10 Common Myths about Owning a Franchise

June 27, 2023

Franchising as we know it has been around for decades, and longer than that depending on how you define the concept. As franchising has evolved, many people not familiar with franchising have perpetuated certain misconceptions that persist today. Here are 10 common myths about owning a franchise that may surprise you when you find out the truth!

MYTH 1: Franchising is for people who can’t start a business on their own.

Not true! A franchise business is still a business, requiring the same skills and dedication as any entrepreneurial venture. But franchising offers several advantages over starting a business from the ground up, including:

- A proven business model that has been tested and refined, which can help reduce the risk of failure for franchisees.

- An established brand and reputation, which can help attract and build trust with customers.

- Training and ongoing support, which can help provide franchisees with the skills and knowledge to be successful.

- Marketing and advertising support, which can help increase visibility and drive business.

- Access to resources, including other franchisees, which can help the franchise owner navigate the challenges of running the business.

While franchising may not be the right choice for everyone, it is a legitimate and successful business model that has helped many entrepreneurs achieve their goals.

MYTH 2: Only affluent people can afford to invest in a franchise.

While it’s true that most franchisors have net worth and/or liquidity requirements for candidates, depending on the type of business under consideration franchising can be an attainable investment for many people. In general, franchises that require a physical location and a lot of equipment, such as a restaurant, are some of the most expensive franchise types when it comes to the initial franchise fee and start-up costs. But many franchises don’t require any, or very little, special equipment and can be effectively run from a home office, making the initial investment lower.

Many potential franchisees don’t realize that financing options may be available to help with franchise start-up costs. SBA-backed (Small Business Association) loans may be available in addition to traditional bank loans. Candidates may also be able to leverage funds from their 401K, owned or mortgaged property, or savings.

When considering the cost of a franchise, remember to factor in more than just the franchisor fee(s) and operational start-up costs. You will also need to be able to support yourself and your dependents for at least 3-6 months while your business is getting off the ground.

MYTH 3: I need experience in the specific franchise industry.

For the most part this is false. Many successful franchisees have little to no prior experience in the franchise business they are considering. What they do have is strong business acumen, a willingness to learn, flexibility, and a commitment to following the franchisor's proven system.

On the other hand, having relevant experience in the industry can be helpful. Prior knowledge can underscore the franchisee’s understanding of the market, help them identify potential challenges more quickly, and inform their decisions about the day-to-day operations of the business.

Whether or not a franchisee has experience, the franchisor will provide training and support to help all new franchisees learn what they need to know to have the best chance at success. New owners also have a network of other franchisees who are often eager to share their experience and knowledge with others in the system.

MYTH 4: I won’t actually own my business as a franchisee.

Poppycock! Franchisees do own their business, and are ultimately responsible for its success or failure. Because a franchise is operated under contractual agreement with the franchisor, franchises are required to follow the franchisor's system; but the franchisee owns and operates the business as they see fit within the terms of the agreement.

The franchise agreement outlines the rights and responsibilities of both the franchisor and the franchisee. Typically, this includes the franchisee’s use of the franchisor's trademark, the payment of royalties and other fees, and the specifics required to meet the franchisor's system and standards. For their part, the franchisor is typically committed to providing initial training, operational guidance and marketing support to help franchisees run their business successfully.

The franchise agreement is a legally binding contract; failure to follow the terms of the agreement can result in termination of the franchise relationship. However, as long as the franchisee operates the business in accordance with the agreement, they do own and manage the business as an independent entrepreneur. Further, the franchisee always brings their own skills, experience, and creativity to the table, which can contribute to the success of the business while still adhering to the franchisor’s guidelines.

MYTH 5: It is the franchisor’s job to find customers for me.

As the old adage goes, it’s better to teach a person to fish for themselves than to give them fish for one day. In essence, a franchisor teaches its franchisees “to fish” by providing technical and operational training to help them succeed. The franchisor may also provide marketing support and materials to the franchisee, but it is up to the franchisee to execute and tailor the marketing strategy to their specific location and target audience.

Some franchisors may even provide lead generation services or referrals, but the franchisee is responsible for converting those leads into customers. And while franchisees will benefit from the franchisor’s national marketing, each individual franchisee is ultimately responsible for attracting and retaining their own customers.

MYTH 6: I can predict how much my business will make based on earnings claims from the franchisor.

