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10 MYTHS ABOUT FRANCHISING

by Simon Lord,
last updated 23/06/2017

Franchises – reputable or rip-off? We explode some of the most common myths about franchising

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When you tell people that you work in franchising, you find that there are all sorts of different ideas about what franchising actually involves. Some people think it’s the same as network marketing or pyramid selling. Some people know of someone who bought a franchise once and failed. And some people think that once you’ve bought a franchise, you have to do as you’re told – or, alternatively, you can do what you like.

The biggest risk for anyone looking at going into business for themselves is that they listen to rumours rather than advice. In this article, then, we look at some of the most common myths about franchising with honest input from some of New Zealand’s most experienced franchisors. Our panel includes Malcolm Bradbury of Jim’s Test & Tag; Jol Glover of Streetwise Coffee; Mitchell Cooper of Green Acres and Hire-A-Hubby; and Brad Jacobs of The Coffee Club.

 

1. franchising is a rip-off

Let’s look first at the facts. There are over 20,000 franchisees in New Zealand alone and over 450 different franchises. They can’t all be a rip-off, and they’re not. Many franchisees are making substantial incomes, or enjoying good incomes while building up an asset for themselves and their families. But yes, there are also some who are struggling and aren’t making as much as they would like. That’s business. To succeed, you have to make the right decisions even before you start.

‘Some of the biggest problems I see come when people don’t check out the franchise before they buy it to ensure it suits their abilities, their needs and their pockets,’ says Mitchell Cooper. ‘If they don’t do their due diligence and don’t use accountants and lawyers who really understand franchising, they can make bad choices or even be pushed away from making good ones. Friends and family can be a big influence, especially if they are self-employed. But what do they know about franchising?’

 

2. the only one to make money out of a franchise is the franchisor

A successful franchisor can make quite a lot of money, it’s true – especially if they go international. But that success never comes overnight; it only comes after a lot of trial and error in their own business, then a lot of investment in developing a workable franchise system and training and supporting franchisees.

Most franchisors don’t make much (if any) money from taking on new franchisees – they only make money when the franchisees are established and making sales themselves. That’s a big difference from network marketing, where the real money is made from recruiting more people beneath you, not from helping them to succeed (see page 6).

Ongoing franchise fees do include a profit margin for the franchisor, but they mostly pay for ongoing support services. ‘If you add up support time, etc, and were to charge it out at a commercial hourly rate, I would be way off making anything,’ suggests Malcolm.

 

3. my cousin bought a franchise and it failed

‘Buying a franchise reduces the risk involved in going into business, but it’s not risk free,’ points out Brad Jacobs. ‘All business has some level of risk and franchise businesses can (and do) fail from time to time.’

Do you know why your cousin’s franchise failed? What research did your cousin do into the franchise before they bought it? Did they follow the system? Did they act on the advice they were given? Did they put their heart and soul into making it work, or did they expect others to do it for them? Did they go in with enough capital? Were their family supportive? Buying a franchise doesn’t guarantee success, but if the system works for other people, why ...

 

This article appears in full in the latest issue of Franchise New Zealand magazine (Year 26 Issue 2). Read the entire article in the digital magazine or, if you live in New Zealand please send for your free print copy.

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