Out of Work? Consider Buying A Franchise - Part 2
Earlier this month we discussed different options for those who are currently unemployed or recently heard they will be receiving a severance package and asked to look for different opportunities. While buying a franchise isn’t for everyone, considering the idea is always a possibility after leaving corporate America.
Shortly afterwards, I read this article in the Detroit News (online) referencing several people that did just that, take severance packages from big Detriot companies and open a local business.
Here’s a link to the story - Workers Open Franchises With Buyouts
Throughout my blog posts, I typically advocate the idea of franchising. But I do want to warn you that franchising is not for everyone. There are several resources out there to help you decide if you should consider buying a franchise, and if so, which one might be a good investment for you. There are a few very useful quotes in the article I also wanted to highlight. Here’s the first from Nick Bibby, a franchise consultant:
Experts warn that the costs of franchising can be high even for those with a solid line of credit, and that life as a franchise owner often evokes challenges unlike those encountered in the corporate world.
“That’s not necessarily a wise thing or a good thing,” said Nick Bibby, principal of franchise consultant Bibby Group in Shreveport, La. “Buying a franchise is in no way, shape, or form a safety net. That’s a huge misconception.”
Karen Spencer, a friend of mine and a CEO of FranSystems, a franchise consulting company based in Atlanta, GA, also helps paint a more realistic picture saying that she has several clients who have invested their entire life savings and seen it melt away.
Whatever you do, be sure you use all of the resources you have available (and contact me any time!).
Jack
October 13th, 2008 at 7:52 pm
Jack,
Good article. Lot so folks might be tempted to view franchise folks like Nick Bibby and myself as being “negative Ned’s.” That is ok. Franchising is really NOT for everyone. There are very few people in the world of franchising that will actually take a stand on topics like this.
Thanx, again, Jack!
Joel Libava
The Franchise King Blog
October 14th, 2008 at 3:09 pm
Jack,
I’m new to the site, just finding my way around. I do have a question that no one seems to be able to answer for me so I was happy to read this article.
My business is new but I feel like would be a good one to try to franchise. Can it be franchised almost from the beginning or do I need “years” of good financials before trying it?
Also, are there any good website/books you know of about franchising?
Thank you
anita
October 14th, 2008 at 6:52 pm
Hi Anita and thanks for the note. You can franchise a company without a long history of success but many companies that do experience a tough time and, often, litigation with franchisees. You’ll also need time to develop operations manuals, franchise documents, marketing plans for franchisees and all of the other resources for developing your franchise program. Lastly, you’ll need a nice budget for promoting your opportunity. Some resources I recommend:
http://www.franchise.org
http://www.msaworldwide.com (Author of Franchising For Dummies Book)
http://www.fransystems.com
I can also speak with you about your company and suggest other resources.
Thanks for the note and good luck!
Jack
October 15th, 2008 at 12:08 am
Hi Jack,
Very good post. The quotes from Nick Bibby and Karen Spencer need to be taken very seriously. The franchise world is far more dangerous than franchisors would have newbies believe. My wife and I bought into Subway, and lost nearly everything while working 70 hours per week and following the Subway system. However, we observed other investors who did great. The difference was they followed a radically different model from what most franchisors encourage: buying only existing stores with proven cash flows for a reasonable price. I ended up writing a book about all the lessons we learned over the last 7 years.
Mark Leonard
49FranchiseSecrets.com
October 23rd, 2008 at 6:11 pm
What I don’t understand is why would one waste their time drafting their own legal documents when they have no expertise in law and have to go through all of the hoops?
Using a franchise consulting firm would be a much smarter idea.
Hands down the best Franchise Consulting Firm out there is Francorp. 30 years experience and a plethora of succesful clients. I believe their website is http://www.francorp.com
February 4th, 2009 at 7:03 pm
Although I am late to this blog, I must say that I have seen some scary moves by buyers in the franchise arena. Taking Mark’s comment above, a lot depends on the DEAL STRUCTURE when you buy into a franchise. Your risk tolerance is also part of the picture. So if you have $400,000 in life savings and Pension plans etc, you should not put it all at risk when you are 55 years old. There are many strategies involved in franchise acquisition.
Today, Subway would appear to be the safest if you are able to walk the tight rope between a reasonable price and the pressure to buy at the seller’s high price. There are secrets you can capitalise on with the Subway Franchise as a buyer, and use in your favour. You should also know the dangers as Mark has pointed out
mrfranchiseman
February 4th, 2009 at 7:46 pm
Fayaz -
You make a few good points. As much as I am a fan of Subway (both from a product and franchise perspective), I can’t definitively say that is the “safest franchise.” While the initial investment is reasonable, many other factors are involved when buying a franchise such as personal interest, risk tolerance, location, type of business … to name a few.
A good analogy I like to use is I enjoy eating Subway sandwiches but don’t think I would like making subs each day as an owner-operator of a sandwich franchise. For others, that could be perfect.
And to Mark’s point … Each franchise consulting company has its benefits and drawbacks. There are also a lot of other successful franchise consulting companies and law firms that can assist with building a franchise. Check out some these (some of the same I mentioned above) http://www.msaworldwide.com, http://www.fisherzucker.com, http://www.fransystems.com and http://www.fishmanpr.com to name a few. Also check out all of the companies that are members of the International Franchise Association - http://franchise.org/searchsupplier.aspx
The bottom line is I always recommend going that extra step. When you think you’ve done enough research, go that extra mile. You’ll be glad you did.