Do you have a burning desire to start your own business? Are you looking for a way to take control of your career? If you answered yes to both these questions, the following advice is going to open your eyes while helping you create a plan of action.
Like many, you may be considering the idea of starting a business. With so many opportunities, accompanied by thousands of questions, it is difficult to decide what to do next.
One of the most challenging decisions is this: should I opt for a franchise or start a traditional business?
There is no right or wrong answer to this question. Some people feel that there is no better option than a franchise, thanks to the name recognition and corporate support. Others don’t want to answer to anybody, meaning that a more traditional business is the best choice for them.
Making the Right Decision
Although I have considered the idea in the past, I don’t have any personal experience owning a franchise. That being said, I have owned by writing and internet marketing business for more than seven years.
For the sake of this piece, I got in touch with Michael Kawula, a guy who has had great success as both a franchisee and traditional business owner.
Michael provided me with some of the best information available on everything from the pros and cons of owning a franchise to starting your own business and much more.
Before we get into the question and answer segment, let me give you some more background information on Michael:
- Built his cleaning franchise to more than 500 customers and $1 million in sales within three years
- Current company, Discount Cleaning Products (not a franchise), was listed on the 2012 Inc. 5000 Fastest Growing Company List with 2011 revenue of $2.8 million
Here we go:
1. For you, what was the biggest benefit of opting for a franchise instead of going at it alone?
Prior to purchasing my first franchise, I had looked at several different existing businesses to purchase. I was 30 years old and had my first child on the way, thus having immediate cash flow I perceived to be important.
I came close to purchasing a car wash, though after sitting in front of the location for a week counting the number of cars being cleaned learned the numbers didn’t match what the owner had said.
Next I looked at a Batting Cage/ Arcade / Party facility. I paid someone to review the facility and learned that it need a lot of upgrades that would cost much more money, making the asking price too high.
I then came close to purchasing a great Pastry & Coffee shop. This matched everything I was looking for and towards the end of negotiations learned the owner wouldn’t sign a non-compete. Luckily I walked away and unfortunately the individual that purchased closed after a year as the original owner opened around the corner.
Fed up and eager to be self-employed, I began looking at franchises. The biggest benefit in purchasing a franchise is the ability to call other franchisees around the country through what’s known as “Validation”. When validating you learn a lot about what to expect: day-to-day, issues, financials, marketing and so much. I really enjoyed this process as you get to really learn about the business.
A franchisor is mandated to provide interested franchisees with a Franchise Disclosure Agreement (also called a UFOC). Inside this document are great details on the franchise, along with every existing and past franchisee. I’d call each one to really assure that I fully understood what I was about to invest in.
This process is the biggest advantage franchises have to offer in my opinion. Unless you’re purchasing a big brand name franchise, much of what is offered can be done through hiring professional coaches at a fraction of the cost of what a franchisor will charge you.
2. Some people are scared of franchising because of fees, having to take orders from the franchisor, etc. Is this something you found to be a concern?
People should be very cautious when purchasing a franchise. They need to realize that the franchisor calls the shots and you’re signing an agreement that binds you to a certain time period, rules and financial obligations.
Owning 2 separate franchises and having consulted several franchisees over the years I’ll point back to my answer to your first question. It is highly important that an interested franchisee validate the franchise fully before making any decisions. I have a checklist of 60 questions that I feel are essential every entrepreneur ask prior to purchasing. Some may say it seems like a lot of questions, though if you’re about to invest whatever sum of money and sign a commitment, you better know what you’re about to be a part of. I also believe that you should know these answers if you’re starting your own independent business.
Lastly, many work with franchise consultants when looking at different franchises. Many consultants are good, though interested franchisees need to realize that many franchise consultants are compensated only if you make a purchase from a handful of franchises that they work with. Consider finding a consultant who can help you through the process that charges a fee and isn’t tied to your decision. This will offer you the best advice.
3. In your latest venture, you started from scratch, rather than going the franchise route. Were there any major differences during the start-up phase?
I started that business in 2008, while owning the franchise. Listen, the fact is when owning any business there are always going to be challenges. When owning a franchise you have the system to fall back on and typically a home office contact to assist you. Remember you’re paying a hefty fee for that. For instance, Inc. Magazine recently showed that the average Subway does $481,000 in revenue per year and pays 13% for royalties & advertising fees. That’s $62,000+ you’re paying for support and advertising. I pay 1/10 the of that for a business coach who’s versed in marketing and business for my startup. That means more money back into the business. We were able to use those extra funds to help grow the business and were fortunate enough to be ranked the 144th fastest growing by Inc. Magazine in 2012.
I know this is a lot of information to take in, but remember one thing: you can learn a lot by taking cues from somebody who has “been there, done that.”
It is easy to see that Michael Kawula knows quite a bit about making it big as a franchisee as well as a traditional business owner. If you listen to his advice, you should have an easier time deciding which option is best for you.