The most successful small business owners usually have an ownership in multiple businesses or own a business with multiple income streams. This allows them to diversify their risks while taking advantage of potential profits in multiple sectors. Some own complementary businesses, such as a business which acquires properties to flip and a construction company. Others own businesses in different fields, simply looking for opportunities which will benefit from their expertise. But a very common additional business owned by small business owners is a franchise. These allow you to expand your portfolio with a seemingly proven business model and a business which will require limited time once it gets running, allowing you to focus on your primary business. Unfortunately, franchises often seem too good to be true because they are.
Proven Record – Franchises often have the formula to follow to success. If you are buying a franchise for a large, national chain such as Subway, McDonald’s, or Dunkin Donuts, you will have a blueprint.
Support – Many parent companies offer all of the advertising and promotional materials required to get started. They have people dedicated to ensuring the franchise gets off the ground and runs successfully.
Back Office Support – Most Franchise parent companies will help with things like HR, negotiating contracts on locations and equipment, providing inventory, and many other back office tasks which can take up a lot of time and effort on the part of a small business owner.
Limited Time Investment – For most franchises, once it is up and running you can hire a GM to oversee day-to-day operations and simply collect a check. By making sound hiring decisions, you can effectively create an income stream that takes nothing away from your primary business.
Expensive – The costs associated with starting a franchise are often high. They also generally have higher liquid asset requirements. This means that you may need to bring in a partner to meet the minimum requirements. You might also be able to put your money to better use elsewhere.
Not Flexible – While a blueprint to success may seem great, it can also be very constricting, especially for entrepreneurs who like to do things their own way. If you go outside of the parameters of the start-up guide you are given, you can lose your franchise – and your large franchise fee.
Reputation Risk – you may run a clean shop, follow every regulation, and do everything right. Your customers may love you and the brand you represent. But if something happens at a franchise owned by someone else, it can damage your business. And because you are simply a part of a larger organization, this is completely out of control.
Ultimately, finding a good franchise can be an excellent way to diversify your portfolio of businesses owned while creating a no hassle stream of income. But, you need to be willing to tie up a sizable sum of money with a slow repayment on it while relinquishing control to someone else. But if you are ok with that, franchises can be a low-risk method of building wealth.