3 Things to Know about Buying Into a Franchise
Running a small business takes courage and a streak of independence. You either have both, or you don’t. Deciding whether to run your startup as an independent company or as part of a franchise organization, however, is much more complex.
After several years of decline amid the recession, the number of U.S. franchises is expected to increase 1.9 percent this year to approximately 750,000, according to forecasts from IHS Global Insight. Franchises for personal and business services, quick service or table service restaurants, and lodging are expected to grow faster than that average. The value that these franchises will add to the U.S. economy in 2012 will increase 4.8 percent to $457 billion by the end of the year — faster than the economy as a whole.
If you’re trying to choose between a franchise and a standalone business, Intuit has pulled together some helpful statistics to consider as part of the decision-making process. Click here for the full infographic, and continue reading for three things you should know about buying into a franchise.
1. It will probably cost more money than you think.
There are two big reasons for this: First, depending on the sort of business, you will need to invest in a location or building, which could mean an investment of between $500,000 to $1 million. Second, you’ll need to invest in licensing for the franchise name, and all the marketing and branding benefits associated with it. A Subway location, for example, carries an initial fee of $15,000. The average initial investment for the most popular franchise startup in 2011, Snap-on, was $135,390. By comparison, it’s possible to start an independent business for as little as $10,000. You’ll need to weigh that investment against the average survival rate for startups — only half of them make it past the first four years, according to the data compiled by Intuit.
2. You’ll have an immediate leg up when it comes to marketing and operational support.
If you’d rather focus your creativity on making your product rather than talking about your product, a franchise brings a ready-made marketing plan. Your license will also include a framework for pricing, training employees, back-office technology, and other processes that it can take months, if not years, to establish. That safety net, though, might carry extra fees.
3. Your business is vulnerable to impressions of the overall brand.
Although individual franchise organizations can build strong ties to their local community through smart hiring and community outreach, they are also subject to the general public’s impression of the overall brand. That means you should check into the team running the parent organization carefully, to make sure you are onboard with the long-term strategy. It will dictate how you expand and evolve your own business.
Heather Clancy is passionate about solving small business problems.