Franchise Ownership: Or An Alternative?

Before investing in a franchise one should consider a number of things.

Questions To Be Answered…

First, what are your real goals? Are you looking for things like financial freedom and independence? Are you looking to own your own business? Is ownership of your own business important?

Or are you looking for more spare time with fewer hours? You would not be reading this unless you have some money to be invested and you want it to start working for you. This article addresses the question, “Is owning a franchise what you need to meet your goals?”

What are your Goals?

Let’s examine for a moment what set of goals are usually associated with successful entrepreneurs. First most entrepreneurs want freedom and financial independence. They believe they can achieve these goals by owning their own business. Ideally they would like to get their money to work for them such that after a period of initial business creation they can work fewer hours per week. In short they want to make their money work for them. In addition, entrepreneurs usually have an area of expertise that they love or want to exploit. Does this criterion correspond to you?

Principles for Success

It is one thing to have a desire to be an entrepreneur but it is another thing to be a successful entrepreneur. To be a successful entrepreneur requires a set of things that I refer to as the principles of success. Among these are a unique discipline that you “bring to the party” and contribute to the success of the business. This discipline may be in finance, engineering, marketing, manufacturing or just a passion to do something in a certain area.

So let’s briefly review some of these principles:

  • The first principle is to have a passion and strong desire for what you are doing.
  • The second principle is to have an enthusiasm to show that you really like this area of business and your whole being wants it to be successful. A third principle often forgotten but it has to be there is a basic faith and belief in yourself that “you can do it”.
  • A fourth principle that people often forget is a principal that you must reach out to others and become proactive in getting people to use or participate in your business. This is where advertising, networking and promotion come into your success equation.
  • A fifth principle is ownership. This is “yours”. This is how you’re going to make money and create your financial independence. As such you will live, breathe and sleep this business until it is successful. Some people call this total dedication. I call it ownership.
  • Finally, we have what I call the “baker’s dozen”. This is the principle of always “under propose and over deliver”. This is how you get customers back. This is how you make customers happy. They get a “good deal”. If you understand, agree with and are willing to try to achieve these principles then you will probably be successful in your new enterprise. Now let’s look at owning a Franchise as a possible opportunity.

Franchise

There isn’t a best franchise opportunity any more than there is a best car. Again, one must look at your priorities. What are your goals and objectives? If you are researching, first determine how much you are willing to pay in dollars for a franchise so you can eliminate anything that costs more than you can afford.

Then, try to find something that you have experience with, figure out when you will break even with this franchise and how much support you get from the company. There are hundreds of franchise businesses, each with different requirements and fees – examples include whether you need to lease a storefront, how much equipment needs to be purchased, and just the fee itself to use the business name.

Top Ranking Franchises

The top ten franchise businesses are Hampton hotels, “ampm”, McDonalds, Seven 11, Supercuts, Days inn, Vanguard cleaning systems, Servpro, Subway, and Denny’s Inc. Let us review some typical costs.

When delimiting costs, one should consider that costs come in different forms. For instance there are dollar costs in variable and fixed amounts usually referred to as Fees and Investment. Then there are the real but hidden costs of your time and the loss of control over “your” business. First, let’s look at some typical dollar costs.

Category Fees Investment
Building and   Renovation $24K $105K
Food $25K $260K
Computer   Service and Sales $20K $110K
McDonalds 4% of Revenue $250K up front

You may find that the loss of your time and the control over your business offset the dollar costs and are more important to you.

Franchise Example

I will use a McDonald’s franchise as an example because all franchise owners will want something similar. The new franchisee will enter the system by purchasing an existing restaurant, either from McDonald’s or from an existing owner / operator. The franchise owner, this case McDonald’s, is looking for individuals with the ability to manage finances, motivate & train people, have the willingness to complete a comprehensive training program and devote full time to operating the restaurant.

The money cost is not slight. One must consider alternatives when one enters into the franchise arena. The real costs are your time, the commitment required on your part and loss of control. Let’s look one example. Ray Kroc says it best. He told everyone what it takes for success:

“McDonald’s doesn’t confer success on anyone. It takes guts and staying power to make it with one of our restaurants.    A total commitment of personal time and energy is the most important thing. You must be willing to work hard and concentrate exclusively on the challenge of operating that restaurant.” – Ray Kroc, Founder

All franchisers will expect this sort of commitment – whatever category they fall into. This is not a part time job. If you treat it as one, you will fail.

What is a Franchise?

When one steps into the area of business called a franchisee, one should investigate the legal ramifications of such a position. The definition of franchising helps businesses determine if they are qualified to operate a franchise.

In the United States, the Federal Trade Commission and state regulatory agencies have developed a formal set of disclosure requirements and franchise – specific prohibitions that franchisers must follow in the relationship to their franchisees. To determine whether or not a business meets the definition of a franchise under the franchise rule, the Federal Trade Commission applies three definitive criteria that are summarized below:

3 Definitive Criteria

  1. Trademark: according to FTC rule 436, “this element will be satisfied only when the franchisee is given the right to distribute goods and services which bear the franchise stores trademark, service mark, trade name, advertising, or other commercial symbol.”
  2. Use of “significant control or assistance”: FTC rule 436 lists 18 specific criteria in the area of significant control or assistance, any one of which may trigger the second element of the definition. Some of these elements include site approval, site design or appearance requirements, specified hours of operation, accounting practices, personnel policies, required promotional campaigns, training programs, and the provision of a detailed operations manual.
  3. Required payment: According to rule 436, “the franchisee must be required to pay the franchisor (or an empty affiliate of the franchisor), as a condition of obtaining or commencing the franchise operation, a payment of at least $500… within six months…”. Required payments include franchise fees, royalties, or even training fees, bookkeeping charges, payments for services, or even the product sales (if they are sold above bona fide wholesale price).

