The Friction and Fundamentals of Franchising

Mar 12, 2025

Franchising can be a compelling path to business ownership, providing a structured model, an established brand, and built-in operational support. The perfect middle ground between launching a business from scratch and stepping into an existing corporate role.

However, while franchising reduces some of the risks associated with start-ups, it’s not a turnkey solution. Success isn’t guaranteed just because you’ve bought into a proven model. Understanding the opportunities and the challenges of franchising is essential to making smart decisions.

Why Franchising?

Franchising is ideal for people who want to own a business but don’t want to build one from the ground up. It provides a framework that eliminates much of the trial and error that independent start-ups face.

When you invest in a franchise, you’re buying into a business system that already covers some essentials:

• A recognized brand with an existing market presence.
• A proven operational model, often with detailed manuals and guidelines.
• Training, marketing support, and vendor relationships.
• A network of other franchisees who have already been where you hope to be.

The model reduces uncertainty, but it’s not a guarantee of success. While the franchise itself may be established, you still need to operate and grow your location effectively.

Job One: Know Your Market

Franchisors generally provide heat maps, demographic data, and financial projections to help franchisees choose a location. The data is valuable, but it can be misleading. Numbers don’t always tell the full story of possibilities and pitfalls.

Local customer behavior, competitive landscape, and regional business trends matter just as much as income levels or population density. Some locations might seem ideal on paper but don’t work in practice because customers have other options, different spending habits, or cultural differences that impact demand.

ProCFO and former franchisee Steve Berlin puts it:

“You don’t know what you don’t know when first going in. So talk to as many franchisees in all different markets in all parts of the country to better understand what you consider the right market.”

Speaking with multiple franchisees – especially those operating in diverse markets – can reveal what data alone can’t. How customer habits impact repeat business, how local competitors affect traffic, and what real-world challenges exist in different regions will help you make a smarter decision about location.

The Risks of Being an Early Franchisee

New franchise concepts often offer founding member discounts to attract early investors. Like any start-up investment, it comes with added risks.

• Fewer successful locations mean less proven data to analyze.
• Operational systems and best practices may still be evolving.
• You may become the test case for refining what works and what doesn’t. Naturally, this can be an advantage or a liability.

If you’re more risk-averse, you might look for a franchise with demonstrated success.

The Business Model Matters More Than the Brand

One of the biggest misconceptions about franchising is that brand recognition alone drives success. An established brand can provide an initial boost, but as ever, long-term success depends on business fundamentals.

A franchise’s business model, including its revenue streams, operational costs, and scalability, is the most significant factor for if it will be profitable in your market. So evaluate:

• Unit economics: How much revenue does a typical location generate? What are the average expenses?
• Profit margins: How long does it typically take to break even and become profitable?
• Franchisor support: How thorough, robust and accessible are training, marketing, and operational guidance?
• Exit strategy: How easily can you sell your franchise if the market shifts or competition increases?

Every franchise offers a Franchise Disclosure Document (FDD) that includes detailed financial information, but dig deeper. Speak with multiple franchisees and analyze how locations in different markets perform. Get a sense of the common attitudes of and towards the franchisor. What do other franchisees wish they knew before they bought in? As they started up?

Budgeting, Forecasting, and Financial Planning

One of the most overlooked aspects of franchising is the financial discipline required to sustain and grow a location. A franchise may estimate start-up costs and initial investments, but long-term financial success, like any business, requires careful forecasting.

• Budgets should evolve: A franchise’s initial budget will likely need adjustments as market conditions change.
• Forecasting matters more than fixed budgets: You need to analyze past performance and adjust projections based on current trends.
• Unexpected costs happen: From maintenance and equipment repairs to shifting labor costs, plan for variables beyond the initial investment.

A clear financial strategy and strong forecasting tools are foundational to stability and long-term growth. A fractional CFO can help strategically manage cash flow, plan for reinvestment, and keep the pulse of financial health.

The Reality of Franchise Support

Franchisors provide structure, but they don’t run your business for you. Many new franchisees assume they’ll get extensive financial guidance, operational oversight, and marketing execution. In reality, franchisors often primarily provide brand assets like logos or signage, operational and training manuals, and best practices. They definitely want you to succeed, but they’re trusting you to make it happen. They don’t typically provide:

• Hands-on financial management or direct business planning.
• Guaranteed success. Your execution is what determines results.

Understanding this distinction helps set realistic expectations. Be prepared to manage your own finances, operations, and strategy.

Key Takeaways Before Investing in a Franchise

1. Market research is critical: Local trends, customer behavior, and competition impact success more than raw demographic data.
2. Franchising isn’t risk-free: While the model provides structure, success depends on execution, financial management, and adaptability.
3. Early franchisees take on more risk – with potentially more reward. A proven track record offers a safer investment.
4. Budgeting and forecasting are essential: Financial planning extends far beyond the initial investment.
5. Be adaptable: Sticking rigidly to the franchise playbook without accounting for market realities will limit growth.
6. You’re buying a system, not just a brand: Recognition alone won’t drive profitability. The business model and your ability to make it work must be solid.
7. Franchisors provide guidance, not complete operational management: Be proactive in running and growing your locations.

Franchising can be a powerful path to business ownership, but success isn’t automatic. Understand the market, business model, and financial strategy so you can minimize struggle. Before investing, ask tough questions, do your research, and build a plan that goes beyond just following the playbook. The most successful franchisees aren’t operators; they’re strategic business owners.