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Buying a franchise: What does it cost and what do you get?


Why do people purchase a franchise instead of doing their own thing? Actually, there's a pretty simple answer, including, lack of confidence, shortage of capital, and little or no knowledge of the industry and what they are getting themselves in to. While there is a lot of truth in what the franchise brochure literature tells you, one needs to proceed with caution because everything is not always what it appears to be. From my review of some of the promotional literature of various franchise operations, I have put together the following common questions, some answers and what you should be particularly careful about when reading the brochures.

1. Do I need previous food experience to get a franchise?

Some literature tells you that experience is always helpful, but not necessary. Most say that they have a complete training program at their headquarters and, in most cases, if you're willing to learn, they are willing to teach you.

But I ask: Will the franchiser be there for me six months after I open my business and have a million questions that need answers? Frequently they are no where to be found.

2. Can a store be purchased as an investment without my being the full-time manager?

Some literature tells you that you either need a full-time owner-operator or a qualified manager to operate the store, and that the more involved the franchisee is, the more successful the store will be. Regardless, most franchisers require that every franchisee attend the company's training classes.

But I say: if being an absentee owner is what you desire, be prepared to lose your investment because absentee ownership doesn't work in 75% in most situations..

3. How big is a typical store?

Some literature tells you that between 450 and 1,800 square feet is appropriate and that rent typically varies from $2,000 to $6,000 per month depending upon location.

I say: I agree with the literature.

4. How much will the business cost to open?

Most literature tells you that you need to consider a number of factors when evaluating the cost of opening.

I say: Whatever cost is outlined in the literature, always take the conservative side and add 30% for contingencies.  It is better to have more capital set aside than less.

5. How much do landlords normally contribute to leasehold improvements?

The literature tells you that most landlords contribute some monies toward leasehold improvements, usually between 10 to 15%, depending on the location.

I say: This is probably close to reality but you have to push for it.

6. What do the franchise fee, royalty fee and advertising fee cover?

The literature tells you that these fees secure the right to own and operate the franchise business in a given location, as well as the right to use the franchiser's trade name, trademark, recipes, decor, and manner of doing business. They also will include site approval and assistance with lease negotiations, architectural layout and construction, and training. Some offer their trained personnel to help you open your store and offer you continued field supervision, public relations assistance, and an advertising program before and after you open your store for business.

I say: The above is true up until the day you open for business. After you open, the help will decline dramatically. You will also wonder in a year's time where is all the marketing support they offered for the 4 or 5% marketing fee I pay each month.