If you want to start a business but don’t really have the funds to do so, there is a way to do it without having to outlay your startup costs yourself. You can buy a franchise and use the good name and infrastructure of an already established company to launch yourself into the business world. Sure you will still have to come up with the money to buy a franchise title but the benefits provided to franchisees far outweigh any expenditure you will incur.
What is a Franchise?
There are several different types of franchise arrangements but in general the term refers to an agreement in which the owner of a product, process, service or in some cases, a name will allow you the rights to it for a fee.
Business Format Franchising
This involves buying a tried and tested business idea for example a fast food or garden nursery chain. In this agreement the owner of the franchise (the franchisor) and the buyer (the franchisee) sign a contract to the effect that a package is sold to the franchisee.
This package will provide for most or all of the requirements needed to start the business successfully. It usually includes things like training of the buyer and staff, a license to use the franchise name, an established customer base, supplies and raw materials, tools and equipment and even promotional material.
A set-up fee may also be charged by the franchisor. This is an ongoing monthly fee based on a percentage of the sales and profits accrued by the business.
The crux of a franchise is that it must be a proven business system that is sold not just the rights to sell a product or service. If you decide to buy a franchise make sure your purchase is a proven one!
Different Types of Business Format Franchises
There are two kinds of franchises that are usually offered:
* A job franchise – The franchisee does the work that provides the service to its customers.
* A management franchise – The franchisee organizes others to do the work.
If you decide to buy a franchise you must understand the difference between these two so that you can match your skills to your choice of business strategy.
Franchise Contract Requirements
* To minimize unfair competition in the event of two companies with the same name or product franchisees are often restricted to certain areas of operation. This way all parties involved make more money.
* The contract may impose certain quality or service standards on the franchisee to maintain the excellence of the brand name and image.
* Always read and understand the contract thoroughly. In some cases business owners have found themselves having to sell back to the franchisor after the cost of mandatory supplies have become unaffordable. Ask experts for help if you need it before you buy a franchise.
* Changes to a franchise contract are uncommon. It is standardized across the board and addendums are not always welcomed.
Why Buy a Franchise? – The Benefits
* Potential customers often opt for the familiar rather than the untested product and a franchise company will already have the inside edge of the market since it is already a ‘proven’ brand or product.
* The franchisor knows that it is in its best interests for your business to succeed so they provide extensive help and support, resources and very often supply all raw materials and products to you. Thus they carry much of the responsibility and background slog.
* Franchisees are often restricted to the use of certain suppliers, a recruitment policy or products. This may make more independent owners feel like they are being controlled as far as business decisions go. These measures are enforced to uphold the name and quality of your business and are part of a business formula that has been tested. You are almost guaranteed of a successful outcome.
* The percentages you pay over to the franchisor may also seem hard to swallow but bear in mind that most of this money goes toward advertising and marketing for your business or the franchise as a whole and you can only benefit from it in the long run.
* If you buy a franchise it is a very low-risk venture since a mutually beneficial relationship is created with the franchisee carrying the local knowledge as well as the risk and the franchisor providing a proven business idea. The question to be answered is whether the money you hand over is justified in terms of the value you receive.
* There are companies who call themselves franchisors who are really commission agencies, network marketers or other kinds of start-up business so make sure you get what you pay for.
The Pros and Cons of Buying a Franchise
Franchise agreements are now well regulated ventures with fairly good protective measures in place for both parties
The Franchise Pros
* Investment in proven business formula.
* The benefit of a franchisor’s experience and knowledge minimizes the chance of mistakes. Administrative issues associated with setting up a new business are almost nil.
* You will gain the benefit of the name and reputation the franchisor has already established.
* Training and ongoing support are provided.
* Advertising, marketing, research and development are streamlines and buying power is high-end.
* Banks and other financial institutions see franchising as a sound investment. They lend more, and on better terms, than if you were starting out on your own.
* A franchise is tested and structured and if provided by a competent franchisor it will give you a low-risk business opportunity.
* You won’t need direct experience in the field and so you have a wider range of business options.
* Adequate research will give you an idea of the nature of the business.
* You are still the ‘owner’ and still working for your own future.
* Franchising is a well respected method of doing business.
The Franchise Cons
* A percentage of your profits are paid to the franchisor.
* You are not entirely your ‘own boss’ if you buy a franchise.
* You are often restricted in terms of suppliers, employment policy, customer base and territory.
* A fair sized investment is needed.
* If the franchisor fails the franchisee is saddled with a failed business too.
* Control of the franchise could change hands. This could be for the better but it may not be.
* The franchisee is dependent on the franchisor and the franchise group to maintain the integrity of the brand.
* Once you buy a franchise you might not be allowed to resell.
A franchise agreement can be pretty complex but if you are looking for relative business security in today’s fragile market place it may be a viable option. If you do want to buy a franchise make sure you pick one with a tried and trusted product and name. Sure there is no 100 percent guarantee but you will be a little safer than most new businesses are. Do intensive research before you buy to avoid any unexpected surprises and make sure you understand that you will frequently have to bend your will to suit the requirements of the franchisor. If you buy a franchise you are offered more benefits than most start-ups so appreciate these and make the most of your business venture.