Myth vs. Fact: Deciding if Franchising is Right For You

There are many myths and misconceptions about business ownership and probably more still about franchising. To help you decide if franchising might be right for you, let’s separate some myths from facts. We will look specifically at the myths related to franchising and money…

MYTH: Franchising isn’t for me because franchise businesses are too expensive
FACT: According to a survey by Franchise Times, over 50% of all franchise opportunities have a total investment of less than $100,000 total. Close to another 33% require investments of less than $250,000. Typically you will need to invest at least $40,000 of your own liquid capital – and also your actual cash investment may be somewhere between 30-50% of the total investment.

MYTH: Franchising isn’t for me because I can’t wait 2-3 years to make money
FACT: The earnings vary dramatically among different franchises, but a broad sweeping generalization would be to expect the business to break even in some 6-12 months and then begin to return some level of income to the owner. There are businesses in which the owner can start to earn a 6-figure income in year 1, some that take 2-3 years, and there are others that will never earn the owner that kind of income. It’s important to do your research to make sure the franchise you invest in has the potential to meet your goals.

MYTH: If I can’t earn what I’m earning in my corporate job, it’s not worth it
FACT: Before you make that absolute determination, you might want to look again. First, it’s not necessarily what you make…it’s what you get to keep. Business owners have tax benefits that enable the owner to have greater spending power with their gross profit than they would from a paycheck by taking advantage of legal tax benefits in which the business can pay for things on a pre-tax basis. Secondly, how much can you sell your job for when you leave it? Your business should develop equity that may help you reach your retirement goals in addition to contributing to a 401k plan. As a business owner, your 401K contributions can be significantly higher than as an employee.

MYTH: Franchising isn’t for me because I can’t replace my big corporate income without investing a lot of money
FACT: There is no automatic correlation between the amount you invest and the amount you can make. There are business opportunities with a total investment of less than $100,000 that can net the owner more than some $1 million investments. One way to minimize your risk is to find the business that will get you to your goals and to invest as little as possible.

MYTH: The Franchisor makes all the money
FACT: Not so! The upfront franchise fee frequently does little more than cover the franchisors cost of getting the new franchisee into business (their time in training, helping with site selection, manuals, support, etc.). As for ongoing royalties, franchisors know that franchisees have a nasty tendency to ask “what have you done for me lately?” And they know that they have to provide ongoing value for the fees they are paid. So the royalties cover their ongoing support costs and, yes, they do make some profit as well (that’s why you’re going into business too, right?) But in a strong franchise system, you should be able to look at the fees that you are paying and be confident that it would cost you more independently than what you are paying the franchisor if you yourself had to create the systems they have yourself; create the branding yourself; and get the ongoing support from another source that the franchisor is providing.

It’s really important to distinguish between facts and the fears that derail us from achieving our goals. Frequently the “myths” have no bearing in reality. The nice thing about franchising is that there is a way to thoroughly investigate the specific opportunity you are going to venture into before you make that investment… and you can then make a fact-based decision rather than one based on myths or fears.