Franchise Explained: Frequently Asked Franchise Questions
Do all or most franchise businesses succeed?
No. Curiously, perhaps surprisingly, franchise businesses fail at about the same rate as do other non-franchise businesses. Note that information isn't just something anecdotal. It comes from a study done by Arnold C. Cooper in the publication, "New Business in America," which was published by the NFIB Foundation in 1990.
Before you get discouraged about buying a franchise, however, note that the best available statistics also show the business failure rates are not anywhere near as bad as anecdotal evidence suggests. In fact, the statistcs show that many businesses are most likely to succeed.
How much does a franchise cost?
Franchise investments vary widely. Here are some example prices you might pay for well-known franchises:
Culligan: $100,000 to $350,000
Dunkin' Donuts: $400,000
Hallmark Gift Shop: $100,000 to $250,000
MAACO Auto Body: $250,000
Quizno's Sub Shop: $185,000 to $265,000
Note that these prices would probably not be paid in full out of a franchisee's funds. Typically, a franchisee might pay the seller (either the franchisor or a franchisee looking to sell his or business franchise) from both personal and borrowed funds. Borrowed funds used to purchase a franchise might be repaid using a 10-year loan.
To give you an idea of how this might work, this could mean that a franchise which costs either $250,000 to set up or $250,000 to buy might require $50,000 in cash from the buyer's funds. The remaining $200,000 of investment might be made with funds borrowed from a lender. To repay a $200,000 loan charging 8% interest over ten years, the borrower would need to pay roughly $2,500 a month.
How much money can I make with a franchise?
You can make big money in small business. Or, to be more specific, you can make hundreds of thousands of dollars a year. However, how much money you can make depends greatly on how skilled you are and on how hard you want to work in your franchise.
I will also share this general observation about business owners and franchise owners. Often times, people take a while to get going and learn the ropes of running their new franchise business. (Perhaps a few years but sometimes only a few months.) After that, they typically make a significant premium over and above what they would have made in their old job... however, the income from a business including a franchise tends to bounce around more than an employee's salary.
Who should buy a franchise?
I can't really answer this question. Franchise ownership happiness, I've observed, is based very much on your personality. I will share two observations, however: First, franchise ownership often seems to be good choice for someone who doesn't already have a lot of small business management experience--and in a sense, what the franchisee buys from the franchisor is that "experience." Second, some franchisees--especially once they have significant small business management experience--feel like they can make more money and have more fun if they "do their own thing."
Where can I get more information about a franchise?