Everyone wants to know the best franchise to buy, but it is really a meaningless question. There is no such thing as best franchise or even worst franchise. The “question” covers a lot of ground. The purpose of owning a franchise is to own a profitable business. So what franchises are profitable? Some of them, sometimes. As in certain to make money? None are a certainty.
What does the “top 10 hottest franchises” or the “10 best new franchises” get you? The current winners in a popularity contest where the rules change and no one knows who makes the rules–or picks the best franchises or the hottest franchises. Just because the sheep follow the leaders over a cliff, doesn’t mean you have to.
Even the most solid of business concepts, the most thoughtful and most comprehensive in training, systems and support can result in a failed investment.
Here are five reasons a franchise fails:
*life cycle of the business model is nearing its end (used records, video rentals,
*wrong location/wrong demographics
*underestimating the various ways the business can be affected by competition
*overestimating the market for the service or product (especially true in this economy)
*bad operator (you need to have confidence in your abilities, but few are good at everything they try)
No franchise is certain to succeed – even the largest franchise systems in the country have far from a perfect track record– there are some that seem virtually certain to fail.
Here are some red flags:
1. the business being franchised has not been operated long enough to do much more than make a profit but it is promoted as a proven concept.
2. the founder of the business has either: started the business for the sole purpose of franchising it and has no real passion for the business or decided to franchise without understanding how to be a franchisor and has focused on selling franchises and–more or less–getting them started rather than a small core of truly successful franchises
3. franchisor has no money, no ongoing business advisors
4. franchisor uses a franchise “packager” to put together its franchise documents who profits primarily from the start up package and/or sale of franchises, but not from on-going counseling of being franchisor, or….
5. franchisor copies the franchise documents of a similar business concept to cut costs which means they are basically clueless about the whole business
6. when franchise fees/royalties/mandatory purchases are added to operating costs, the probability of the business being much better than a low paying job
7. the franchisor cuts corners on legal compliance because it’s too expensive
The best franchise is the franchise that will be profitable for you, achieves breakeven at a point in line with your expectations and is supported by a franchisor that meets or exceeds the expectations they create.