Franchising is a waste of time!!

[Ivan2BAlive]

You know I used to own two franchises; a cleaning business and a personnel staffing firm back around 2006. I thought I was the man until the 2008 recession that took all that away. Not only that, but I had a house financed by a bank in the form of a stated loan because they I didn't have a steady stream of income and I had a rental. But loosing both my franchises and houses (along with a repo. of my 2004 Acura TL). Until I read TMF , I began to take a hard look on how I lost it all:

1. I wasn't an owner that owned a business, but a boss that owned a job.
2. I had no control of the market
3. I had no control of the marketing or shares of the company
4. I had to go by "their" rules and not my own
5. Basically, I had no control. . . . period.

I mean think about it, you're buying into a business that you have no control over, in other words, you're just a passenger just along for the ride and not the driver. If you really want to excel in life you have to be the one in control. Be an inventor, create something that's of value to society. Wealth is measured not on how much stuff you have, but on what your value is to society. What can you give the world that is of value and stop wasting your time buying into something that's going to make someone else rich.

Don't waste your time buying franchises, it's just a fools game.

That's my two cents. . . . . .any comments anyone?

 

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[abrakamowse]

Thanks, totally agree. Thanks for sharing your experience. Very helpful.

Sent from my SAMSUNG-SM-N900A using Tapatalk

 

[Ivan2BAlive]

Thanks, totally agree. Thanks for sharing your experience. Very helpful.

Sent from my SAMSUNG-SM-N900A using Tapatalk

No problem abrakamowse. Thanks for the reply.

 

[MJ DeMarco]

Don't waste your time buying franchises, it's just a fools game.

I'd agree, but "generally" speaking. Few franchises are exempt and can be pretty lucrative.

 

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[Ivan2BAlive]

I'd agree, but "generally" speaking. Few franchises are exempt and can be pretty lucrative.

Thank you for the reply, MJ, and personally, thank you and your book TMF for waking me up.

I can't wait to read "Unscripted ".

 

[CPisHere]

Franchises are a GREAT option for people with money, but minimal business skills. If I had bought a franchise rather than start my own business, it would have easily saved me 5 years of painful learning. But I wouldn't know near as much as I know now, and wouldn't have nearly as many options for where to go from here.

 

[Leo Hendrix]

If you were the first to open in an area maybe you would have had a better chance at cashing in before other operators opened up. Anyway I think MJ mentioned that in TMF . START a franchise/chain don't buy into one.

 

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[fastbo]

I'd agree, but "generally" speaking. Few franchises are exempt and can be pretty lucrative.

These are not true franchises but some of the older grandfathered insurance agency contracts were quite lucrative. You could pull in high 6 figures, low 7 figures, and when you retired you could sell your book of business to another firm for a liquidity event.

 

[MarekvBeek]

Ouch... must be painful to realise this.

My old boss had a few franchises (around 10+) and was doing very well. He was living his dream.

However, I never want to switch places with him. There was always this fight between the brand and his franchises.

 

[MidwestLandlord]

It really depends on the franchise.

You lose control, sure. But there are some ways around that.

1. Have enough locations and/or sales to have weight with the franchiser. Money talks, and if a large portion of their royalties are on the line, they'll listen.

2. Have a good lawyer. Often all it takes is a sternly written letter from an attorney to get what you want.

3. Have geographical exclusivity rights (ideally) OR option of first refusal for city/metro area/state (not as ideal)

4. Larger franchises almost always have a franchisee group with their own attorney (see #2 above). Don't just participate in this group...have "political" sway with the other franchisee's (see #1 above)

5. Don't buy a shit franchise. CENTS applies to franchises too!

6. Get other franchiser's to make you a better offer (switching hotel brands for example) Use those offer's against your current franchiser in both contract negotiations and control issues.

7. Be known as the best operator in the system. Get this documented via franchise inspections, health department inspections (for example), and other franchisee's. Be the best, and you have more control over the system.

