CNBC's The Untold Story of Franchising

Last week CNBC aired a story called "Behind the Counter: The Untold Story of Franchising." The report looked at five brands including Five Guys, Camp Bow Wow, Tide Dry Cleaners, Mr. Clean Car Wash, and Cold Stone Creamery. CNBC's story included some useful information, but I don't think anyone who has been looking at franchising will find any of the information "untold." Here is what the story got right and what it may have missed.

What It Got Right

• Franchising is big business! 1 out of 10 business owners become their own boss through franchising and franchising is a trillion dollar industry
• When doing your due diligence, you should talk to franchisees that have been open for less than 1 year as well as franchisees who have been in business for a while to get a variety of perspectives
• Franchisors are not required to make an earnings claim (Item 19)
• The FDD is a big document (Cold Stone Creamery's was 700 pages!) and it is important to have the document reviewed by lawyers and accountants so you are aware of all of the fees (one time and on-going) associated with buying a particular franchise
• Not all franchisees will be successful. All businesses have risk, but a good franchise system can significantly reduce your risk

What It Missed

• The story looked at Camp Bow Wow and seemed to say that because they have high initial costs, it is not a good franchise to buy. I don't work with Camp Bow Wow, but I do work with many franchises that have costs equal to or greater than Camp Bow Wow's. The costs to start a franchise are primarily driven by the cost of real estate and the costs to outfit (equipment and supplies) the business, and do not correlate to the chances of success for the franchisees in the system
• Since 2008 the United States has been in a credit crisis, making financing very challenging for potential and existing franchisees. While doing your due diligence, you should be careful about drawing conclusions from what Don Sniegowski of Blue MauMau called SNO (sold but not open). There are lots of reasons (like access to credit) that might leave a franchisee stuck in SNO that say nothing about the quality and profitability of a franchise system

Contact Meta-Franchise Consulting today for more information about how to find the franchise that is the best fit for your requirements.