You pay a fee to purchase the franchise, then an ongoing monthly fee which is meant to cover advertising and other support services from the franchisor. Sometimes this includes finding new customers for you, and sometimes you must do that yourself.

As with any business purchase, be very aware that not every franchise will be successful, and that you have no guarantees whatsoever that you will make a profit. It is also possible that you will make a significant loss from the start, and may never move into profit.

How Cleaning Franchises Work

Typically you would pay the franchisor for a client base worth a certain amount of annual fees. For instance you may be given 10 clients, with an expected annual spend of $20,000. The price you would pay for that would generally be about 50%, or $10,000. In most cases you would pay ongoing monthly management fees for support from your franchisor. Often these fees are around 10% of your monthly revenue.

Some franchisors even offer you credit to finance your purchase. As you might imagine this can seem very attractive to someone who is struggling financially but very much wants to start their own business. However if things go wrong this can land you in even more debt.

Your income can also disappear very suddenly because if you decide that a customer is too damaging to your business and you need to dump them, or if a customer lives too far away for you to be able to service the account, or if you lose a customer because they decide they don’t want your services any more.

Other Potential Problems with Cleaning Franchises

Cleaning franchises often appeal to people who have limited education, or whose English language skills aren’t adequate. In both cases these people may struggle with the convoluted and complex language of the franchise agreement and it is very easy to get into a contract which disadvantages them. Always get professional advice from an objective, qualified 3rd party such as an accountant and/or a solicitor.

Verbal agreements are worthless. The franchisor or his/her representative may be overly-optimistic in their descriptions of what’s being provided. Never pay attention to verbal agreements, only to the information contained within the contract.

Although you may have purchased a group of accounts, it may be that the franchisor doesn’t immediately make those available to you, and your cash flow can be severely compromised if you’ve based your business plan on having work from the start. You may need a backup plan including a second job in order to survive the first year.

Monthly management fees can prove to be an impossible burden because they usually consists of a fixed amount which you must pay whether you are earning money or not, as well as a percentage of your revenue. Also you will pay those fees even on customers that you’ve found by yourself, without any help from your franchisor.

Any accounts you have sourced yourself, from your own efforts and expense, may still belong to the franchisor. This means that if your agreement ends, you lose everything.

Most franchisors offer training but this may be poor quality or leave out the strategies and support that are essential for guaranteed success. Make sure that you’re assigned a skilled mentor who has a solid track record of success.

Where the franchisor is finding new accounts for you, it is the franchisor who sets the hourly rate that you may charge. In some cases this rate may be insufficient to cover costs of staff and equipment, meaning that you’re operating these accounts at a loss.

Very few customers of cleaning services retain their cleaner for more than a year. This means that you have very little reliability or continuity and must always be seeking new accounts. Some franchisors take advantage of this by charging you for new accounts that they provide, even though they are merely replacing what you already bought in the first place.

You can lose your franchise and your franchise fee, and be left with nothing but debt if you don’t meet your service or performance targets. Some customers are slow payers or end up not paying at all. If your franchisor sues for payment, you might still have to pay the legal costs, even though you get nothing from that.

These days it’s common for a franchisor to demand your personal guarantee of any debts or liabilities that arise. This means that your personal assets, such as your home, car, furniture and electrical equipment are immediately put at risk because they are totally exposed to potential debt.

Your contract may state that no-one in your family can join or own another cleaning business, not just while you own the franchise, but even afterwards! Some of these cases have failed in court, but do be aware of the risk.

How to Stay Safe

No matter how cheap the franchise, there is still risk. You can minimize that risk by:

Giving the disclosure document and contract to both your accountant and your solicitor. Pay attention to issues such as legal cases and failure rates, and have them explain both documents, including your rights and obligations, comprehensively.

Talking to existing and ex-franchisees. Typically the franchisor will only refer you to businesses that are successful. You need to speak with the failures also to determine whether the franchisor has faults that should be warning signs for you.

Contacting the appropriate government department (wherever you are in the world there will be a government department that administers franchise agreements) and discover what information they have for you.

Getting any verbal statement or agreement in writing. Verbal statements or agreements are totally worthless and it is madness to do any deal on a handshake. No matter how seemingly minor, get it in writing! If they won’t do that, don’t just walk away – run! Honest people are not afraid to put their claims in writing.

Precisely understanding your obligations so you can plan cash flow around fees and expenses.

Getting the truth about earnings claims and ensuring that you’ve spoken to other franchisees who have made that money from the start.

Being incredibly cautious if you’re considering getting credit to finance the deal, or to carry you through the early days before the cash starts to flow. Think carefully before exposing yourself or your family to disastrous loss.

A Safe, Easy Alternative to a Cleaning Franchise

What would you think of a business which:

You could purchase for less than $2000
Would give you 90% of that back if you decided to stop within 12 months
Had maximum monthly operating costs of less than $500
Had no membership fees, management fees, royalties or other costs
No complex contract
You were under no liability to perform and no danger of being dumped
Training and mentoring for success (with highly-qualified mentors) was completely free
Audited and published earnings were excellent
You could simply walk away from any time you wished, without liability or cost
You could develop an income stream that could continue long after retirement, and even be willed to your children to create generational wealth?

