An Insider’s Overview Of The Franchise Industry
The Franchise Business has lots of moving parts. Know the basics.
Franchising operates under its own rules both legally and in a practical sense. In order to be successful over the long term, all players must conform or they stand a good chance of losing. While the legalities of franchising are quite extensive and subject to change, the practical and personal aspects of franchising remain reasonably constant.
First The Law
It’s old news to say that in 1979 the Federal Trade Commission published the franchise rule. But it’s never old news to state the importance of this event. The guidelines set forth required uniform disclosure of certain elements of a franchise offering. That allowed for an even more important action. Buyers have access to information previously not available. In other words, more information for due diligence. Unfortunately, franchise buyers do not take advantage of the franchise disclosure information available.
The personal side of franchising, meaning lack of due diligence by both franchisors and franchisees alike, dogs the industry. The consequences of this ignorance drag on. The result is too many unhappy franchisees and too many upset franchise systems. Just Google ‘franchise lawsuits‘ and you’ll be busy reading for a long time.
The Franchise Industry Operates Under Hard Truths
We coined and have used two undeniable tag lines for many years:
- Just because a business can be franchised doesn’t mean that it should be franchised.
- Lack of due diligence is the greatest source of franchise failure for franchisees & franchisors.
To be successful in franchising there must be a quality business model with a proven track record. There are ways to measure that requirement. There also has to be an ability to help franchisees be successful. Again, there are ways to measure that. The franchise business is rugged and demanding. Knowing what lies ahead is the best preparation for the journey. Both franchisors and franchisees must conduct due diligence on each other prior to the marriage. It sounds logical but just look at the facts on franchise success and failure.
Franchise Success Is All About Preparation
For Franchisors
Good preparation should result in both personal and business insights. A quality system is required. If the system is not near-perfect, the franchise will falter and fail. Of course, a quality system requires quality franchisees to operate it. These are contentious, ongoing issues for the franchisor.
If you’re interested in franchising a business do so with competent guidance and become educated as to if you should franchise as well as how to manage a franchise company. Becoming a successful franchisor is not a do-it-yourself project!
For Franchisees
One must first decide if franchising is an acceptable form of self-employment and then decide if a particular concept is a good fit. The Focus Program for Emerging Entrepreneurs is our response to helping people gain insight into those issues. In fact, it’s the ONLY system designed to answer two critical questions: Should I really be self-employed? And if so, what type of business environment should I choose? The Focus Program also offers an outstanding primer on franchising and franchise due diligence.
One Last Franchise Business Truth For All Participants
Whether you’re a prospective franchisee or prospective franchisor, if all the pieces of the puzzle are not present, stop and rethink the proposition. No one except the prospective franchisee or franchisor should make the ‘go, no go’ decision. Friends, family, and especially ‘free franchise consultants’ (who are brokers) are not your selection guides. Do your homework and make informed decisions. Growing in the franchise business and growing the legs of a franchisor or a franchisee takes time. Get involved with competent advisers who know the franchise business. Read more about buying a franchise and franchising a business if you’re looking for more answers.