The Mesaros Team

Archive for September, 2009

Franschise is still a viable entry strategy even in the current economy.

The downside is that franchises take capital to launch, and capital is tight right now.  But if you have a bucket of money and are an accidental entrepreneur in search of a business, it may be a good option.

Make sure that you temper any projections to the current economic conditions.  Also, look for franchise opportunities that create value for the customer.  I believe that this will be the best business model for some time to come.

There are some sticky contracting issues with buying any franchise.  Make sure to work with an attorney who has experience with franschise.

But, beyond the contractual issues that arise in franschise, there are some fundamental business and personal concerns that many franchisees experience after it is too late.

One of the biggest sources of frustration among franchisees is that they perceive that the value added from association with their franchisor diminishes over time. A franchise will charge a significant monthly percentage fee (this can average about 7% of sales) associated with all that they offer in terms of systems, marketing, purchasing power, and so forth. Over time, many franchisors realize that they can be just, if not more effective on their own without paying the monthly percentage of sales to the franchisor. This on-going monthly fee is often glossed over by franchisees during start-up planning, as they tend to think only about the initial fees and capital expenditures in their planning.

Another concern expressed by franchisees is that with all of the rules and standardized procedures, they tend to feel more like an employee than a business owner. Those who try to break away from the predetermined model and processes can face the wrath of the franchisor. Larger franchisors have entire staff dedicated to franchisee compliance.

A financial risk to consider is that many first time entrepreneurs can only afford newer franchised concepts, since well established franchises can cost hundreds of thousands of dollars to buy in. These start-up franchisors can begin to experience their own growing pains. Some don’t survive. In some cases they may take the franchisees down with them.

It is critical to understand all of the ins and outs of franschise as a general business strategy first. Then if the idea of a buying a franchise still makes sense, do your homework on the company and its concept. All franchise opportunities are not created equal.