It’s well worth a look at other, better options before exposing yourself to the expense, risk and uncertainty of a franchise

You can see a fabulous alternative to a franchise here and avoid franchise fees altogether!

Author: Christine Sutherland
Article Source: EzineArticles.com
How Electric Pressure Cookers Work

Since beginning my internet marketing business, I’ve spoken to and dealt with a few former franchise owners… none of whom had anything particularly positive to say about franchising. In particular, I’ve discussed the subject extensively with my current personal mentor (one of the current top internet marketers in the world… yes officially… it is ranked). This is a guy who lost two franchise stores and went USD $500 000 into debt soon after the recession began. The following article will discuss some of the major cons involved with franchising.

First and foremost, investing in a brand-name franchise is going to set you back somewhere in the hundreds of thousands of dollars. Now I understand that you’re investing in a potentially lucrative business, however, this is quite a massive sum of money to be investing in something with such an uncertain future. Why did my mentor fall $500 000 into debt? Well, the economy took a turn for the worse, and his franchises went with it. This was only a few short months after making his initial investment, and there simply wasn’t anything he could do to keep the business afloat… the economy was bad and people were spending less and saving their money. Many other franchisees and small business owners were forced to sell their businesses soon after the economy went down the tubes.

Now if you do get your franchise up and running, it’s certainly not the cakewalk many people believe it to be. Yes there are company systems in place to facilitate the running of the business, and a brand name will help you attract extra customers… but that doesn’t mean you can simply “plug in” to the system and let it run for you… there’s still going to be quite a bit of hard work involved. Franchises are definitely NOT “get rich quick” opportunities, and are by no means a guarantee of success, no matter how well-known the franchise you may be buying into.

Moreover, the hassle of dealing with employees exists. Who do you generally see working in franchise stores? That’s right… teenagers… most of whom like to fool around on the job, and don’t care which way business goes… good or bad.

Lastly, if you’re looking at buying into a franchise, it’s likely you’re looking to be your own boss. While as a franchisee you may not have to answer directly to anyone, you’re far from being able to fully-control the business. Simple rules such as wages, hours of operation, suppliers (you’re generally relegated to buying from the franchisor… no shopping around for cheaper and better deals), and so on, are out of your control. This system which helps you run the business is also going to greatly limit your flexibility as a business owner.

This article is not to say that every franchise is bound to be a failure, or that they’re impossible to run, just that they are simply not the sure-fire way to success many people think they are. Other, simpler, options do exist in the form of self-owned businesses. Online home-based businesses can be one incredibly lucrative option… an essentially recession-proof option without the requirement of a massive investment, employees, and overhead. Do your due diligence however and search out a legitimate home-based business as there are quite a few scams out there today.

Matt Mossop is a succesful internet marketer and home based business owner. To learn more about Matt and how he can help you, visit MattMossop.com.

Article Source:http://www.articlesbase.com/franchise-articles/the-cons-of-franchising-1305774.html

photo credit: Bert Heymans

Though resorting to debts from lenders had always been considered to be a negative aspect, yet it becomes very necessary during financial stringency. Unlike earlier days, when people followed money lenders for emergency as well as long term finances, today finance borrowing have become much more legal and organised. Various banks have come up to cater to the financial needs of the people. Other than short term debts, long term borrowings have become very popular among people, in order, to expand their firm or buy special equipments or even for renovation purposes.

One of the most commonly approachable loans for businessmen are small business loans for further development of the organisation. Such borrowings for the sake of your firm comes into play when the borrower is not satisfied with what the bank has to offer. At the same time, it often becomes difficult to avail large amounts of money for your organisation during the time of production. Hence, business loans are of utmost importance for the stable growth and work flow of the firm. Though business is the best way to earn money, yet it has various risk factors entangled with it and requires constant financial back up.

In fact, even if you desire to start off a new firm, a small business loan is must, in order to invest for its renovation, purchasing computer hardware, steel automobile etc. One of the most advantageous feature of this debt is that it can be used for anything in the organisation. There are in fact no limitations from the lenders for the utilisation of such borrowings.

Other than this there are various advantageous features that has made it the most sought after mode of finance among people for investing in their firm. One of the most stunning fact is that it has an extended repayment system which extends to a limit of 30 years. This reduces the repayment pressure of the borrowers and also saves them from the bad credit history tag. In fact, it is considered to be one of the most convenient mode of finance gathering because of its loan protection policy. This policy acts as a back up plan for the borrower as it helps to cover the amount in case of emergency or accidental situations like sickness, accidents etc.

What is more interesting about this business loan is that you have dual options to choose from. There is the ‘fixed rate’ and the ‘base rate linked’ loan. You can choose either of the one which ever suits your requirement. In case of the first one, the APR remains fixed throughout the repayment period. Whereas, in case of ‘base rate linked’ debts, the interest or APR is directly linked to the base rate of the market. This means, a change in the market base rate directly changes the interest rate of this small business loan. With this debt, you can get an amount ranging from £1,000 to £500,000. It requires collateral in the form of house, land or even car depending on the amount taken and the position of the borrower.

Eve is a business writer specializing in finance and has written authoritative articles on the finance industry. Get pros and cons of business loans.