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“Franchise royalty fees are too expensive!” . . .  Are you sure about that? I’ll help you figure it out.

How to buy a franchise, Dr. John P Hayes, buy a Subway Franchise, buy a McDonald's Franchise, best franchises, hot franchises, risk of franchising, dangers of franchising, which franchise to buy, evaluating franchises, Buying a franchise, International Franchise Association, learn about franchises, should i buy a franchise, great franchise opportunities, best franchises to open, how to buy a good business, information about franchises, information on franchising, how to evaluate a franchise, best franchise investment, franchise, franchising, franchise opportunities, franchise directory
How to buy a franchise, Dr. John P Hayes, buy a Subway Franchise, buy a McDonald's Franchise, best franchises, hot franchises, risk of franchising, dangers of franchising, which franchise to buy, evaluating franchises, Buying a franchise, International Franchise Association, learn about franchises, should i buy a franchise, great franchise opportunities, best franchises to open, how to buy a good business, information about franchises, information on franchising, how to evaluate a franchise, best franchise investment, franchise, franchising, franchise opportunities, franchise directory, Michael Gerber, The E-Myth

Franchise royalty fees might not be as expensive as you think.

In any given situation, there are good reasons to pass up buying a franchise business, but I get worried when someone says they didn’t buy a franchise because  “The franchisor’s royalty fee was too high.”

Passing on a franchise opportunity because you don’t want to pay a royalty fee, or because you can’t justify the royalty fee, or because an advisor (i.e. your accountant) tells you the royalty fee is too high, might be a costly mistake. 

A Royalty Fee May Save Your Business

Here’s why: When it’s up to you to make all the decisions relative to starting, operating and building a business, there’s a pretty good chance you’ll fail.

All the statistics say the same thing: Most business start-ups fail in America.

So if a franchise royalty fee could prevent you from failing in your new business, a business that may have cost you $50,000 to $500,000 or more to get started, would you still pass on buying a franchise because of the royalty fee?

The correct answer is: “It depends.”

It depends on the amount of the royalty fee (because, in fact, some royalty fees are indeed too high), but mostly it depends on what the royalty fee provides to the franchisee.

Back Up A Moment 

Why do so many businesses, including franchised businesses, fail?

The “experts” will tell you it’s because the owners run out of money, but generally these are experts who have never operated a business (they’re the “experts” you met in college and called “professors”) and they don’t always know what they’re talking about.

Actually, in this case the experts are not totally wrong. When owners run out of money businesses get shuttered (duh!), but that answer isn’t helpful. Real experts explain why owners run out of money!

Who’s Running Out Of Money?

Given that billions of dollars are invested annually in America to start new businesses, how is it possible that so many businesses run out of money and fail? And according to U.S. Government data, at least 50% of all new independent business start-ups fail every year in America!

It doesn’t make sense. That much money and people are running out of money? That much money and people are running out of money when many businesses (read Start Small, Finish Big) get started on a financial shoestring?

I don’t believe it, and you shouldn’t either.

The E-Myth Explains Why

Author Michael Gerber, who wrote The E-Myth: Why Most Small Businesses Don’t Work and What To Do About It, may have been the first expert to tell us why businesses really fail. It’s not for lack of money. It’s because the owners are stuck working “in” the business and not “on” the business.

“The owners are so busy doing, doing, doing,” says Gerber, “that they have no time to focus on what’s important, which is figuring out how to make the business successful.” Before they know it, the owner runs out of money and the business must be shuttered.

Helping Franchisees Succeed

Franchisees are fortunate because they don’t have to worry as much about how to make the business successful. They don’t need to stay busy “doing, doing, doing.”

In figuring out how to make the business successful, franchisors have already done the “doing, doing, doing”. The result is an operating system. It’s a roadmap to make the business successful.

How to buy a franchise, Dr. John P Hayes, buy a Subway Franchise, buy a McDonald's Franchise, best franchises, hot franchises, risk of franchising, dangers of franchising, which franchise to buy, evaluating franchises, Buying a franchise, International Franchise Association, learn about franchises, should i buy a franchise, great franchise opportunities, best franchises to open, how to buy a good business, information about franchises, information on franchising, how to evaluate a franchise, best franchise investment, franchise, franchising, franchise opportunities, franchise directory

“The roadmap is the primary reason why franchises succeed,” explains Dr. John P Hayes.

