If buying an existing business doesn’t sound right for you but starting from scratch sounds a bit intimidating, you could be suited for franchise ownership. Just what is a franchise and how do you know if you’re cut out to be a franchisee?
Essentially, a franchisee pays an initial fee and ongoing royalties to a franchisor; in return, the franchisee gains the use of a trademark, ongoing support from the franchisor, and the right to use the franchisor’s system of doing business and sell its products or services. In addition to a well-known brand name, buying a franchise offers many other advantages that aren’t available to the entrepreneur starting a business from scratch. Perhaps the most significant is that you get a proven system of operation and training in how to use it. New franchisees can avoid a lot of the mistakes startup entrepreneurs typically make because the franchisor has already perfected daily operations through trial and error.
Reputable franchisors conduct market research before selling a new outlet, so you’ll feel greater confidence that there’s a demand for the product or service. The franchisor also provides you a clear picture of the competition and how to differentiate yourself from them. Finally, franchisees enjoy the benefit of strength in numbers. You’ll gain from economics of scale in buying materials, supplies and services, such as advertising, as well as in negotiating for locations and lease terms. By comparison, independent operators have to negotiate on their own, usually getting less favorable terms. Some suppliers won’t deal with new businesses or will reject your business because your account isn’t big enough.
Ten advantages of franchising:1. The risk of business failure is reduced by franchising. Your business is based on a proven idea. You can check how successful other franchises are before committing yourself.
2. Products and services will have already established a market share. Therefore, there will be no need for market testing.
3. You can use a recognized brand name and trade mark. You benefit from any advertising or promotion by the owner of the franchise – the ‘franchisor’.
4. The franchisor gives you support – usually as a complete package including training, help setting up the business, a manual telling you how to run the business and ongoing advice.
5. No prior experience is needed as the training received from the franchisor should ensure the franchisee establishes the skills required to operate the franchise.
6. A franchise enables a small business to compete with big businesses, more so than an independent small business, due to the pool of support from the franchisor and network of other franchisees.
7. You usually have exclusive rights in your territory. The franchisor won’t sell any other franchises in the same territory.
8. Financing the business may be easier. Banks are sometimes more likely to lend money to buy a franchise with a good reputation.
9. You can benefit from communicating and sharing ideas with, and receiving support from, other franchisees in the network.
10. Relationships with suppliers have already been established.