Franchise is an alternate mode of conducting a business, more profitable and with less legwork than would be involved in a conventional business. Under a franchise agreement, the Franchisors allow the use of their brand name, logos, technical and logistic support, training and access to their market and marketing strategies, for an initial fee and a percentage of subsequent earnings.
The franchisee hence is on a roll as the 'learning curve' the initial slogging to establish a business is already done and over with. He or she actually gets a head start with an established business with a proven track record, public visibility and a solid consumer base.
Plus the Franchisor offers ongoing support and help, so the chances of going bust are minimized.
The situation though is not so rosy. The franchisee with the help of its parent company must provide and maintain high standards of quality, service, convenience and other factors that define the business. The franchising business is regulated and certain conditions and restrictions limit the freedom of a franchise. Any deviation from the applied business model results in contract termination. Franchising is an excellent method to expand and gain new markets, to increase gross profits and if worked diligently it is a source of enhanced business advancement for both franchisee and franchise.
A Pricewaterhouse Cooper study indicates that the franchising sector generates 18 million jobs in the US alone and yields $1.53trillion in economic benefit to the US. There are 760,000 franchise outlets in the US alone with 500 of them operating internationally.
Franchising has its roots in history and the most quoted example is of major ale brewers in Germany who granted special privileges to certain taverns to sell its brew in the year 1840. In 1851 the Singer Sewing Machine granted exclusive distributor rights for it's till now famous sewing machines. The language, format of the then made contract terms continue to this day and are still utilized.
The Uniform Franchise Offer Circular is a regulatory document that provides all the relevant information about a franchise to a prospective franchisee before he/she commits his money or signs on the dotted line. The UFOC contains 23 categories of information and should be given to the prospective franchisee 10 days prior to any agreement.
Some items of information contained in the circular are:
History of the franchise, its founding, incorporation dates, when it started franchising etc. The older the company the more expertise it has to offer.
Franchise fees and royalties though are specified clearly, continuing royalties and advertising expenses are additional expenses, so read between the lines to gauge the total expenditure you will entail. Total set-up costs and profit projections, though outlined but acquire the services of an accountant to obtain a more clearer picture.
List of the parent company's board of directors, officers and executives with their history and also the list of criminal and other lawsuits the company has been named in. Most information concerning a franchise is obtained from its UFOC, so utilize the services of a lawyer to understand the document before taking the plunge.
If you dream of running your own business, setting up a business via the franchise route is a good idea. You skip the initial hassles of setting up a business, but gain the goodwill in the market that the franchise has to offer. Simply buying any franchise is not the solution, do your due diligence before selecting a franchise to buy.
Before you buy a franchise apply some diligence to yourself first, about your abilities, needs and aims, and how much you can invest.
Ability: Consider that the franchise you choose matches your abilities and interests. Is it on par with the qualifications you possess and offers something you love doing?. If you do not understand the basics of a kitchen and do not like getting your hands dirty in the kitchen, then a food franchise is not for you, however tempting and profitable the franchise maybe. Be sure to match your skills to the business you undertake.
Aims and Needs: How do you perceive the franchise, as a side business or a long-term source of income. What would you be doing 10 years hence?. Get your priorities right before you commit yourself.
Investment: Money is a major factor, how much can you invest. If the perceived costs of a franchise are stated, add another 10% to it, then check whether you can afford that amount plus savings as a contingency fund. Commitment with under financing will lead to trouble.
Once you have got your options right consider the following:
Demand: Is there a need for that particular franchise in your area? Are there other establishments of the same type in the area and how much market share will you get?
Check the visibility of the Franchisors name and services, would it help you? What training and support services they offer? Is there ongoing support and help when you need it?
Check the Franchisor's expertise as an established company and also their track record of maintaining other franchisees.
If the above factors turn out to your satisfaction come to the nub of the matter.
Cost of the franchise: owning a franchise includes the initial franchise fee and other expenses such as operating license, insurance, rental of the store, its furnishings and a 'opening fee' to the to promote your business. Continuing royalty payments depend on weekly or monthly gross earnings as well as payment for using the brand name. Note, royalties have to be paid even when there are no profits. Costs also include advertising fees to be paid as part of the campaign of the company.
Thorough research in to a franchise is necessary before you buy a franchise. The number of franchise opportunities available in the market is numerous, but caution is required before you proceed. The main factor, however is hard work to make any enterprise a success.
Ythan Lax at the age of 40 was laid off from a job. Numerous interviews later, Lax was depressed with no place for him in the job market. His sister suggested the 'The Little Gym' franchise that focuses on developing children's motor skills. After due diligence Lax and his wife invested their life savings in this franchise for the Perinton area New York. Lax loves children and his franchise showed a profit in the very first year. As an upbeat Lax says, "The franchise gave me the true feeling that my life is my own". The couple recently purchased another territory in Greece NY, which opens shortly.