In fact, the roadmap is the primary reason why franchises succeed.

Franchisees (with good franchise systems) aren’t worried about how to make the business work. They don’t have to figure that out. They don’t have to experiment or re-invent the wheel. By following a franchisor’s roadmap, the franchisee expects the business to work.

Without that roadmap, however, you’re probably doomed. Unless you’ve got an unlimited amount of money to invest and you don’t care about return on investment, and/or you’re brilliant, you’re going to be part of the 50% that fail in the first year of operating a business in America.

But why become part of that statistic when you can avoid it?

And you can avoid it by paying a royalty fee.

So the question is: How much is too much? When is a royalty fee too expensive?

What Do You Get For The Royalty Fee?

 Before I can answer those questions, I’d like to tell you what a royalty fee provides to franchisees.

I recommend to my students that they always ask the franchisor, “What do I get for the royalty fee?”

It’s an important question, and yet it’s amazing how seldom prospective franchisees ask it. Of course, the downside for the franchisor is losing franchisees. Many prospective franchisees won’t tell the franchisor that the royalty fee is too high, in their estimation. They’ll simply pass on buying the franchise. Therefore, good franchisors tell the prospective franchisees what they get for the royalty fee – a good time to do this is during Discovery Day.

You’re Getting A System

First and foremost, the royalty fee underwrites the cost of the franchisor’s “doing, doing, doing.” Some franchisors spend years inventing and perfecting their operating system before selling a franchise. But most franchisors develop a system that works (hopefully), and then they continue to tweak it. The real problem is the franchisor that doesn’t have a tested system, but intends to develop one after selling franchises. That’s just wrong.

The initial franchise fee, which I discussed in a previous blog, gives the franchisee access to the franchisor’s roadmap, or system. But since the roadmap isn’t static, and it needs to be continuously fine-tuned year after year, royalty dollars underwrite that additional development.

You Get Training

But what good is a roadmap without training? Most franchisors train franchisees for at least a week, and some for 20 to 60 days. Again, the initial franchise fee pays for the initial training, but training isn’t a once-and-done proposition. Training occurs continuously in most franchise companies, and it’s never free.

Every franchisor discovers, sooner or later, that not all franchisees are created equally. Some are better than others. Some require just a few days’ training and they’re good to go. Others need endless training time and they’re still not good to go.

You Get Ongoing Support

So here’s the third benefit that’s covered by the royalty fee: support. Some franchisees, even good franchisees, are going to need help beyond the training classroom. It’s not unusual for franchisees to “fall apart” once they leave training, return home, and open their business on Monday morning.

“It’s as though I forgot everything that you told me,” the franchisee says to the franchisor. “I arrived at my shop first thing in the morning and I just couldn’t remember what to do first. Help!”

And that’s where the franchisor’s support team earns its money, which comes from royalty fees!

Depending on the size and complexity of the franchise, some franchisors may get away with phone support and/or Internet support, but most franchisors require a field staff to provide on-site support to franchisees. And that’s costly.

The support team travels to the franchisee’s site, spends a couple of days – possibly a couple of weeks – and reinforces everything that was taught during training in the classroom. This is a valuable service . . . many people will not learn from the training manual but from a kindred spirit who takes them by the hand and shows them, for a day or a week, what to do, when to do it, how to do it, etc.

Generally, franchisors provide support as needed, and some franchisees need more support than other franchisees. It’s a great benefit to know that if you’re stuck, or if suddenly the wheels fall off your business and you don’t know why or how to re-attach them, the franchisor will send one or more support staff to assist you. Without that support, and without the know-how, how long will you last in business?

What’s All That Worth? 

So the royalty fee covers the system itself (at least the tweaking), the ongoing training, and the ongoing support.

Let me ask you: What’s that worth?

But wait, don’t answer that yet because there’s something else you need to know, and this is another huge benefit.

Markets change constantly especially as technology, geography, demographics, and consumer expectations change. Some changes render a product or service of less value or no value. If you’re still selling fax machines, how you doin’?

How Do You Deal With Change? 

Small business owners – which describes franchisees – are the last to understand what change is doing to their business. Small business owners are too busy paying attention to today to worry about tomorrow.

