Top 4 Reasons Why You Should Not Buy A Franchise

By Arthur Cundy

Along with the different ways you can make money, the one that I see often is by purchasing a franchise. The argument for this is mainly because there is no guess work. You don’t need to do market research or try to get a customer base. You would be building of off an established company. Lots of people know and love McDonald’s. You can open a McDonald’s almost anywhere and get customers on day one. This is because McDonald’s has already done the marketing and branding work. You are basically paying to join an already profitable business for a cut of the action.

However, the easy way out often comes with some huge costs  later on. So here are my reasons to NOT buy a franchise.

1. Huge Start Up Cost

Often to buy a franchise you have to (keyword) BUY it! And this is a hefty price tag. After all you are trying to make money of of a company who has spent years building their brand and fan base. You can’t expect to profit from that for free right?

For example if you want to buy into the McDonald’s franchise you need at least half a million dollars for they will even look at you. This is a quote from their website: “Generally, we require a minimum of $500,000 of non-borrowed personal resources to consider you for a franchise.” Look close they say “non-borrowed personal resources ” which means you can’t take out a business loan it must be “…cash on hand; securities, bonds, and debentures; vested profit sharing (net of taxes); and business or real estate equity…”
You can read more about it here.

On top of that there are on going fees such as:

Service fee: a monthly fee based upon the restaurant’s sales performance (currently a service fee of 4.0% of monthly sales).

Rent: a monthly base rent or percentage rent that is a percentage of monthly sales.

Now say you go ahead with this how long do you have to be in business before you make your $500K back? I bet years. Why would you want to do that?

2.  No Flexible Schedule

Since you bought a franchise and in addition opted to manage a brick and mortar business you have to deal with all that comes with that. You must manage employees, HR, payroll, maintenance, inventory, prep work, cleaning, security, etc. You need to be there from opening to closing to make sure things don’t fall apart and that you are making money.

You could make good money from a franchise but at what cost? No social life, limited family time; not the life I want.

3. Can’t Be Innovative

Since you chose to manage one of the franchisee’s stores they want to make sure that you are doing things THEIR way. The store must look like all the others, you must use the same ingredients, you must wear the same uniforms, you must get new customers the same way. There is no room to be innovative and creative with your business. You must fit into their mold. So really, it’s not YOUR business.

4. Not Building Your Brand

This  reason I think is the most important to me. I am big on personal branding. In these times it is really easy to build your own brand equity. Even if you are not in business you are building your personal brand. People look at your social networking profiles and figure out what kind of person you are based on what they see. This is your brand.

When you buy a franchise you building another company’s brand. Like I mentioned in the previous reason you are doing everything the way they want you too. You look like you work for them. When you go into a McDonald’s and order a meal, which one are you thinking?

“I just ordered a meal from McDonald’s.”
or
“I just ordered a meal from Felix Johnson who runs this particular McDonald’s store.”

Obviously,  you think the first thing. Now if Felix decides to leave the franchise and start another restaurant will you go eat there? No. Because Felix wasn’t building his brand, he was building McDonald’s.

Conclusion:
Let’s be smart about the way we spend our money and time. We only live this life once and can’t afford to spend it wasting money and building someone else’s company.

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• 03Sep2010
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• See more in Business franchise, franchise business