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, you 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.
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© 2012 Strategy Plan One