"Did You Sign a Contract Relying Only on Brand and Location?"... Experts' Startup Advice [The Trap of Low-Capital Startups] ⑦

Experts: "Don't Start a Business Just by Trusting the Headquarters"
"Seek Advice from Other Franchisees of the Same Brand"
Consider Educational Resources from Government, Local Authorities, and Commercial Banks

Editor's NoteIn Korea, starting a franchise business often begins with taking on debt. Self-employed individuals are lured by the promise of "low-capital startups" from franchises eager to expand their network, only to find themselves trapped by aggressive loan recommendations. Even if these entrepreneurs generate sales, it is difficult for them to actually make a profit. If their business falters even slightly, they are unable to endure and often end up bankrupt. This article examines how self-employed individuals are enticed by the bait of "low-capital startups" during the franchise process, and how risky excessive loans can be.

"You shouldn't start a business just by trusting the franchise headquarters. In the end, the responsibility falls on the self-employed owner." Yoon Hongkyung, who operates a budaejjigae (Korean army stew) franchise restaurant, has repeatedly opened and closed various franchise outlets, including unlimited pork belly, sashimi, kodari naengmyeon, and gomtang. Through these experiences, he realized that relying solely on trust in the headquarters does not guarantee success. On October 31, Yoon said, "You should never start a franchise easily," emphasizing that "at first, they act as if they will take care of everything, but excessive loans eventually turn into debt, and the self-employed owner has to bear all the consequences."

The photo is unrelated to specific expressions in the article. Getty Images Bank

Yoon added, "I have developed my own criteria that if a franchise has directly operated stores and fewer than 10 outlets in operation, there is a greater chance for mutual growth between the owner and the franchise. It is also very helpful to learn about the franchise CEO and meet with other franchisees before opening a store."

Experts advise that rather than relying on brand recognition, a comprehensive investigation into the likelihood of business success is necessary. Lee Eunhee, Professor Emeritus of Consumer Studies at Inha University, said, "It's best to seek as much advice and as many opinions as possible from others involved in the same franchise. I recommend meeting people who have just started with the brand, those who have been running their business for three years, and those who have lasted five years, to get a detailed understanding of different stages of business experience." She added, "In the case of small-capital startups, prospective franchisees must carefully check every condition presented by the headquarters, but often fail to do so because they are too busy when starting out. You must be able to contact and confirm details with the headquarters at any time so that you can take action if any issues arise with the franchise agreement."

Avoid the Mistake of Matching Your Business Item to Your Available Capital

Moon Jinggi, Senior Specialist at KB Kookmin Bank SOHO Consulting Center, which provides management know-how and financial support to aspiring entrepreneurs, advised that one should move away from the simple formula that a good location or item guarantees success. This is because a combination of factors-entrepreneurial spirit, available capital, and continuous self-development-determine success.

In particular, regarding franchise startups, he said, "When it comes to franchise outlets, you must choose carefully, considering the explosive increase in the number of brands and the short trend cycles. It is important to assess whether the brand is sustainable and offers items that can be operated steadily, rather than just being a brand that achieved explosive success in a short period."

He also emphasized that, especially in the food service or retail sectors, the success or failure of a business is greatly affected by its location, so this must be carefully considered. He said, "Often, people choose their business item based on their budget and end up selecting a location with poor commercial prospects or an unfavorable site. You must avoid the mistake of choosing your business item and location solely based on your available capital."

There is a growing call for establishing an industrial ecosystem in which prospective franchisees can wisely assess and judge conditions at the startup stage. Professor Lee said, "The Ministry of SMEs and Startups operates a startup support portal that provides information on startup packages for aspiring entrepreneurs, online startup education, and startup spaces." "However, these resources are not well publicized, making it difficult for prospective self-employed individuals to find them. Whether it is a franchise or an independent business, practical support programs and effective promotion are needed to truly help new business owners entering the market."

Senior Specialist Moon also stated, "From selecting a business item to operating and even closing a business, there is no aspect that can be overlooked. It is difficult for a prospective entrepreneur to prepare for all stages of starting a business alone. In addition to central and local government agencies, commercial banks also offer consulting services for small business owners, so I recommend seeking such assistance."

It is also advisable to seek expert help to check for unfavorable clauses in the disclosure statement or contract. Lee Jeongmyeong, President of the Korea Franchise Transaction Association, pointed out, "There are many unqualified consultants brokering franchise startups. Since they receive a success fee if the deal goes through, they tend to indiscriminately expand franchise outlets." He added, "If you fall for such sales tactics, problems can easily arise. I recommend that you familiarize yourself with the brand and business type you want, check whether the number of stores and sales figures are clear, and whether business areas overlap. Consulting a certified franchise transaction expert can help you thoroughly review these aspects."