High Cost vs Low Cost Franchises

High Cost vs Low Cost Franchises by Neil BurnardWhen deciding on what franchise to invest in, a big factor can be the cost to invest. Some franchises cost under £20,000, while others can be upwards of £75,000 or even more. For most people, that’s a difference significant enough to seriously limit their options or at least make them think twice before jumping in to an otherwise amazing sounding business. There are some key differences to keep in mind when deciding, so here is a quick run down of what to expect.

Low Cost Franchises

At the lower end, it’s important to understand that while the entry cost will probably cover what you need to get started, like supplies, initial training, etc, it will not include working capital, which you will need until your business gains enough momentum to start turning some of its own positive cash flow. Before you buy in, make sure you know exactly what is and is not included in the cost. If you bought into a less expensive franchise because of your own financial constraints, unforeseen costs early on could be a make it or break it moment for your business before you’ve even had the chance to take off.

You will also need to make sure your personal expenses are covered for a few months, at least. If you’ve run the numbers, and you’re going to run out of your own funds after a month, it’s time to look into different options or wait until you’ve saved up a larger nest egg. Learning to budget in general is going to be key, but remember, it’s one thing to hold off on buying a new luxury car, it’s another to try to hold off on paying rent.

Depending on what the franchise provides, you may also want to have some extra cash set aside for things like sales and marketing. However, many franchises will include this as well. That’s why it’s important to understand exactly what you’re getting.

The good news is that when you’re buying into a franchise, you’re buying into a business that has been thoroughly tested. Your franchisor should be able to tell you exactly what to expect, your fellow franchisees will be a community you can draw tips and lessons from, and ongoing training is a great wait to develop your business as it grows and flourishes.

Lower cost franchises often fall into the sales or marketing industry because the marketplace is big, the startup costs are low, and the potential for growth is always there. This means you’ll probably want to be comfortable selling, talking on the phone, and working fairly independently. You may not even need to employ staff for awhile.

High Cost Franchises

Higher cost franchises get their cost because they usually require things like premises to operate, special equipment, branded decor, and more (a great example is a fitness club.) There’s a lot more training required for things like operational systems and the hiring, training, and development of your staff. The setup process also takes much longer.

Higher cost franchises usually need the help of bank loans and overdrafts, so that cost will need to be incorporated into your business plan. The good news is that with approved franchises, banks will often lend up to 70% of the total cost of setting up. Even better, these loans will usually come with repayment and interest rates that reflect the approval ratings of the franchisor, which means you get a great deal directly because of the prior success of the franchise you’ve just bought into.

One thing to keep in mind is that with more staff comes more managerial responsibilities. If you’re not the type of personality that enjoys managing or being responsible for the well-being and success of others, you might end up disliking a big part of your job.

Conclusion

With so many great franchise opportunities available, the biggest factor in predicting your success has more to do with finding the franchise that’s right for you. Be as candid with yourself as possible about your limitations, concerns, fears, and deal breakers. Weight your options carefully, and make a pro’s and con’s list (because there will be pro’s and con’s to every situation.) Take the time to find the right franchise for you.

Is My Business Ready to Franchise?

Is My Business Ready to Franchise?

Franchising can seem like the perfect way to expand your business. In the franchise world, franchisees are the ones financially responsible for opening the locations and running them according to the franchisor’s regulations. Because franchisees make a big investment to get started, they are highly motivated to drive their businesses towards success. Sounds great, right?

Although it may sound like franchising your business would be an ideal plan, not all businesses are meant to be franchised. Here are four basic questions you can ask yourself before determining if your business is ready to be franchised:

1. Have you perfected your business model?

The first step to determining whether a business is ready for franchise is making sure the business model is both thorough and successful. You must be able to show and prove a successful business prototype that demonstrates a strong unit performance and consumer acceptance. Moreover, the business must be operated by an owner who shows great ability and leadership skills, ensuring that he or she will be able to take on the heavy responsibility entailed in any business expansion.

2. Can you sell it?

Not only does the business model need to work, it also must also be attractive to potential investors. Some of the typical factors that franchisees take into consideration before investing are business credibility, success rate, uniqueness, and how “hot” or innovative it will be in any given market.

3. Can you duplicate it?

One of the key factors in a franchisor’s success is being able to clone or replicate the business easily. If the original business only works because of an exceptional employee or a one of a kind location, franchising will not work. A franchise concept should be straightforward in order to guarantee it will work in different markets and will be simple to operate. When it comes to franchises, simpler is often better.

