All about Franchise Business that You should Know
You want to start your own business, but can't decide whether to buy a franchise or launch a startup from scratch. Making an overview of the pros and cons of each option can help you decide which is right for your situation and personality.
There is the lure of success for starting a business by buying a franchise. While starting a business often comes with a lot of unknowns, franchising is a testament to a successful model that is already running.
That doesn't mean that buying a franchise equates to instant success. In fact, the "statistics" that say franchises are less likely to fail than any other business are just a myth. Running your own franchise is hard work, and there are downsides to starting a business that requires operating under someone else's rules.
Franchise Business Definition
A company that sells the rights to an existing business model and product to another business or company creates a franchise. However, precise definitions vary due to the many laws passed by the Federal Trade Commission (FTC) and individual states. (investopedia.com)
The bottom line is that when you buy a franchise, you buy an established business and a ready-made product or service. Franchises typically come with a familiar brand name, a proven business model, and a repeat marketing strategy.
Advantages and Disadvantages of Franchise Business
Franchising provides the opportunity to purchase an existing and successful business model, one that comes with a proven track record, training program, solid supply chain, and expert technical support. Several well-known franchises have fairly high success rates, with the probability of failure hovering in the low single digits. By purchasing a franchise, you get a business that is ready to operate and waiting for you to take control. If you're detail-oriented, good at following directions, and comfortable with a well-established system, franchising provides a quick and easy way to become a business owner.
Depending on the franchise you choose, you have the option of either buying a fully operational location or starting over in a new location. The former options allow you to enter and take over a business that has an existing customer base, documented cash flow, and a trained workforce.
The franchise also provides a clear plan. When you're ready to retire, you can sell your existing, well-known business to other potential franchisors.
Franchising also poses challenges. Buying a franchise can be a costly proposition, with costs often running up to $1 million. Franchises also come with ongoing expenses that reduce your salary. There are costs to be paid to headquarters on an ongoing basis that eat into the profits, and supplies that often have to be purchased at inflated prices.
What to Look For When Choosing A Franchise?
Lots of options for franchising, thousands of choices available. So if you don't know the type of franchise you are looking for, this can be a daunting task. These are the factors you should consider when selecting a franchise.
Your level of interest
You should take into account your personal level of interest in the business model. Look for business models that you find attractive, and product lines that excite you.
It's fine if it's a product you're not familiar with, as long as you're interested in learning more about the business. Don't just buy a business model because you think it's going to make you a lot of money. The energy and effort that you put into your business will determine its success or failure.
A sustainable business model
It is very important to find a business with a sustainable business model and a track record of success. Just be sure to research where the company stands before joining as a franchisee.
Start-up fee
Franchising provides many benefits to aspiring entrepreneurs, but it also comes with significant upfront costs. You will have to pay an initial franchise fee before you can start running your business, and selling products under the franchise brand name.
Company Stability Level
It is important to understand the state of the parent company, including its business assessment. There's no right or wrong choice, but it's important to know what situation you're in before spending the time and money on opening a franchise.
Competition
You have to consider how competitive the franchise market's products are.. Competition isn't necessarily a bad thing, because it means there is a demand for the product or service. But too much competition means you have to work harder to run your business and make it stand out.
Is Owning A Franchise The Right Fit For You?
Are there franchises out there for you? Buying a franchise is like buying any other business, it's important to do your due diligence and properly investigate the franchise. However, if you are the right person to run a franchise business and choose the right franchise, becoming a franchisor can indeed be a path to success.