So when Congress passes legislation that will negatively impact their business, small business owners miss the news because they were pre-occupied. Or as market demographics declined or appreciated in the last five years, small business owners overlooked the significance of the change because they were pre-occupied. Paying attention to what consumers will want in two years isn’t of importance to small business owners because they’re consumed by the consumer’s preferences at the moment.

How to buy a franchise, Dr. John P Hayes, buy a Subway Franchise, buy a McDonald's Franchise, best franchises, hot franchises, risk of franchising, dangers of franchising, which franchise to buy, evaluating franchises, Buying a franchise, International Franchise Association, learn about franchises, should i buy a franchise, great franchise opportunities, best franchises to open, how to buy a good business, information about franchises, information on franchising, how to evaluate a franchise, best franchise investment, franchise, franchising, franchise opportunities, franchise directory

Franchisors provide the R&D that you don’t have time to do!

So who’s in charge of Research & Development?

When I ask that question at my seminars and webinars, the small business owners laugh. Some think, R&D is for Fortune 500 companies. Some think R&D isn’t something they’re capable of doing. But savvy franchisors know differently. R&D is a necessary step in the development of a successful business, small or large.

So who’s doing it?

And who’s paying for it?

In most good franchise companies, the franchisor is doing it – there’s an R&D staff – and the franchisees pay for it via their royalty fees.

Worry Free R&D 

And what a benefit to the franchisees. They get R&D without having to worry about it. Without having to pay attention to the future changes. Without having to become lobbyists. Without having to study consumer dynamics.

Now I need to ask you: What’s that worth?

Royalty fees are generally in the range of 5% to 10%. So for every dollar you take in at the cash register, or via your online account, you’re going to pay 5 to 10 cents to the franchisor in the form of a royalty fee.

“Too much!” says the accountant. Oftentimes it is the accountant who discourages the purchase of a franchise. “You don’t have to pay all that money just to sell pizza (or paint houses, or sell hamburgers, or signage, or shoe repair, or whatever). You can do it on your own.”

A Royalty Protects You

Famous last words. Those are the words that add to the heap of the 50% who fail at business start-ups in America every year.

Look: Franchising is a way for you to learn how to operate a business successfully. You’ll have to pay a franchise fee for that opportunity. And then you’ll have to pay an ongoing royalty fee to continue to get the benefits provided by the franchisor.

It’s easy to figure out what it’s worth. Just add up the costs of the benefits I’ve outlined above – system development, training, support, research and development — and you’ll discover that you couldn’t possibly do it all on your own and still operate a successful business. You can try, but you will end up “doing, doing, doing” until you run out of money and shutter your business.

#

Dr. John Hayes does not sell franchises, but he helps franchise prospects discover franchise opportunities that make sense for them operationally and financially. Add your name to his list for a variety of valuable information.

Buyer Beware! Don’t buy a franchise that’s wrong for you

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How To Buy A Franchise Show logo

If you have followed the steps in the previous podcasts and decided that FRANCHISING is right for you, the next critical step is to find the TYPE OF FRANCHISE that is right for you. And buyer beware! Not just any franchise will be right for you.

In this podcast, Dr. John P. Hayes explains that selecting the wrong franchise can lead to disaster. If you don’t have the skills and expertise to succeed in Franchise A, but you have what is takes to succeed in Franchise B, you want to know that before you invest your money!

When it comes to franchising, it is important to realize that franchising is a way for the franchisor to expand the brand. It’s a way for the franchise to sell more signs or sandwiches or whatever product or service the franchise offers. You are spending your money to help the franchisor expand. And while that may sound like a bad thing, it’s not.

Successful franchisees understand the value of buying into an existing brand and the advantage it gives them. Your decision comes down to this: are you willing to become a spoke in the wheel?

Successful franchisors have spent a lot of time, money and energy creating a spinning wheel that makes money. And anyone that becomes a part of the wheel can make money, too.  Obviously not all franchisors have created wheels that are spinning perfectly; the challenge is to find the ones THAT ARE and then find the ones in which you are a perfect fit.

What you should NOT do is buy a franchise just because you can. You should only buy a franchise because it is right for you.

Listen to this week’s podcast to learn more.


Free Online Assessment

In North America alone there are from 2,500 to 3,000 different franchise opportunities to chose from. How do you know which one is the one for you?

