8 Things Your Franchisor May Not Tell You
Do your homework when considering franchise opportunities
© Bankscottage 2012. All rights reserved.
In the past few years there has been increased interest in owning your own small business. Be it a job loss in the economic downturn, a need to break out of the daily grind of a less than satisfying job, the desire to be your own boss, to control your own destiny, or just wanting to find a more meaningful profession, many people are becoming entrepreneurs. A quick and easy way to get started in a business is to purchase a franchise. For a fee and on-going royalties, a franchise can get you up and running quickly. It can guide you through the entire process of opening and running your small business as well as provide training and support, both initially and ongoing.
A recent hub did a good job discussing some of the issues involved in the factors and decisions that would go into opening an H and R Block franchise. But, I think there are several additional issues that need to be considered. Some issues that the franchisor may not openly or willingly disclose in promotional material.
As a partner in a tax preparation service I feel I can shed some additional light on starting and running a tax preparation service as well as being a franchisee in general (Full disclosure: I do not own an H and R Block franchise and it is not my intention to promote my particular brand or disparage H and R Block).
When looking for a franchise to purchase, the franchisor will provide information that will encourage you to invest in their business. There will be discussions of risk and there will be disclaimers. They will often provide current franchisees (and maybe even former ones) for you to talk to and interview. But in the end, when the honeymoon is over and the shine may be off of your purchase, you may find there are many questions you wish you had asked or situations you had considered.
8 Things Your Franchisor May Not Tell You.
The following is not meant to say that all franchisors, and H and R Block specifically, will lead to buyers remorse after you purchase them. The key is to do your homework. Find out as much as you can about the business and the franchise. Make sure the business and the franchise are right for you. What is right for you, may not be right for someone else.
1. Making money may not be as easy as the franchise literature makes it out to be.
Some franchises will make it look like the money will just come rolling in. For well established franchisees, this may be true. But, in my experience, and like that of many others, it can be a slow process requiring a lot of hard work and sacrifice to get to profitability. You open your doors with bills and no income. You have to build your business, build your client list, build your reputation, build your cash flow and all the while, continue to pay your bills. In the beginning, the last person paid is you.
2. Your competitors are everywhere and they may not be who you think.
The obvious competitors are easy to identify, but many are not as easy. For example, in the tax preparation business, the obvious competitors are the other franchise brands and the mom and pop businesses in your area. There is the software products you can buy at the store as well as the on-line products. Less obvious competitors include non-profits, the IRS, and even your own franchise! Non-profits will often offer free tax preparation for various groups of people taking potential customers away from your business. Even the IRS promotes free on-line preparation services competing directly with your services. Your franchise could have an on-line site or own a corporate store in your area.
3. It isn't always how many stores the franchise opens in a year, it maybe more telling by how many close.
From franchise promotional material, to articles in the press, to regulatory filings, franchises want to build their brand and promote how many new stores they open in a year. They are in the business to expand their brand (or collect franchise fees) and want to open new stores. You on the other hand, want to stay in business. You want to know how many stores were closed in a year because you don't to be one of them. You want to know what is the growth, year over year, of established stores.
4. Just because the demand for our product is high right now, it doesn't mean it will always be that way.
The world changes, new rules, new preferences, new tastes, new technology can make a thriving business or product in high demand one day obsolete the next. Anybody been to a Blockbuster store recently? You don't want to be the owner of the best buggy whip store in the city. You want a franchise that is progressive, looks for new product opportunities, has a vision and able to adapt to new circumstances in the future.
5. New laws or government regulations may significantly affect your business.
This is one area that could have significant impact on the tax preparation business in the future and it is not very easy to anticipate or prepare for. Right now, the tax code is so complicated and challenging when you do it yourself with software (even Tim Geihtner couldn't figure out how to use TurboTax) sometimes you just need a real person involved. A new regulation requiring taxpreparers to register with the IRS and obtain a PTIN, to identify them on returns they prepare. To renew their PTIN for next year, these preparers will have to pay for and pass a written test as well as complete continuing education requirements. While this may improve the quality and accuracy of returns prepared by paid preparers, it will make it harder for an owner to find trained qualified individuals to work in their offices.
6. My goal is for us to make money, we are not as concerned about how well you do.
You certainly hope this is not the goal of the franchise you purchase. You want to be part of a franchise that wants both you and them to be successful. One that works hard so that both of you are profitable and grow together. You don't want a franchise that earns a significant amount of their money from franchise fees rather than the sale of their products. You do want your franchisor to be profitable. It has to be profitable to stay in business and it has to be in business for you to be in business.
7. I love you today, but once you sign, I may not love you in the morning.
You don't want a franchise that has a corporate office that essentially disappears after you sign the papers and pay your franchise fee. You should expect initial training and support to open your business. Expert product, business, technical, and marketing support and training should be there day 1, year 1, year 10 and forever.
8. It may not be easy to sort out the hype from the facts in my franchise promotional material.
Don't take the information in the promotional material or that provided by the franchisee they select to talk to you as gospel. Do your research. Check the facts with other sources. Visit several units in the franchise you are interested in. Visit other brands of the business also. Try to talk to as many people as you can, not just the owners or managers. Sometimes you can find out a lot about a company from the customers, the employees, the receptionist, and maybe even the cleaning person.
A few suggestions to leave you with:
Try to talk to a current franchisee. Visit a franchise in a different area if you are going to start the first location in your area.
Attend a franchise show where you can meet and learn about several franchises in one location.
Consider seeking the advise of a franchise broker. They may be able to determine the business line that suits you and match you to the best franchise that provides that service.
Even if your franchise provides fantastic support, you may want to find a business mentor. Try to find someone that can guide you through the ownership and management of a small business, particularly if they own the same business.
Check out a local college. They often have a small business development program staffed with people that enjoy helping others get started in business.
These links may help you find the right franchise for you.
- Starting an H&R Block Franchise
Basic Franchise Information for starting an H&R Block Tax Services Business. Initial Cost and Financing Information.
- Should You Use Franchise Brokers? - Hiring a Broker | Entrepreneur.com
Franchise brokers can help you find qualified franchisees. But is hiring a broker the right choice for your franchise?
Other Helpful Hubs of Mine:
- How do I get a Federal Tax Identification Number (E.I.N. Number)?
Obtaining a Federal Tax Identification Number, also known as a Federal Employer Identification Number (E.I.N.), is fast and free on the IRS website. Many business entities such as trusts, partnerships, LLCs, corporations, and estates need and E.I.N.
- Retirement Savings Options for Small Businesses and the Self-employed
There are several retirement plan options for small business owners and the self-employed. Traditional and Roth IRAs are available to everyone. SEP-IRAs, SIMPLE IRAs, and Individual 401(k)s are great options for the right situation. More complex plan
Disclaimer: Any business or tax planning information provided above or linked to this article is not meant to be specific to any particular individual or situation. Anyone who wishes to apply this information should first discuss it with their franchiser, lawyer, accountant or tax professional to determine its appropriateness or how it specifically applies to their unique situation.
© 2012 Mark Shulkosky