Top Vendors for Franchises

Franchises

If you’ve ever dreamed of owning your own business, but need some help with building a business, franchising may work for you. Franchising provides franchisees with a degree of autonomy, while providing a framework for organizing, promoting, and operating your business. Franchisees receive rights for using an established trademark, which provides an initial customer base. Franchisers provide training, business plans, and supplies; this frees up additional time and money for building and expanding a business. Franchisees have the ability to invest in and develop a business without “flying blind.” Read on to learn more about the benefits, risks, and costs associated with franchise opportunities. 

Benefits

Franchises are the arrangements between the owner or franchiser of an established business and other individuals. The franchiser gives these individuals or franchisees the rights to operate a business using his or her trademark and concept. In many cases, the franchiser offers the franchisee assistance in getting started by providing development and training. The opportunity to run your own business based on a proven business model is just one of the potential benefits of running a franchise.

Minimized Risk

When starting a new business yourself, there are a number of potential risks. One of the major benefits of purchasing a franchise is the reduction of these risks. One reason why many new businesses fail is that the owner does not have the required knowledge to get the business off the ground and running. Franchising does not have this risk, as you are purchasing a proven business model.

Ability to Research before Committing

Because you are buying a working format, you will be able to see your potential business in action before making a commitment. You will know how successful the business has been, which can be projected to see an image of future success. According to the U.S. Small Business Administration, you are allowed to request a copy of the franchiser’s disclosure document. This will give you an idea of how experienced your franchiser is and allow you to see any turnovers from previous franchise owners. The ability to research the franchise before buying allows you to make an informed decision.

Low-Cost Supplies

Because you are part of a larger network of franchises, you will find that you have more buying power than you do when not running a franchise business. Thus your franchiser will be able to offer you low-cost supplies and items, meaning more profit for your business.

Streamlined Operation

Being part of a large franchise offers a streamlined operation. Your customers will receive uniform service and quality, and you will enjoy increased buying power, customer loyalty, and brand recognition. You will also have an easily recognizable brand as well as the chance to capitalize on a proven format.

Pitfalls

Franchises are often promoted as an opportunity to become a part of a successful business model. However, buying a franchise has no cast-iron guarantees and there are several pitfalls to be aware of before making the decision to buy in to a franchise.

Poor Training

Franchisers have something of a reputation for falling short when it comes to training. While they may advertise full and intensive training, this is rarely the case. It is much more common for a new franchisee to receive nothing more than a two-week crash course on the basics.

Competition

Competition is a major source of trouble for a franchisee and something that is rarely considered before signing up. With many other franchisers all wanting a piece of the same pie, it is easy for your chosen market to become saturated with competitors. Markets such as senior care and motels are examples of markets blocked full of franchise competitors. This will all be reflected in your profits.

High Chance of Fraud

Unfortunately, franchising is open to scams and there are people who take advantage of potential investors who do not do adequate research before committing themselves. Although franchising is fully regulated, it is not uncommon for a franchise contract to be purposefully difficult to understand and designed to put the new franchisee at a disadvantage. Other scams include withholding important disclosure information listing franchise turnover. This potentially leaves a franchisee with a business operating at a loss.

You Are Not the Boss

One of the biggest attractions of a franchise is the opportunity to run your own business and become your own boss. However, this is not strictly the case. All franchisees still have to answer to the franchiser, who effectively calls the shots. While you may get away with deciding on your working hours, a franchiser can order you to do anything from staff training to deciding what type of advertising you use. It is easy to lose a franchise for noncompliance, which can cause a potentially devastating monetary loss.

Pricing

In 2007, information collected by the U.S. Census Bureau indicated that 10.5 percent of businesses in 295 industries with paid employees were franchise businesses.

Franchise Costs and Options

The amount of money it costs to invest in franchises varies depending on the industry you are interested in and the exact business you are attempting to acquire. For instance, the franchise fee for a business in the health, fitness and beauty industry averages out to be $11,389 with a total cost of investment at $91,240. On the other hand, the franchise fee for a business in the restaurant industry averages out to be $32,925 with a total cost of investment at $772,927.

Other fees associated with starting a franchise business include legal fees for an attorney, which can range from $1,500 to $5,000 depending on your circumstances; and inventory, which can cost anywhere between $20,000 and $150,000 depending on your business sector. Average profit depends on the industry and success of the business, but can vary between $73,000 to over $1 million annually. Some of the benefits of purchasing a franchise in comparison to a sole proprietorship include increased buying power, help with financing and brand recognition.

Conclusion

Buying into a franchise is a major investment requiring careful consideration of potential benefits, risks and ongoing operations costs. Franchises provide more autonomy than employment, and provide a built-in business model for getting started. The downside is that the franchiser calls the shots on many aspects of your business including operations, advertising, and the appearance of your business and products offered. Unpredictable risks include economic downturns, and casualty losses caused by natural disasters, crime, and operator negligence.  Consult with an accountant or financial adviser before investing in a franchise. This provides a professional and objective assessment of the pros, cons, and potential return on your investment, and can help you avoid a rush decision that may lead to financial devastation.