4. Can you provide franchisees with an adequate return?

Franchisees expect to get two kinds of returns: one, for the time they spend working at the actual business, and two, for the investment they made when they bought the franchise. So you need to ask yourself: will your business model be able to provide these kinds of returns to the franchisee while also providing you the royalty you’re supposed to collect as the franchisor? If your answer is “no,” you will have to go back to the drawing board. Research how you can improve your business model, so you can meet those returns. If you can’t, your business might be better off the way it is and not a great fit for a franchise.

Conclusion

Franchising your business can mean quick, lucrative expansion for your business, but not if your business isn’t fit to be a franchise. Ask yourself these questions to figure out if your business can fulfill these requirements.

The First 3 Questions You Should Ask Yourself to Determine if Franchising is Right For You

The First 3 Questions You Should Ask Yourself to Determine if Franchising is Right For You

So you’re interested in owning a business, but you don’t know if franchising is right for you. Franchises can be a great business to enter into because they operate under one successful trademark and can generally achieve more than what individual business people can. But the fact that franchises may have a better or quicker success rate than independent businesses is not the only factor you should consider when contemplating whether or not to buy into a franchise. Here’s a list of three key questions you should ask yourself before making your final decision:

1. Can you afford the franchise?

Before asking yourself any other question, ask yourself if you can realistically afford the startup costs of the franchise plus any further costs you accumulate before you hit profitability. Even though the franchisor can give you an idea of what the initial costs will be, actual costs always vary depending on the needs of the business. You need to have enough capital to not only open the franchise, but also run it until it is profitable and stable. For some businesses, this might take one year, for others more, and others less. So plan your finances as accurately as possible, ideally overestimating your expenses to limit your risk of under capitalization. This will greatly diminish your risk of failure.

2. Will you enjoy the franchise?

A lot of times, people may be interested in a franchise simply because of the potential capital they can generate. While a business’s success rate should be something you’re concerned with, it should not be the only reason you picked that franchise. Running a franchise is no easy task; it will undoubtedly pose many challenges, and you should anticipate working in it for the next 10-15 years (at least.) So if you’re planning on owning a franchise, make sure you’re interested in the industry and think you can enjoy the day-to-day work entailed in that specific business.

Aside from liking the particular industry, product, or service the franchise is involved in, also make sure you like the franchisor’s staff. These are the people you will be constantly contacting for support and advice, so make sure you feel comfortable working with them as you will be working with them for a long time. If the relationship sours, you could end up regretting your decision.

3. Does the franchisor and existing franchisees you are considering have a track record of success?

So you made sure you have the right amount of capital to invest in a franchise, and you picked out a franchise in an industry you are interested in, but did you research that particular franchise’s success rate? It is very important to do research, not only regarding the franchisor’s level of success, but also the individual franchisees record of success.

If the franchisor is successful but the franchisees seem to be going downhill, what does that mean? What if it’s the other way around? You want to make sure you invest in a franchise where the franchisor offers enough guidance and support to help your franchise soar. Obtaining this information can better help you project what your success rate will be and in the end, if your investment will be worth its value.

Conclusion

There are many other considerations that will go into your final decision, but these essential questions will help you determine if you’re ready to take the next steps towards becoming a franchisee.

Weighing The Pros And Cons Of Franchising

pros-cons

Going into business for yourself is a major life decision that comes with a lot of choices. You can start your own business, buy an existing one, or buy into a franchise. Each comes with it’s own unique benefits and inherent risks. Then there’s the matter of what kind of product or service you want to provide.

Your interests and passions are of course important, but more importantly, you have to pick the business model that works for you. You may enjoy coffee, but that doesn’t mean you will like running a quick paced coffee shop at the crack of dawn. You may like surfing but that doesn’t mean you’ll like giving beginning surf lessons to pushy tourists all day. You need to find a balance between a product or service that you’re passionate about and a business model that suits your lifestyle, working style, and idea of success.

To figure out if franchising is right for you, it’s important to weight the costs and benefits for yourself. Every person is different, and what works for your neighbor may make you absolutely miserable. Your business decision needs to be based on your individual circumstance and preferences. Do you like following a prescribed system or do you prefer having the freedom to innovate and experiment? Do you have enough startup capital to try a few things out or do you need to see quick ROI? Do you work well as both a leader and a follower or do you need total control? Here are some of the most important pro’s and con’s of buying into a franchise.

