7 reasons why you shouldn’t invest in a franchise

By Sarah Stowe | 29 Oct 2015 View comments

While the franchising model might appeal as an investment option, it really doesn’t suit everyone.

So how can you find out before you buy if being a franchisee is right for you?

Investing in a franchise only to find it wasn't the right choice for you is an expensive, frustrating and dispiriting experience. Here are seven simple pointers that indicate an alternative path to reaching your goals could provide a more comfortable journey.

  1. Money
  2. Commitment
  3. Family support
  4. Entrepreneurship
  5. Expectations
  6. Passion
  7. Attitude

Ask yourself the following questions and see where the thought process takes you.

1. Can you afford to invest?

Are you cashed up? Are you willing to put your house on the line to purchase a franchise? Are you realistic about the money it takes to build a business? A franchise is not a guaranteed success; there are risks in any venture, and there is the possibility that you may lose your investment.

There are franchise fees to pay upfront, legal and business costs, the costs of setting-up a business, and of course cashflow to see you through the early trading period. Then add to this the payment of regular fees and marketing levies to the franchisor.

There’s a very good reason why you pay royalties, but if, deep down, you think the costs or the royalty system employed are unjustified, find a more suitable business model for your needs.

If the idea of paying royalties at all annoys you, avoid franchising!

2. Will you be totally committed to the business venture? 

Running any business takes extraordinary commitment, time and energy, and it’s no different in franchising. While you might not share the same risks of an independent owner who needs to test and trial new ideas, the franchise will only be a success if you work at making it so.

Branding, operations support, point of sale and IT systems, back office support, marketing, lead generation: any of these can be included in a franchise package, but the franchisor will not step in to build a franchisee’s business, that’s your job.

3. Can you rely on your family to support you in this endeavour?

Research from Franchise Relationships Institute shows that franchisees supported by a network of family and friends are more likely to be successful than those who have to defend their investment to their nearest and dearest.

The two elements above, money and commitment, both have an enormous impact on the running of a franchise and how that affects family.

It’s just too hard to try and fight your own battle with a business investment if you don’t have everyone on your team on side.

4. Are you a secret entrepreneur?

Do you have the best business ideas? Would you like to improve the business model? There’s a place for great innovation and lateral thinking, and some franchisors relish new ideas among the franchise network but focusing too much on changing the way the business operates works against the benefits of a franchise system. Individuals invest in an existing business precisely because there is a system that has been tried, and found to be effective.

There’s no harm in spotting opportunities to improve efficiencies, but if you think you can run the business better than the franchisor, then stay away from franchising and back yourself – invest in your own ideas and become an entrepreneur.

5. What are you expecting from a franchise investment?

One of the easiest ways to put your business at risk is to be at odds with your franchisor over roles and responsibilities. It is absolutely vital to get clarity about who handles what tasks in the franchise relationship.

Different systems have discrete expectations, depending on the business model; whether or not it’s a hands-off investment, whether it requires full-time commitment or can be a part-time option; whether there are goals to meet across the network.

But as a standard, a franchise is NOT any of these things:

  • a shortcut to a fortune
  • a way to make money without putting in the long, arduous hours any business owner has to endure
  • an investment that you can let run by itself

6. Can you be passionate?

Franchising works when franchisees are passionate about their business. It doesn’t matter what the business is, whether it’s customer-facing or back-office, whether retail or mobile, what skills are required or how experienced the franchisee is in the job. Passion drives franchisees to succeed.

Most commonly it’s passion for the brand, but it could be a passion for working with an engaged team or simply meeting your business objectives.

But without that inherent desire to be at work every day to achieve, franchising becomes a huge challenge. Step away from franchising if you can’t find the passion to want to do this every day for three or five years.

7. Are you a negative Nellie or a positive Pam?

So much in life comes down to attitude, and it’s no different in the franchising sector.

A franchise network is only as good as the people within it, and dynamic networks reflect the positive attitudes held by the franchisees.

Not everything will go well in your business, your franchisor may not always make the right decisions, your staff might let you down, fellow franchisees might see opportunities to moan about the franchisor, market economics might have a detrimental impact. But how you respond to these moments will to some degree determine your success.

If your instinct is to be a negative Nellie or Nathan, you could pull the mood of the franchise network down, you could find yourself spiralling into disputes with your franchisors, you could end up alienating customers with your negative attitude.

You'll need to bring all these attributes and commitments to a franchise to make a succes of it. If you have doubts that you can meet the demands, don't limit your choices to franchising, have a look around to see if there's another way to achieve your goals.