Franchising offers many a secure path to business ownership, so on today’s The Small Business Show, we’re exploring the advantages of buying rather than starting a business from scratch. We’re pleased to welcome Jordan Krolick, Consultant, Professor, and the President of Tound and Drowth.
Since 2008, Tound & Drowth has assisted clients ranging from Fortune 50 companies to the largest institutional investors and small entrepreneurs. By utilizing brand, analytically-based growth, and change techniques, they strive to aid chains in reaching their next level of success while generating profitability for all types of businesses.
Advantages
The thing to remember regarding franchising is that it’s a trade. Krolick believes, “Buying a franchise, you’re getting a reduced risk to failure and a proven system of solutions. But, you’re also giving up your independence and fees.” If you are looking into acquiring a larger franchise system, they will usually teach you just about everything from starting, operating, managing, and funding that franchise. “And hopefully, they’ll give you a reduced risk to failure while emphasizing the prototype of success for the business,” claims Krolick. He continues, “Now, this doesn’t mean it’s guaranteed you won’t fail, but it gets you closer to the right path.”
As a potential franchisee, it’s crucial to understand the company you are looking to buy and the documentation that comes with it. For example, Krolick asserts, “Corporations have to release to the public a Franchise Disclosure Document, FDD, highlighting which franchises are failing or succeeding.” The FDD includes information about the franchisor, the system, and the agreements the potential buyer needs to sign. Additionally, the document highlights the current stores in the system while outlining 23 separate items the government deems vital in understanding before you buy.
From the government’s perspective, the FDD doesn’t limit what a franchisor can do but protects the buyer. For instance, say a franchisor wants to collect 120% of every dollar spent. Though it may be ridiculous, as long as the franchisor clearly discloses that in the agreement, whoever wants the business can sign for it. Jordan adds, “As long as the franchisor doesn’t guarantee that it won’t take any more than the disclosed information, they can avoid litigation.”
Professional Advice
In contrast, Krolick claims that “buying a franchise is probably the biggest decision you’ll ever make in your career.” A franchise isn’t like buying a car. There is much depth, research, and advice involved. Jordan notes, “When you buy a franchise, and it doesn’t work out, you can’t just walk away because the franchisor signed you up through a document that outlines that if you buy, you owe them five to twenty years of fees in that area.” In light of this, buying a franchise is probably not a good idea if you think you’re passionate about something but don’t first recognize your values.
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