The best place to start is with an objective personal profile. In a previous episode, Dr. Hayes offered listeners free access to an online assessment tool. You can still take advantage of an online assessment tool that will help you, and Dr. Hayes, determine together if you are a good fit for franchising and if so what kind of franchise?

The online survey requires less than 10 minutes to complete and it’s free when you use the link provided below. Otherwise the survey costs $195.

Click Here to take the Free Survey


This episode is brought to you by Farm Stores.

farmstores

 Click Here to learn more about the Farm Stores franchise opportunity.


Listen to Episode 10 of the How To Buy A Franchise Show

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How to buy the right franchise for you

How To Buy A Franchise Show logo

How To Buy A Franchise Show logo

In this episode, best-selling franchise author and speaker Dr. John P. Hayes explains that starting a new business, whether it is a franchise or not a franchise, comes with a lot of risk. While opening a franchise is safer than starting a business from scratch, there is still no guarantee of success.

That’s why it is important that you try to find a business that is a match for your skills, your personality and your values.

Continue Reading

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Do you have the right personality to be a franchisee?

Personality Profile Photo

Before buying a franchise, one of the most important questions to ask yourself is: “Do I have the right personality to be a franchisee?”

Personality Profile PhotoPeople are all different, but so are franchise opportunities. No two franchise opportunities are exactly the same. How franchisees succeed in one franchise opportunity is different from how they succeed in another.

Franchising is the safest way to develop a business; there’s no doubt about that. But franchising is not for everyone, and every franchise opportunity has different expectations of its franchisees. Whether you are buying Subway or McDonald’s, Fastsigns or Signarama, Pizza Inn or Pizza Hut, it’s important to know if you’re a good fit for franchising in general, but it’s equally important to know that your personality is a good fit for the specific franchise opportunity you want to own and operate.

Avoid this common mistake

One of the worst mistakes you can make is to buy a franchise that’s a mismatch for your personality. Just because you’re cut out for franchising in general, or just because a franchisor is interested in signing you as a franchisee, doesn’t mean the franchise opportunity is compatible with your personality, or your skills and values.

Sadly, many franchisees make the mistake of buying before they understand what is required by a specific franchise opportunity. The result may mean outright failure – because the franchisee and the business are not compatible, the franchisee can never develop a satisfying and profitable business. Or it may mean the franchisee can build a business, but not one that’s satisfying or profitable enough. Consequently, the franchisee is disgruntled or at least unfulfilled.

These scenarios do not serve franchisees or franchisors, and yet they occur all the time.

Are you a good fit for franchising?

But how do you find out if you’re a good fit for franchising, and then a good fit for a specific franchise opportunity? How do you do this before buying the franchise

Here are four steps that you can take to protect your interests:

1.) Match up desires with reality

Are you a leader or a follower? This is a tricky question. Most franchise prospects see themselves as leaders, and franchisors say they want their franchisees to be leaders. But the reality is that top franchisees recognize the value of following, and they are capable of following the franchisor’s guidelines and rules and regulations. Look, franchising is successful because a franchisor has already developed a system for operating a business. Franchisees are successful when they follow the franchisor’s system. If you’re all leader and you can’t follow, or you don’t want to follow, franchising probably isn’t a good fit for you.

But then you also need to look at the requirements of the specific franchise opportunity. For example, you may want to work five days a week, but the franchisor requires you to operate the business seven days a week. Is that a problem? Probably. You may be a fit for franchising, but not for this specific franchise opportunity. You want to work from home, but the franchisor requires a location in an office building. You want to work alone, but the franchise business requires multiple employees.

It’s important to know what will work for you and what is acceptable to the franchisor.

Many franchisees regret that they didn’t think more about their personal desires and lifestyles before investing in a business. Once you sign a franchise agreement, you lose flexibility. Your reality becomes the franchisor’s requirements.

2.) Participate in the franchisor’s discovery day

Most franchisors want to be certain they are selling to people who fit their business requirements and expectations, and that’s one of the reasons that franchisors offer discovery days. This event is an opportunity for you to visit the franchisor’s home office for a day or two, and meet members of the corporate team, as well as (in many cases) franchisees.

Not all franchisors offer discovery days, but not all franchisors are interested in selling to people who are a good fit for their business. Unfortunately, not all franchisors are created equal. Some are better than others. You must constantly look out for yourself and make certain that while the franchisor is eager to sell a franchise, the franchisor is also diligent about selecting prospects who have what it takes to succeed in the business.

