The Financial Risks of Growing Someone Else's Business

What the tanning franchisers don't want you to know.

Buying a franchise is costly, it severely limits creativity and individualism in the operation of your business, it shifts their financial and legal responsibility to you and limits your flexibility in how you approach your sales and growth strategy.

Although buying a franchise initially gives you a plan to follow, the very same start up plan can prevent you from achieving your full income and ownership potential.

Below is some information you must know before buying a tanning franchise.

What tanning franchises don't want you to know.

You are funding their business!

Purchasing a franchise transfers the entire cost of expanding their business model to you, the franchisee!

You are right to think you are bearing the total financial risk of growing someone else's business when purchasing a franchise. You bear the cost to build or lease the building, pay the mortgage or lease payments, buy the beds and product inventory, pay the employees and provide the working capital until your salon begins to make money, but at the end of the day, it's their tanning franchise, not yours.

Plus, even before you turn a profit, you must pay the franchiser a percentage of your gross monthly sales. The franchiser collects his royalties first even if it means taking money from your savings to do it!

You reduce their risk.

Because you provide the investment start up capital and accept most of the legal and operational risks, the franchiser assumes virtually no risk at the tanning salon level. If you need to make $12,000 that month to break even, but you manage to pull in only $8,000, the franchiser will still get paid even if you have to borrow against your house to make the payment!

A good portion of the profits to the franchiser are front loaded through the initial fees, royalty fees, project management fees, and through equipment and product sales. Your total start-up capitol investment is greater with franchising than with independent ownership. They profit even if you don't.

You'll make an excellent manager in the eyes of a tanning franchiser.

Franchisers view you, the franchisee, as no more than a "manager" of a small part of their business but with a vested interest in the outcome. Through franchising, a company gets both dedicated salon managers (you) and relief from the financial and managerial problems associated with hiring personnel. Because of this, combined with the numerous restrictions franchises will impose on the franchisee, many tanning salon franchisees have related their purchase of a tanning franchise to "buying a management job" instead of buying a tanning salon business.

Other franchisees may compete directly with you.

Good retail locations are becoming less and less available and franchisers want to get their share of them. By franchising, a company can grow exponentially simply by selling more franchise and sub-franchise units or by selling more territories. As areas become more populated, more units can be sold creating undue competition for older established franchises.

All of a sudden your "protected territory" shrinks so they can sell yet another tanning franchise to someone who will ultimately compete directly with you. And there is little you can do about it.

You must follow their model exactly.

You may be legally required to follow the franchisers business and operational plan exactly. The franchise contract literally dictates your relationship with them. Franchise corporate lawyers have job security through the ongoing need to make sure you stick to the agreement even though your way of doing business may be better.

Surprise quality control visits from the franchiser for the purpose of critiquing your location and ensuring you are in compliance can be frequent, invading and may stonewall you from additional franchise purchases if you are found to be "non-compliant".

You free up their time.

With you responsible for operations at the salon level, franchise executives can spend their time on the bigger picture. Day to day salon administration is handled by you while franchise executives focus on how to sell more tanning franchises and not how to make your salon more profitable!

Corporate Exit Strategy

With growth and profitability enhanced through your purchase of yet another franchise plus that of the hundreds of other franchise sales they plan to make, the day will come when the executives of the tanning franchise firm decides to sell.

The big question is "What will the new owners be like?" Will they enhance your individual business or will they be a detriment? Will the support diminish as cost cutting methods are employed? What changes in the franchiser management will be implemented and what impact will that have on your ability to conduct business profitably?

Summary

You, the franchisee, provides the capital, must hire and manage the employees, must assume the legal and financial risk of failure, must adhere to strict operational programs, must compete with other identical franchise owners within your marketplace, and this process helps the franchiser increase his value and personal wealth, not yours.

You must agree the risk and the responsibility is greater for you while the rewards are considerably more secure for them.