Thursday, September 16, 2021
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Why Franchising is Striving for Black Business Owners

Miles Kelley

Franchising, by design, allows entrepreneurs to bypass some difficulties of getting a business off the ground. But experts say Black people may choose franchising over sole proprietorship because of limited access to business connections and support. Black entrepreneurs have thrived in franchising for years and are choosing this route over founding traditional small businesses at a faster rate than the broader population. Government data show a substantial jump in the number of Black-owned businesses from 2007 to 2012, from 1.9 million to 2.6 million. Statistics also show that 30.8% of franchise businesses were owned by minorities, while non-franchised businesses have nearly 19% minority ownership.

 

The numbers indicate the time is right for Black Americans to pursue their dreams of business ownership and the franchise business model makes it even easier to achieve success. Thanks to franchising, the dream of business ownership has become a more realistic goal for all entrepreneurs. And for Black entrepreneurs, it allows them to circumvent some of the common roadblocks they normally encounter attempting to launch a business. By investing in a proven model and following the franchise brand’s existing guidelines, you can get your business started and be profitable much quicker and easier than starting a business concept from scratch. And, one of the largest areas of growth in franchise businesses is with Black owners.

“A lot of black people do not grow up seeing a lot of other black people who own businesses,” said Tanya Nebo, a franchise attorney who runs a law firm based in Atlanta. Franchising can expose those who are interested in entrepreneurship to a pipeline of successful business owners who can show them that financial independence is possible, she said. “Entrepreneurship is a way of leveling the financial playing field for people of color,” Nebo added. “It is a way for people who may not have the formal background, the formal education or connections to get a piece of the American dream.”

Every franchise is different. Some franchisors offer lots of training and support, while others provide limited assistance once you’ve signed on the dotted line. Others have been in business for decades, building their brand, while others are relatively new. Some franchisors dictate your every move, while others give you the freedom to manage your business your way. Each opportunity must be carefully weighed and vetted to ensure that it is both a good fit and a promising venture.

Why franchise?

  1. Brand Recognition – Established franchises typically come with a higher level of brand recognition, including recognized logos and registered trademarks. Consumers are more likely to trust a well-known franchise brand that is familiar to them than an unknown, independent brand. Franchisors may also offer business leads and referrals to new franchisees, which strengthens brand recognition in their community.
  2. Proven Business Model and Standards –  Most franchises have a proven business model, with standard operational systems, suppliers, products, services, and pricing. They have already developed an efficient method of running the business, eliminating a lot of the guesswork—and costly mistakes—that often accompany the startup phase of a new business.
  3. Training and Support – Corporate franchises may offer training, mentoring, marketing, and other services to their franchisees. If done right, the support and guidance of industry experts is invaluable to new business owners as they navigate the startup journey and begin to grow.
  4. Quicker Return on Investment –  Starting a business from the ground up typically takes a lot of time. From developing marketing strategies and operational systems to procuring supplies and equipment to establishing a customer base, basic groundwork may seriously delay an owner’s first week with a consistent stream of revenue. Starting with an established franchise can give you a healthy head start.
  5. Designated Territories – Most franchise companies conduct extensive local and regional market research before deciding where to open new businesses, and they may offer resales of existing businesses with stable market share. They have designated territories in place, and they understand the demographics and trends in a given region.
  6. Vested Interest in Your Success – Although there is never a guarantee of success, most franchisors seek mutually beneficial relationships with their local owners. Unlike buying a house or a car—where the buyer and seller part ways once the transaction is complete—franchising involves a long-term contractual agreement in which both parties have a vested interest in the success of the other. Think of it this way: A Real Estate agent is not likely to care about your housekeeping skills before he/she sells you a house, but a franchisor is likely to consider whether you have the tools to succeed before agreeing to have you join their system. Because of this dynamic, 1) you can expect plenty of guidance in deciding whether an opportunity is right for you, and 2) you can count on the right franchisor to support you once you’re confirmed to be qualified. (Just don’t settle for a hands-off franchisor that simply wants to make a sale.)

The Cons Of Buying A Franchise

Buying a franchise comes with its own set of issues and drawbacks. No business or business model is perfect, so it’s important to know what you’ll have to deal with if you do move ahead on buying one:

  1. Abiding By The Franchise’s Rules – Business owners love being their own boss, but for owners of a franchise location, that’s simply not the case. Though you’ll have some autonomy in how the business operates, for the most part you’ll be required to follow the rules, regulations, system operations, and directives of the franchise. If you’ve identified a more efficient way to conduct business, that may not matter if the company doesn’t agree with you—and you won’t have any recourse, either.
  2. High Startup Costs  – As mentioned above, the costs of buying into a franchise are high—in some cases, markedly higher than they would be if you started your own business. The franchise fee alone may be out of your reach, and if it isn’t, it will take up a severe chunk of your liquidity. Even though financing is a possibility, it’s not a guarantee, and that’s often an issue for prospective franchisees.
  3. Ongoing Royalty Payments – In addition to the high costs of entering the franchise space, you’ll also continue to owe your franchise royalty payments for using their name and system, and will have to contribute to marketing and advertising costs at their discretion.
  4. Reputation Management Issues  – No matter how well run, efficient, and well-liked your franchise location is, your business is still tied to the national franchise—and any issues that brand runs into affects your business outcomes. If a scandal rocks the national office, or another franchisee gets bad publicity, your business can be affected.
  5. Contractual Agreements – When you agree to buy a franchise, you’ll no doubt sign a contract such as a Franchise Disclosure Agreement, which lists all the things you can and cannot do as a franchisee. Break one of those many requirements and you could lose your business altogether. Or, decide that you don’t want to be in this business anymore, and you’ll find the process of closing up shop much more difficult than if you didn’t sign a contract with a national franchise.

The decision to buy into a franchise comes with many of the same considerations as starting any other business. For one, you’ll need a passion for the business, a business plan, a team, tools that help you stay organized, financing, and much more. But the specifics of what makes franchising a good and bad move is what makes your choice that much more intriguing. Decide if you can live with the cons and take full advantage of the pros before you buy a franchise.

The industries with the highest proportion of Black owners are travel, party-related goods and services, maintenance services, baked goods and photographic products and services, according to FranData provided by the International Franchise Association. An influx of Black people may be choosing these types of franchises, in part, because “overhead costs are going to be lower than in some of those larger franchise systems,” said Rikki Amos, executive director of the IFA Foundation.

“If having access to capital is one of your challenges then being small and more nimble might be a good place to start,” Amos said.

Nebo, who spent a year teaching financing courses to black entrepreneurs, says there is also tremendous opportunity to buy a franchise that already exists rather than scouting out retail space for a new one. “There are people who are ready to retire or they're tired. They want to move on to have kids and they want to sell the franchise,” Nebo said. “You’re buying it based on how it has been performing and sometimes at a lower price than what you would have paid to start it.”

Another beautiful aspect of franchising for Black entrepreneurs, is the it takes a village aspect. Opening a franchise often involves hiring family members and pooling resources amongst friends. If you are able to turn a franchise into a family business, not only are you becoming an entrepreneur, but you are helping set your family up for entrepreneurship as well. This is how achieving generational wealth begins.

A really great resource for Black entrepreneurs to find franchising opportunities is FranchisingWhileBlack.com. Franchising While Black is a multimedia company focusing on discovering and amplifying underrepresented voices in franchising (Ownership & Management) and to share their perspective journey. All while unapologetically connecting business with our culture.

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