Franchise Success (or Horror) stories?

[admagic]

Originally Posted by dlstephenson12

Many thanks for your reply Peter, I am a part qualified electrician to City & Guild standard - this looks tempting to me - initial investment stands at £17,500 - what do you think, too good to be true?

http://www.businessesforsale.com/uk/...Franchise.aspx

DONT do it.

Here is the ONLY way to view ANY franchise and viewed like this, most are CR*P

From the day you start trading you have a massive disadvantage against every other competitor in your area because you are 10% more expensive or 10% lower paid due to the franchise royalty.

You are also prevented from trading OUTSIDE your territory unlike any of your competitors - so in the event of success you are prevented from doing the obvious expansion...in the event of disappointing sales, you are prevented from looking for work further afield

And in the event of failure you are probably trapped and committed to carry on paying regardless for five years ( typical unfair franchise contract )

And you are also £20000 worse off. Which in english is say £500 month every month for four years - needed to repay the investment - and if you cannot repay of the capitalin the first three - four years.you are wasting your time.

(Even if you have the money the argument is the same - because there is an opportunity cost for what else you could have done with that money.)

So in english to be worthwhile a franchise must OFFER A MASSIVE ADVANTAGE to outweigh the obvious disadvantages above

Now here is all a franchise can give you

(a) A brand name which is so powerful you are guaranteed much moretrade because of the brand name ( eg mcdonalds). FORGET IT!!! there is no such powerful brand. Customers are not going to pay more or use you just because of that name elec name ...nobody has heard of them.

(b) A collective buying agreement that guarantees you buy at such an advantage over all of your competition that more than offsets the numbers above. (eg if you own a Londis or other retail franchise )
The answer is forget it!!! You can get all you need from screwfix or CES - and your franchise is unable to undercut them. Your main cost will be additional staff, and the franchise cant reduce their cost for you.

Sure they may get you a couple of quid of insurance, butnothing in the scheme of things.

(c) Access to exclusive and restricted beneficial contracts your competitors cannot get at - that you could never get otherwise - eg some vending franchises have sole access to leisure centre chains... Again forget it.
The only stuff you are likely to get via your franchise are collective agreements with things like retail chains - tiny jobs that will cost you more to service than they pay - and even then most franchises will take a double cut. First a percentage of the "central contract" and then a percentage as royalty.

(d) Access to exclusive information that your competitors do not have.
eg consultancy franchises have access to collective sources of information on the very cheapest deals available for energy etc. Forget it there is nothing they can give you like that.

(e) fREE Central Advertising that gets you consistentwork - chances are your franchise will charge you on top for this - such is the greed of franchises.

So Now lets suppose that you hope to earn £40000 - the franchise will take 10% £400 a month and the costs of capital are £500 - so the above things have to be worth more than £1000 per month for you to even be LEVEL with your competitors - to give you a competitive advantage worth the advantages have to be worth half as much again... £18K per year.

The reality is, they are not - not even close.

Finally then you buy training.= but be warned - do not justify franchises on training alone it just is not worth it...

If that is all you need , go get the training , in technical things and marketing and dont lock yourself in with a franchise. for one thing it is a hell of a lot cheaper Go work for another franchisee - or as an elecrticians mate and get all the training for free, then go set up by yourself.

If you are interested I can tell you exactly how to market yourself to do PAT testing. - I once set up a sizeable busines that did just that from nothing - and that is a spring board to get offered other electrical work.

[fisicx]

Excellent post admagic - always a pleasure to read your advice

[LisaTalkingTots]

"So in english to be worthwhile a franchise must OFFER A MASSIVE ADVANTAGE to outweigh the obvious disadvantages above"

I can't agree with every thing that you have said ... however ... the above quote is a very significant consideration.
Lisa

[Franchise Information]

Jay Abraham (worlds highest paid marketeer) has a perspective on Franchising which i totally agree with.

Dont touch it unless it can show you either 1 or a combination of the following:


1.World Class Marketing that will offer a significant competitive advantage. Read some of his books to get an understanding of what that means.

2.A product or service that is unique and revolutionary


You can have other reasons such as the skills of the franchise owner, the brand e.tc but generally I would say do your research.

As pointed out in some of the other answers to this post - split out exactly what you get and how much it costs.

With any franchise the training is generally only a few weeks. Can you get that training in the open market for less? Is the quality any better (or worse) than in the open market?

All to often people think that buying a franchise gurantees success. It doesn't.

Personally I would invest the money in your own business and YOU - Make sure you have the skills and don't buy them from a franchise (if they have them).

