10 Common Misconceptions About Franchising

10 Common Misconceptions About Franchising
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10 Common Misconceptions About Franchising

04 Oct 2019

Everyone dreamed to be your own boss, but it doesn’t come without risk. To construct your own business, nowadays franchise business is booming to become an independent entrepreneur. But the new franchise business usually starts with exciting and exhilarating, but franchise veterans will quickly tell you how the stress comes after the excitement.

Franchises fail at the same proportion as other independent businesses. According to experts “Most of the franchise chains fail at a very high rate as 80% to 90% in the short time”. Thus, it’s crucial to get specific statistics and information about failure rates. Because some franchisors have high failure rates, while others have a proven business model to bring success.

Every entrepreneur thinking that buying a franchise means you’ll gain the freedom to be your own boss, and control your destiny. However, the reality is that starting a franchise business is much more than joining the military or navy.

Here are 10 common mistakes that entrepreneurs make when entering into a franchise system.

1)     Want an Independent Business Owner:

Franchising is all about conformity and uniformity, not for freedom. As a franchisee, you don’t have privileges to hold the reins. You are only technically the boss of your own shop, but you must follow the rules and process provided by the franchisor. You’re going to wear the same uniform and implement the same culture, apply a given business model to accomplish the same mission. Buying a franchise in order to manage your own fortune is the same kind to join the marines to do your own thing.

2)     Seduced by press news, branding and awards:

The entrepreneurial press clippings, many different franchises, and the reality are that many new franchises that are opened up with these companies end up failing. In India, there is no specific governing law for franchise business and there is some amount of self-asserted people in India Who organizes the Awards, Annual Rating for Brands, where there is no Authenticity, transparency, and credibility. So this all press news, branding and awards are only to attract the interest in franchise opportunities. When taking into consideration for opening a franchise business, never get seduced by fake media attention or awards.

3)     Not Hiring a Seasoned Attorney

Another common mistake franchisee did is not hiring a seasoned lawyer before signing of the franchise agreement. Before your franchising potential to turn into a nightmare, it’s very advisable to take legal guidance from an expert franchisee attorney to make an ideal deal. Whenever there are hundreds or thousands of dollars at stake, it’s always a good idea to hire a qualified attorney.

4)     Sharing Your Credentials:

The big mistake franchisee make is to share their credentials to the franchisor before taking necessary credentials. It is a very important check company’s last three years balance sheet, existing franchisee list, credit in the market and outlets opened so far, before signing a legally binding contract with a franchise organization. This information will help entrepreneurs to take informed decisions and help them to save their time and big amount of money.

5)     Not Aware of Actual Marketing Cost:

The franchisees don’t realize that there are lots of marketing costs come along with starting a franchise business. In most cases, these costs aren’t included in the actual contract, and depending on what is required, the franchisee has to invest marketing costs that are approx tens of thousands of dollars.

6)     Hiring Franchise Consultants:

Most of the Franchise Consultants are independent, you may call they’re third-party commissioned salesperson and brokers who have very little knowledge or experience in a franchise business. They always focus on delivering prospects to the franchisors that they have commissioned arrangements with the Brands. Actually, Franchising for an organization is not only selling and for entrepreneurs it’s not buying, but it’s also a marriage between franchisor and franchisee to maintain the parent-child relationship with the brand.

7)     Believe in government support:

You are not consumers and not protected as such, you are considered as entrepreneurs and business investors. In outside India, the Government instructs franchisors to provide necessary information for franchisees, on the other side, in India, there is no specific law in a franchise business. So you can’t receive government support if your franchisor doesn’t perform as promised or you were lied to or misled.

8)     Roll the Dice without Considering Worst-Case Scenario:

Whether you are a confident and enthusiastic startup business owner who is excited to establish a franchise business with keeping hope that this idea never going to be failed.  If you don’t want your family and friends to survive with, your failure, you should not start your own business. It is vital to have a positive, energetic attitude but doesn’t roll the dice without considering the possibilities of worst-case situations.

9)     Restricted Agreement:

Many of the things a franchisee can and cannot do, during and after partnership ends are covered under restricted contracts. A typical agreement for owners would describe restrictions on any competing business interests and a subset might go into how much involvement and follow-ups they are required to have in running the franchise on a daily basis. This could include a situation in which the end owner is no longer involved in daily operations, has been terminated for default, or has sold the business.

10) Estimated Initial investment

There is no doubt that the estimated initial investment and ongoing royalty fees to be paid are critical. The biggest cost that is often understated is the cost of construction and that may lead to legal disputes. A separate schedule in the documents is showing financial and technical performance for all units is ideal, but anonymously reported final revenue ranges, in the least, should be provided.

One More BIG Thing: Beware of Being Franchisor’s Experiments

Don’t restrict to just reading. A critical part of the franchise research process for any entrepreneur or investor is to spend time with the current owners in the franchise system. Before jumping into signing the agreement, check multiple sources of data and information, and also talk to referral people involved both those offered by the franchisor and others who haven't been. Be sure that you've got a great success that you can build on.