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.

Why Franchisors and Franchisees Have Trouble Seeing Eye to Eye

FranchisingBuying a franchise is a great way to acquire an instant customer base, proven business model, and polished operational support. But as many franchise owners soon discover, this great purchase can also come with a downside: disgruntled franchisees.

Life is full of conflict, and the franchise industry is no different. But franchisor/franchisee disputes specifically arise out of the inherent nature of the franchise model. Why? Because franchises motivate each party towards different goals. When it comes down to it, franchisees and franchisors just want different things because they make their money in different ways. This obviously creates a vulnerable spot in the franchisor/franchisee relationship, where conflict is more likely to arise.

So how do we fix it? There will probably never be a way of eliminating all franchisor/franchisee conflict entirely (wouldn’t that be a dream?), but recognizing and understanding the factors at play is the best way to avoid either creating or escalating disagreements between parties, especially to the point where litigation becomes necessary.

To understand where this inherent conflict comes from, let’s start with the basics of what franchising is: franchising is a business arrangement in which one party (the franchisor) rents a business model and brand to another party (the franchisee), who uses it to sell products/services to a customer base. The amount the franchisee pays is usually calculated as a percentage of their gross sales, meaning the franchisors profits increase with franchisee sales. This means a franchisors priorities and day-to-day concerns are usually focused on adopting policies and enacting strategic business decisions that maximize sales at each franchisee location.

Franchisees, however, make their money a little differently. They make money by generating revenue that exceed their costs, which means a franchisee is going to prioritize policies and pricing that maximize profits at their locations.

This is the part where conflict arises: policies that maximize outlet-level sales aren’t the ones that maximize outlet-level profits.

Need an example? Let’s look at buy-one-get-one-free discounts. Successful buy-one-get-one-free promotions bring in more customers and boost sales. This is great for the franchisor whose earnings are linked to outlet-level sales. But for the franchisee, this successful promotion doesn’t necessary boost their profits. If the size of the average customer purchase doesn’t increase, the franchisee could actually be worse off. The buy-one-get-one-free promotion raises the franchisee’s costs (by the amount of the free item) while potentially (and often in reality) failing to boost revenues.

These kinds of conflicts aren’t rooted in ill will or pettiness. It stems from the basic structure of the business model. What’s good for the franchisor is not necessarily good for the franchisee. If enough money is compromised, the end result could very well be a lawsuit.

Here’s a real world example: a few years ago Burger King wanted its franchisees to stay open late to sell more fast food to those seeking it at off hours. If franchisees sell more food due to being open during off hours, Burger King brings in more royalties, boosting its bottom line. This was a great plan from the franchisors point of view, but staying open late ultimately caused the franchisees to lose money. They had to pay employees for the additional hours even though their late-hour revenues were less than those wages. Its franchisees ended up in court over the disagreement.

Another common point of contention is the opening of new locations. When an additional location is opened up, often times it takes away from sales at an existing outlet. Franchisors are still better off because the new establishment inevitably increases system-wide sales, but this doesn’t help the franchisee that was around first. Their cost of operation remains the same, and they end up with lower sales.

It’s important for both franchisors and franchisees to be aware of how the other party is motivated in order to create a more understanding and effective dialogue. When they work together from a place of mutual respect and understanding, they can enact policies and business strategies that are involve more compromise and mutual benefit. One party may benefit more from a particular policy, promotion, or opening, but working together can insure minimal risk to the other, and create a lasting positive relationship for all.

Advantages of Franchising

UnknownMany entrepreneurs wrestle with the idea of starting a business from scratch, or enlisting the services of a franchise. There are definite advantages from purchasing a franchise and some of them can go well beyond the well known upside. Franchisees are in business for themselves but, of course are not alone as they have the support of their umbrella organizations. As it is well known, sole proprietorships are the most likely businesses to go close their doors in a given time frame. The support and guidance of a franchise significantly reduces those odds of failure. Being associated with a popular or established brand also helps the business owner as they reap benefits of advertising, and pre-exposure to their target market.

Franchising also offers pre-open support by way of a certain number of hours in training services. Depending on the type of franchise you are involved as a franchisee, you are offered a training program which has a certain amount of hours at your disposal in order to pick up the knowledge needed to run a company. Also a common add-on is a grand-opening program to assist owners in building hype for the first day of business. On an ongoing basis, franchises offer continued training for advertising campaigns, and operational consulting.

Such support allows entrepreneurs a framework of reference for all endeavors. It can be equated to having a very knowledgeable mentor throughout your ownership of the business. This type of helping hand can assist in the navigation of the rough waters the business environment can generate, which certainly will arise in your entrepreneurial endeavor. For more information regarding Master Franchise Connections please visit their website, or contact Neil Burnard for more information. For those entrepreneurs looking to become involved in an expense reduction franchise that has a proven track record of success, visit Neil’s ERA site.


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