So as formers business owners to many different types of business globally, we can once for all debunk the so called franchise ownership/system.
This opinion is strictly our own,and we are very much a where that there are a number of very successful franchisees out there.
But our blog and our advises are meant for mainly smaller business owners who lack big amounts of working capital.
So a lot of people come to us and ask about different franchises, and if they should buy in to one.
Often they will have to borrow that money from family and the bank.
Our general answer is always a big NO!.
So what is a franchise?, so very easily put you buy the right to open a business that already exists.
What it is means in layman terms is that somebody has started a business somewhere and they are selling you their business model for a cost, so you can run a smilar business in your area/town/city.
So usually there is a upfront cost to acquire the rights to a franchise.
This can be anywhere from 5.000-1000.0000, so from 5000 dollars up to a million dollars.
And the average cost is around 150.000-250.000 dollars.
Then there is usually a license cost also involved in the this deal.
And this can be either a percentage of your turnover or your profits or even sometimes a flat fee every month!.
So as you see here, the initial start up costs are very big, on top of that you have to continue to pay monthly fees to the franchise owner.
So in general you will be paying true your nose as a franchisee!.
There are some studies that show that almost 40% of franchise owners makes less than 50.000 dollars a year.
And then you should really take into consideration that many of them work 14-16 hour days.
So if you would find a job that will pay you 50.000 dollars a year for 8 hours then you are much better off based on the statistics.
There are also other studies that show that 15% of franchise owners makes more than 200.000 dollars a year.
What you need to know about these people making 200.000 dollars a year is that they usually have a lot of capital behind them and they run a big food franchise or another large franchise.
So they are not a corner store so to speak!.
Sometimes when clients come to us, we see jaw-dropping agreements from franchise owners to franchises, that we would never see in agreement around the world for normal buying and selling of services and goods.
So we can become very sad, when we see how a franchise has been taken to the cleaners by the franchise owner.
We would never recommend anybody buying into a fitness or a gym franchise under any circumstances.
Because this is not a hard thing to run on your own with one or two very experienced gym rats by your side.
To open up a gym/fitness center you first just need to know what customers you are targeting with your business.
Is it normal gym training with some spinning classes and some group classes that you want to cater to.
Or are you looking at cross-fit type of customers and maybe even half a gym and half martial arts gym, MMA and similar stuff!.
Once you know what customer group you are targeting then you need to do a very proper due diligence to make sure that the area you are looking to open up in, does not have to much competition and that there is enough of a customer base for you to open up a training facility of some sort.
Then try to find a location with enough parking spots, and where the rent is not gonna be true the roof.
Because your fixed costs will be the one major player in your business and it will determine if you make a profit or not.
There is a huge difference in paying 4000 dollars and 8000 dollars a month for a similar space.
Sometimes the 8000 dollars is justified based on the location but you have to really do your due diligence before starting up any kind of business.
So it was quite fun to see the last episode of undercover boss in January when one gym franchise chain sent out a women who basically new very little about training and running a business.
There is always that problem when you enter into a franchise that is owned by a large company who has a lot of employees and many of them are sitting in there ivory towers and they have no experience from running their own business of any kind!.
So when they make cooperate decisions that will affect you as the franchise, they do not really understand how bad those decisions can affect you and your business.
What was also jaw dropping with this particulate gym chain was that they even admitted not having any contact with the owner of one gym for over a year.
As every good franchise owner knows, the communication with head office is always a major key, so you know what is going on and what is coming in the pipeline the upcoming year/years so you can plan for your business.
The cost to buy a franchise is often way to high, and it is usually much better to spend that money of your own equipment for the gym for instance, than to pay somebody-else.
There are also some issues when you want to get out of a franchise agreement, because it is not always that clear cut that you can sell your business to anybody upright.
Usually you need approval from the licensee to do this!.
And not every buyer of your business will qualify to become the new franchisee , with the head office.
So then if we speak about food franchises of course many of them are well branded, but that does not mean that you will as the owner make a lot of money on a smaller store, once you have paid all the monthly cost that comes with being an franchisee.
In general you also need to be careful with franchise opportunities that require a lot of money upfront.
Because a lot of the bad franchise option will take most of there money upfront from you.
And very often leave you high and dry after that.
One other very important thing you need to know is that for a franchise to success you need to be working for the first 5 years yourself in the business to make sure that everything runs smoothly and cost effective.
So if you come to us as a client and ask us about if you should open up a franchise, we would almost always tell you not to do it!.
And for you out there saying we dont know what we are talking about.
We have created over 10.000 lasting jobs around all continents, over the past 50 years time.
And these jobs are stil there, in Sweden in Germany in America, in France, in Taiwan, in England and many other places.
So we have started with nothing and built and lost companies over the years, so we are in a very good situation giving business advise to smaller and medium sized companies, because we have been there, done that!.
So if you are looking at entering into a franchise , you really need to have your eyes wide open, and understand what you are entering into!.
One final note on franchises is this!.
Just because a franchise works well in California does not mean that it will work well in Iowa or Texas for say!.
So that is why it becomes so difficult to look at the success stories that the franchise owner is trying to pitch to you as the possible franchisee.
Thank you for reading.