Brand awareness

Pro: When you’re starting out, no one knows who you are. A huge pro of franchises are the fact that they come with built in brand awareness. Right when you open the door, you’ll have fans and you’ll have haters. The point is, people will already know who you are and be ready to buy.

Con: You’re buying a brand, which means you don’t get to create, define, or alter it. For creative types, this can be a big deal breaker, as creating a brand can feel like a huge part of what makes their job engaging.

Control

Pro: With a franchise, you still get to control the day to day operations of your unit without having to figure everything out on your own. You’re the boss, but you also have resources from your franchisor.

Con: When you start your own business, you get to control every detail, large and small. While the responsiblity is huge, it also means you can make changes and updates on your own accord. As a franchisee, you’re agreeing to follow the guidelines laid out by the franchisor. You’re contractually obligated to follow someone else’s rule book (a rule book that has proven successful, but not one you created or control.)

Learning curve

Pro: When you start a new business, there’s no telling if or when your concept is going to actually work. With a franchise, you’re buying a tested and proven business model. You’re essentially getting a “plug and play” business. Just follow the operating manual, and you’re golden.

Con: While figuring out each step on your own can be difficult and unpredictable, if you enjoy creating things from the ground up, innovating on processes, and adapting as you learn, this can be an engaging and even thrilling experience. It might take longer to get things off the ground, but it’s also arguably the most creative part of the business process.

Equipment and supplies

Pro: Outfitting your new business with the proper supplies, equipment, and suppliers can be both timely and costly. Franchisors are an invaluable resource for buying exactly what and how much you need, right from the get-go. You’re franchisor can also negotiate bulk rates and pass along the savings to you, and having the power of a recognized brand behind you often eases the mind of suppliers in extending credit.

Con: Usually what you buy is dictated by the franchise, so again, there’s not much room for adding any “personal touches.” Equipment, menus, uniforms, and store design have to fall under existing brand guidelines and supplier agreements.

Financing

Pro: Most franchisors won’t supply financing, but they have existing relationships with lenders who will view a brand referral more favorably than a first-time independent business owner.

Con: Starting your own business can cost less up front than buying into a franchise, depending on the nature of the business and how much you decide to put into it. Entrepreneurs often get by on a minuscule budgets starting out and still succeed.

Marketing

Pro: If you’re a franchisee, most likely your brand is already backed by big marketing and advertising (regionally if not nationally). If you’re a new business owner, you’re on your own.

Con: As a franchisee, you will probably have to contribute monthly to that big advertising fund, but at least everything is already in place.

Product/service changes

Pro: Introducing a new product or service that flops costs business owners both time and money. When franchisors develop new products, they’ve usually been thoroughly tested by other stores and iterated on to ensure that it’s a valuable offering. While it may cost franchisees some money to install new equipment or introduce a new store design, ROI is relatively more guaranteed.

Con: You may not like every new product or service that gets introduced. You might feel like you have a better idea that you can’t implement. It may come at a time when your location is low on funds. You don’t have much of a choice when it comes to how the franchise evolves over time.

Culture/fit

Pro: It’s especially important when buying into a franchise to make sure your goals and values align with your franchisors. If you’re on the same page, you can have a positive relationship that helps you and your business thrive.

Con: When you own the business, the only person you truly have to get along with is yourself (and hopefully your customers and employees.) You’ll frequently hear franchise experts describe the franchisor/franchisee relationship being like a “marriage.” Like any marriage, if the relationship sours, it can create a miserable situation for everyone involved.

Exit strategy/resale value

Pro: With a known brand, your pool of potential buyers is much larger than a small, relatively unknown business. If times are tough and you’re having trouble finding a buyer, there is always one guaranteed buyer (the franchisor) who can buy back your unit until they find a new franchisee.

Con: Selling an independent business can be much more lucrative. But, your pool of buyers is generally smaller, and if things get really bad, you may not be able to find a buyer at all.

Other pro’s to keep in mind:

Speed to market – With a franchise, you are given a list of exactly what you need to open. No research, returns, or bad purchases necessary. This means you can open and start making sales much more quickly.

Faster ROI – There’s no telling how long it will take a new brand to build up the reputation and client base it needs to turn a profit. When you’re working with a known brand name, a customer base comes built in, which means you can reach a profit more quickly.