Unless you have a reliable crystal ball, no business owner can predict their future earnings. Franchisor earnings claims might provide some insight into the financial performance of the franchisor and its current franchisees, but there are numerous factors that affect the actual revenue of a business. These include location, competition, market conditions, employee compensation, franchisee experience, and much more.

It’s also important to keep in mind that not all earnings claims are calculated the same way. Inconsistent earnings claims can take many forms, such as conflicting information provided by the franchisor or a lack of transparency in the information provided. Some franchisors may put forth “cherry-picked” earnings claims that are based on best-case scenarios or their most successful franchisees. Unethical franchisors may make exaggerated or unrealistic claims that are difficult to validate.

Even when earnings claims are based on a level playing field, it’s important to remember that past performance does not guarantee future results. Any earnings claims provided by the franchisor should be carefully reviewed, if possible with the assistance of an accountant versed in such matters. While earnings claims can provide valuable information, this data should be considered only as part of a broader evaluation of the franchise opportunity.

MYTH 7: Franchisors get rich off franchisee royalties.

Say it isn’t so! (It’s not, actually.) Royalties are often a percentage, usually ranging from 5-12%, of the franchisee's gross sales. As such, the franchisor's royalty income is directly tied to the success of the franchisee's business. This creates a strong incentive for the franchisor to provide ongoing support and guidance to help the franchisee succeed.

Royalty fees received by the franchisor are typically used to cover the costs of ongoing support, marketing, training, and other services provided to franchisees. Additionally, most franchisors invest a significant amount of time and money in developing and refining their business system, which is the foundation upon which the franchisee's business is built.

While it is true that some franchisors may be more focused on generating revenue than on supporting their franchisees, the vast majority are committed to the success of their franchisees and work hard to provide the support and guidance necessary to help them succeed.

MYTH 8: If you build it, they will come.

Owning your own business is a dream that franchising can help you realize. Unfortunately, it’s a misconception that opening a franchise guarantees a steady stream of customers. While franchise owners do benefit from a proven business model, established brand recognition, and support from the franchisor, it is not a guarantee that a new franchise will succeed.

A franchise’s success depends on many factors, including the location, local competition, and marketing efforts of the franchisee. The franchisee must actively work to attract and retain customers. This includes executing a well-planned marketing strategy, providing high-quality products or services, and maintaining exceptional customer service. Additionally, many successful franchisees invest time and resources into participating in local events, networking in the community, and creating partnerships with other businesses.

While opening a franchise does provide certain advantages over starting a new business from scratch, it is important to recognize that success is not guaranteed, and effort and dedication are still required to build a successful franchise business.

MYTH 9: Franchise owners have to work harder than other business owners.

If you’re afraid of hard work, franchising may not be for you. Seriously, though, any entrepreneur will tell you that owning and managing a business – franchise or otherwise – requires hard work, dedication, and commitment. However, one of the benefits of owning a franchise is that you have a proven business model and support from the franchisor, which can help you streamline operations to reduce your workload.

Getting a new business off the ground also requires a significant investment of time and effort. Here again, franchise owners have the advantage of the franchisor’s proven go-to-market strategy. Some franchisors even have specially designed programs to help new franchisees get up and running quickly.

It’s important to note that the amount of time required to run a franchise can vary depending on the industry, the size of the business, and other factors. With proper planning, effective delegation, and a commitment to the business, you can build a successful franchise while maintaining a healthy work-life balance.

MYTH 10: It’s a franchisor’s fault when a franchisee fails.

As many of these unfounded myths have emphasized, the success of a franchise business depends on the franchisee. While the franchisor has a responsibility to provide support, training, and a proven system for the franchisee to follow, there are many factors that can contribute to the failure of a franchisee’s business. Poor location, lack of capital, insufficient marketing, inadequate employee training, and failure to follow the franchisor's system are just a few reasons a franchise business may fail.

Franchisors should be available to answer questions, provide additional training, and offer guidance when needed. If a franchisee is struggling, the franchisor should work with them to identify the underlying issues and develop a plan of action to address them.

Ultimately, the success of a franchise location is a partnership between the franchisor and the franchisee, and both must work together to ensure the success of the business. While the franchisor plays an important role in providing support and guidance, the franchisee must take ownership of the business and be willing to put in the effort required to make it successful.

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