Franchise As Alternative Investment?

Walking into a new-to-the-neighborhood coffee shop this afternoon, the reader board on the sidewalk read: “Stocks? No! Real Estate? No! Franchise? Yes!”.

Well. I can definitely understand the skittishness these days, what with the stock market not behaving and real estate not being quite the diversifier it usually is.

But…a franchise?

It gave me pause.

Who would a franchise be good for?

The family in “The Blind Side” who lived large off ~250 Taco Bell franchises didn’t factor into my deductions, mostly because I suspect there was a whole other story behind that success that isn’t too common amongst franchise owners.

I began thinking of who the archetype might be and 2 aspects became immediately prominent: 1) Comfortable with risk and 2) Liquidity…enough to live on for at least 2 years while business is up and running (2 years buys, quite literally, enough time to get established and focus on the business instead of freaking out about when it’ll become profitable).

A friend of mine from college used to be a Franchise Broker.

He and I have talked on occasion about what it would take to be successful as a franchise owner.

While there are all kinds of business models out there to buy into, he firmly believed that someone considering buying a franchise had to be willing to be physically present at the franchise location and willing to perform any function of the business.

Just like anything else we attempt, it works for some and not for others, and part of it has to do with the effort we apply, another part to our skills, and yet another to randomness (e.g. ‘luck’).

So, although I suspect the reader board is overpromising on the opportunity (a franchise) and not quite accurately comparing an asset type to a business model, it definitely does work for some people as a way to create income.

But for most people it’s going to be more aligned to seeking ROI after significant lead time and personal effort than to, say, Dollar Cost Averaging into their brokerage accounts.