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Why Pay for a Franchise When I can Start my Own

The continuing saga of royalty payments, and why it makes sense

Author: Vasilis Georgiou CBI, M&AMI, CBB, MBA, CIRM

Organization: President, CrossRoads Business Brokers, Inc.

About the Author:

Mr. Georgiou is currently the President of CrossRoads Business Brokers, Inc. & www.TheFranchiseCrossRoads.com, and has been involved in a great number of business transactions over the last 10 years. He is also a national Franchise Consultant with FranChoice advising hundreds of franchise Candidates in their search for a franchise. Since 2008, he has been a successful multi-unit owner/operator of a Home Care Franchise in California. Previously, Mr. Georgiou was a former Senior Manager with KPMG Consulting (BearingPoint) where he advised and assisted various Mid-Market companies with operations, strategy, and systems.

Date Published: 04/07/2014

One common objection that I come across when I consult with Candidates who are looking for a franchise to get into, has to do with paying ongoing royalties even after the business is up and running successfully. A lot of folks have a psychological barrier to the idea of continuing to pay royalties even after they feel the Franchisors usefulness is no more.

Not all Franchisors are created equal. As I covered in another recent article, "Calculated Risk: Becoming a Franchise Entrepreneur", when looking for the right franchise to buy you have the ability to do a deliberate, fact-finding investigation and validation that can lead you to a Franchisor that does it right. A Franchisor that does it right is a Franchisor that continuously and proactively earns his royalties for as long as you own the franchise.

When my wife and I got into owning a Home Care franchise in 2007, we had no prior experience in the industry. The Franchisor we chose provided initial comprehensive training and a turnkey package to launch the business, including all back office systems and an intranet with all needed documents and procedures. Even more important was what we were able to rely on an ongoing basis: Marketing/sales and national branding support.

The most important criteria to look for in a Franchisor after you determine that there is a good fit to begin with, has to do with the simple answer to the following question: Is my ongoing association with the Franchisor adding up to a better outcome compared to doing the same business by myself.

A Franchisor who earns its ongoing royalty payments typically has the following to offer:

-National Agreements and relationships that can be leveraged locally. That can take the shape of contracts with nationwide firms who use the Franchisor product or service, and are eager to enter into agreements with Vendors that can service clients on a national basis

-A search-engine friendly website that has smart content easily searchable online, as well as lead generation and tracking capabilities

-A comprehensive Social Media strategy that allows for consistent and ongoing content to be pushed down to local websites promoting the business

-An effective online marketing strategy that may include PPC campaigns, affiliate websites, effective lead generation etc.

-A support infrastructure that may include call centers, corporate marketing support, corporate back office support, branding and advertising initiatives