Robert A. Bonavito, CPA PC

Should You Invest in a Franchise?

My name's Robert Bonavito, New Jersey forensic accountant. This video is part of a series of videos where I discuss forensic accounting topics for educational purposes only. 
When most people are young as kids, they dream of being a teacher, a fireman, but there are a lot of people who also dream of being their own boss. And this dream usually...when they have this, they come to me at some point and they say, "Bob, I want to open my own business. I'm thinking of doing a franchise." I say, "Why do you want to do a franchise?" He says, "Well, they'll help me. There's less risk." I say, "Are you really going into business for yourself if you're doing a franchise? Because if you go into a franchise, you have partners. You always have the government as your partner, and then you have the franchisor as your partner. Okay? So you're not really your own boss." 
And I explained this to him, I said, "You want to be your own boss, but you're not." I understand that people are a little bit concerned about going out on their own and no health insurance, no expense account. You're not working 9 to 5 and there's a lot of risk. And they think that buying a franchise will reduce that risk. Not always true. And I tell people, I said, "I understand a lot of people will work 80 hours so they don't have to work 40 hours for someone else." There's a lot of people out there like that. And there's nothing wrong with that. But if you own a franchise, a typical franchise does not provide for a family. 
In order to provide for your family, you're going to need to own three or four, maybe five franchises. Most franchises you see in the strip malls, they don't provide enough money for one family, and the people owning that franchise are working 80 hours. But remember, the government's taking a third, the franchisor is taking a third, and maybe running the business is taking a third. So what does that leave you? Not much. So I'm very cautious about telling people to buy a franchise. Now, people say, "Well, what about McDonald's?" Those franchises cost millions and millions of dollars. Okay? And if you have that kind of money, you're probably not going to buy a McDonald's. And there are some franchises that do exceedingly well, but most of the franchises, like I said, you need three, four or five. 
The people owning one franchise are working hard, hoping to get two, three or five so down the road, maybe they'll have enough money to support a family in a middle-class lifestyle. But these are things that people talk to me about, being their own boss. They don't want partners. They do have partners. They don't mind working 80 hours so they don't have to work 40. But a lot of times, a franchise is just you're buying a job. Nothing wrong with that, but what I want you to do is go in with your eyes open, if you're going to buy a franchise because you want to be your own boss. If you have any questions concerning this topic, just give me an email.

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