is the cost to attract the franchises into the system. The franchisor’s long-term goal is to help the franchisee grow a successful business and then the franchisor earns a royalty from the increases sales. When the franchisee succeeds, the franchisor will be successful too.
- Myth: Royalties are the Franchisor’s Profits.
My Experience: All Franchisors wish this was the case. The reality is that to support a group of franchisees you have tremendous corporate overhead which includes the technology, franchise support staff, executives and all the other related costs in providing effective support.
- Myth: It is really hard to sell a franchise with so many restrictions.
My Experience: When selling your franchised business you have a targeted audience of other franchisees and candidates looking at entering your franchise who can be buyers of your franchise. Typically the franchisor’s only restriction is their approval of the buyer to ensure they will be able to operate the franchise successfully and be a great addition to the franchise brand. Most franchisors prefer that unit sells and stays in the system providing the franchise’s products or services to the established customer base.
