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Why Buy a Franchise?

Entrepreneurs have seen the value in franchise businesses for more than 150 years. You probably drive past a dozen franchise businesses a day. What makes them so attractive to investors?

To answer the question “Why buy a franchise?”, it’s probably best to start by looking at the question “Why not start my own business?”

The answer to that question is simple: risk. 

Entrepreneurship comes with unmatched rewards and a sense of accomplishment. Entrepreneurs who invent a new product or service go down in history as innovators of the first order. But many, many more don’t go down in history at all — they just go down. According to the Bureau of Labor Statistics, 20% of businesses fail in their first year. By the fifth year, that goes up to 50%. This number does not account for the massive number of money-losing businesses or those that can’t provide a full income for the entrepreneur. 

Franchises offer the perks of entrepreneurship with a lower level of risk. If you open your own restaurant, you’re on the hook for payroll, setting prices, setting the menu, legal support, advertising, staffing and much, much more. Franchises offer all of the corporate support but allow you to keep the profits, minus a small royalty fee. Because franchises are large organizations with consolidated corporate power, they can hire big-money advertising firms, pay legal fees, and even survive an economic downturn. Time and time again, franchised businesses have proven more resilient to market crashes.

That’s why there’s a market for tried-and-tested business models. That’s why there’s a market for franchises. 

What You’re Buying With a Franchise

“When you buy a franchise, you’re buying a proven success. It’s a model that has been developed over several years,” said Jack Armstrong, a franchise consultant said. “The franchise can be validated, and you can talk to other franchisees. You can get a sense of the business’ headaches and speed bumps ahead of time.” 

McDonald’s, perhaps the most famous franchise, has a proven record of success. When you buy a McDonald’s, you don’t have to worry about learning how to make a great burger or setting the price just right for the market, as the corporation behind you does that for you. A successful franchisee puts the franchise’s business model into practice and handles day-to-day operations within their stores, but has legal, financial and business intelligence backing from a bigger organization. 

But there are other franchises, thousands of them. As many as 4,000 new franchise brands pop up each year in every sector under the sun. Franchise owners aren’t just successful entrepreneurs, they’re systematic thinkers who can apply lessons and successes to a variety of contexts. If there’s an area of work you’re passionate about, there’s most likely franchises in the space. 

How to Make Your Franchise Purchase Successful

A successful franchisee enjoys all the benefits of entrepreneurship with few of the problems. Once a franchisee has mastered the art of running their territories, they can count on a steady income stream or even pass on the businesses to family members. 

But to become a successful franchisee, you have to do your homework. Once you decide what type of business you want to go into, then the real research starts.

“I think in your initial research you have to talk to the other franchises and find out what their day is like,” said Armstrong. “When does the franchisee get up in the morning? What's their day going to be like? Is this something they want to do for 10 or 15 years? Talk to at least three or four franchisees. See what their strengths and weaknesses are.”

If you find the right match and apply yourself, the franchise has already done all the legwork to get you off to the races. Now you have a functioning business running and the experience and potential to open more. 

But before you sign on the dotted line, Armstrong offers some pro advice. 

“Have a game plan for the exit before you sign,” he said. “The more recurring revenue you have coming in, the higher the resale value. A lot of people today are focusing on exit strategy. Talk to people who have sold. What kind of return did they get on their investment?”

The answer to the question: “Why buy a franchise” is really simple — to secure your financial future and find a business you’d be passionate about running, all with the support of a franchisor that will help guide you to success.