Making money from mental health

QUESTION: I have a degree in clinical psychology and I am planning to start a business in counselling. The route I am thinking of is buying a US franchise for Jamaica and maybe even the rights for the Caribbean. This is one of the leading counselling franchises and they have a proven business model. The cost for just Jamaica would be about US$20,000, for which I would take a loan. Mental health is a huge problem for us, which you would see from the reports in the newspapers of late, and this is the area I would focus on. Do you think this would be a good move? – Allison

BUSINESSWISE: I reviewed the website of the counselling franchise and I can see why you are so impressed.

Not only do they promise a successful business model, but according to the website, your franchise fee would also give you turnkey practice; operations manual (and proven business model); training and mentorship; community of other like-minded franchise owners; protected territory; a trusted premium brand; extensive back-end operations support; website development and promotion; innovations; and technologies.

The main premise of a franchise is that you circumvent the gruelling, costly and highly uncertain entrepreneurial start-up process. Instead, you will pay a relatively modest fee to be catapulted to one of the easiest and least risky roads to operating a potentially profitable business.

While there are several local franchise success stories such as KFC, Burger King, Pizza Hut, Wendy’s, and The Contender TV Series, to name a few, there are many that have not thrived in Jamaica such as McDonalds, TCBY, Taco Bell, Kenny Rogers Roaster, and others.

Before you take this leap, there are a few critical issues you should consider.

Although the cost of the franchise is US$20,000, the company specifically notes that this excludes the cost of attending franchisee training, renting quality office space, staff recruitment, insurance and utility payments, accounting and legal fees, furnishing an office, and a grand opening marketing.

Their own estimates of these costs are between US$40,000 to US$80,000. Therefore, at the higher scale, you could expect to spend US$100,000, or over J$13,000,000, before your first customer walks through the door, which is considerably higher than the supposed turnkey amount you may have budgeted.

ANNUAL FEES

Another issue is that you are required to pay annual fees such as royalties, etc, to maintain your licence and spend at least 2 per cent of your revenues on marketing so as to maintain the brand image of the company. These amounts are fixed and payable in US dollars, therefore, you will have foreign currency exposure and may need to adjust your prices based on currency fluctuations. You also have several restrictions when it comes to pricing, marketing, advertising, operations, partnerships, and collaborations and most essential areas of the business. Inflexibility in adopting to local market realities, as well as limited strategic and management control are among the main drawbacks of franchises, generally. The company’s website was silent on the documentation you need to maintain and the quarterly or annual reporting requirements, however, you should understand your obligations and the costs and manpower required to be compliant with same. By far my biggest concern is whether the business model will work. While this may be a tried and proven successful model in the some parts of the US, our environment and culture are quite different. For example, there is considerable stigma against mental illness, which may affect the extent to which you can attract clients or patients.

The US business model is largely propped up by the ability to bill insurance companies for the service rather than patients paying out of pocket. You would need to investigate the feasibility of local insurance companies paying for long-term mental-health counselling as part of an overall medical-treatment programme.

I understand, you have done research to establish the estimated number of persons living with mental health disorders, but you would need to delve deeper to determine how many of those persons have insurance that would cover counselling and the likelihood of having your programme approved by their insurers.

For those prospective patients who have no insurance, how much would they be willing to pay per session, and are they able to make the long-term commitment required for the success of your business model?

Only after you have done this due diligence and created reliable financial projections based on some of the hard data mentioned above will you be in a position to determine if buying this franchise will bring profitability or paucity.

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