One of the best paths to financial independence is starting your own business. The problem is, coming up with a completely original idea is challenging, and even if you succeed at that, you'll have thousands of other businesses like yours to compete with.
Accordingly, many aspiring business owners turn to franchises to help them. Starting a franchise allows you to create your own iteration of a popular chain of existing businesses. For example, you could open up a restaurant, oversee its operations, and ultimately collect much of the profits.
Of course, there are pros and cons to owning a franchise, as there are with nearly any financial path. But is owning a franchise an overall solid path toward financial independence or retirement?
The Advantages of a Franchise for Financial Independence
Let's start by looking at some of the advantages a franchise has over other strategies:
- Instant brand recognition. When starting a business of your own, you have to build all brand recognition from scratch, which is difficult in any context, but especially when you're directly contending with serious competitors. If you're launching a franchise, you'll be able to borrow from the logo and brand power of an existing business. That means you'll almost immediately have loyal customers and, therefore, revenue.
- Corporate support. Most corporate franchises go out of their way to help franchisees. When starting your business for the first time, they'll likely have you go through classes and training workshops to ensure you know how to open and manage the business. And after you open, they'll have mentors, coaches, and consultants available to help you be successful; after all, the power of the entire brand grows when individual units do well. If the franchiser is experienced and well-established, you can likely expect help with training and operations, real estate and construction, marketing and advertising, and more. According to Roland Dickey Jr., "My advice when looking for a franchise opportunity is to take into account the franchising experience of the franchiser and their longevity as a brand. While it might be exciting to get in on the ground floor of a new concept, if you're a first-time franchisee then you'll want to look for a brand that has a deep history of industry experience and established resources to help you navigate the new waters of being a business owner."
- Flexible responsibilities. Being a franchise owner, you'll have many responsibilities--but once the business has momentum of its own, you'll have control over those responsibilities. You can step in and direct operations when you want to (keeping you active in retirement, perhaps), and hire managers and other professionals to handle the responsibilities you no longer wish to take on.
- Unlimited choices. There are franchise opportunities in dozens of industries, each with hundreds or thousands of brand options to choose from. In other words, you'll be able to pick a brand and business that suits your personality and genuinely appeals to you. Similarly, you'll have many choices in how to develop your franchise further. If you've stockpiled enough cash of your own to fund your retirement, you can sell the franchise and walk away completely. If you're feeling ambitious and you're passionate about the business, you can expand to open other locations. You can also simply retain control of your existing franchise and continue making money.
- Ongoing revenue generation. The biggest advantage of a franchise is the prospect of ongoing revenue generation. Once you begin operations and get the profitability of your location in order, you should collect monthly revenue in excess of your expenses, resulting in a profit that should grow over time.
The Disadvantages of a Franchise for Financial Independence
However, there are some disadvantages to consider as well, including:
- Startup costs. Most franchises require a massive initial investment--usually hundreds of thousands to millions of dollars. If you're just starting out, or if you don't have access to much capital, the only chance you have is to get a business loan for this amount, and if you get a loan, it could expose you to a tremendous amount of personal risk.
- No guarantee of success. In many cases, if franchise owners understand the business, go through the lessons, and apply their knowledge correctly, they'll turn a reliable profit. However, no franchise is guaranteed to succeed. Opening in a bad location, facing stiff competition, or dealing with changes in demographic trends could cause a franchise to lose momentum. If all your eggs are in this proverbial basket, it could be devastating to you.
- Corporate restrictions. One of the strengths of opening a franchise can also be a weakness--the level of control the higher corporation wields. While the support is always advantageous, some corporations impose heavy restrictions on what franchise owners can do, which can make it hard to operate effectively.
Owning a franchise is within your grasp, but it's not the right financial move for everyone. Franchise volatility, corporate rules and regulations, and the high cost of entry may put you off. But if those challenges don't bother you, the enormous advantages of franchise ownership should be more than enough to help you achieve your financial goals.