I have been looking to start my own business for years and at a point in time I was in love with the idea of purchasing a franchise.
I spent countless hours researching, filling out questionnaires, speaking to representatives of different franchises, completed non disclosure agreements and reviewed so many franchise disclosure agreements that I’ve lost track.
It took me some time to arrive at where I am today but I ultimately decided that franchising is a bad idea.
In no particular order I’m going to provide you with reasons why I feel that franchising is a bad idea.
Why Franchising is a Bad Idea – Reason #1
One reason why believe that franchising is a bad idea is that even with a “proven” model that “proven” model does not guarantee that the franchise business will work in your particular area.
In other words, what works for same will not always work for all. Granted there are no guarantees in business but when purchasing a franchise you’re paying for use of the logo, business systems, marketing methods, etc. at a costly price.
This is especially true for franchises that can operate full time whereas the business would be seasonal for you. For example, pool cleaning.
A pool cleaning company in Arizona would be a full time business whereas a pool cleaning company in New Jersey would be seasonal.
Why Franchising is a Bad Idea – Reason #2
Another reason why I believe franchising is a bad idea is the lack of control you have with your business.
As a franchisee you must abide by the rules and regulations set forth by the franchisor. Franchises are available in practically any industry you can think of but the common theme is that you must operate your business they way that they tell you.
Should you choose to do things differently and the franchisor finds out you risk losing your franchise a you have breached your contract.
Why Franchising is a Bad Idea – Reason #3
My third reason why I feel that franchising is a bad idea is that your aren’t so much owning your own business as you are leasing a business.
Most if not all franchises have a franchise term agreement. In my experience the franchise term agreement is normally for a five year period but I have seen ten year franchise term agreements.
For example, if at the end of the term your business has failed to reach certain revenue marks it may allow the franchisor to terminate your agreement even though you may be happy with your gross and net revenues.
Why Franchising is a Bad Idea – Reason #4
A major reason why I believe franchising to be a bad idea is the cost to purchase a franchise.
The most well known and profitable franchises have a cost of entry that is simply not possible for most of us. For example, an investment of between $1,000,000 to well over $2,000,000.
Even a “low cost” franchise can have you investing up to $150,000.
Why Franchising is a Bad Idea – Reason #5
The most important reason why I believe that Franchising is a bad idea is that in most cases, you could start your own competing business for a fraction of the cost.
For example, I have looked at home painting franchises, pet food supply franchises and mobile car wash franchises to name a few.
Many of these franchises are considered to be “low cost” and will have a franchise fee in the $25,000 range.
However, why pay a franchise fee in order to use a franchise name that most people aren’t aware of to begin with? Furthermore, why pay a residual monthly fee to the franchisor of anywhere between 5% to 10%?
You could bypass the franchise fee, gain name recognition for your own brand and even with setting aside 3% per month for advertising and marketing save yourself thousands of dollars per month.
Do You Agree or Disagree That Franchising is a Bad Idea?
Let me know if you agree or disagree that franchising is a bad idea?
Please leave your comments below and thank you for reading.