Many people today harbour unrealistic dreams about becoming rich through the franchising route – all the independence of running a small business coupled with the security of nestling beneath the wing of large, established companies such as Subway, Starbucks or Snappy Snaps. As large and small companies alike shed jobs due to the recession, a lot of people – many of who would not normally consider running a small business – are turning to the franchise option as a way of regaining control.
But despite what the franchise sellers would have you believe, it is not a guaranteed route to riches – or even financial stability. For one thing, a potential franchise holder needs to rustle up a fair amount of money up front – upwards of £100,000 in loans and cash deposits in many cases. In lean times, that sort of capital can be near-impossible to come by for most people.
Even if the start-up sum can be found, the potential for failure is often understated. Like any small business, running a franchise requires long hours of hard work – and even then financial success is not guaranteed. Research shows that up to 80 per cent of traditional small shops and café-restaurants go bust within the first five years, and this is hardly going to be helped by the recession. Even among those that succeed, the idea of instant riches is largely a myth – with all the circumstances running in a franchise’s favour, it still takes around five years for regular profits to start rolling in.
Hard work was mentioned earlier – and while few potential franchise-holders would consider themselves averse to a little elbow grease, equally few hold a realistic view of what this will mean in practice. Again, most research shows that the average franchise holder puts in between 15 and 18 hours a day keeping their business running. Many simply burn out, or take the easier option of working for a regular company that spreads the risk.
Unlike running a small business of one’s own, franchise holders are not able to exercise the same level of control over their operations. The parent company will have the final say in décor, advertising and such things as staff uniforms. Often, uniforms must be purchased from one supplier and less expensive alternatives are not allowed. This can take the shine off the whole thing – and spoil the feeling of “being your own boss.”
And finally – the big problem that franchise companies love to play down: the issue of franchise fees, also known as royalty fees. Many potential franchise holders are not aware that the company charges fees which are over and above the normal expenses incurred while operating a small business. The rates vary, but can be very high, especially if the franchise company takes more of a hand in running the business (which is often the only way to balance the long hours problem mentioned earlier).
It takes a certain sort of person to succeed as a franchisee – and it is often a very different sort of person who succeeds as a small business owner. While the life is perfect for some it should not be seen as the easy alternative to entrepreneurialism.