Do Franchises Make Money?

By: Dave Wright, Craftsman Republic®

Card image cap

I have been associated with many people who purchased franchises and have heard a varying series of tales and stories. So, people sometimes ask me, mostly because I am old, and apparently look like someone you should ask for advice to ignore, “Would you buy a franchise?”

There is not one answer. Franchises usually rise from business success. Someone has a great plan and builds a very profitable business that you would love to duplicate. They are always promising to tell you the secrets of their success.

Sound familiar? I will tell you the secret is in the word “plan” when you add hard work to it. If you are thinking of buying a Franchise, the business plan is important. They have looked at what they did and want to further profit by telling you how to plan to do it. No small detail should be overlooked.

Before you buy a franchise, go to other owners for research. Ask them if they would do it again, how much have they invested, how they got loans, can they help you, etc.? Go to more than one current owner. Are there some owners who do not want to talk to you? Did they show you their books? Last year’s books? The year before’s books? These are the books you are most likely to be looking at when you start, the historical ones. Do they still own the original franchise? If not, why not?

One of my friends went to purchase a plumbing franchise and could not find a single owner who was making money by the third year. They were happy with their operations and the projections were accurate, but the return was less than predicted. It was taking longer to earn back any investment than they were promised. All were ok with the way things were going and had been treated well. His question was, “What about the money?” Usually when it looks successful, it is successful. Usually. Three years is forever if you are not paying off loans and other costs.

Here is A Short List of Main Issues With a Franchise:

Costs-Franchise fees, Royalty, Advertising required, must purchase much from the franchiser.

Leases-Some franchisers take back franchises. They want you to take over a lease and sell at a discounted price, but the lease was the problem for the previous owner. Watch out for takeover deals.

Control-The agreement has an end date, controls, standard to meet, restriction on goods sold, site approvals, even hours of operation. If you don’t meet the terms, they can take the franchise back.

Read the Franchise Disclosure Document (FDD)-It tells you what rights you have and don’t have.

Territory-You should have the selling rights to market, or to the leads, in a specific guaranteed territory.

Can you sell it? Again, these agreements do have end dates.

So back to the issue, do you have ten years to develop it, and when you do can you sell it?

So, here are the complaints...

  • My price is too high, I am not selling.
  • I can buy better supplies for less from others.
  • They want me to sell to family and friends.
  • The advertising is directed at Consumer awareness, not getting leads.
  • I must wear stupid uniforms.
  • I have to buy stupid uniforms.
  • My expenses are excessive.
  • They advertise reduced prices at the height of my season when I can make the most money selling at regular price.
  • They sold the territory next to mine for less than I paid.
  • I got cited for standards violations when I am exceeding their standards.
  • I am not making money after two years.
  • It will take me the length of the agreement to get my money back.
  • I must work long hours.
  • I can’t advertise at trade shows.
  • I am required to attend trade shows.
  • I work seven days a week.
  • I do not have more than a very few new appointments due to the franchise.
  • I should not have quit selling the old Product, my clients preferred it
  • It is just a pyramid scheme.
  • They nag me about sales but offer no help.
  • My payroll is too big because of the franchise requirements.
  • The quality is just not good enough.
  • I am selling something I do not believe in.
  • The decals on my van are ugly.
  • I pay for every suggestion they make, yay.

Now for the Advantages of Franchises...

  • They do marketing for you.
  • They know there is a market, market research.
  • There is demand for the Product.
  • They make you look more professional, or else.
  • When someone else discovers something, they will fix it for you.
  • They (usually) care about your success, so they can sell another franchise.
  • You get estimates on sales in your area.
  • They make a business plan for you (still need a CPA and lawyer to read it).
  • You can get some services at a reduced price.
  • You pay a premium for some services.
  • You get to dress up in a new uniform with your name on it (they brand you).
  • You will get training and it will be decent (yes, we need training).
  • You will have to train your people.
  • They make you stay organized.
  • There is no end to the information they ask of you.
  • There is no end to the information they give you.
  • They teach you all the rules and enforce them on you.
  • They will lose money if you fail.

Confused? A franchise is both a good and a bad thing, my answer is that planning is the basis for this decision, and this will be a long plan. You should be able to get by for a period of time without compensation. If you cannot, it may not be the best route for you. Franchises require long term planning, and an exit strategy.

I believe that businesses forget some of the things that made them successful. When I was in Contract Management, everyone in the field knew the location of every McDonalds. Do you know why? They always had clean bathrooms and they were easy to get in and out of. Every bathroom user probably purchased something. Recently, I have heard old friends say that the new stores are too hard to get in and out of, and they are going elsewhere for their coffee. Do they know what is happening?

Craftsman Republic® has prepaid workorders, not leads, and needs committed Craftsman to perform them. Register with Craftsman Republic® today.