When I first considered sharing my business, naturally I thought of franchising. I thought I could just fill out some State paperwork with the help of a lawyer, and I’d be on my way. To learn more, I talked to a couple friends who had recently franchised their businesses. They were both encouraging and they shed some light on the process. I also read two books on the subject. My friends and the books quickly taught me just how involved, expensive, and time consuming it is to franchise a business.

When considering the cost of franchising, my friends were on opposite ends of the financial spectrum. One of my friends has already spent $180,000 and was planning to launch his franchise nationally in April of 2014. It’s a business that cleans operating rooms for hospitals. He chose a common way of franchising, which is to hire a lawyer and a franchise developer to do most of the work. But now, for reasons that I think are deceptive, and always seem to extract more money from my friend, his launch has been pushed back many times. It is now February 2016 and the excuses keep coming.

My other friend managed better with only $40,000 in fees and services. He has a Mail and Copy Center business. He did most of the paperwork himself with some input and advice from a lawyer. He is building his franchise himself in nearby towns and has started five franchise units in his first year.

What I’ve learned is that with a lawyer, a franchise developer, and numerous other services and fees and red tape and tedious details to consider, an average person spends about $100,000 to franchise a business, and it takes at least a year to get it finalized. I don’t have this kind of money or time. And the more I looked at the cost of franchising, the more it seemed to be a racket that primarily makes the lawyers and franchise developers rich. So I figured, there must be another way. Thankfully, there is.

Before I get to that, if you have spent any time considering a franchise yourself, you know how expensive it can be. A franchise fee for a small unknown business can typically cost $10,000 to $50,000, while a household name-brand restaurant franchise can be $250,000. And that is just for the right to use the company’s name, suppliers and procedures. You still have to invest more money in the machinery, the inventory, the materials to make the products, and you have to secure a site or build a building to suit the franchise requirements. Then you have to pay for training, probably hire employees, and numerous other business details. Total capital investment is typically $100,000 up to a million dollars and more. The more I looked at the cost of buying a franchise from the buyer’s point of view, the more it looked like an extreme financial risk that most average people are unwilling or unable to take.

Here’s a typical example from my research. This guy in Arizona has a business applying some kind of special epoxy coating on cement floors, used primarily in home garages. His franchise fee is $35,000 with a capital investment close to $200,000. This includes $35,000 for the initial epoxy floor product and there’s $54,000 for a box truck (a brand new one apparently). Most of the rest of the money, about $111,000, goes for the franchise name and procedures, training, initial advertising, office furniture, supplies, licenses and permits, and “other field equipment,” which I think is a few mops according to a picture on their web site. And keep in mind that these are just the initial costs.

After all that, according to their franchise documents, they are also going to take 6.5% of your gross for a royalty fee PLUS 10% for advertising every month.

Furthermore, you will not have much control over your business. With any franchise, you’re locked into the way the franchisor wants to do business. If he’s a jerk and makes you do things that don’t make sense, or if the advertising is ineffective, or if you want to develop your own procedures or create new products? Sorry, all of your personal freedom regarding the business is irrelevant, or at least controlled by the franchisor. You only get as much freedom in your business (that you paid $200,000 for) that the franchisor allows you to have. How much control you have is actually determined by the legal documents that were drawn up by the lawyers when the franchise was created. So you’re legally bound to play the franchisor’s game.

Now in this specific case, with the epoxy coating company, there are probably some products that were developed for this business that truly might be special or better than similar products. And they have developed procedures that are probably very efficient. And they’re promising hands-on training and support using the internet. But really, when you boil it all down, aren’t we talking about painting or mopping your garage floor with an epoxy-based product, and something similar is already available at Home Depot or Lowes? Even if the franchise product is the best around, is it worth $200,000? Some would actually say, “Yes.” But in my mind, that’s a lot of money for something I could probably figure out myself. Besides, wouldn’t a lot of people who would care enough to coat their garage floor just do it themselves and not have a reason to call your number, in the franchise you bought?

Maybe I’m wrong about that, but these kinds of questions need to be considered when getting involved with any business. It just seems to me after my research, there are very few franchise businesses that:

Another thing to consider is the risk of being victimized by a scam. Anyone considering a franchise is taking a risk because they are putting their hopes and dreams in someone else’s hands, and this may get them nothing in the end. Let me demonstrate…

My wife is a dental assistant (best in the county I always say) and she has some patients who wanted to buy into a lesser-known coffee shop franchise which required a $35,000 franchise fee. Fine, that’s not unusual. So they get a loan from the equity in their house and use their life savings to pay the fee. Then, according to the franchise documents, they have to secure a location for the coffee shop and pay another $10,000 for traffic studies, population growth reports, and assorted fees before the franchisor will fly out to approve the site. So they dive in and after they fulfill all the requirements, the franchisor flies out and decides he just doesn’t like the site location that they picked and told them to find another one. And for that they’ll have to pony up another $10,000 for more studies and fees. After six months of this game, the couple lost all their savings, they still have to pay back the equity loan, and they have no coffee shop to pay it back with. They lost everything and they have nothing. Franchise buyers beware; stories like this are not uncommon.

