What is a franchise?
Buying a franchise might be a good way to settle any nerves you might have had about going into business by yourself.
Starting a small business is daunting, can be risky and is time consuming. You need to carefully research your target audience, understand where potential demand will be high and get ready to take on prospective competition.
That's a lot of work isn't it..? it's no wonder then that 'would be' entrepreneurs who once had visions of setting a business up by themselves turn to buying a business which has already proven to be commercially viable.
By buying into an already proven model, you have a head start in the market and can benefit from the experience, support, cash flow, market presence, buying power, research and development and innovation.
In simple terms, it is a legal arrangement where the franchisor gives its permission for you (the franchisee) to use their name, brand, product, trademark and operational support in return for payment.
That's pretty good considering for one small fee you can all of that already done for you. Why do you think most franchises succeed, it's because they have the proven track record and more importantly have the processes and procedures already written, tried and tested.
If you're reading this thinking what's the catch, well then there are always advantages and disadvantages to everything. I will help to explain some of the major ones of each.
Advantages
Market knowledge
The franchisor will already know the best areas to establish a new franchise; they already know what the successful products are and the potential of the market. By passing this information on to you initially will save you considerable time and money.
Support and Training
This is where you will see an enormous amount of benefit with starting one up. It is in the best interests of the franchisor that you succeed, they will often provide you with structured, comprehensive and on-going training and support. In other words they will be holding your hand all of the way.
Proven business formula
The franchisor will be more than willing to put processes in place that act as a map showing you the route to business success. As I have mentioned above they'll give you the tools to create a really successful business.
References
Before you decide to embark on buying into the group you will have the ability to undertake your own 'due diligence' and speak to other franchises within the group. This is where you can be frank and ask questions like, what the franchisor is like to do business with, how their business is going, are they making money, and if they're happy with their contract terms. This way, you can get a great deal of helpful information from people already operating before you commit your funds.
Economies of scale
Buying into an established model lets you enter and operate into a larger business environment that you would otherwise have done on your own. Instantly your brand is recognised, you are given the tools to succeed and you now have the added benefit of being able to negotiate economies of scale with your business deals. You will also have the ability of attracting higher-skilled staff and promote better employment benefits.
Exclusive territory rights
You will be given exclusive access to your own geographical area which will be free for any other franchise brought from the same firm.
Innovation
Another great benefit is you will be kept abreast of developments and new products in the market. This will help you plan and stay ahead of the competition in the knowledge stakes
Raising finance
Piece of cake..!, because you have the solid backing and brand recognition of the franchise model to which you work under, you will find it very easy to seek additional finance, or grant from a banking institution,
Need to raise finance - Apply here!
Disadvantages
No flexibility
If you're embarking on a business opportunity where you have full autonomy and decision making ability, then maybe setting up a franchise is not for you.
Agreements vary from business to business but many franchisors will only allow you to sell the product that they promote and supply. You will have little ability of changing the model in any way.
Your decision making freedom is limited also, you'll be told to implement those made by the franchisor whether you like them or not.
Greater risk
You can become exposed to risk outside of your control. An example might be that a decision has been made to strategically move the business model one way, and yet the market is going another. Where does that leave you then?
Cost
Buying one costs money, and can be expensive. You will be subjected to making an up front payment, as well as pay for royalties on sales or management fees. Don't forget you will have to buy all of the stock up front from the franchisor's preferred supplier even if you can get them cheaper somewhere else. All of these fees are over and above the normal operating fees.
Delivering results
It is possible that the model you were promised, the money making model you were promised, and the training and support you were initially promised is simply not forthcoming. This is why early on it's important to speak with other franchisees, do your research and get professional accounting and legal advice.
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