Training – One of the greatest benefits of being a franchisee is that you always have a go-to resource for how to improve your business. Franchisors provide extensive training in every aspect of their business as well as ongoing advisement for growth. You don’t have to figure it all out on your own.

Ultimately you have to be the one to decide what kind of business model works for your specific interests, personality, and passions as well as your own financial obligations, financial resources, and future goals. Carefully considering exactly what you’re getting yourself into will allow you to be much more successful than someone who jumps in without fully understanding what it means to be a business owner or franchisee.

How to Identify the Right Franchise Brand for You

How to Identify the Right Franchise Brand for YouWhen looking to buy a franchise, it’s important to properly educate yourself about every aspect of the business so that you can feel certain you’re entering into a brand that is both appropriate for you and reputable. This task can seem daunting when facing 100’s if not 1000’s of franchise options, and without enough information it can be all-to-easy to end up with a raw deal. However, with the right strategy and preparation, you can make informed decisions that will benefit you and your business today and down the line. Here are some tips on how to identify the right franchise opportunity for you.

 

Getting started

Before you even begin looking at what’s out there, educate yourself about the current landscape of franchising from a credible source, such as the British Franchise Association (BFA.) Whether you’re new to the concept or just need updates on recent legal changes and industry trends, BFA offers seminars and educational tools that can give you in-depth information, insights, and industry knowledge to help you make your decisions.

 

Speaking to prospects

An ethical franchisor should have no problem being transparent with you about the development of their business and the challenges they have both overcome and currently face. It’s perfectly normal for a franchisor to ask you to sign a confidentiality agreement first to protect crucial information about the company, and you should feel free (and encouraged) to get a legal advisor to evaluate the agreement before signing.

Things to look out for:

  1. Anyone telling you that their franchise is perfect, and they have made no mistakes
  2. Anyone telling you they can make you rich overnight

A few questions to keep in mind:

  1. How long have you been in franchising?
  2. How many franchised businesses are you running at the moment?
  3. What costs are associated with the franchise, including both opportunity cost and additional capital costs incurred by the franchisees?
  4. What’s included in the cost, and what kind of costs are franchisees expected to incur?
  5. What does their training and development program look like?
  6. How many franchisees have failed and why?
  7. How many franchises have opened in the past 12 months?
  8. What systems do you have for keeping franchisees in touch with you and each other?

 

Speaking to franchisees

In addition to speaking to franchisors, you should speak directly to the franchisees of the brand, as they can verify what the franchisor has told you as well as give you a better picture of the day-to-day experience of an individual location.

The franchisor should provide you with a complete list of all their franchisees and allow you to choose which ones you want to speak to. If they don’t, this could be a red flag.

When choosing who to speak with, aim for as wide a variety as possible to get a more complete picture. Choose both top and bottom performers. Choose some who have just started and some who have been with the franchise for a long time. To understand the full cycle of how the business is run, you need to look into performance at every point.

A few questions to keep in mind:

  1. Why did you choose this franchise?
  2. What support did you receive when you first got started?
  3. Have you received continued support? How so?
  4. How involved is the franchisor at this point? Does he/she visit often?
  5. Did the outcome of your business meet the expectations that were set for you when you initially got involved?
  6. If you had the chance, would you do it all over again?

If the franchisor and franchisee agree to it, you may also want to shadow a franchisee for a day to see the business in action for yourself.

 

Get some expert advice

There are many financial and legal aspects that you’ll need an expert for. Projections can be discussed with a dedicated franchise department at one of the several major banks that support franchising. You will also need legal advice from a solicitor who specializes in franchising. If you’re not sure who to look to for help, check for specialists who have been accredited by the BFA.

 

Making the final decision

Once you feel you have a firm grasp of the operational, financial, and legal aspects of the brand, make sure you revisit the most important part of your decision: is it right for you? Something can be a sound business investment and still not be exactly what you’re looking for.

A few questions to keep in mind:

  1. Is the projected outcome of this deal in line with your professional goals?
  2. How does this business fit in with your personal goals?
  3. Does the reality of the business allow you the hours, work-life balance, and flexibility that your personal life requires?

 

Use everything you’ve learned as a resource for your final decision. Once you know you’re prospect is an ethical, reputable brand with a financially bright future, the final call has to ultimately come from how you feel about it.