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The Why, What, and How of Franchising

The Why, What, and How of Franchising

For many Americans, owning a company is the greatest goal, but it is often unrealized. This is unsurprising, given how risky it is to start a business—it will cost one’s hard-earned income, commitment, and time. And it isn’t necessarily going to be a sure thing.

Franchising could be the solution.

It’s a way for people to get into industry without having to start from the ground up (and arguably with higher success rates). If you’re thinking about starting a franchise but don’t know where to begin, here’s a quick primer on what it is, the benefits and drawbacks, and how to get started.

What is the concept of franchising?

A “method for extending an enterprise and selling products and services through a licensing relationship” is what franchising is. Simply stated, franchising is where an individual or company (the franchisee) pays a series of fees and dividends to another person or company (the franchisor) in exchange for the right to use their names, goods, services, and even business model and operating systems in their business.

Types of Franchises

There are two main forms of franchising — product distribution franchising and business format franchising.

In product distribution franchising, the relationship between the franchisees and franchisors is very much like a standard dealer-supplier relationship. Franchisees are allowed to use the franchisors’ trademarks and distribute their products, but in return, they must pay fees and purchase a minimum amount of products.

In business format franchising, the relationship between the two parties is much more complex where there is also an emphasis on sharing business methodologies, operating systems, and support. Depending on the agreement, franchisees not only get the license to sell the trademark products or services, but could also get access to the business’s operating systems and a wide range of support on things like site selection, training, quality control, and marketing.

Franchisees may receive not only a license to distribute the trademarked goods or services, but also access to the company’s operating systems and a variety of services such as location placement, preparation, quality management, and marketing, depending on the terms of the arrangement.

Also Read: How To Market a Franchise Using Social Media?

The Pros and Cons of Franchising

Buying a franchise has many benefits over beginning a company from the ground up, but it would be incorrect to assume that it is completely risk-free. The pros and cons of the franchise business model are mentioned below to help you decide whether it’s right for you.

Advantages of Franchising

  • A well-known brand and a quicker return on investment

Franchising allows you to benefit from an established client base, which can take months, if not years, to create. This will assist you in recouping your investment more quickly.

  • Pre-Configured Operating Systems

One might argue that franchising is nothing more than the replication of established companies with pre-existing processes, structures, and practices—all you have to do is obey them!

  • Assistance to Franchisors

Franchisors can provide franchisees a variety of pre-opening and ongoing services, such as site selection, crew preparation, and promotion, depending on the terms of the agreement. It also assists in loan approvals and vendor negotiations whether you’re backed by a respectable franchisor.

Also Read: How to Determine Which Franchise Opportunity is Best for You

pros and cons of franchising

The DisAdvantages of Franchising

  • Expensive royalties and fees

Fees such as payment fees and franchise fees must be paid before franchising. This could amount anything from tens of thousands to tens of millions of dollars. In certain ways, these payments can be thought of as the price to pay for the ease that franchising provides.

  • Limited Control

It’s important to remember that you’re purchasing the rights to market the franchised goods or services, not the company itself. Franchisees must adhere to the franchisor’s procedures and restrictions, which can include production standards, quality management, and pricing.

  • System-wide Effect of Brand Reputation

While you might enjoy instant brand recognition through franchising, it also means that a major blow to the brand could just as easily spread to the franchisees and negatively affect their business results.

How Do You Start Franchising?

So you’ve considered the benefits and drawbacks of franchising and have opted to go ahead with it. So, what’s next?

Pick a franchise

If you want to start a small food cart company or a phone reselling, it’s critical to consider those aspects and do thorough analysis before choosing a franchise.

Budgeting

Determine how much money you’re able to put down so you can narrow down your options. If you’re low of cash, you may want to look at having a franchise business loan.

Reputation and Legitimacy of a Company

Nobody wants to invest in an illegal or unreliable company without understanding it, but that doesn’t mean it’s difficult to succeed with lesser-known franchise brands. Check with the relevant government departments, such as IRS, to see if the individual or organization is duly certified and registered.

Market, location, and competition are all factors to consider

Brand recognition isn’t necessarily enough to ensure a franchise’s longevity. Check to see how the franchise you select would work in your chosen area and the surrounding market. Setting up a burger restaurant in florida where the primary demographic is kids, for example, may not be the best choice.

