Franchising is obviously a massive industry and constitutes one of the main pathways into small business for those seeking to master their own professional destiny. Yes, franchises generally have a lower failure rate than `normal' small businesses. However, before rushing into considerable debt and a long-term contractual relationship with a franchising corporation, there are at least THREE serious questions you must ask:
1. Does the franchise in question actually have any brand equity i.e. is the franchise brand name known in the community and is it known for the right reasons? Ask people around you who would use such a service. If nobody has ever heard of the franchise, why pay franchising fees when you could simply establish a (better/cheaper/faster) `copycat' rival business where you keep 100% of the profits for as long as the business keeps going - at which point, you could sell it, of course. Beware hyperbolic profit and sales projections from franchising companies. Did you know that major class actions from disgruntled franchisees over the exaggeration of expected returns are now underway in the US? Buyer beware, of course, as in all things, but especially with a franchise.
2. Have you approached several `real world' franchise holders of the brand you are thinking about, paid them for their time - an hour should do it - and asked them for an independent, practical-not-theoretical and `warts-and-all' assessment of the value of the franchise? It could be the best investment you have ever made and you should do this by simply walking in, introducing yourself and asking for an hour of the franchisee's time for which you will pay an agreed price over a nice meal which you will pay for. This step seems absolutely critical and obvious yet it is one that many new franchisees never do.
These existing small business operators could save your financial future and paint a picture vastly different from the company seeking to attract new franchisees. Even if the purchase of the franchise goes ahead, the advice from these individuals is incredibly valuable as they can advise you against costly errors that they made and wish they had avoided.
If you proceed with the franchise purchase, they may even turn out to be a good mentor/friend for you in the future if you hit it off.
The flaw in human nature that some franchise companies are working with here in the aspiring small business entrepreneur's is that they 'want to believe' that the massive sales and profit projections are true - just like a new `wonder' diet pill or `revolutionary' new exercise machine. Wanting to believe that something is true obviously has little bearing on reality.
3. Does the main action of the business suit your personality well or is it merely a money-making exercise? It will prove much harder to succeed if the day-to-day action of the small business franchise does not suit your personality.
One final thought: it is a statistical fact that franchises have a much higher success rate than `normal' small business start ups. Michael E. Gerber explores this phenomenon in the must-read, "The E-myth: Why Most Businesses Don't Work and What to Do About It."
The point is to analyse and deconstruct exactly why certain franchises succeed and apply those principles to YOUR start-up - something that can in fact be done for free.