Ten Good Reasons Not to Buy a Franchise
Thinking about buying a franchise? Here are ten reasons why you should consider investing your time and money elsewhere.
1. Questionable profitability. Most franchise owners don't provide much information to potential buyers regarding earnings possibilities. Even the franchisors who do supply this information usually give only average sales figures and profits before expenses are deducted, numbers that aren’t very helpful when trying to determine whether your individual franchise will be successful.
2. High start-up costs. Before opening your franchise, you may be required to pay a non-refundable initial franchise fee, anywhere from several thousand to several hundred thousand dollars. In addition you'll have to pay a lot to furnish your franchise with the necessary inventory and equipment. It can easily take several years to recoup all these expenses.
3. Encroachment. Imagine that you've just spent thousands of dollars opening your own GasMart station, when another GasMart station opens across the street. There goes half your customer base. This type of thing happens to franchisees all the time, as nearly every franchisor reserves the right to operate anywhere they want.
4. Lack of legal recourse. As a franchisee, you have little legal recourse if you're wronged by the franchisor. Most franchisors make franchisees sign agreements waiving their rights under federal and state law, and in some cases allowing the franchisor to choose where and under what law any dispute would be litigated. Shamefully, the Federal Trade Commission (FTC) investigates only a small minority of the franchise-related complaints it receives.
5. Limited independence. When you buy a franchise, you're not just buying the right to use the franchisor’s name, you're buying its business plan as well. Most franchisors impose price, appearance, and design standards, limiting the ways you can operate the franchise. While these standards can help promote uniformity, they can also stifle your creativity and ability to cater to local tastes or needs.
|
