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.
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.
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.
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
- 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.