This provides the legal definition of a franchise. All franchisees must operate within these guidelines.

What Are Best Practices Audits?

All franchisors belong to an industry organization called “iFranchise Group”. As such they follow the group’s recommendations and enable an audit of their organization which provides a complete assessment of the franchise organization. This also means the Franchisee must be audited. The end result of this audit is a written report with specific recommendations.

The individual audits include areas such as a strategic audit, legal audit, operations audit, organizational audit, marketing audit, Internet audit, franchise needs surveys, franchise training audit, and a franchise sales audit. A written report results with very firm recommendations. The Franchisee gets no vote on this. The cost is freedom and flexibility to do things differently.

What are the advantages of franchising?

The above brief review of the costs of franchising needs now to be balanced by a brief review of the advantages of franchising. There are a number advantages of franchising and I will list them here. The first is cost since there is usually less cost for capital investment.

The franchisees are expected to put up approximately 40% of the investment cost and the corporation puts up the rest. Some of this cost can be borrowed and the franchisor helps the franchisee get loans. The biggest area where a franchise makes some financial sense is on return on investment. The franchisee has less cost and thus the return on investment goes up. There is less risk because there is less capital committed. On the other hand, when the franchisor puts in capital, he expects more control.

Because this, in a franchise operation, the franchisee may find himself having a reduced role in day-to-day operations. This means that the franchisee has less control but then the responsibility lies with the franchise awarder. In the area of material management, the franchisor makes or sets the rules and follows through on distribution and quality control. The franchisor provides long-term management training for the franchisee and aids in brand building. If the franchisee follows through, this could be a major advantage to him in building his business.

Does this meet your goals?

You are the only one that can determine whether franchising meets your major goals. Let’s review the goals of the entrepreneur described earlier in this article.

Entrepreneurs want:

  • Freedom from control;
  • Financial independence;
  • To own their own business;
  • Their money to work for them;
  • To work in an area where they can use their expertise so that their passion to achieve can be satisfied.

Does this criterion correspond to you? If it does and you meet the principles of success discussed earlier then you have a good chance of being successful. However, you should look closely as to whether being a franchisee meets your need to be free from control and to own your own business? A franchisee position can be quite constraining but still require total commitment.

Is There An Alternative to Franchising?

I believe there is an alternative. When I looked at the franchising business as a possible entrepreneurial enterprise for myself, some of my reasoning followed the above line of thought. Then, I discovered an alternative. It was the Champion Movement www.championmovement.com/?ap id=joeraven

It is a unique organization that aids you in finding your WHY as defined by Simon Sinek.  My WHY is . . . “I help people explore the truth in what is possible so that they can actualize their full potential.”   Given that you have found your WHY, then search for your Passion – – – something where you have expertise and a passion to pursue.  Everyone has a passion.  Mine is Geopolitics.  Then create a Blog and start writing. If you know nothing about blogging which is where I started, join the Champion Movement  www.championmovement.com/?ap id=joeraven.  They will help you create and set you up your blog.  Then start writing and Posting on your blog.   Be surprised about the comments from all over the earth.  There are potentially a billion people that can view what you write.   When you get enough articles published – – -I have over 100 now but I could  have started with 10 – 20, create an ebook – – – sell it and make money with your passion.   I am now considering a newsletter since I get so many responses to my articles.

It has a deep infrastructure in place in the form of software and online training. The training takes the form of  bi-weekly webinars, recorded videos and coaching. You may want to attend conferences within the United States and internationally as the organization grows.  There you can can gather and listen to world class professionals in all facets of motivation, health, investment, taxes, and wealth preservation.

The coaching is related to how to maximize your WHY, help others find their WHY and set up, manage and run your Blog.   I examined their training products closely and found that their videos and training on setting up your blog very useful.

I then watched, listened to and examined the management team and found what I believed to be an honest group sincerely interested in making other entrepreneurs successful. As a result of this analysis, I found this was a better alternative for me and I joined as a founding member of Champion Movement.  member. I am learning the on line marketing discipline from their training and intend to be very successful at it – by following their guidelines and with their training. I believe that this is an alternative that meets my needs best. It might be for you also.

Let me briefly review what Champion Movement teaches:

The investment required is relatively low with a one time charge of $250 and a monthly charge of $30.  Also, when you convince others to join, you can make money with a commission on their sign up fee and monthly fees.

The nice thing that I liked was that after you get the business up and running you can manage it from your home and spend less than 40 hours / week. A number of very successful members spend as few as 20 hours / week on their business and they don’t have to worry about employees, accidents, and overhead.

Here is how you can explore this alternative. Go to the following URL www.championmovement.com/?ap id=joeraven

 

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