Franchising & Traditional Business
Not everyone in MLM will be successful, but don’t think that any other business model will give better results. People with a powerful reason and strong belief system and who are tenacious and passionate about their goals are more likely than less driven individuals to succeed in any business, but it doesn’t work out all the time.
Franchising: Larry’s Story
I was not in control of my own destiny. I’d been involved in the corporate world and it seemed that the only way forward was to look at having my own business. I started by looking around at businesses for sale that were not too far removed from my realm of expertise – hospitality. After shopping around, I discovered that many small businesses were not nearly doing the numbers or making the profits that they were presenting.
Disillusioned with my findings, I decided that I wanted to start something on my own. But knowing that many small business fail within the first 3 years, I rationalised that the better option might be to looking at a franchise.
Franchises just in food alone come in many shapes and sizes, however after some investigation and research I discovered that most franchisors offer very similar packages to one another.
After doing my due diligence on a number of companies, I finally decided on a franchise that I best related to and appeared to present the best opportunity for growth. Now came the serious stuff of raising finance. Not withstanding the fact that I was buying a franchise, the banks still wanted a full business plan. Unlike buying property where financial institutions have collateral that they feel comfortable loaning against, borrowing for a business is like pulling hens teeth. Most financial institutions apply unfavourable loaning ratios for small businesses. In short, you end up signing most of your life away.
I often felt that I was forever signing agreements and paying someone. I had my first wakeup to the real world of being in business on my own. Not withstanding my thorough planning and guidance from the franchisor, there still seemed to be numerous hidden costs that I had not taken into account.
In most businesses, rent and wages are the main overheads. More often than not, rent is negotiated before you move into your new premises, so labour is your single largest controllable cost.
After completion of my 6 weeks of training, I set about recruiting staff. If I thought that raising finance was difficult, my fun and games were just about to begin. As another franchisee once put it, “the business would be wonderful if it wasn’t for staff”. Employees in the hospitality business are remarkably unreliable at best. Most job seekers were always cap in hand before they were offered employment. As soon as I had committed to employing them and they had spent a short period working, they would become more and more demanding and increasingly difficult to work with.
Once the business got underway I soon realised that what I had got myself into was a lot harder than I ever anticipated. To get any new business off the ground takes determination, guts and very little sleep. For the first 6 months I worked 18 hr days 7 days a week. In the second 6 months I managed to settle the business down and get into a more organised rhythm, but I was still spending enormous hours at work. Although I was adhering to all the franchise systems and procedures, I had still not made a single cent of profit in my first year of trade.
The potential losses that have to be carried to get the business up and running have to be taken into consideration. Profits from sales were only just sufficient to pay my overheads, and my own salary, which was two thirds less than what I was earning before.
I quickly came to realise a few interesting facts about my franchise business.
- It did not matter whether I was making a profit or a loss in my own business. The franchisor always got paid his royalties.
- Marketing fund payments to the franchisor were very seldom, if at all, spent on marketing my own business. The hard reality is that the franchisor may spend any monies they receive in any way they deem necessary with little or no consultation with the franchisee. This varies from one franchisor to another.
- I still had to conduct local marketing out of my own pocket the same as I would have had to do if I was not a franchise.
- I carried all the risk of the business myself and stood to lose enormously if the business failed. The franchisor in turn bore no loss should my business not perform.
- Like any other small business, I was merely creating employment for myself.
- Business required absolute hands on management and there was no time for holidays or taking any time out.
- While the business traded 7 days a week, I was involved 7 days a week.
- Unless the business traded extremely well, it would not provide the lifestyle change that I dreamt about. I could simply not afford to employ management to oversee the daily running of the operation.
- There were many hidden costs, unexpected breakdowns and business interruptions that challenged profitability.
- I would have had to almost double my turnover figures to pay myself what I considered a reasonable salary for my efforts.
- I was trading a lot of time for very little money.
I’m not trying to paint a picture of doom and gloom here. These are just a few of the hard realities of running a franchise or small business.
During four years of owning my business, it was only halfway through the third year that I began to make the profits that I initially thought I would make at the end of my first year. Notwithstanding the fact that the franchisor deemed my business to be one of their more successful operations, this I believe was only due to my extraordinary efforts.
I decided after selling to take a break from the pressures of business ownership and am now working in the corporate world as well as building what I believe to be a better business model in the network marketing business.