Is Owning a Franchise a Business Risk Worth Taking?
For many who are reaping the benefits of franchising, the business model is a highly ideal one. Leveraging known brands often works better and invites more benefits than going through the whole process of creating and establishing their own. Entrepreneurs are also basking on the strategic support that franchisors offer, while also spotlighting the potential for greatness, given the company’s track record.
Franchising advocates tout the benefits of owning a franchise in practically all industries, which don’t make up a short list. That being said, however, entrepreneurs are cautioned to see the bigger picture and consider what the cons are for a balanced perspective. Investing, after all, requires research, prudence and reasonably dependable decision-making skills.
FRANdata, a research firm company, revealed that while the bigger fast food chains out there dangle their brand without batting an eyelash, many franchise systems out there are mushrooming – and they cannot speak of the same track record. In the United States, some 3,800 franchise systems operate even with less-than-reputable business structures and without the considerable potential for success. For potential franchise owners, it pays to watch out for deceptive and overhyped information that lure them into the system.
Realistically speaking, big franchisors are becoming more aggressive in proving the success of the franchise model. The economic slump resulted in investors and spenders becoming more cautious with their money, prompting the big corporations to work on presenting proofs to their claims to success.
The risks associated with franchising are becoming even more evident with the recent debacle involving top food chains and their franchisees. Apparently, franchisor’s practices with respect to operating the business and deciding on franchise agreement terminations are causing tension between the parties. The recently passed California bill acknowledging and strengthening franchisee rights is now becoming a topic of heated debates in the business frontier. Others opine that ultimately, the end to the franchise business model may be near, as the bill is zeroing in on its fundamental principles.
In a detailed business story, The Wall Street Journal explains how franchising has evolved into becoming a bigger risk that may be making entrepreneurs reluctant:
Over the past few years, people have been flocking to franchising, seeing it as a simpler path to entrepreneurship in troubled economic times. But over that same period, numerous pitfalls have appeared that make franchising much tougher to navigate, say many franchise attorneys and advocacy groups.
For one, they say, it’s gotten much more complicated for buyers to get an accurate picture of a franchise before taking the plunge. And, they add, if people do buy into a chain, they may have less leverage over things like how they can pursue complaints against the franchise.
The International Franchise Association, a trade group with about 14,000 franchisee and 1,350 franchiser members world-wide, acknowledges that there are risks associated with investing in a franchise and that buyers need to do due diligence when considering a franchise opportunity of any kind.
The best course, franchise experts say, is for buyers to do extensive research on a franchise’s industry and competition, talking to multiple franchisees and using public databases like Pacer.gov to look up lawsuits and bankruptcy filings.
In addition, they recommend studying franchisers’ profiles on sites like Facebook and Yelp to see how they interact with consumers, as well as looking up top executives on LinkedIn and similar sites to learn about their experience. Independent franchisee associations can also provide information.
