Franchise In’s and Out’s
Is a Franchise a Safe Way to Start a New Business?
Which is more risky? Buying a franchise or starting your own business from scratch? If you said starting your own business is riskier, think again. For hundreds of thousands of people who have invested their life savings into a franchise, making that investment is often more difficult than they ever thought it would be.
If you’ve been reading this newsletter for very long, you know that I’m a big fan of home-based businesses. A bookkeeping and tax practice is the perfect business to operate from out of your home. In fact, working out of a home office is the preferred method for a bookkeeping practice.
That said, a franchise might not be the best way to start your home based business. I don’t want you to think that I am anti-franchise, because I’m not. But there are a couple of things you need to consider before you drop your family’s nest-egg into purchasing a franchise, thinking it will ensure your success. (You should also know that many franchises have start-up fees that are as high as $80,000.)
At the end of this article I’d like to share with you a non-franchise option that will cost a fraction of what a franchise costs and provides almost every single benefit of a buying a franchise.
Be Your Own Boss - Purchase a Franchise
This may or may not be completely true. When you purchase a franchise, you are really just leasing a trademark. Your real boss is the company who has sold you the privilege of using their trademark.
“If you really want to be your own boss, choose a business you’d like to go into, and then go to work in that industry until you learn something about it,” says Gerald Marks, a franchise attorney in Red Bank, N.J. “Then go and start your own company.”
According to Anne Fisher of FORTUNE Small Business, “…buying a franchise ensnares would-be entrepreneurs into the worst of both worlds: You get all the financial exposure, headaches and stress of business ownership — but the company that sold you the franchise collects royalties on every nickel that comes through the door, not to mention charging fees for marketing, fees for this, fees for that, more fees for anything you can imagine (and some stuff you can’t).”
Not to mention that the franchisor usually controls how you price your services, what kind of displays you can use, how much you pay your employees and who will be your suppliers. Violate the franchise agreement, often even a nit-picky detail, and the franchisor can, and often does, pull your franchise back without reimbursing you a penny.
Research Suggests You’re Better Off to Start Your Own Business
According to Fisher, “In the early 90’s, Timothy Bates, a professor at Wayne State University, studied census data on 20,000 new enterprises and found that 38% of franchises failed within four years of opening their doors.”
In some industries it’s worse than that for franchises. She goes on to say, “In retailing, 45% of new franchise units last less than four years, while just 23% of independent stores flopped.”
Not All Franchises Fail-Here’s Four Ways to Improve the Odds for Success
Of course, not all franchises fail. Here are some ways to make the most of starting a franchise. Remember, a franchise isn’t the only way to start a bookkeeping and accounting practice, and I’d still like to share with you an alternative at the end of this article.
- Read the Contract- The contract, called the Uniform Franchise Offering Circular (UFOC) is filled with so much fine print that some agreements are the size of a small phone book. Make sure you read the entire document, or better yet, have an experienced franchise attorney read it for you. You need to know what’s in it before you sign anything.
- Do Your Homework- Find out everything you can about the franchise and the market you are going to be working in. Talk to others who already own a franchise. Don’t stop at the list of “approved” franchisees they give you. Try to find others that aren’t on the list and you might get a different story. Hearing from the successes and the failures will give you a lot more information that just the successes.
- Be Ready to Sell, Sell, Sell- If you are going to start a franchise, don’t expect that their national marketing campaign will bring in all the customers you’ll ever need. You’ll still need to sell. If you don’t already have the skills, you’ll need to acquire them. Make certain that your franchise opportunity will teach you what you’ll need to know to succeed at selling for your franchise.
- Choose a Franchisor with a Proven Formula for Generating Profits- And be sure to follow their system to the letter. Bruce Sharpe, CEO of a diet-and-exercise franchise chain called Slender Lady, says, “One of the biggest causes of franchise failure is, people go off on tangents.” He goes on to say, “If you don’t want to follow the system the franchisor has set up, then buying a franchise is insanity. It’s a waste of both the franchisor’s time and money and your own.”
You’ve Been Talking About Starting a Bookkeeping Business… If a Franchise Isn’t For Me, How Should I Start?
The method I’m about to describe may not appear as easy as starting a franchise, but it is. Universal Accounting Center has been teaching people the ins-and-outs of small business accounting and tax since 1979. Universal may not have been around as long as H&R Block or some of the other franchises, but we offer the most complete and comprehensive bookkeeping and tax preparation education in the business. And that includes H&R Block.