8. Franchiser's makes small breaches of contract fairly often due to incompetency. Jump on those immediately with your attorney doing the foot work. Don't let even the smallest breach slide without a fight. (advertising material is a day later than promised by contract? Threaten to sue them and/or demand a contract renegotiation since they are in breach [see #6 above])

9. Never buy a franchise where you do not control the real estate (if you rent, fine. But DO NOT rent from your franchiser!)

 

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[Ivan2BAlive]

If you were the first to open in an area maybe you would have had a better chance at cashing in before other operators opened up. Anyway I think MJ mentioned that in TMF . START a franchise/chain don't buy into one.

You're right, at least buying into the franchise it taught me some skills along the way about business.

I'd agree, but "generally" speaking. Few franchises are exempt and can be pretty lucrative.

Thanks for the reply, MJ, and personally, thank you and your book TMF for waking me up.

 

[Ivan2BAlive]

It really depends on the franchise.

You lose control, sure. But there are some ways around that.

1. Have enough locations and/or sales to have weight with the franchiser. Money talks, and if a large portion of their royalties are on the line, they'll listen.

2. Have a good lawyer. Often all it takes is a sternly written letter from an attorney to get what you want.

3. Have geographical exclusivity rights (ideally) OR option of first refusal for city/metro area/state (not as ideal)

4. Larger franchises almost always have a franchisee group with their own attorney (see #2 above). Don't just participate in this group...have "political" sway with the other franchisee's (see #1 above)

5. Don't buy a shit franchise. CENTS applies to franchises too!

6. Get other franchiser's to make you a better offer (switching hotel brands for example) Use those offer's against your current franchiser in both contract negotiations and control issues.

7. Be known as the best operator in the system. Get this documented via franchise inspections, health department inspections (for example), and other franchisee's. Be the best, and you have more control over the system.

8. Franchiser's makes small breaches of contract fairly often due to incompetency. Jump on those immediately with your attorney doing the foot work. Don't let even the smallest breach slide without a fight. (advertising material is a day later than promised by contract? Threaten to sue them and/or demand a contract renegotiation since they are in breach [see #6 above])

9. Never buy a franchise where you do not control the real estate (if you rent, fine. But DO NOT rent from your franchiser!)

Now that I know I wish I had this information earlier. And besides, it was a good learning experience(s) along the way. I guess it's safe to say the name of the company I franchised with, one of them was Coverall Cleaning Services in Columbus, OH.

 

[AubreyJ]

I am a franchisee- I think franchising is a great business to start with but I think it is very very hard to make a fortune from the business.

I own a fast food franchise, and I was very very fortunate with my experience because I opened my business at 22 years old in my hometown, and because of this there was a ton of press around my store. I got interviewed by multiple news outlets both locally and nationally- and have sense been able to turn this franchised businesses into other revenue streams. But, if I was relying on my franchise as my sole source of revenue for the rest of my life, I would be absolutely screwed. I know plenty of extremely successful franchisees, but I know even more struggling ones.

It all comes down to the brand you franchise with, as well as your own work ethic. Some brands are better than others. I don't think franchising is a total waste of time, but it certainly is not as easy as the franchise world makes it seem.

 

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[Ivan2BAlive]

I am a franchisee- I think franchising is a great business to start with but I think it is very very hard to make a fortune from the business.

I own a fast food franchise, and I was very very fortunate with my experience because I opened my business at 22 years old in my hometown, and because of this there was a ton of press around my store. I got interviewed by multiple news outlets both locally and nationally- and have sense been able to turn this franchised businesses into other revenue streams. But, if I was relying on my franchise as my sole source of revenue for the rest of my life, I would be absolutely screwed. I know plenty of extremely successful franchisees, but I know even more struggling ones.

It all comes down to the brand you franchise with, as well as your own work ethic. Some brands are better than others. I don't think franchising is a total waste of time, but it certainly is not as easy as the franchise world makes it seem.

