What is a franchise?

When you think of a franchise, you probably think of McDonald’s because it is famous for its franchises. So, let’s use the Golden Arches as our example. If you buy a McDonald’s franchise, you will be responsible for running your restaurant, but you will use the marketing methods, name recognition, brand, products, and services that have already been developed by the corporate company. In return, the company receives an initial fee (what you pay to purchase the franchise), and ongoing payments (royalties).

But franchises have expanded way beyond the Golden Arches. In fact, they are a sort of fast-track to business ownership for a lot of people. You can find franchises for a lot of things these days that you might not even realize: elder care, housecleaning, yoga, massage therapy, etc. In the United States there are more than 3000 franchise brands.

Why franchise?

It might seem less risky to purchase a franchise than to start your own business. After all, a franchise gives you an already tested market, a name that is recognized, plus training and support from the corporate office. You might want to go into business for yourself, but not by yourself, especially as the Small Business Administrations estimates that 1/3 of all new businesses fail. Buying a franchise means that you are buying into an established community, where the product has already been tested and most of the issues have already been worked out.

A franchise comes with a built-in safety net, unlike a risky independent business that you have to start from scratch. When you purchase a franchise, it comes as a package complete with operations, marketing, accounting, distribution, and technical support.

Franchising Downsides

Buying a franchise can give you a great head start in the business world, but remember that you are not your own boss. You still have to follow guidelines, often strict ones, to run the business. Franchisors want to make sure the franchises offer the same kinds of standardized services and goods at each location. This means that the franchisee has to follow the guidelines, as well as getting corporate approval for everything from site locations to the goods that are sold.

If you have lofty entrepreneurship visions for your business, a franchise probably isn’t your best bet, Going back to our McDonald’s example, if you are running a McD’s franchise, you can’t sell hotdogs or donuts unless the corporate headquarters decides to. And, when the corporate office does decide to implement a new product, like McD’s did with lattes, you have to do it whether you want to or not.

Must Dos Before You Invest in a Franchise

Do Your Homework: It is really important for you to spend some time doing some research before you make any decisions. You should check out the FTC’s Consumer Guide to Buying a Franchise at www.ftc.gov. Find out about the different franchise available, and compare your options. Network by meeting and talking with existing franchisees—ask questions and get advice. Find out about the communication skills and training offered by the corporate office.

Know Your Limits & Your Market: You need to examine just how much money you can invest before you decide to go ahead with a franchise deal. As well, you need to consider your abilities and goals to make sure your chosen franchise is really the best choice for you. You also need to know the market and believe in the product and service you will provide. Like any business, it is all about location, location, location, so make certain to do your research.

Consult Others: This is a business deal, so you really cannot do it on your own. You must consult with some professional during this time. Do not hesitate to ask questions or receive advice from franchise attorneys, CPAs, real estate agents, landlords, and consultants. You need to understand the legalities involved with the franchise. A franchise contract can be very detailed and complicated, so be sure to consult with others before sighing anything.

Analyze Your Finances: Ask yourself and answer these questions –

How much money do you have to invest?
How much can you afford to lose?
Are you purchasing the franchise alone, or with partners?
Will you need financing?
If you need financing, where can you get it?
How is your credit rating?

Being aware of these things is important because the cost of starting a franchise varies depending on the company. Remember that while a franchise does have more of a safety net than an independent business does, there is still a lot of risk. You will be running a business, so get a business loan instead of using your personal savings.

Network: Networking is important no matter what you are doing. You can meet a lot of new people by attending trade shows or joining business groups. The more people you have in your network, the more support you will have in your venture.

Source: Hub Pages
Author: Stacie Naczelnik