5 Reasons Why Not To Franchise Your Business

Franchising your business may seem like the next step in the right direction if you have a proven concept that’s been built on a sturdy system and has stood the test of time. But not so fast! More often than not, franchising can prove to be a path riddled with unforeseen headaches that all amount to the potential downfall of your business.

Before you consider taking the plunge, here are five reasons why you might want to consider otherwise.

It’s expensive. As a prospective franchisor, be prepared to shoulder the heavy legal costs that come with franchising a business. It’s highly advised that one retains a qualified attorney that specializes in franchising, given that it is an industry with a complex set of state-specific registration laws.

In addition to preparing franchise agreements, the Franchise Disclosure Document (FDD) and trademark protection, you’ll be advised to create a new corporation and hire a CPA to conduct an audit on your existing business. When it’s all said and done, you are looking at upwards of $50,000 in legal costs alone. Ouch.

It’s a whole different ballgame. Assuming you are all squared away with the legal costs associated with becoming a franchisor, you must face the harsh reality that franchising is a completely different business in and of itself. Regardless of the success of the brand and sexy balance sheets of your existing business, franchising comes down to one thing: selling.

You may have been awesome at establishing the brand, but don’t make the mistake of assuming that that will carry over to selling it. Franchisors have to rely heavily on putting together a kickass sales team and/or utlize industry brokers. Again, those resources will always come at a premium.

You are putting your brand image at risk. All the blood, sweat and tears that you’ve poured into establishing your concept can all go down the drain in the hands of one bad apple. When a franchisee buys your concept, you are giving them full legal use of your brand with the hope that they carry the same ounce of passion and determination to excel and do your brand justice.

Regardless of your faith in how robust the franchise agreement is or how comprehensive the due diligence conducted on your franchisees are, you will eventually come across someone who will (hopefully unwittingly) do things to tarnish your brand's reputation.

A franchise is not saving grace. If you think that franchising is a way to rescue your business from financial instability, think again. Financial shortcomings in a business is a great indicator that you are not ripe for franchising and don’t have a proper support system in place to train your franchisees and put them in a position to succeed. Remember that these numbers will be reflected in your FDD, which are common red flags that will discourage would-be franchisees from coming on board.

There will be gray hairs and sleepless nights. It’s foolish to assume that franchising your business will allow you to just go on auto-pilot and watch dollars roll in via fees and royalties. Wrong!

Once you become a franchisor, you are no longer at the helm of the ship that you single-handedly built. You are now at the mercy of your franchisees, investors, attorneys and employees. You may even be pressured to bring on other partners and capital to help keep the system afloat in the face of increasing competition. When it’s all said and done, work-life balance will become a thing of the past.