I guess it was the type of franchise I owned. It was a cleaning business and I couldn't find any reliable employees that wants to clean toilets other that undocumented workers willing to work. My other franchise would've worked if the economy hasn't come and took it away.

I see that was my mistake as well. I was relying on it as my only source of income/revenue. This was back in 2004-08. But at least I learned from my mistakes.

 

[Walter Hay]

I agree with MJ. Don't buy a franchise - start one. That's what I did with my importing business and it developed into a business operating successfully in four countries. It was successful for my franchisees and therefore successful for me.

Many franchises are an extremely bad way to start a business. I know of one in particular that is set up in such a way that franchisees will fail. They sometimes struggle on for 2 or 3 years, and then surrender. The franchisor then sells that location to the next one that was born yesterday.

I am seriously thinking that my next book, the third one, will be how to franchise almost any business and by that means enter the Fastlane at breakneck speed.

Walter

 

[Leo Hendrix]

@Walter Hay I have read Speed Wealth by T.Harv Ekker, it is also basically about starting a franchise but it does not go into the mechanics/details, it's more about the concepts behind franchising and seeing opportunities to create wealth fast.

Anyway that is what I can recall from reading it.

(sorry if derailed the thread, maybe that book can help someone looking into franchising.)

 

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[vinylawesome]

I guess it was the type of franchise I owned. It was a cleaning business and I couldn't find any reliable employees that wants to clean toilets other that undocumented workers willing to work. My other franchise would've worked if the economy hasn't come and took it away.

I see that was my mistake as well. I was relying on it as my only source of income/revenue. This was back in 2004-08. But at least I learned from my mistakes.

Coverall is a tough franchise. It seems to work well for the Master franchise but the sub franchisee's get killed. Do they still employ the same levels of control over their franchisees that they once did?

I remember their business model being:

1. The Master Franchisee would Bid low and secure contract

2. Sell service contract rights to Sub-Franchisee for 4 x monthly contract's gross value.
-Usually extend financing to Sub-franchisee.
-Collect royalty based on gross revenues.
-Sell cleaning equipment to Sub-franchisee.


3. Continue to be the face of the contract to client as well as maintain ownership over contract

4. Continue to collect revenue from client and maintain all accounting records.

5. Pay Sub-franchisee; subtracting for royalties, finance fees, and cleaning supplies / equipment.

6. Sub-Franchisee is responsible for:
+ Insurance: Liability and Workmans Comp.
+ Both Personal and employers share of FICA:
-Social Security, Medicare, and unemployment taxes.
+Complying with all employment laws for themselves and employees.
Screenshot of Coverall Franchise Disclosure Document.

 

[Ivan2BAlive]

I agree with MJ. Don't buy a franchise - start one. That's what I did with my importing business and it developed into a business operating successfully in four countries. It was successful for my franchisees and therefore successful for me.

Many franchises are an extremely bad way to start a business. I know of one in particular that is set up in such a way that franchisees will fail. They sometimes struggle on for 2 or 3 years, and then surrender. The franchisor then sells that location to the next one that was born yesterday.

I am seriously thinking that my next book, the third one, will be how to franchise almost any business and by that means enter the Fastlane at breakneck speed.

Walter

Yes, I think the agreement I was in with the franchisor wasn't a great agreement. Due to fees and equipment payments/cleaning products I had to make payments on lowered the threshold of my revenue.

 

[CPisHere]

I know people that own Smoothie King franchises and do well. Here's what I love about their business model -

Low inventory
High margins
Simple Customer Acquisition Strategy
Not easily replicable

 

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[Walter Hay]

Yes, I think the agreement I was in with the franchisor wasn't a great agreement. Due to fees and equipment payments/cleaning products I had to make payments on lowered the threshold of my revenue.

Service industry franchises are the pits. It's too easy for a franchisor to sign up customers at low prices, enabling them to claim good turnover figures, while publishing a disclaimer stating that the turnover figure is gross and not net.

This is very similar to the scams frequently seen with courses being offered online. Most often they declare their alleged sales figures in their success stories, but nothing about net profit.

