Excited entrepreneurs constantly seek profitable business opportunities and franchises offer some great ones. However, not every franchise idea is right for you; nothing in business is as shiny as it first seems. I currently own two small businesses and have operated five others over the past two decades. The best advice I can give prospective business owners considering a franchise? Don't get in a hurry!
Buying a franchise means making a serious commitment. It's crucial to your credit score and bottom line to avoid pitfalls that might sabotage the opportunity. First, understand that a franchise is an exchange. The franchiser allows you to use their trademark and you agree to purchase their supplies. Other franchises have different arrangements, I have discovered, so it is important to read the fine print.
The Quota
About fifteen years ago, I was presented a home design franchise opportunity. An exciting franchise presentation and fantastic products sold me. As a new entrepreneur, I saw the potential in home design sales and I couldn't wait to get started. Fortunately, the franchise license was inexpensive - only $125; however the quota clause confused me. In order to keep my license, I had to purchase a certain wholesale amount every two months.
Although the products moved pretty quickly, the quote hung over me and I eventually became discouraged by it. I let my annual license lapse and gave up on this franchise.
The Recruiting
Some franchises like a major cosmetics company I have a license with grant different profit levels. For example, I make 50% profit on the product line but earn bonuses and greater profit for recruiting. Once you begin building your "organization" it costs money to maintain it. Also, if you lose a team member, your bonuses will diminish as well as your profit. In one instance, I had to return a substantial bonus when a high-ranking member of my team quit.
Bad Brands
Purchasing a nationally recognized franchise may seem like a good idea but that's not always the case. In some areas, a brand has saturated the area or made a poor impression on customers. I recommend doing a few Internet searches using the brand and your zip code. Flip through the phone book. Check local business coalitions to see if the franchise is already represented. If there's no room for you in the market, you should move on to something new.
If you have any doubts allow your attorney to review the contract before signing. It's better to be cautious than costly.
*Note: This was written by a Yahoo! contributor. Do you have a small business story that you'd like to share? Sign up with the Yahoo! Contributor Network to start publishing your own finance articles.
More from this contributor:
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First Person: My Business is Home-Based But I Can Still Reach New Markets
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