Buying a Franchise – Another Great Opportunity for Entrepreneurs

Strategy Plan One

February 15, 2012

As an entrepreneur you have choices to make when going into business.  You can start a business from scratch or you can acquire an existing viable business.  Also on the list of opportunities is buying into a franchised opportunity.

Investing in a franchised venture is a little different from acquiring a business or hanging your own sign out.  In this business scenario, you, the franchisee, agree to conduct business under the franchisor for a specified duration.  Franchised opportunities involve sophisticated agreements between you and the franchisor.

Buying a franchise brings a wealth of benefits, but you also need to be aware of the conditions around buying a franchise.  Here are some tips and information on franchised opportunities:

  •  Franchises are plentiful; ensure you research each for the right fit against your operational, management and financial capabilities
  • Franchises come with strict operating standards, and you must be aware that you will need to adhere to these standards such as pricing, marketing, design, customer service, employment, etc
  • You will need to pay royalties or monthly payments for ongoing franchise costs
  • Most established strong franchises have rigorous training programs and schedules, both at your location and possibly to a head office location
  • In franchised opportunities, the master franchise holder or company will conduct frequent inspections to ensure consistency of standards
  • Franchised opportunities will not provide the flexibility that you may see in your own start up scenario
  • Most of the time with established bigger franchises, volume of business will be significant and margins may be lower than experienced in your own start up scenario

Benefits of franchises:

  • The leg work has been done, and if you buy a franchise, yo u buy a brand, loyal customer base, standardized practices and operating procedures
  • Through the power of a large franchisor, economies of scale are achieved, which results in greater negotiating power, buying power, marketing power, etc
  • You could piggy back on to some of the largest national marketing and advertising budgets; normally you don’t have to worry about marketing and advertising
  • With the franchise comes a support team of corporate managers and executives; the franchisor does not want you to fail and will assist
  • Larger franchises with brand recognition and existing loyal global customers will possibly result in immediate revenue streams
  • Franchised opportunities open the door for additional funding sources, and in some cases, franchisors offer in-house financing
  • Franchisors undertake extensive product and service development to open new doors and revenue streams for franchisees
  • If you do well, franchises may offer expansion opportunities (i.e.: the offer to run another location or two);  fast food franchises are good examples
  • If you do extremely well with multiple locations, you may be eligible to invest and run master franchised opportunities, such as managing the franchisees within a whole district, state, or province or territory.

Disadvantages to be aware of:

  • Franchised opportunities can be capital intensive
  • Be prepared for heavy investment and the need to acquire funding sources
  • Franchised agreements can be complex, with strict terms and conditions
  • Franchised opportunities come with mandatory fees and monthly royalties
  • In owing a franchise, you give up some control over the business

Similar to other opportunities, you need to investigate whether or not buying a franchise is your way into entrepreneurship.  With heavy due diligence on your part, franchised opportunities could provide you with a stable business opportunity with ample rewards.

Strategy Plan One

Business Mentor information, resources and tips for the entrepreneur

© 2012 Strategy Plan One


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