Truth About Franchising

A Franchise – The Path To Ones Financial Dreams?

Often times the general public will get the perception that a franchise is the answer to all their financial dreams. For a rare few this may be the case, but there is significant reason to be leery of this line of thinking.

For starters, I did a little research and found some of the most popular franchises. On the following page are some of their financial requirements. If that doesn’t make you think twice, there is more revealing data below, of which you should be made aware.

SCORE Volunteers.

SCORE’s 10,500 volunteer counselors have more than 600 business skills. Volunteers are working or retired business owners, executives and corporate leaders who share their wisdom and lessons learned in business.

Exploring Franchising Options: Do Your Homework
By Jerry Chautin
SCORE Counselor, Atlanta, GA; Manasota, FL; and Cyberchapter

We see franchised businesses popping up all over. Yet some of the most recognizable franchise brands are under attack in civil courts. And one of the most prolific attackers is Robert Zarco, a lawyer with offices in Miami and West Palm Beach. He goes after sellers of franchises, called franchisors, wherever and whenever they mistreat his clients. Zarco told me, “the problem with franchising is the perception of rewards is very different than reality.”

With so many franchises in the United States, you might think that these small business owners, called franchisees, are a happy lot. Not necessarily so, says Susan Kezios, president and founder of the American Franchisee Association, a trade association that represents franchisees nationwide.

She tells us that many of her members are unhappy with the franchises they purchased and would have made different choices if they knew then what they know now.
See the rest of this article here.

The Harsh Reality.

A study by Dr. Timothy Bates, a professor at Wayne State University in Detroit, found that the franchise failure rate actually exceeded 30 percent and that franchises made lower profits than independent entrepreneurs. Dr. Bates’ study also found that the average capital investment of franchisees was $500,000 compared to $100,000 for independent entrepreneurs.

Bates’ Research Underscores Three Harsh Realities
Dr. Timothy Bates
Professor at Wayne State University, Detroit, MI

Many franchisees never make much money. Average profitability is poor, especially after taking into account the purchase price of the franchise. So take the hype used to sell franchises with a big pinch of salt!

“Studies” used to sell franchises are paid for by the franchisors. Don’t mistake the information provided for balanced consumer guide information. It’s a carefully engineered sales pitch. Getting hold of the information you need to make a rational buying decision is difficult, to say the least. So use your common sense and a healthy dose of cynical discretion.

Franchise agreements always favor the franchisor. It is very easy to be swept away in the heat of the moment and get into a binding contract that is not in your best long term interests. And it is very hard to get out of a franchise agreement without taking a big financial loss. Remember, the main purpose of franchising is to make the franchisor wealthy. So be careful.

The full report can be found here.

Franchise Financial Requirements.

The following are some of the most popular franchises and their
financial requirements.

The following franchise information can be located here.

McDonalds
Investment
-Total Investment:
$506K-1.63MMFees
- Initial Franchise Fee: $45K
- On-Going Royalty: 12.5%
- Advertising Fee: 4%

Valvoline Oil Change
Investment
- Minimum Net Worth: $600K
- Cash Investment $400K
- Avg Total Investment: $706KFees
- Initial Franchise Fee: $30K
- On-Going Royalty: 6%-
Advertising Fee: 2%

Quiznos Subs
Investment
- Minimum Net Worth: $125K
- Cash Investment: $70K
- Total Investment: $193-257KFees
- Initial Franchise Fee: $25K
- On-Going Royalty: 7%
- Advertising Fee: 4%

Ben & Jerry’s Ice Cream
Investment
- Minimum Net Worth: $200K
- Cash Investment: $86K+
- Total Investment: $123.5-286KFees
- Initial Franchise Fee: $30K
- On-Going Royalty: 1.5%
- Advertising Fee: 4%

Baskin Robbins – 31 Flavors
Investment
- Minimum Net Worth: $400K/Unit
- Cash Investment: $145.8-527.8K
- Total Investment: $145.7-527.8KFees
- Initial Franchise Fee: $40K
- Average Franchise Fee: $40K
- On-Going Royalty: 5-5.9%
-Advertising Fee: 5%

Dairy Queen
Investment
- Minimum Net Worth: $200-500K
- Cash Investment: $200-300K
- Total Investment: $200-950KFees
- Initial Franchise Fee: $20-35K
- Average Franchise Fee: $28K
- On-Going Royalty: 4-6%
- Advertising Fee: 3-6%


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