This article are provided for information purposes only, and are not intended as legal advice.


Franchises, the good, the bad and the ugly

September 25th, 2009

Are all franchises equal?  Definitely not, there are good franchise operators, average ones and many poor franchisors.  How do you find out which one is which?  That is the million dollar question. 

 

I think you have to investigate what is the mandate of each franchisor.  Some franchises are known for selling as many franchises as possible to make money on the franchise fee and sale of equipment.  These operators do not care if you succeed or not, they are trying to sell as many as possible and that is how they make a living and grow the business, they are interested in the success of the master franchisor, not the franchisee.

 

There are other franchisors who have been successful in their home country and then try to export their success to other countries.  Sometimes this works and they are very successful, sometimes it works in some countries but not in others.  For example a successful franchisor in the sale of second hand stores who bought used electronics, TVs, music equipment, even motorcycles in some countries tried to expand their franchises in many countries.  They had problems selling this concept everywhere and often they would have to get multiple shareholders who did not know each other to own a store together.  They believed that it was important that the owners were involved in the buying of goods.  This was simiarl toa pawn shop, the main difference was that  you could sell your goods here vs getting a loan from a pawn shop.  Having four owners who did not know each other run a store was a problem and the partnerships fell apart.  On top of that, not all countries had people buying used goods.  As time passed, China started to produce goods very cheaply therefore there was not a large difference in price between used and new merchandise  and the franchise has now closed, at least in my city.

 

This franchise was affected by different cultures and changing times, which one lead to its demise, probably both.

 

There are some very good franchisors out there but I have also seen a trend that the franchisors are making it more and more costly to buy a new franchise.  They require you to operate many different concepts where most of their existing franchisors have only one item – for example an ice cream franchise.  New locations now require you to have a grill for burgers, the traditional ice cream and serving fruit juices all in one location.  The majority of franchises that I see are only ice cream places.  In this occasion, there is a large discrepancy between locations, some are small and seasonal locations, new ones have a different concept – is there a consistency?  You can buy 2 or 3 existing franchises for the price of one new one, which would you chose?

 

Other operators are known for treating franchises poorly, always trying to get additional fees from them, don’t care if they succeed or not as long as the franchisor gets more than he is entitle to – I have seen franchisors demand fees even when not entitled to. This is not the majority, this is a minority of franchisors but let the buyer beware.

 

You need to research franchisors on the Internet, talk to as many franchisees in many different cities, if you are on holidays somewhere, make a detour and see other franchisees.  Get their impressions.  It is not what the franchisor tells you, it is how they really act and how they treat their franchisees.  Make sure that the franchise you select is looking out for your best interest and will do what they can to support you as long as you follow their model.


Filed under: buying a franchise — Gary Landa @ 8:18 am


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