April 28th, 2023
By Lesley Fair
Senior Attorney, Division of Consumer and Business Education, FTC
For many people, buying a franchise has proven to be a good choice, but like any other financial decision, there is no one-size-fits-all answer to the question “Is a franchise right for me?” Buying a franchise involves a major financial outlay and owning one often requires an “all in” lifestyle commitment. If you’re thinking about whether your future could be in a franchise, follow the FTC Business Blog for a series we’re calling Franchise Fundamentals. We’ll explore some of the factors to consider as you investigate franchise opportunities. The first topic: debunking myths and misconceptions about becoming a franchisee.
Myth #1: Being a franchisee is the same as owning your own business. Owning a franchise isn’t the same as being a business owner. In fact, the franchisor may control many aspects of your business – for example, your site location, your sales territory, the design of your retail establishment, and the products or services you can (and can’t) sell. Of course, the right franchisor may assist you with training and expertise, but that help comes with a price both in terms of finance and control.
Myth #2: Buying a franchise will give you “be your own boss” status. After years of earning a salary, many prospective entrepreneurs look to franchise ownership as a way to exercise autonomy. Not so fast. Franchise agreements often give franchisors authority not only over big-picture decisions at the outset, but also over some day-to-day operations – how you can advertise, what your sign must look like, where you buy supplies, etc. If part of your motivation for considering a franchise is to live that “be your own boss” lifestyle, investigate thoroughly first.
Myth #3: Liking a company’s products is the best indicator that you’ll achieve success as a franchisee. Successful franchisees often say it helps to like the product or service, but being a satisfied customer is no guarantee that a franchise is the right fit for you. Some franchises – say, auto repair or tax preparation – require technical expertise or special training. Are the skills you bring to the table a good fit for the franchise? And has your previous work experience given you the financial and management know-how essential for success?
Myth #4: Owning a franchise is an excellent source of passive income. Who unlocks the shop several hours before opening, turns off the lights at the end of a very long day, and is there in between to handle payroll, customer service, and maybe even routine maintenance? It’s often the franchisee. Even franchisees who choose to hire day-to-day managers will likely find that owning a franchise involves a major commitment of time, effort, and resources. That cruise-ship-and-golf-resort image some people have of franchise ownership just doesn’t square with reality.
Myth #5: Owning a franchise is a financial “sure thing.” The only sure thing in franchising or any other business model is that there’s no such thing as a sure thing. Spending your nest egg for a national name isn’t a guarantee of success. Certainly, your skills and commitment factor into the equation, but so do a lot of variables beyond your control – demand for the product or service, competition, and local and national economic conditions, to name just a few. What’s more, under your franchise agreement, you may have to pay the franchisor even if you’re losing money. Those are just some of the intangibles to consider if you’re thinking about a franchise.
More information can be found at "A Consumer’s Guide to Buying a Franchise" via https://www.ftc.gov/business-guidance/resources/consumers-guide-buying-franchise back...
Senior Attorney, Division of Consumer and Business Education, FTC
For many people, buying a franchise has proven to be a good choice, but like any other financial decision, there is no one-size-fits-all answer to the question “Is a franchise right for me?” Buying a franchise involves a major financial outlay and owning one often requires an “all in” lifestyle commitment. If you’re thinking about whether your future could be in a franchise, follow the FTC Business Blog for a series we’re calling Franchise Fundamentals. We’ll explore some of the factors to consider as you investigate franchise opportunities. The first topic: debunking myths and misconceptions about becoming a franchisee.
Myth #1: Being a franchisee is the same as owning your own business. Owning a franchise isn’t the same as being a business owner. In fact, the franchisor may control many aspects of your business – for example, your site location, your sales territory, the design of your retail establishment, and the products or services you can (and can’t) sell. Of course, the right franchisor may assist you with training and expertise, but that help comes with a price both in terms of finance and control.
Myth #2: Buying a franchise will give you “be your own boss” status. After years of earning a salary, many prospective entrepreneurs look to franchise ownership as a way to exercise autonomy. Not so fast. Franchise agreements often give franchisors authority not only over big-picture decisions at the outset, but also over some day-to-day operations – how you can advertise, what your sign must look like, where you buy supplies, etc. If part of your motivation for considering a franchise is to live that “be your own boss” lifestyle, investigate thoroughly first.
Myth #3: Liking a company’s products is the best indicator that you’ll achieve success as a franchisee. Successful franchisees often say it helps to like the product or service, but being a satisfied customer is no guarantee that a franchise is the right fit for you. Some franchises – say, auto repair or tax preparation – require technical expertise or special training. Are the skills you bring to the table a good fit for the franchise? And has your previous work experience given you the financial and management know-how essential for success?
Myth #4: Owning a franchise is an excellent source of passive income. Who unlocks the shop several hours before opening, turns off the lights at the end of a very long day, and is there in between to handle payroll, customer service, and maybe even routine maintenance? It’s often the franchisee. Even franchisees who choose to hire day-to-day managers will likely find that owning a franchise involves a major commitment of time, effort, and resources. That cruise-ship-and-golf-resort image some people have of franchise ownership just doesn’t square with reality.
Myth #5: Owning a franchise is a financial “sure thing.” The only sure thing in franchising or any other business model is that there’s no such thing as a sure thing. Spending your nest egg for a national name isn’t a guarantee of success. Certainly, your skills and commitment factor into the equation, but so do a lot of variables beyond your control – demand for the product or service, competition, and local and national economic conditions, to name just a few. What’s more, under your franchise agreement, you may have to pay the franchisor even if you’re losing money. Those are just some of the intangibles to consider if you’re thinking about a franchise.
More information can be found at "A Consumer’s Guide to Buying a Franchise" via https://www.ftc.gov/business-guidance/resources/consumers-guide-buying-franchise back...
