Business Way Today

Understanding what a franchise is and knowing the disadvantages and benefits of owning a franchise will help you make well informed decisions in your business ventures.  A franchise is a recognized brand name which business people can buy and attach to their businesses for a price, as long as they follow strict requirements.  Many fast food restaurants and hotels are franchises.

Pretend Joe Black’s Fried Chicken (fictional fast food joint) is a franchise.  Suzy Q is opening a restaurant and wants in on Black’s fried chicken, so she buys the franchise.  In addition to paying several one-time fees for use of the name brand, she will have to pay regular royalties.  She will also have to adhere to the strict guidelines, menus, uniforms for employees, and restaurant design regulations that make Joe Black’s Fried Chicken uniform across the country.

Advantages of buying a franchise

The benefits of owning a franchise are many.  The biggest benefit of owning a franchise is that you have access to goods and services that are instantly recognized by customers.  When you buy a franchise, it is like you are also buying a steady stream of that brand name’s customers who know and love the brand.  Another advantage of buying a franchise as opposed to starting a business from scratch is that the franchise will help you develop your business, giving you the support, training, and in some cases the personnel, needed to help you succeed.

Costs

Besides your initial setup costs, the largest expense you can expect to incur in the beginning stages of your business’ operations is the initial fee for buying a franchise.  The cost of buying a franchise can vary from several thousand dollar to several hundred thousand.  The first fee is usually the biggest on the short term.  Apart from that, you can expect to pay monthly royalties.  Some franchises require you to pay royalties in the form of a percentage of your monthly or weekly profits.  Some require a minimum monthly royalty payment even if business is slow.  Make sure you understand exactly what fees are involved before you buy a franchise.

Responsibilities

Owning a franchise is definitely easier than starting your own brand name from scratch, but it does come with its set of responsibilities.  As the owner of your franchise you are responsible to maintain the image of the brand.  By failing to adhere to the guidelines as laid out in your franchise contract, your contract may be terminated.  You may also have to contribute a certain amount every year to advertise the brand name.  This money will not necessarily go to advertise your particular site.  In some cases, the franchise may bring in personnel to assist in the management of the franchise, but the final call still rests with you as the owner.

Restrictions

There are a number of restrictions to owning a franchise.  Although you get instant brand recognition, your role as the owner of your own business will be minimal.  The franchise may decide the location of the site, even if it is not the same as the site you had in mind.  It may control the products you sell and the services you offer.  It may have specific suppliers that the franchise buys from, restricting you to a few even if you know other suppliers that charge less.  It may restrict and control your employee’s uniforms, the design of the building, the method of management, financial accounting procedures, etc.

How to select the right franchise

You should think of buying a franchise like making a large investment.  You wouldn’t invest into a company without doing your homework.  Don’t buy a franchise until you are sure it is the best one for you.  One of the first things to look at is the demand for the franchise’s goods/services in your locale.  Is there a decent demand for that franchise?  Would you do well owning such a franchise in your area over the long term, or will it just be a passing fad?

Secondly you should look at the support the franchise will offer you. Some franchises offer more support in terms of training, management, etc. than others.  Select one that suits your preferences in terms of the level of involvement you would like to have in the franchise.  Another thing you should think about is the future growth potential of the franchise. Invest in a franchise that you feel will grow over the next ten to fifteen years.   As it grows, so will your business.  Click here for more insights on how to start a small business.