Why franchises work

The greatest strength of franchising is its ability to bring independent retailers together using a single trademark and business concept. The benefits of this affiliation are many: brand awareness, uniformity in meeting customer expectations, the power of pooled advertising and the efficiencies of group purchasing.

For the individual owner, there are several advantages to franchising. The ever-present risk of business failure is reduced when the business program has already proved to be successful in the marketplace; the use of an established trademark saves the business owner the cost of creating and advertising a name that customers will recognize; and the advantages of group advertising and purchasing make operations more profitable.

In addition, ongoing training creates an instant operational expertise that would otherwise need to be acquired through trial and error. Also, with franchising, expansion seems to come more naturally. Operating a successful franchise may quickly lead to building a second and then a third business, and so on. Fortunes have been built this way.

Franchising, however, is not for everyone. Fiercely independent entrepreneurial types you know who you are may chafe under the strict operational requirements and specifications of a franchised business.

If things have to be done your way, you may want to head in another direction. Also know that some franchise systems are better than others. A weak franchise program will not train you well to handle the challenges of the business, will not do a good job of assisting you when problems arise, and will not make the best use of your advertising dollars.

If you're considering buying a franchise, don't let wild expectations influence your decision. While franchising is designed to put people into business who have never owned a business before, the excitement of ownership can create an impulse to move forward without proper planning. If you rush headlong into buying a franchise expecting to boost your current working salary, but the earnings don't allow you to pull out more than half your former salary, you will be one unhappy camper.

Work with a good CPA to prepare a cash-flow projection for the business before you take the plunge. Know how long it will take to break even and turn a profit, as well as the amount of salary you'll realistically be able to pay yourself.

In terms of capital investment, your franchise fee will be determined by the profitability of the business. Most companies have a scale when it comes to franchise fees. In addition to this front-end franchise fee--the one-time charge that a franchisor assesses you for the privilege of using the business concept, attending their training program, and learning the entire business-there will also be an ongoing royalty fee, typically ranging from 2 to 10 percent, or a monthly figure.

If you rent a building, you'll be responsible for not only the monthly lease but for the one-time security deposit as well. In addition, you'll have to pay for leasehold improvements. In some cases, the owner of the building will put these in and factor them into your rental, probably charging you a small additional fee.

Most franchisors will tell you what their estimated leasehold improvements will be. Make sure your investment generates healthy returns and a capital gain when you sell. General enquiries: 13 QGOV 13 74 Home Starting a business Buying a business Buying a franchise Advantages and disadvantages of buying a franchise. Buying a business. Guide to buying a business Buying a franchise Advantages and disadvantages of buying a franchise Choosing the right franchise Assessing franchise opportunities Franchising Code of Conduct Due diligence when buying a business.

Advantages of buying a franchise Franchises offer the independence of small business ownership supported by the benefits of a big business network. You don't necessarily need business experience to run a franchise. Franchisors usually provide the training you need to operate their business model. Once you contact a franchisor for more information, these are the steps that will typically follow:. The franchisor will send you brochures and other materials, and most likely request that you complete a questionnaire.

You will proceed based on the outcome of that exchange of information. The Federal Trade Commission FTC requires this document be provided to disclose detailed information about the franchisor at least 10 days prior to any franchise purchase. That information includes:. Visit as many of the franchisor's existing franchisees as you can.

Meet directly with the owner of each establishment, and pay close attention to opinions of the franchisor. Ask the owners about the support they get on an ongoing basis, as well as the training and assistance they received when they first purchased the franchise. Did the franchisor help them with the location decision, and assist with initial set-up? What about the promotional efforts of the franchisor?

Does the individual franchisees benefit from their investment? Do they get any say in how the advertising dollars are spent or allocated? Are their earnings living up to their expectations? Did their total investment stay in line with what they were expecting? Ask specifically if they would do it again knowing what they know now.

These opinions are very important to your research into each franchise. Look for trends that might indicate overall dissatisfaction with the company -- and avoid those like the plague! Review the franchisor's business plan, operations manuals, and market analysis. Try to meet with the franchisor in person. Make a point to meet the franchising operations personnel with whom you will be dealing. Keep these questions in mind while you are meeting with them:.

