Global Resorts: Perpetual Leverage vs. Franchise Ownership

“I’ll take one pound of smoked turkey and two - no make that one - pound of thinly sliced honey ham,” said a frail elderly woman who was stooped over the cart of groceries she had pushed over to the meat counter.

Sam nodded as he picked up the last pair of latex gloves. It was a long, hot day. And he was just glad that Mrs. Parnick was his last customer. Normally he didn’t mind filling in after butchering for the day, but today seemed so long and boring.

While driving home, Sam began to muse over the situation. How could he make more money? What skills did he have other than butchering?

Then while stopping at the last intersection light, his eyes focused on a scene at his local sandwich shop. “Look at that guy’s carryout bag - must be dinner for the family,” he thought. “And that elderly group is heading in for dinner.”

Scrutinizing the place, Sam thought, “It’s fairly well kept, and business is solid. Moms, dads, kids, and managers - all sorts of people - bustle outside with their dinner. They are satisfied. The owner is, too, and boy do I wish I were the owner!”

Perhaps Sam’s aspiration is quixotic, but he has it, nonetheless, and he’s probably not alone. How ’bout you? Has the thought of owning your own fast food restaurant, auto body shop, or retail store ever crossed your mind?

You can ascertain whether or not franchising is for you by asking some of the owners of your local franchises what the cons are. (Bring a notepad and pen.) To help you get started, here are a few as compared to a typical home business.

First, let’s compare typical investment requirements. Franchise investments usually cost between $60,000 and $500,000. This includes fundamentals such as your land, building, machinery, and office equipment which is a considerable amount of capital, especially in today’s uncertain economic times.

A small but solid home-based business will cost you considerably less because you won’t have the added expenses of land and building. Start-up cost is typically between $1,500 and $3,000.

Second, let’s compare the typical operating expenses. In a franchise you must pay employee payroll, payroll tax, workers compensation, insurance/inventory, liability insurance, utilities, freight/postage, ad valorem tax, licenses/permits, advertising, telephone, franchise fees, depreciation, and sales tax just to keep your business open.

For a home-based business, your expenditures are reduced but still existent. You will usually have to pay for liability insurance, utilities, telephone, advertising, and depreciation (e.g., office equipment).

Third, here are more things to keep in mind: Your gross franchising profit generally averages 30-40% with a net profit of around 5-10%. You will work at least 50 hours per week-closer to 70 and maybe even more. You shoulder 100% of the risk factor and leverage none of the compensation from others-that’s what you’re doing for your chain store. You will have tax advantages, but these will be offset by your unchangeable time commitment, need to supply products, and confinement to a fixed location as well as limited income potential which averages out to $35-85K.

With the right home business, you can make more gross and net profits working a flexible schedule and leverage your income to unlimited potential.

The light turns green. As Sam pushes the accelerator, what would YOU tell him to do?

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