This is Part 8 of our Back to College series, which aims to help college students thrive as small business owners. In Part 7, we covered running an Etsy store in college. To view all the posts in the series, click here.
Opening a Franchise as a College Student
Once upon a time, the only option for running a business in college was to do it all yourself. Whether you were selling cribbed class notes, publishing a newsletter or printing t-shirts, the shop was all yours and you got all the responsibility and profits.
With increasing corporatization, franchises are becoming more and more open to college students. Some are short-term gigs to make money before beginning a career, while others are full-size business ventures you can graduate into and make a lifelong career of.
Franchises aren’t for every college student, but for some they are a perfect match. Here is the good, the bad and the ugly of this early-life business opportunity.
Chron.com’s small business section defines a franchise as “a business system in which private entrepreneurs purchase the rights to open and run a location of a larger company.” Many McDonald’s and Subway stores are franchises, where the owner pays the corporation a fee for using their name and business systems, and receiving ad spends and logistical support.
In theory, a college student could buy in to one of those “grownup-sized” franchises. You wouldn’t be the first to do so, or to be successful with it. However, franchises built directly for college students to run part-time or in the summer are becoming more popular each year. A few of the most successful types of franchise business types open to college students this decade include pet care, house painting, gardening, sports recruiting and tourism services.
Franchise operations are in some ways the perfect college job. Like an internship, they give an introduction to an industry (in this case, small business ownership) with plenty of support and simplified logistics. The business systems the franchisers provide take the guesswork and uncertainty out of how to run the shop, leaving only the sweat equity up to the franchisee (the student).
Once the franchisee is finished with college, she can choose to move on to a regular job or start a larger business. In either case, experience as a business owner helps. A young person’s resume gets a big boost from management and ownership experience, and a young entrepreneur can benefit from the experience of seeing what she liked and didn’t like about how a successful business is structured.
Many franchises, especially those made for college-age entrepreneurs, allow for flexible schedules. With class times changing every term, plus the social and enrichment opportunities associated with college life, this is not a small benefit as compared to a regular college job.
Potential income is another benefit of running a franchise in college. Most college jobs pay little more than minimum wage, while a successful franchise can spin off income like a full-time, after-graduation job. However, it’s important to note we said it can spin off high incomes. Not will. Which brings us to…
The biggest disadvantage of a franchise operation in college is that the income isn’t guaranteed. Like any other business, a successful month can bring in big money by professional adult standards. But a bad month brings in no money. In fact, between franchise fees and other operating costs an unsuccessful franchise can mean a month where you make less than zero dollars, and mean losing money overall by graduation. You can mitigate this by treating the franchise like you would any job with a boss and a work schedule, to keep you focused on making your money and growing your client base.
A second major issue for students owning franchises is how much time it takes to properly run even a small business. Properly running a business takes many hours every week, which could interfere with academic performance and even stall graduation. Even if you keep your grades in line, it will almost certainly mean missing out on some of the opportunities college offers. These aren’t limited to social engagements and football games, but could potentially include internships, symposiums, summer study opportunities and other things that could move you towards the career you want after graduation.
Here’s the thing about college students: they’re just inexperienced enough to think they have a lot of experience. More than one franchise aimed at college entrepreneurs uses this fact to be more than a little predatory toward their franchisees. This usually takes place in one of three forms:
- Income Arbitrage – Because college students have lower expectations of how much money is “real money”, the franchisers can set up payment structures far below market value for their labor. Many painting franchises do this, paying workers and owners a fraction of the wage for professional painters.
- Price Gouging – Knowing that not all college students research prices, some franchisers charge well above fair market value for the branded products, advertising materials, uniforms and other support items they provide. In some cases, they require franchisers to use these highly marked-up items. This is most common in models that carry inventory, but is sometimes seen in service-based franchises, too.
- Extreme Initial Licensing Fees – Though it could be considered a form of price gouging, this practice is common and problematic enough to warrant its own listing. High front-end licensing fees are the hallmark of a franchise that isn’t invested in a franchisee’s success. They want the early cash-in rather than the long-term success of their members.
This isn’t to say that all franchises are bad deals run by predatory snake-oil salesmen. It’s not even to say that every franchise that does one of these things is necessarily something to run away from. You should watch specifically for all three, though, and give a harder look to any potential franchise that shows signs of one.
The New Deal
Affiliate income, such as from ad revenue on a YouTube channel or via Amazon.com, are similar in structure to franchises and also highly suitable for college students to make extra income. They have most of the benefits of a true franchise, and few of the drawbacks. They are, however, very difficult to leverage into reliable income beyond pizza and beer money.
One thing all franchises have in common is an early need for funding. Those licensing fees won’t pay for themselves. Unless you want to dip into your student loans, or ask mom and dad for yet another loan, a small business loan or line of credit can give you the funds you need to get started. Again, this option isn’t for everybody – but for some it’s the only realistic and viable choice.