To minimize the risk of this kind of fraud or scam, some people are willing to pay half a million dollars on a good name-brand franchise that everyone knows, say for something in the restaurant business like Subway or Olive Garden. In this case your risk of losing everything is minimal, but your new restaurant still needs to be successful, and there are many reasons a restaurant may not be successful. Maybe the location wasn’t as good as you thought. Maybe the manager you hired turns out to be a dud. Maybe your employee turnover is higher than expected so your food quality and service suffers. Maybe a downturn in the economy makes people eat out less. There are a lot of reasons that nearly 60% of all restaurants fail in the first three years (Parsa - 2005 Ohio State University study).

Like I said, it’s a risk and a gamble that not many people are willing to make without a safety net. That’s what the franchise agreement is for, right? That’s the safety net. Well, sort of. Remember, the franchise agreement is written mostly by the franchisor so it mostly protects them, not the franchisee, the one who invested all that money. In short, buying a franchise is buying a piece of someone else’s business, not your own. So they call the shots.

So if things don’t go well, can you get your money back from a big-name franchise? Maybe some of it, but chances are slim you'ld regain your investment. With our last example, who is going to buy a failing restaurant? If you’re lucky, you can sell the location to another restaurant owner who thinks they can do better. If you’re lucky, your landlord will let you out of your lease, or you might find another business to sublet to. If you’re lucky, the franchisor will buy your business and location back from you, but don’t expect to come out ahead in that deal. You may be able to retrieve some of your losses by selling your ovens and equipment and fixtures, but most of your money is down the drain.

So here is a tip if you’re considering buying a franchise -- if you can, be sure to interview other franchisees who DIDN'T make it. Of course, even if the franchisor gives you some names, they will choose the names carefully and those selected few will likely be legally bound to not represent the franchise in a negative light. I know this happens because I have witnessed this lack of transparency and honesty in my interviews.

You might be wondering, why does a franchise cost so much? In part, it’s because of the above example that turned out to be a scam. Rackets like this have caused the government to create a lot of rules and red tape to try and protect the franchisees, which means lawyers have to get involved, which makes everything more expensive.

Greed might also play a part. Is a lawyer greedy if he charges $50,000 to create the two main documents required by franchise law, especially if the lion’s share of these documents can be duplicated from templates or software he bought? Is the franchise developer greedy when he gives bad advice so he can be employed longer to fix his own mistakes? Is the franchise owner greedy when he charges exorbitant fees in the name of recovering his investment? Greed can be anywhere.

So, for lots of reasons, both creating a franchise and buying a franchise are very expensive. For the average person or family looking to supplement their income or for the regular guy who wants to be his own boss, I found that few franchises are worth the risk or expense. Buying a popular name-brand franchise will minimize the risk, but if you can afford that, you’re already above average.

So by now, you might be wondering: is there another way? Yes there is. The other way is to buy a business idea, including all the knowledge and training you need for that business, but that doesn’t make it a franchise.

For the one selling the business idea, they don’t get rich off the idea, like they might if they sold franchise licenses. Unlike a franchise, they can not charge a franchise fee or collect monthly percentages of your gross sales. They also are not allowed to control any aspect of the business once it gets going. For me, this is ok. I’m not looking to get rich or control your business. I have always been less motivated by money and more motivated to help and serve.

That leads me to consider the heart of this next question. What are people really looking for in a business or a franchise? I think it’s this… the first thing they’re looking for is an idea they can connect with. They may not know what it is, but they feel they will know a good thing when they see it. They’re not looking for an investment partner or a business name or OSHA regulations to comply with. They’re not looking for accounting programs or marketing strategies to find customers. All these things come later. What people need first is a big idea they can see themselves doing, an idea they can put their time, energy, and money into that will give them satisfaction and purpose.

Once they hit upon that big idea, the next thing they’re looking for is the knowledge and the know-how to do it. Some business ideas are going to be intuitive; that is, you can probably figure them out on your own, such as landscaping or painting houses or cake decorating. But other big ideas require more knowledge. You’re going to have to educate yourself. You may want to find a mentor to learn from or read some books and do research on the web. You’re going to have to find suppliers and dealers and wholesalers. You’ll have to buy equipment and learn how to use it. Then you need to find or attract customers and develop marketing plans to reach those customers. And after a lot of time and energy is spent to figure it all out, and after a couple of years of learning from your mistakes, you will hopefully become a success.

Saving you all this time and energy is part of what buying a franchise is all about. This business-building process can be expensive and time consuming and most franchisors consider it to be worth something. And they’re right, it is worth something. But how much less would a franchise cost if the business owners didn’t have to pay so much to franchise their business? Why can’t people just pay for the big idea, the knowledge and the know-how, and leave it at that? Well, that is exactly what I’m proposing. If you pursue this stone engraving business, you are not buying a part of my business, you are buying a business idea with all the knowledge and know-how I can provide. You will not be required to use my business name or motto, the forms I use, or the manufacturing techniques I’ve developed. Nor will I have a say in what markets you want to pursue, the prices you want to set, nor how much money you want to make. I’m here to help you get started, but then you’re on your own. Not that I won’t be available for questions or even some training or consulting if you need, but after that, you will be able to run your business the way you see fit.

Hopefully, engraving stone is a big idea that connects with you. If you follow through, I can provide all the knowledge and know-how you need to learn the skill and you will be able to start your own business, as your own boss making your own decisions and your own success. You get the best of both worlds without having to pay a fortune.

So let’s get down to the nuts and bolts. What exactly are you getting with this non-franchised business idea? Everything is itemized in the next chapter, The Proposal.

For questions, requests, or concerns....
please email or call me in Windsor at 970-567-2500

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