[rubble2]

Hi Admagic,

Sorry to hijack this thread, but I would be very interested in the information you have regarding marketing strategy for a PAT testing company.

Please could you PM me with some details?

Thanks
Roger

[Frankimoon]

I am currently in litigation with my franchisor and feel absolutely powerless in my quest to prevent other people from joining the scheme!! I have tried to contact all possible papers /organisations about it (watchdog, office of fair trading, different publication). We are about 20 franchisees at the moment, we are all in the same awful situation, we lost thousand of pounds and our franchisor is still out there convincing people that there is a lot of money to be made by this business! I would not post any slender comment or make any name of course. It's not about stupidity, sometimes the trap is really made with skills and some people are easily manipulated. I have fallen into a trap myself. And you know what? I have checked into everything thourougly before joiniing and buying this franchise! I have asked for legal advice to check whether the contract was a good one. I also draw a business plan and asked the bank to approve it in order to get finance. I also asked the franchisor to approve it in writing. I ringed 4 existing franchisees to check on their earning and they were really happy with everything. Little did I know that after a few months their commissions would disappear and would not translate in REAL commission. I made a big mistake: the company was too new and the franchisees I talked to were operating from just a few months: not enough to get the full picture of what was going on after the first few months. For anybody looking into buying a franchise for now I would say, don't even trust comments made by existing franchisees if they are not old enough (in business from 6 months AT LEAST) and if you are looking into the financial services sector just be aware, it's the most competitive market you can ever imagine! There is not money to be made in the financial sector business (meaning LOANS, MORTGAGES AND SO ON), especially at the moment with the current credit crunch! Do not trust anything else than COMPLETE HONESTY AND TRANSPARENCY from the start (full list of existing franchisees always required, take care of veryfing their feedback and don't stop with 2 or 3, just try to get the full picture, at least 6 franchisees I would say to play safe!!). Best of Luck!

[eequals]

By all accounts it is strongly advisable to avoid any franchise involved with the vending of Pringles!

Joe

[Glaucus]

CatherineL- great point! I had experience of this last year when a propective franchisee rang me to ask some questions. One of them was ' will I be able to pay 2 Directors and my wife from earnings?!'

Being somewhat honest myself I replied that I couldn't do that after a year but it was his choice.

I didn't know that he had already paid his deposit to my franchisor. he walked away.

The franchisor was furious and flew into one of his notorious email diatribes before speaking to me.

Another nail in the coffin of mutual respect!

Sorry! Didn't quote the original post. It was on 9/1/2008

[Carol Cross]

Just want to tell my British Cousins that "franchising" can be very dangerous to your financial and emotional health. Franchising always picks up in bad economic times when good jobs are scarce and middle and upper-class income types are looking to replace their good job and income with a "business of their own." A way out of the Recession for you may instead be the experience of a full-fledged DEPRESSION if you end up losing everything you have because you PERSONALLY GUARANTEED the franchise and the long-term lease that you signed with the Landlord.

The DREAM of a "business of your own" is hyped with SPIN and Glamor and Glitter and seems like the perfect solution to a job and profits to boot. BUT! LET THE BUYER BEWARE. You will be brought to sign a long-term adhesory contract with the franchisor in good faith without being aware that the franchisor has actually not DISCLOSED to you any UNIT performance statistics of others who have invested in the franchise, and who will use many of the "bad faith" terms in the agreement against you if your franchised business fails. You will not understand the actual "risk" involved and will not underestand that even if you don't actually fail, you can be stuck in a hard job with long hours and low pay and NO employment benefits for the entire term of the franchise agreement to survive and service your debt.

If you can go into a small business WITHOUT franchising, this is really the best solution as you will have control over your business and perhaps can negotiate a "good guy" lease that will not be so punishing if you fail. A franchise is actually not a "business of your own" but rather a lease of a business opportunity with a finite term in which the franchisee dedicates the assets of the business ONLY to the franchisor in success and failure. There is a terrible price to be paid in failure.

If you MUST buy a franchise, please send a registered letter to your franchisor and ask him to provide you with any UNIT perfomance statistics in his possession before you part with any money or sign any contract to buy a franchise. This is TRUE even if you are buying a famous brand franchisor. LET THE BUYER BEWARE! Recommendations provided by the franchisors are not a reliable source of "due diligence." Send that REGISTERED letter. If there is no response or no answer, don't write that check ---don't sign that contract.

Sad and been Had by a UPS Store in the United States.