Save Your Money - Skip the Franchise

When times get tough and people get laid off from their life long jobs, one of the first options many of them explore is purchasing a franchise. I was watching a program on MSNBC over the last weekend, and the commentator interviewed a woman whose web site ranked the 300 most profitable franchises.

We all hear about the profitable McDonald's chains over the years, and how various people made a killing by owning franchises. What you typically do not hear is how many people lose their life savings investing in these deals. If you stop and think about it, you are basically just buying yourself a job.

So before you dump your entire life savings into a franchise, stop and think long and hard. In this day and age, most people do not even want their kids to work for a fast food chain. If that is the case, why would YOU want to make your living from one? After spending years in college, graduate school and working like a maniac to get a professional license, do you really think you are going to pay the mortgage on your over priced house by selling french fries or ice cream cones? Do you really want to be spending all of your free time trying to schedule people to fill shifts only to have them cancel because their grandmother died for the fifth time in the last two months?

Many of these franchises sell for hundreds of thousands of dollars. Then once you purchase the rights to the franchise, there are ongoing fees. Many of them require you to purchase all of your supplies from the franchisor at inflated prices. In addition, a monthly franchise fee is not uncommon. This fees can be several percentage points of your gross sales. From what I have seen, the advertising and marketing support is minimal at best on these deals. This is the place where most new businesses need SUBSTANTIAL support, and it is severely lacking. Without proper marketing and advertising, your business will go under in a heartbeat. The training and support you receive is crucial, because in most cases the new franchisees have typically never owned a business before. They have typically been employees all of their life and are not used to wearing all of the hats in a business.

Just think about how many sandwiches you are going to have to sell to even cover the rent which could easily be a couple of thousand dollars a month. That does not even cover the food costs, not to mention the payroll. And speaking of payroll, the owner is normally the LAST person to get paid. When you actually sit down and take a good hard look at the numbers at the end of the month, many owners are making LESS than the minimum wage. On top of that, many new franchise owners have raided their 401(k) plans to obtain the funds for the franchise. To add insult to injury here, they are not only paying income taxes on the money they have withdrawn, they are also paying penalties for early withdrawals from the plan. Is this price really worth it especially if the franchise does not succeed?

So what the heck do you do when your job is in danger of disappearing? This is a great time to come in and see me. We can discuss your specific situation and assess your skills. When the large companies go under, many opportunities are created for start-up companies to pick up the pieces. Many of the companies that we all daytraded in the late 1990's during the dot com boom started off in someone's garage during that recession in the early 1990's. Many of those companies started on a shoestring and became very profitable down the road. And the best time to start thinking about a new business is BEFORE you lose that job. So start thinking and let's talk.