There’s lots of advantages to owning a franchise. You can operate under an established name, sell products people already want, have a pre-determined pricing structure, and it can be a valuable opportunity. Some may be more beneficial than others, and you’ll have to do your homework though! Is a franchise investment for you?
While it’s still no walk in the park; a franchise could be saving grace for anybody who wants some of the ‘work’ that owning a business involves done for them. This bonus comes at a heft cost, and there are lots of pros, and cons to the situation. Let’s examine each of them.
The number one pro to owning a franchise is of course operating under an established name. Let’s say somebody is driving down the road, and they see two resturants – Burger King, and Joe’s burger shack. People are more likely to stop at the place that they are familiar with (Unless of course they’re an avid BK hater).
There’s always the one extremist who’s totally against Mc Donalds, KFC, or any other chain. Whether it’s because they’re funded by the Church of Satan, they way they supposedly treat employees, ect. The people who appreciate a chain store more than outweighs those that do not; else this model would not exist.
You also can take into account that all your product sourcing, pricing, and materials are through the company. This means that you won’t have to barter with dealers, and go through the hassle of making sure you can turn a profit for the price you charge. The only problem with that is that the corporation can charge you anything that they want. You’re only allowed to by cups from them, buy computers from them, buy fries from them, ect.
There’s also a certain code of ethics you’re not allowed to change. Typically regarding wages, benefits, practices, how employees are handled, ect. For example somebody I know used to be a manager of Papa John’s. Per their chain’s rules they are not allowed to hire any drivers with traffic violations – No exceptions. Things like this will be beyond your control with a franchise; wherein if you owned your own business the law is made by you.
There can be other rules involved with you even purchasing a franchise though too. For example Chik Fil-a manually approves buyers, and if they deem that where you wish to put the franchise is unacceptable they’ll deny your claim. The fees for operating different entities varies a lot as well. It can be anywhere from $70k to upwards of $1 million dollars. The price tag is not for the faint of heart, but if you’ve got the cash it can be worthwhile to you.
Some people own several franchises whether they be the same store or different businesses, and make a pretty penny doing it. A franchise owner does not always manage the franchise either; meaning they don’t come to the store everyday, and do the dirty work. Many simply bank roll the operation, and collect the rewards – opting to pay somebody else to over see operations for them.
You also will not have to deal with the hassle of supplying benefits to your employees. Since you are owning a franchise any of that goes through the actual corporation, and they can take part directly. This goes for training as well – Your store will most likely recieve pre-made materials for your future employees.
If you decide you want out of this particular franchise you’re free to sell it at anytime most cases to another individual. Our local Dominoes pizza store trades owners probably a couple times a year – Mostly because they find out that particular chain has a very low profit margin, and expensive equipment.
Enterpeneur.com recently released their list of the top franchise opportunities for 2009! Start up costs in parenthesis.
Subway ($78k -$238k)
Subway is a very popular sub chain. Growing in name for value, and health reasons. Personally I detest their food, but considering the low start up costs, and big profit potential I’d probably still own one of those if I were to go a franchise route.
Mc Donalds ($950k – $1.8M)
The biggest burger chain in the world of course commands a high price. No doubt you’re paying for their big name, and not equipment charges. While this is pretty much guaranteed to turn a profit – It might be a while before you recoup your expenses on this one.
Liberty Tax Service ( $53k – $66k)
Very cheap start up costs, but low profit potential in my opinion. More, and more people are getting their taxes done online, and with software these days (including me). It’s not hard to do them yourself, and I don’t think it will be much longer before people refuse to pay $70 to pay money to the government. There’s also a limited time frame to do business so the earnings seem small to me – Not something people would want every week like fast food.
Sonic Drive-Thru ($1.2M – $3.2 M)
This franchise seems rather expensive considering their popularity, and their equipment costs. This resturant pretty much consists of a kitchen, and outside dining room!
Intercontinental Hotels Groups (Varies)
In the right area a hotel could be a very good investment. I live in what may be the vacation capital of the United States – Everyone wants to come to sunny Florida, and they need a place to stay! The pricing is unlisted, and probably varies by location, and building size.
Ace Hardware ($243k – $1m)
Ace Hardware is of course a hardware store – which again looks overpriced to me. They pale in comparison to competitiors like Home Depot, and Lowes who have a much bigger selection. The store layouts are basic, and unimpressive. I don’t see the huge profit potential from something so pricey, and yet so small.
Pizza Hut ($638k – 2.9 M)
A popular pizza chain. The have the advantage sometimes of being both a sit down resturant, and a delivery service. Similar stores like dominoes, Hungry Howies, and Papa John’s do not offer a dining room. Again, a tad pricey for their offering I think. Perhaps to be more exclusive, but they may offer better profit margins than competitors.
UPS Store ($171k – $280k)
This one looks like an opportunity to me – Owning an internationally recognized postal carrier outlet. Especially in a busy shopping center where people could do their shopping, and mail their packages all in one go. While I use USPS myself; I know somebody who mails packages at UPS about every week. The start up costs are much lower than some of the other options as well. Could be very busy during holidays too.
Circle K ( $161k – $1.4m)
Circle K is a quickie mart type of store, but can also have gas pumps. Any place convienient to the main road that sells gas can make a pretty penny. I’m surprised this one is so cheap considering the prices to install pumps, maintain gas containers, ect. Though that will probably all come out of your pocket – Something to watch out for.
Papa John’s Pizza ( $135k – $431k)
Cheaper than the other pizza place on the list, but probably not quite as popular. This one seems like a better value to own, but you’d have to do your market research before buying. Some of those marked as more expensive may be that way, because of their desirability. The profit margins they turn, the desire for their product, ect. Investing in a business peddling pricey products at this time may not be wise, but a company like Mc Donalds with it’s dollar menu should be seeing pricing booms.
Even if a family can’t afford to drop a good $100 at Outback for dinner they can afford to spend a few dollars at McDonalds instead. A recession puts a strain on every business, but some are doing better than others. You might look into lower cost resturants, or discount stores such as Dollar Tree too.
If you don’t have a load of cash sitting around it is possible to get financing for a franchise purchase – though this will be no easy feat. If you have less than perfect credit then you will have quite a time doing it. Below 700 probably will not net you a loan for an expensive business venture.