Forbes.com recently published an article titled, “Laid Off? Why Now Could Be the Best Time to Franchise.” The article discusses some of the potential benefits of franchise ownership, and it provides an introduction to some of the financial considerations involved in choosing between various franchise opportunities.
Losing a job is an event that causes many people to re-examine their priorities; and, to be sure, buying a franchise is one option that is available. However, before committing to any particular franchise opportunity (or franchise ownership in general), it is important to critically assess your goals, skills and financial circumstances in light of the realities involved.
1. Buying a Franchise is a Long-Term Commitment
Buying a franchise typically means committing to a contractual relationship for two, three, five or ten years. Even if you find a work-from-home franchise that allows you to open for business relatively quickly, buying a franchise is not a short-term solution to being out of work. The decision to buy a franchise should be made based upon a sincere desire to run your own business within the confines of the franchise structure and should not be triggered by any one single event.
2. Buying a Franchise Requires Access to Capital
When you buy a franchise, you need to pay the franchisor’s initial franchise fee, you need to cover the expenses involved in establishing your business (which can range from tens of thousands to millions of dollars), and you need to have a capital reserve to fund your business (and your personal life) during your first several months of operations. While there are financing sources available (including Small Business Administration (SBA) loan programs), most franchisors expect franchisees to have a certain amount of liquid capital.
3. Running a Successful Franchise Requires Business Skills
While buying a franchise should afford you the benefit of a proven business system and operational support, buying a franchise is still a business venture that requires the right type of knowledge and skills. In order to succeed as a franchisee, you need to know how to run a business, and you need to be prepared to overcome challenges without relying on the franchisor for day-to-day advice.
4. Owning a Franchise is Far Riskier than Being Employed
If you are an employee, you can lose your job. If you are a franchisee, you can lose everything. Literally. Many franchisors require franchise owners to sign personal guarantees, and this means that their savings, their homes and all of their other personal assets are potentially on the line. Franchisors also typically require franchisees to agree to non-competition covenants as part of their franchise agreements; so, when your franchise experiment is over, you may find that you are unable to work for two or three years in your chosen field of occupation.
Are You Thinking about Buying a Franchise?
Despite these concerns, it is possible to succeed as a franchisee; and, for those who take the necessary steps to prepare, buying a franchise can be a profitable business venture. If you are considering a franchise opportunity and would like help understanding the terms of the Franchise Disclosure Document (FDD) and franchise agreement, you can call 202-293-3947 or contact us online for a free initial consultation with franchise attorney Jeffrey M. Goldstein.