Sometimes prospective franchisees say they don’t want to spend the time or money to attend a discovery day. That’s a mistake. You’re going to spend a considerable chunk of money to buy a franchise and commit yourself to it for possibly 10, 20 or more years. You don’t want to spend $1,000 (maybe less) to visit the franchisor and learn about the business? If that’s the case, I’d wonder if you’re a fit for franchising.

Some franchisors – good franchisors – will not award a franchise to anyone who doesn’t attend a discovery day. And in certain instances, prospects are required to bring their spouse and/or partner/s to discovery day as well.

Discovery day is a great protection for both the franchisor and you! Hang out with the franchisor’s representatives for a day or two and you’re more likely to determine if the business is a good fit for you.

Of course, you need to ask good questions when you attend the discovery day, and one of the questions you should ask is: “How do you know that I’m a good fit for the franchise?”

3.) Play franchisee for a day

After you’ve identified a franchise you’d like to buy, find an existing franchisee within the network and ask to “shadow” him for a day, or ideally a week.

By experiencing what a franchisee does on a daily basis, and seeing the challenges the franchisee faces, you’ll know if you are compatible with the business.

You didn’t know you had to be an accountant to succeed in this business? It’s better to find out before you buy.

You didn’t know that the top franchisees in the network are sales and marketing people? Or they are customer service driven? These are the fine points that you need to realize before you invest your money.

Not all existing franchisees will agree to let you shadow them for any length of time, but be persistent. Offer to work in the franchise on weekends for free. Or work part-time for a month.

Many good franchisors will, in fact, require you to spend time in a franchisee’s location before they will sell you a franchise. These franchisors will also ask their franchisees to evaluate you as a potential member of the network. Don’t resist these requirements – these are opportunities to help you match your desires with reality.

4.) Insist on a personality profile.

Franchisors should know the personalities of their franchisees, but it’s surprising how many franchisors do not. Yet, it’s so easy for a franchisor to get this information, and the information is valuable in the franchise sales process.

Before you buy a franchise, ask the franchisor, “Tell me about the personalities of your top performers. What are they like? Are they extroverts or introverts? What are their skills? What do they value?”

Don’t be surprised if a franchisor cannot definitively answer your questions. And don’t be fooled by the answers. Ask for proof. “Can you show me a report that lists the personality profiles of your franchisees?” Many franchisors not only list the personalities of their franchisees, but they also match up the personalities to revenue generated per franchisee!

In other words, not all franchisees are created equal. Some produce more revenue than others, and a franchisor is interested in knowing who’s who. Franchisors recognize that some franchisees are top performers – they generate the highest royalty revenues for the franchisor – while other franchisees are bottom feeders. Smart franchisors understand that personality differences separate top performers from bottom feeders and they take extra measures to identify prospective top performers.

To get at this information, franchisors use various assessments to determine personality profiles. Ask the franchisor of your choice to assess your personality. Then be sure that your personality matches the profiles of the top performers.

Many franchisors use Franchise Navigator as their assessment tool. You can use the Navigator as well to help you discover if you’re a good fit for franchising, and even which type of franchise makes sense for you. Click here and take a few moments to complete the Navigator survey. Readers of my blog and books, and listeners of my podcast, can complete the survey for free, and get a valuable report that explains your franchise compatibility.

Franchising has helped countless thousands of individuals reach levels of personal satisfaction and  financial gain worldwide.

Whether or not you’ll achieve the same satisfaction and success depends on many factors, and none is more important than your compatibility with franchising and with a specific franchise business. Don’t jeopardize your investment – know for certain that you’re a good fit before you buy a franchise.

Want proof that you’re a good fit for franchising? Spend a few moments completing the Navigator Survey. You’ll get a valuable report that explains your personality and matches your interests to the types of franchises that make sense for you. Readers of this blog can utilize the Navigator Survey free.

 

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Do you have the right personality to be a successful franchisee?

How To Buy A Franchise Show logo

How To Buy A Franchise Show logo

In this episode of the How To Buy A Franchise Show, internationally recognized franchise author, speaker and consultant, Dr. John P. Hayes, asks: “Do you have the right personality to be a successful franchisee?”

Listen to this week’s podcast for the answer. Continue Reading