Take careful notes about each franchise opportunity you are investigating. Make sure you understand all of their policies and have a good feel for the level of satisfaction their existing franchisees have. Then use this information to make your final decision.

Most likely, when you set out to buy a franchise you will need a business loan of some sort. To get a business loan, you will also need a business plan. Writing a business plan for a franchise, however, is slightly different from writing one for your own new business startup.

Not only do you have to detail the business strategy and projections of the franchise, you also have to detail the reasons why you are qualified to run the business. While the franchisors may provide some assistance in helping you get the financing you need, they probably won't provide much in the way of helping to write a business plan. This is because they can't take the liability risk of helping you make projections on sales. If those projections fall short, there is the chance of a lawsuit.

You may be provided with a template for a business plan, but this is usually provided after you have signed the agreement and gone into their training program. The template will still not provide any information about projected financial information. That leaves you doing as much research into the market, and particularly the competition, as you can. Visit How Business Plans Work for some advice and assistance in writing a complete business plan. Some of the differences you'll have to adjust for include building the franchise fee, royalties, advertising fees, and other franchise-related payments into the financial documents.

Your accountant should be able to provide valuable assistance in this area. There are many elements of the franchise agreement, as well as the franchise deal itself, that can benefit from the advice of an attorney. These can include:. Your best bet is to use an attorney who specializes in franchises. Make sure your selected attorney is a member of this organization, not because it screens them in any way there are no membership requirements , but because the organization itself stays on top of franchise law and offers seminars and other current franchise information for members.

Using an attorney who is a member would be a benefit. Even though you may use an attorney for these areas, you may still want to brush up on the laws yourself. The Franchise Rule deals with the franchising contract and requires that the franchisor give full disclosure of earnings, company history, litigation, and key-officer experience levels. It also requires that contact information be provided for existing franchised units. The rule does not, however, cover anything that happens after the contract is signed, such as problems with product availability, site selection, and placement of other units within the same geographical market.

There are some groups pushing for uniform standards of conduct once the franchise agreement has been signed. The agreement deals with issues like who pays for brand reimaging, new signage, dispute resolution and database information. National fair franchising legislation was also introduced. Franchise L ocation This section contains the areas where the franchisees have permission to open the branch. Franchise Terms This section contains information about the length of the agreement.

Address the below points while signing for this section: Know for how long the agreement exists. If a franchisee has the right to get the agreement renewed. Fees For Franchise This section contains all the information regarding the mandatory fees related to buying the franchise.

Address the below points as part of this section: What is the initial fee, and what will the franchisee receive in return for that fee? How much is the royalty payment, what is it charged for, and when this payment is due? Responsibilities Of The Franchisor This section contains all the duties and responsibilities that a franchisor needs to follow.

These include: Training requirements Requirements related to participating in the business Requirements related to maintain and submit the records Restrictions Imposed This section contains all the information regarding the restrictions imposed on the products and services offered.

These restrictions include: Quality standards needed and shared by the franchisor List of approved suppliers The approved sources of advertising and marketing Working hours Price of products and services Agreement Renewal, Contract Termination, And Transfer Of The Agreement This section contains all the information about the renewal, transfer, and termination of the agreement.

These include: The rights that a franchisee has after the agreement termination Detailed information about the transfer of franchise agreement Detailed information related to the franchise agreement renewal In Conclusion These are the basic guidelines for a franchise business model and how a franchise works.

The information shared in this article will help you understand how the franchise works and guide you with a successful franchise business. For more information, check out the related FAQs that most people interested in having a franchise have in their mind. You can keep all the information in mind while deciding to buy a franchise.

How does a franchisee become successful? I am planning to buy a franchise, but can I work with a partner? Can a franchisee buy more than one branch of a franchise? Is it possible that the franchise contract terminates? How can I get the required legal support for my franchise? Are there any special laws for the franchise business? Is it necessary to register a trademark while buying a franchise? If you're interested in knowing more about the franchise businesses in India, you can have a look at these articles as well: Domino's franchise cost in India Starbucks franchise cost in India Burger King franchise cost in India KFC franchise cost in India Subway franchise cost in India Pizza Hut franchise cost in India Amul franchise cost in India McDonald's franchise cost in India.

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