For the parent company, selling franchises provides a way to expand the market share quicker, and less expensively. There are several different types of business franchises, but here we will discuss the most common- business format franchises.
A business format franchise offers the franchisee the right to sell the parent company's goods or services, as well as it's business techniques. This differs slightly from other forms of franchises, such as distributorships which only allow the franchisee to sell the products or services, such as automobile dealerships.
Advantages of Owning a Franchise
The most appealing aspect of purchasing a franchise is usually the fact that most of the pre-opening work is done for you. When you purchase a business format franchise, you gain the privilege of not only being able to sell the parent companies products or services, but also the right to use their established business practices. These practices may include training programs, marketing strategies, trade secrets, etc.
Another advantage to purchasing some franchises is that the parent company may offer already well-recognized products or services. For example, buying a McDonalds restaurant will most likely give you a much larger starting customer base than if you were to open your own hamburger restaurant because people are already familiar with the company's product line.
Likewise, you may also benefit from the right to use the parent company's logo, storefront designs, and other unique elements. Well-recognized logos and storefronts provide the means of attracting greater numbers of customers.
Another advantage that may be attained through the purchase of a franchise is the use of any trademarks, copyrights, and/or patents that the parent company may hold.
Most franchisers also offer something that you may not find when trying to open a new business. The parent company will probably offer initial training for you and your staff, as well as ongoing support to help ensure a profitable business.
Requirements For Purchasing and Running a Franchise
Normally, the franchisee will pay an initial fee to acquire the franchise rights, as well as pay a percentage of gross sales to the parent company throughout the term of the contract.
The franchisee will be expected to meet any quality controls set forth by the parent company. This helps protect the parent company from allowing below-par products or services to be sold through their franchised stores.
Also, the franchisee will face some restrictions as to what can be sold from the store, as well as restrictions on how to operate the store. This ensures that the same products and services will be offered (and in the same manner) throughout the parent company's franchise network. Upon opening a new franchise, one may also have to meet specifications for business location and site appearance.
The first question to ask yourself is: "Do I really have the right mindset that is required to work for myself"? The reason this question is first is because without the attitude, drive, and ability to focus on long term goals, you will not be happy owning your own business whether it be a franchise or anything else.
This is not a "get rid of the boss" and live happily ever after situation. It will require many hours hard work, much dedication, always tough decisions and, most likely, many times where you must put the business first over your own needs.
If you do not have the stomach or the drive to do this, then continue getting a regular paycheck and forget a business of your own. You will find your customers to be much more demanding than any boss could ever be! Along with this introspection, is the question: "How have I worked own my own in previous situations?" Is this a new or untried product or service, do I enjoy the experience of working for myself, can I survive pressure and can I actually keep myself going when tough decisions have to be made? These are all questions that must be answered before attempting any franchise business.
The second question to ask yourself is: "Have I researched the market or field regarding the area I plan to purchase a franchise"? This must be very extensive as you want to have a good mix of the business fit being right or correct for you and a market that will support your decision. In other words, you want to be able to enjoy your business and it must have a market that desires to purchase from your business as well. You will need to research the type of personality you have, what your likes and needs are, and if your fellow consumer feels the same way about a product or service franchise you may purchase. You want to give yourself the absolute best scenario to succeed in something that you will truly enjoy working and marketing or else just stay in the job you have at present and keep your security.
After you have researched your desires and needs and attitudes, the next step is to address your financing issues. What amount can you comfortably afford to put down on a franchise? What will the operating expenses be? Within this thought process there are many pitfalls. For instance, do not forget to allow for employee salary, benefits, replacement training, recruiting ads, possible temporary help, government regulations for employment, accounting fees, local licensing fees, permits, remodeling or leasing costs, and many more costs that will need to be addressed within a start-up package plan. Many times a franchise licensor will be able to help with several of these questions. However, please do allow their word to be considered as final. Go out and do research yourself and find out if the figures they present seem logical.
You will want to check the Internet for lists and types of franchise licensors that are willing to take on new franchisees. Check the business publications such as Inc. magazine, Franchise Today or Entrepreneur to see what franchises are up and coming or those that are solid and gaining ground. You want a franchise that is growing and not stagnant and also one that has no litigation in courts or other legal issues.
Once you have narrowed down the field you want to be in, what you will bring to the table in regards to your personality and goals, the type of financing that you have available, and have done some research on the market for your product or service, it is time to talk to the franchisor that grants the license.
The first thing to remember with a franchisor is that they are there to sell you a franchise. Even the best franchisor out there will attempt to market their product and downplay other franchises. What you want to realize here is that their goal and game is to have successful franchisees but that does not prevent them from possibly making a wrong fit with you. You are your best advocate. Keep your head and do not let their enthusiasm become overwhelming to you with thoughts of riches and independence. The nature of a franchise is to share a good branded name and to spread the advertising and marketing costs over all the franchisees. Therefore, you will have rules, regulations, and contributions that you will be required to make and you will have a headquarters to oversee your operation.
This may be good for some people and for others, it may just not sit right. This is where your personality evaluation comes in. Judge for yourself if what the franchisor is providing matches up in your mind with the control they operate over your business.
The best thing you can do for yourself after you have selected a franchisor, is to have a business attorney of your choice go over all the papers, suggest items that might need some changing to benefit you more, and general advice on whether this licensing agreement is standard in the industry. You want to avoid being locked into a franchise that offers their licensees little resources should a problem occur. I would also suggest that you contact several other franchisees of this company and ask how satisfied they are with the service they receive.
The conclusion is franchising can be a wonderful method of jumping into being into business for yourself but not by yourself. The licensor can offer many resources it might be hard to afford by yourself. They are a good source of encouragement and hand-holding when you are starting out and things seem overwhelming. Other franchisees will probably be helpful as well if you are not in their immediate area. Being in business for yourself can be exhilarating and franchising can be your ticket if researched thoroughly and properly.
Both Budda & Ian Williamson are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Budda has sinced written about articles on various topics from Home, Franchise and Home Improvement. Mr. Oliver is a marketing agent for The Small Business Advocate. The small business advocate provides small business help and information to small businesses across the country. For more information on. Budda's top article generates over 4400 views. to your Favourites.
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