This article reminded me that there is a whole section of the business world that I have never really blogged about – franchising. I have very mixed views on the subject. Having looked into hundreds of them myself, I would say in general that it isn't that great. It works, and it greatly increases your chance for success, but it limits your margins. If you are making money hand over fist, the franchisor will start giving out smaller territories because that is better for them, and the margins will come down to a more acceptable level.
The primary plus, in my opinion, is that franchising takes care of the "minutia factor" – that is all the little stuff that you don't think about when starting a business. You need accounting software, payroll services, utilities, business quality phone systems, and all that kind of stuff. It isn't that you couldn't do it yourself, but it saves you a lot of time (and sometimes money too) to use the franchisor's vendors. They already have that set up. You also have a chance to be on your own but still have someone to turn to if you fail.
That said, the biggest problem with franchising is that you risk just buying yourself a job. Believe me, running a business is NOT something you want to do unless you love it. Don't think you want to "be your own boss" and then buy a franchise that nets 70K a year. Now you have the same salary and you are working more. You are also at the mercy of the franchisor for much of what you do, which can make you feel like you have a real job again.
In the partnership I am in, our current focus project is a franchise. We selected it because it is new and in a young, fragmented, growing industry. We hope that by getting in on the ground floor we will get a little extra return. Of course, as a result of that we are dealing with a franchisor that is still making a lot of mistakes. On the flip side, we also have an idea that we are working on for next spring that we hope to franchise out ourselves. It is a good way to grow without eating up cash flow or taking on debt.
My recommendation to those of you considering a franchise is to treat it just like you are buying any other business. Do your due diligence. And always remember that the franchisor is trying to sell you on their idea, so make sure you talk to some franchisees about what it is really like.