Today there are millions of Americans who wish to get rid of their routine nine to five work schedules and start up their own business ventures. In fact they want to be their own bosses and work with much independence. However starting up a new business is always risky and it could lead you anywhere. It’s under the light of such circumstances, franchising presents an alternative method of venturing into a new business. Though you are expected focus and work hard you are never required to have experience in business management to start up as a franchisee. This is why franchising has become the preferred option among the people who wish to start up their own businesses. In fact a recent research reveals “A new franchised business is opened every 8 minutes of every business day” which clearly proves the popularity of franchising.
Let us look at history of franchising first. The concept of franchising dates back to 1850’s when Isaac Singer introduced the sewing machine. He wanted an effective and affordable way of popularizing his product. In fact he knew if he’s going to distribute the machines by himself it would take a considerable amount of money and time. Therefore he gave other companies the permission to sell his machine charging a licensing fee. Thus a new business concept was born. During the next few decades several companies followed the Singer’s novel concept including Coca Cola which used it for bottling and manufacturing. But it was the fast food chains like McDonalds and Burger King which brought franchising into a new level.
Starting a franchise is a lot similar to cloning an animal because it develops an exact replica of a successful business. The high success rate of franchising is a result of the whole range of benefits it offers to the franchisee. Some of the most important advantages of owning a franchise include
- Training – Almost all franchise companies provide you with the necessary training you need to become successful. In fact larger franchises often offer more than what is required even. Your success is the success of the franchisor since the royalty fees you pay him is his share of the income. As such he is willing to do whatever it takes to ensure your success.
- Brand Awareness – If you start up your own business it will probably take years or even decades for you to build a well recognized brand that provides a competitive advantage over your competitors. Brand awareness is so powerful. It has the potential to make or break a business because consumers generally buy things that they are familiar with and work with companies they know and trust.
- Purchasing Power – This is a result of economies of scale enjoyed by the franchises. Most franchise companies are capable of purchasing their goods, products, and supplies at bargain rates since they buy in bulk. In fact these savings are passed over to individual franchise units so that they have a competitive advantage in the marketplace with respect to price.
- Proven Business Plan - Through years of experience franchisors know what works and what doesn’t. They will teach you their formula for success. In fact they come across many franchisees like you to whom they support to build their businesses. Therefore people say the success of the model is already proven.
- Advertising - In addition to an established brand, most franchise companies support their franchisees with both local and national advertising and promotions to help drive sales. They may obviously require you to contribute towards a fund reserved for promotional campaigns but the benefits of such a nationwide publicity campaign easily outweighs the costs you incur. Further who can say that you will not benefit from the promotional activities of the other local franchisees. However these sorts of benefits are unique for franchising.
- Support – In addition to the initial training many franchise companies provide ongoing support for their franchisees. This typically includes ongoing training, system upgrades, product enhancements, administrative support as well as question and answer support systems through dedicated representatives within the organization.
Things you should do before you start up your own franchise outlet.
- Test market and analyze to make sure that there is a need for your product or services. Further you need to consider the existing franchisees and their scope to identify whether there is a gap of supply to which your franchise can cater.
- Contact current franchisees of the particular franchise under consideration and question them to identify both the positives and negatives associated with their franchise. In addition find out some ex-franchisees in your area and discuss with them the reasons why they gave it up. They may teach you the disadvantages of becoming a franchisee and let you know if there are any issues with your franchisor.
- Hire a lawyer and an accountant. Especially the service of a lawyer is essential to understand the consequences of the franchise agreement which is the binding contract that you sign.
- Just because you have your lawyer you should not relax. You may ask questions to understand the disclosures, franchise agreements, and other legal documents as it is very important for you to have an intimate knowledge of this information in order to take the correct decisions at the correct time.
- Do not believe in everything your franchisor tells you. They are quite renowned for their exaggerations. Thus you should clearly verify everything by asking for it in writing at least at the beginning. So never ever fall in to franchise scams. Though they are quite existent, they are identifiable as well.
- Ensure you are sufficiently funded. A lack of capital could turn all of your early expenditures into a complete waste. Cheer yourself up; it requires a relatively lesser amount of capital for franchising though the actual figure may vary depending on the size of the franchise. As you search for finance you will realize there are plenty of opportunities available to you to find an affordable solution to finance your venture. Obviously good credit, a strong work history, and solid assets increase your chances of being approved.
- Build a relationship with the key management individuals of the franchisor. This is highly popular and practiced in smaller franchise companies. Do everything you can to get to know both the company's executives and their field representatives. The better the relationship the higher will be the benefits you receive.
The objective of this article was to provide you an overview of franchising. You will find in depth discussions on various aspects of franchising discussed above in other articles of this section. Therefore please do not hesitate to refer them if you need more help.