Thursday, September 26, 2013

Buy a New Franchise and Throw Your Hard Earned Money down a Black Hole

Many people believe that buying a franchise is a great idea, a sound bet, and that they cannot fail. How can they possibly fail as they are buying a turn-key business with a cookie cutter system, training and ongoing support?

Unfortunately, many buyers get sucked into this illusory belief system and false sense of security that franchises are a sure thing. Take my word for it, there are no sure things.

Buying new franchises can be as risky as starting a new business or throwing your money on the craps table, buying a lottery ticket, etc. Throwing your money away gambling can be a one-time loss; however, buying a new franchise can cost you money for years. If you don’t care about obtaining an ROI (return on investment) and you’re OK with throwing your money down a black hole, then go ahead and buy a new franchise.

It’s about time someone tells buyers the truth. Starting a new business or investing in a new/startup franchise is a huge gamble. At least with a franchise, you are buying systems, training and support, thus creating a slightly safer investment than starting a business from scratch. However, starting a new franchise is still very expensive and extremely risky. You'd better have a pile of working capital lying around to keep you above ground. It is proven that new franchises and businesses will operate in the red for years. Many of them will go out of business or be sold for pennies on the dollar. I have seen many new franchises file bankruptcy. People don’t fail just because they didn't write a business plan or implement a marketing plan; they fail because they run out of money. [more...]