Franchise ownership: Is it right for you?

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Franchise ownership: Is it right for you?
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I have a longtime bias in favor of entrepreneurs and often call them the ‘secret weapon of our prosperity’ in America. They’re the ones who really create jobs in our country.

The lure of franchising is powerful whether the economy is up or down. Who wouldn’t want to be their own boss and call the shots? But before you get involved in a franchise, I want you to first work for someone in the industry you’re considering entering. Sweep the floor or empty the trash can if you must. Just get in there and learn the ropes — and don’t tell them that you’ll be an eventual competitor!

Know the success rate — and the fail rate — of franchises

Franchise ownership can be a dicey proposition, with some chains having great success rates and others having abysmal failure rates. Banks will often consult with a publication called the Coleman Report to determine if they’ll lend to you as an aspiring franchisee. Below is a chart courtesy of Coleman Report showing a baker’s dozen of franchise brands that all enjoyed little or no failure over a 9-year period.

Franchise ownership: Is it right for you?

On the flip side, 10 franchises had some of the highest failure rates during another recent 9-year period include: Wings-N-Things (82% failure rate);  Noble Roman Pizza (76% failure rate); Super Suppers (69% failure rate); Golf Etc. (59% failure rate); New York NY Fresh Deli (57% failure rate); Velocity Sports Performance (53% failure rate); My Gym (51% failure rate); Image Sun (50% failure rate); Steak Escape (50% failure rate) and Wireless Toyz (47% failure rate).

Be careful out there and do your research first!

Chick-fil-A, Culver’s offer the operator model as alternative to traditional franchising

According to a recent American Customer Satisfaction Index, the highest rated restaurant in the US is Chick-fil-A. Chick-fil-A uses a very unusual system for their stores. The proprietor is called an operator. He or she is put into business by Chick-fil-A and shares in profits for the store, but serves at the pleasure of Chick-fil-A. So it’s a different model than a franchise or a company-owned location. It is a hybrid blend where the person is not an owner in the traditional sense. But they can make a big income if they run a profitable store, and if they don’t, they’re out the door.

Read more: 9 worst restaurant meals in America

So Chick-fil-A has an entrepreneurial spirit and at the same time they have full complete operational control. It’s a brilliant business model. And it is partly responsible for making them the best operation in America. Chick-fil-A also doesn’t open on Sundays. They’re privately owned and for religious reasons they take that as a day of rest. But what they did for religious reasons is brilliant for business, because operators know they have a day off every week. That leads to a higher quality operation. And their sales are greater in six days than any other restaurant does in seven days.

Another big boon to those who want to work for themselves: You can become a Chick-fil-A operator for around $10,000, according to Business Insider/Yahoo! Finance. That’s a very low barrier to entry! (McDonald’s and Taco Bell, by contrast, reportedly charge in the millions of dollars to get started as a franchisee.)

Chick-fil-A isn’t alone in using the operator model to great success. Another company that does so is regional Wisconsin burger joint Culver’s — home of the Butter Burger!

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Clark Howard About the author:
Clark Howard is a consumer expert whose goal is to help you keep more of the money you make. His national radio show and website show you ways to put more money in your pocket, with advice you can trust. More about Clark
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