Submit an application for the franchise of your choice

Once you’ve narrowed down your franchise options to only one, you’re ready to apply! While application procedures and standards vary by franchisor, you should expect to do the following in general:

Documents to be sent

The documents that most franchisors need are listed below. And if you haven’t settled on a franchise yet, it’s a smart idea to get these ready. If you already have a franchise company in mind, you may search their website or email them directly for any additional conditions they might have.

  • Valid Government-Issued IDs
    Resume
  • Target Site Location Details
  • Letter of Intent
  • Application Form (completely filled-out)

Meetings, site inspections, and evaluations are also part of the process

Once you’ve submitted your paperwork, the franchisor will contact you to set up a meeting and/or a site review. Expect to be interviewed and briefed on the franchise’s specifics at these sessions. You may also use this opportunity to ask them any pressing questions you might have.

Signing of the Contract

Finally, once you are considered fit to be a franchisee, you will be approached again. Examine the deal carefully before signing it if the terms and conditions are acceptable to you.

Take good care of your franchise company

Still aim to better the company and how you handle it in areas that you can, even though established rules exist. Improve your selling and marketing abilities. Boost the consistency and efficiency of the service. Keep an eye on any business or sector developments. For help and guidance, contact the franchisor or other franchisees. Remember, having a franchise approval is just the beginning! Don’t jeopardize the trip by mismanaging your franchise business.

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Business Lender

Checklist: How To Find A Good Business Lender

Since your preferred business lender can act as a partner in several ways, you should carefully consider your options before making a decision. You should be able to build a long-term relationship with your lender if possible.

Check the Requirements first


There’s nothing more aggravating than putting in the effort to apply for a small business loan only to be turned down. You should investigate whether you’ll qualify for a business loan from this lender before applying to save time. Of course, you can still not make it, but you can at least see if you meet the basic requirements.

Minimum qualification requirements are normally available on lender review websites and individual lender websites. If you can’t locate it, contact the lender directly to inquire about their minimum requirements before applying. In general, they’ll be able to tell you whether or not it’s worth your time to apply.

Check their Terms and Conditions


All is in the specifics when it comes to company financing. Many lenders advertise low rates and fast financing, but when you look at the fine print, the costs will quickly change. So, if you’re looking for a business lender, make sure you’re familiar with all of their words.

It’s very simple for one business loan to appear to be a better deal only to end up costing you more due to a policy, charge, or interest rate that you weren’t aware of.

You should always have options


Each small business owner’s investment costs and risk tolerance are different. Furthermore, the funding you need for the coming year will differ from that needed for the following year. Since the best lenders recognize this, they have a variety of flexible lending options, including a variety of terms, loan amounts, and, in some cases, multiple financing items.

If you’re going to negotiate with a lender, make sure their lending plans are compatible with your standards. If at all possible, look for a lender that will provide you with flexible financing solutions that will meet your potential needs as well. When your business expands and develops, you’ll be able to continue working with the same lender.

Also Read: Small Business Problems Five And How To Overcome Them

Time is Money


The length of the lending process varies significantly depending on the type of loan you’re looking for. For example, if you apply for a term loan online, you can receive funding within one week. A bank term loan, on the other hand, could take months to fund. An SBA loan, on the other hand, may be approved immediately, but you’ll need to show that you’ve been turned down for other types of financing.

To summarize, you should adjust your standards based on the type of loan program you need. Beyond that, finding a business lender who can complete a fast financing process is crucial. You don’t want to miss out on a great business opportunity because of a sluggish funding process.

business lender

Aside from being a partner, you’re also a customer


It’s always a pleasure to do business with people who are courteous, prompt, and open. It’s even easier to work with someone who can help you navigate the loan process and predict your demands.

As a result, you should pay careful attention when dealing with any lender for the first time. How they respond to your questions and requests will give you an indication of how they will treat you in the small business lending process. It’s likely that their customer service won’t improve if they aren’t helpful to their loan applicants.

Look for feedbacks


You can find feedback on almost every lender, just as you can on most other products you buy. You will find reviews on your future lending company by simply conducting an online search for your lender’s name. Then you can read feedback from companies that have been sponsored by that lender and see if they are a good match for you.

While reading online reviews can be beneficial, speaking with someone you know and trust is preferable. So, don’t be afraid to ask around the network to see if someone has ever partnered with a business lender.

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