I shocked my lawyer when he was drafting a contract to present to prospective franchisees. I told him that I wanted it in simple English, and I would prefer to favor the rights of franchisees rather than mine. He pronounced me insane, but managed to provide reasonable protection for both parties. The result was that over a period of about 20 years, I never had a dispute with a franchisee.

There are too many franchise systems that leave little on the bone for franchisees, so all who read this should remember to tread warily. Those systems that work well for both parties prosper. Length of time in business is no way to judge. Talk to as many existing franchisees as you can find. If the franchisor objects, run the other way.

Walter

 

[MidwestLandlord]

Service industry franchises are the pits. It's too easy for a franchisor to sign up customers at low prices, enabling them to claim good turnover figures, while publishing a disclaimer stating that the turnover figure is gross and not net.

This is very similar to the scams frequently seen with courses being offered online. Most often they declare their alleged sales figures in their success stories, but nothing about net profit.

I shocked my lawyer when he was drafting a contract to present to prospective franchisees. I told him that I wanted it in simple English, and I would prefer to favor the rights of franchisees rather than mine. He pronounced me insane, but managed to provide reasonable protection for both parties. The result was that over a period of about 20 years, I never had a dispute with a franchisee.

There are too many franchise systems that leave little on the bone for franchisees, so all who read this should remember to tread warily. Those systems that work well for both parties prosper. Length of time in business is no way to judge. Talk to as many existing franchisees as you can find. If the franchisor objects, run the other way.

Walter

Great comment!

A good way to start due diligence on this is to get location turnover info from the company.

Not just the net location increase or decrease, but the nitty gritty details. (Hint: if they hesitate to share this...there's your answer)

If they had 100 locations, 50 went out of business, but they opened 100 new ones the same year...they grew by 50% to 150 locations. Which looks great until you realize half the franchisees aren't staying in business.

Out pacing the closings...very common.

 

[Walter Hay]

Great comment!

A good way to start due diligence on this is to get location turnover info from the company.

Not just the net location increase or decrease, but the nitty gritty details. (Hint: if they hesitate to share this...there's your answer)

If they had 100 locations, 50 went out of business, but they opened 100 new ones the same year...they grew by 50% to 150 locations. Which looks great until you realize half the franchisees aren't staying in business.

Out pacing the closings...very common.

Yes, it works something like a Ponzi scheme. They make more money out of the franchise fee than they do out of the royalties.

There are other kinds of franchises that involve buying specialized equipment from the franchisor. The entire business hinges upon the use of that equipment. They happily provide financing for the equipment so that when the business fails, they have not only the "system" and name to sell, but they also have a set of equipment that they can clean up and sell again, and again, and again.

Walter

 

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[DaveC]

You know I used to own two franchises; a cleaning business and a personnel staffing firm back around 2006. I thought I was the man until the 2008 recession that took all that away. Not only that, but I had a house financed by a bank in the form of a stated loan because they I didn't have a steady stream of income and I had a rental. But loosing both my franchises and houses (along with a repo. of my 2004 Acura TL). Until I read TMF, I began to take a hard look on how I lost it all:

1. I wasn't an owner that owned a business, but a boss that owned a job.
2. I had no control of the market
3. I had no control of the marketing or shares of the company
4. I had to go by "their" rules and not my own
5. Basically, I had no control. . . . period.

I mean think about it, you're buying into a business that you have no control over, in other words, you're just a passenger just along for the ride and not the driver. If you really want to excel in life you have to be the one in control. Be an inventor, create something that's of value to society. Wealth is measured not on how much stuff you have, but on what your value is to society. What can you give the world that is of value and stop wasting your time buying into something that's going to make someone else rich.

Don't waste your time buying franchises, it's just a fools game.

That's my two cents. . . . . .any comments anyone?

