Top 5 Myths and Misconceptions About Franchising

The franchise industry has returned to pre-pandemic levels, with an estimated 792,000 franchises active in the United States during 2022. This number is expected to climb toward the end of 2023 and the beginning of 2024. However, misconceptions about franchising remain.

If you’re like many Americans, the pandemic caused you to re-evaluate key aspects of your life, including your employment, income, and future. This has led countless entrepreneurs to one common spot: franchising.

There are a lot of myths and misconceptions surrounding the franchise industry. In this blog, we look to eradicate the top 5 myths and misconceptions that new and prospective franchisees hold.

What We’ll Cover:

• Owning a franchise is the same as owning your own business
• Franchise owners enjoy passive income
• Franchises are guaranteed to succeed
• You need prior industry experience
• Starting a franchise is expensive
• Key takeaways

 

How to Know Which Franchises to Avoid

Identifying the right franchise opportunity is as much about spotting the promising signs as it is about recognizing the red flags. During the franchise discovery process, being informed can save you from committing to a business that’s unreliable or difficult to scale. Here are some critical red flags to watch out for:

1) Lack of Transparency: If a franchisor is not open about their operations, financials, or the challenges their franchisees face, consider it a warning sign. Transparency is crucial in building trust, and without it, you’re navigating in the dark.

2) Inadequate Support: A strong franchisor provides extensive training, marketing assistance, and operational support. If current franchisees express concerns about feeling unsupported or if the franchisor’s promises seem vague, it could indicate a lack of commitment to franchisee success.

3) Unrealistic Promises: Be wary of franchisors making promises that sound too good to be true. High earnings projections with little proof or assurance of success within a short timeframe should prompt further investigation.

4) High Franchisee Turnover: A high turnover rate among franchisees is a clear indicator of underlying issues. Whether it’s due to financial struggles, market saturation, or conflicts with the franchisor, frequent turnover suggests that the business model may be challenging to sustain.

Myth #1: Owning a Franchise Is The Same As Owning Your Own Business

Although business owners and franchisees share many similarities, they aren’t exactly the same. Franchisors control many of the high-level decisions, such as location, products, services, prices, sales territory, and the design of your storefront. This doesn’t result in a free range surrounding important decisions.

For example, a global technology franchise might require franchisees to utilize the same logo and color scheme and limit the services offered to customers. The good news is that most franchisees have a plethora of resources backing these requirements, like employee training and expert guidance.

One of the main differences between franchisees and business owners is “being your own boss” status. You aren’t technically your own boss, as your franchisor oversees your operation. The level of oversight is dependent on your franchisor. Some only voice input on big-picture decisions, while others look to have a say in the day-to-day operations.

Myth #2: Franchise Owners Enjoy Passive Income

There’s a fine line between passive and active income. Unlike what you may have been conditioned to believe, franchise income is often active – you’ll need a sales team to network and field incoming leads. You will need to pay taxes on business profits, whether that be at the entity level or on your individual income tax return.

Franchises are active in both taxation and physical requirements. How do you start hiring? Who opens and closes the storefront? Which personnel decide how to handle payroll? These are all decisions that might rest on your shoulders.

Sure, you could pass these tasks off to a manager, but in most cases, your team turns to you for the final decision. Before you move forward with franchising, be sure you understand your role and involvement in the company. You can only start earning predictable recurring revenue once you have a steady client base.

 

Myth #3: Franchises Are Guaranteed to Succeed

Franchises aren’t a get-rich-quick option. It takes effort, determination, and drive to see success in your franchise. They don’t run themselves. Even if your franchisor has had great success with franchisees, yours isn’t guaranteed to succeed. Franchisors provide you with a proven business plan and brand name. It’s up to you to properly implement it.

Customer demand can change at any point, competition could increase, and economic conditions could take a turn for the worse. Unfortunately, franchise agreements still call for routine payments even if your business is generating a loss.

Before you pour your life savings into a franchise, understand that there’s always the risk of losing your money. Your skills and commitment to success certainly help when reducing your risk of an unsuccessful franchise.

Additionally, consider pursuing franchises that don’t involve significant operating costs, such as a computer franchise. Complete your due diligence on operating costs, expected profit, and growth projections before putting pen to paper.

Myth #4: You Need Prior Industry Experience to Run a Franchise

Entrepreneurs have opened successful franchises with no industry experience. You don’t need to have used the company’s product or service for 10 years or know the fine details of the industry before pursuing a franchise. The participants in the Great Resignation didn’t leave their positions to go back into the same field of work. Instead, they left to pursue something totally different that fulfilled their passions or dreams.

Franchises are designed for entrepreneurs, not someone who knows every service offered or has years of industry experience. Your passion, drive, and commitment levels are often more important than your past industry experience.

Remember that just because you open a franchise doesn’t mean you are the one doing all the specialized work. In most cases, you will hire qualified individuals to manage services. For example, if you open a technology franchise, you most likely won’t develop the infrastructure or manage customer calls yourself. This is why the most successful franchises offer you a blueprint for hiring a qualified team.

Myth #5: Starting a Franchise Is Expensive

Most franchise opportunities don’t require you to drain your nest egg. There are franchises in every industry and field. Just like the type of franchise can vary, the investment needed does also. Low-cost franchises can provide you with the same opportunities without requiring significant levels of upfront capital.

Starting a franchise can involve upfront costs, like accounting and legal assistance, that you will need to factor into your initial capital outlay. Adding transparency throughout the entire process relies on putting together accurate forecasts and projections on what money is needed now and in the near future.

There are also ways to finance the upfront costs of your franchise. Lenders at traditional financial institutions, private investors, and government programs like the Small Business Administration can all help you foot the initial franchise bill.

Key Takeaways

Starting a franchise can be a great way to get your feet wet as an entrepreneur, with access to a recognized brand name, a proven business plan, and resources to get you on the right track.

However, you need to be aware of common misconceptions surrounding franchises. They aren’t a get-rich-quick option or the key to passive income. It takes hard work and dedication to pave your way as a successful franchise owner.

Finding the right franchise opportunity is half the battle. The technology industry has yielded significant success with franchising, boasting low startup costs. To learn more about getting started with your computer franchise, reach out to one of our team members today.

About Cinch I.T.