Just like starting a business, or like any investment you might make, there are risks associated with investing in a franchise. In this video, I’d like to share the Top 5 (and ½!) risks of buying a franchise business, gleaned from my many years as a Franchise Consultant.
#1: The risk of failing
Most failure that happens in a franchise is franchisee-created, and therefore it could be franchisee-avoided if some things are done properly in the set up. Like selecting the right franchise, using an experienced franchise consultant to help you select the right business, making sure that you do proper due diligence to find out from other franchise owners how much money it’s going to take to build a positively cash flowing business. At the end of the day, it’s YOU that’s executing on the plan. It’s YOU that spending the money to build this business and YOU are the greatest variable which nobody can control but you!
#2: The risk of running out of money
The #1 reason that businesses fail is because people run out of money before they figure out how to make money. But that statement is NOT owned in franchising! That is in the entrepreneurial world where entrepreneurs are making it up as they go along. Every franchise business that you explore will disclose their success for their failure rate with you in their Franchise Disclosure Document. You’ll be able to see, to this point in history, how successful their franchisees have been. The #1 thing that I want you to do before you invest in a franchise is to go out and to talk to at least four to eight franchise owners to see, in the real world, what owners are able to create using the toolbox that the franchisor has created. From THEIR experience, when did the business cash flow? How much money are they making? How much money do they THINK they can make? So before you give any money to a franchisor, you are empowered to do all of this due diligence. And that due diligence should make all the difference in the world. So this risk of running out of money, it’s really no risk at all if you’ve done proper due diligence.
#3: The risk of not finding good employees
Most people that I work with are not looking to buy themselves a job. They want to be the CEO who works ON the business rather than IN the business. So they’re going to have to rely on employees to be there when they don’t want to be there. But then, a lot of my candidates will start interviewing franchise owners and start looking for trouble when it comes to hiring employees, especially right now in the moment that we are currently in. Part of becoming a business owner is embracing the role of ownership and embracing the role of being the leader of your own organization. I would take negative validation about how “hard” it is to find good employees with a total grain of salt. Find people that you believe are coachable, that are hungry and turn them into your GOOD employees.
#4: The risk of not finding a good location.
If you have invested in a strong franchisor partner, there is NO WAY they are going to let you down by not helping you to find a great location. That said real estate cannot be rushed. You have to be patient. Please do proper due diligence, because this risk can be avoided by simply partnering yourself with a good, solid franchisor partner who’s going to be there to help you in that process.
#5: The risk of not finding enough customers
In my opinion, THIS is really the only true risk in owning a business. But here’s the thing… the risk of not finding enough customers is COMPLETELY controllable and it is owned by you! Finding enough customers to build a positively cash flowing business and the business of your dreams is exactly what owning a business is all about. If you want to be a history maker in your business, or if you simply just want to live the life of your dreams with a business that you own and feel in control of, the risk of not having enough customers is ENTIRELY controlled by you.