I'm not a big fan of franchises, but I certainly know folks who have done quite well with them. The trick seems to be:
1) Having several....so you can afford a manager for day to day
2) Buying a well established name (McDonalds, etc...) Even then, this is tough...McDs is getting beaten up by 5 Guys/In&Out/etc....
3) Selling when the market is hot

 

[KLaw]

It really depends on the franchise.

You lose control, sure. But there are some ways around that.

1. Have enough locations and/or sales to have weight with the franchiser. Money talks, and if a large portion of their royalties are on the line, they'll listen.

2. Have a good lawyer. Often all it takes is a sternly written letter from an attorney to get what you want.

3. Have geographical exclusivity rights (ideally) OR option of first refusal for city/metro area/state (not as ideal)

4. Larger franchises almost always have a franchisee group with their own attorney (see #2 above). Don't just participate in this group...have "political" sway with the other franchisee's (see #1 above)

5. Don't buy a shit franchise. CENTS applies to franchises too!

6. Get other franchiser's to make you a better offer (switching hotel brands for example) Use those offer's against your current franchiser in both contract negotiations and control issues.

7. Be known as the best operator in the system. Get this documented via franchise inspections, health department inspections (for example), and other franchisee's. Be the best, and you have more control over the system.

8. Franchiser's makes small breaches of contract fairly often due to incompetency. Jump on those immediately with your attorney doing the foot work. Don't let even the smallest breach slide without a fight. (advertising material is a day later than promised by contract? Threaten to sue them and/or demand a contract renegotiation since they are in breach [see #6 above])

9. Never buy a franchise where you do not control the real estate (if you rent, fine. But DO NOT rent from your franchiser!)

Have you ever been a franchisee?

 

[KLaw]

I guess it was the type of franchise I owned. It was a cleaning business and I couldn't find any reliable employees that wants to clean toilets other that undocumented workers willing to work. My other franchise would've worked if the economy hasn't come and took it away.

I see that was my mistake as well. I was relying on it as my only source of income/revenue. This was back in 2004-08. But at least I learned from my mistakes.

I was franchisee in Columbus as well. We got smoked by the Mexicans. I swear they would quote an entire job for damn near what I would charge for materials alone. They weren't the only reason I failed though. And, to their credit, they did quality work. Not top notch but good enough.

 

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[KLaw]

Question? As a franchisor, are you better off setting your goal to achieve profits through royalties or through selling to as many franchisees as possible? @Walter Hay

 

[100k]

Did you buy a business that was already operational - with a customer base - clients in place and sales? Or did you have one set up in a new city / location?

Why did the businesses fail? What lessons did you learn?

Thanks

P.s @Walter Hay Yes, please... and make sure you release a audiobook version for the people that find reading long books to be a pain.

 

[MidwestLandlord]

Have you ever been a franchisee?

Yes.

 

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[Walter Hay]

Question? As a franchisor, are you better off setting your goal to achieve profits through royalties or through selling to as many franchisees as possible? @Walter Hay

I had two main objectives. The first was to be able to cope with the fast increase in sales in areas where I was employing commission reps, and the other was to achieve profits through royalties.

The franchise license fee I charged was small compared to many franchise systems, and after traveling to the countries where I trained the new franchisees the income generated from those fees was not really worthwhile. The royalties were, but that depended on the success of the franchisee. That was a great encouragement to prospective franchisees to commit, because they could understand that the small license fee couldn't be the reason why I was selling the franchise.

Walter

 

[Walter Hay]

Did you buy a business that was already operational - with a customer base - clients in place and sales? Or did you have one set up in a new city / location?

Why did the businesses fail? What lessons did you learn?

Thanks

P.s @Walter Hay Yes, please... and make sure you release a audiobook version for the people that find reading long books to be a pain.

It will be a while before I write the franchising book because I am busy at present trying to launch my labeling book.

My web designer has had to flee from Mindanao due to terrorism and that has caused me some headaches. Very frustrating, with the labeling book ready to go, and no platform to advertise it. My problem pales into insignificance compared to the poor woman whose life is in a state of upheaval.

Walter