Advantages of Franchising – Better Than Going It Alone?

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There are many advantages of franchising over starting a new business by yourself. However, you could lose a great deal of independence, which is why you decided to start your own business in the first place. Have a look at the pros and cons of franchising below to decide if its for you:

The Pros:

Since you will be taking on a venture that is already a proven success elsewhere, you can bet that there are many advantages to it. Let us take a look at what they are:

  • You will represent an established brand, and be part of a defined operating system and management structure.
  • You will not have to do any guesswork on whether this idea is going to work for you. Guess what, it is working and has been doing so for a while!
  • One of the main advantages of franchising is that the failure rate of is very low. In the U. S., only about 5% of all franchise systems fail each year, while 30 to 35% of independent businesses fail within the first year. Smiling already?
  • You are part of an established network of franchisee associates, who can help generate new ideas and provide additional support. What’s more, they act as a yardstick for you to measure your progress.
  • Learn from others’ mistakes! The mistakes have already been made and the pitfalls overcome. All you have to do is tap into the franchisor’s expertise, training resources and support instead of relying on your own judgment.
  • No advertising, no marketing pains! The products are already well known and you are riding on the coattails of someone else’s hard work. This is one of the greatest joys of starting a franchise.
  • Success begets more success! With franchise success comes potential for growth within the organization, such as opportunities to purchase additional outlets with special, pre-financed conditions.
  • If ever you decide you want out, you will surely be able to find a lot of people willing to buy an on-going business.

The Cons:

Okay, we are now done with the positives. Let us spend a few minutes on the inherent problems of starting a franchise. As with everything else in life, franchising comes with its share of pain.

  • You will not be your own boss. If you have always wanted to be completely independent then starting a franchise is not your cup of tea. You will never be fully independent to take your own decisions.
  • You will not be able to make changes to the operations in the franchise. You have to follow the tried and tested method. There is no scope for innovation.
  • You have to pay a royalty fee based on a percentage of your monthly sales.
  • If any of the other sister franchises generate negative publicity or media attention, your franchise will also suffer the backlash from such allegations.
  • It is more expensive to buy a franchise than starting your own independent venture about 40% more!
  • You will be bound by a contract with many terms and conditions. Learn to read the fine print.

That being said, it is now up to you to take that final step. Make that decision after careful thought and considering all the advantages of franchising along with the disadvantages. Once you have made the decision, go for it!

Business Franchise Information – What Do You Need To Know About Your Franchiser?

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The first bit of business franchise information you need to discover will be “Is franchising the best option for you?”

Your business can grow in many ways. First of all, there is organic growth – or that which comes as a result of market expansion or from eating into a rival’s market share. Another option is to grow inorganically, by way of acquisition of a rival business.

Growth can also be defined in terms of whether it is in the same line of business or in a related field. An example could be that of a fabric manufacturer either ramping up capacity to produce more textiles, or entering into the arena of ready made clothing.

Interestingly, a lot of businesses also step into an unrelated field – the motivation in many such cases is to better utilize existing resources. A lot of new businesses have germinated this way, when the owners find that they have spare space, people or infrastructure which can be leveraged in a new business. Lastly there is the option of franchising.

We’d advise you to collect enough business franchise information to make a decision with a lot of care. Don’t jump into a totally new business just so that you can keep your staff busy. Every franchise opportunity is different, and brings its own set of challenges. The makings of a good franchiser are discussed below:

Keenness to do business: This will be apparent right at the negotiation stage itself. If you find that the franchiser is laid back or complacent, you’re better off without them. For a franchisee to make money, it is essential that the franchiser act as the driving force. A non-responsive franchiser company is better left untouched.

Adequate support: Since you’re entering unknown territory, it is the franchiser responsibility to ensure that you are adequately equipped to run a successful unit. And that means providing adequate operational training to your staff, implementing a solid marketing and communication plan for the brand and advising you on how to run a profitable franchise business. In fact, some franchisers help with the real estate decision and financing requirements too.

Financial soundness: That’s a tell tale sign, if any. Make sure you go over the financial strength of the franchiser company in great detail. Every franchiser will sell you the success stories of other franchisees – while you may listen to that with interest, you must also ensure that the principal company is itself strong enough to stand . Don’t assume that there’s always a sound company behind a strong brand.

Past history: A rapidly growing franchiser company might brag about how they’ve grown in recent years. That’s a red flag for you – numerous sign-ups are usually accompanied by a number of break-ups. Check how many franchisees have left the business, and what happened to them. At the time of reviewing the terms of the franchise agreement, be sure to understand the implications of a separation. Some franchisers refund a part of the fee to the outgoing franchisee once they find a replacement. This is important business franchise information.

Attitude of other franchisees: That sums it all up. Be sure to speak with at least a couple of existing franchisees to get their perspective on what it is like to partner with the principal. If they seem satisfied on the support they receive, as well as the performance of their business, the opportunity is probably worth your consideration too.

It is essential to be armed with the above business franchise information before you invest a dollar into your new franchise business.

Franchisor Lending Assistance, Yes Or No?

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As years go by, more franchise systems are making use of lending programs to encourage financing and entice people to buy franchise despite the difficult times the lending environment is going through and the increasing demands to stimulate growth. However, such move is not a prudent tactic for everyone, according to Infinity Franchise Capital’s vice president of franchisor Sharon Soltero.

During the Franchise Finance & Growth Conference at the Four Seasons in Las Vegas, Soltero began her talk by telling those franchisors, or anyone who advertise franchise opportunity, that they ought not to do lending programs. Having worked on said programs herself, she related on how the process can be very stressful, difficult, and time consuming. She mentioned, in fact, that these programs require up to three months to get things started for both franchisee and those who buy franchise.

Soltero also gave further tips for those who still insist on using lending programs. For instance, franchisors must confirm if they are legally allowed to make use of such programs or determined enough to be able to implement it. She related how many franchise opportunity sellers, whom she worked with in the past, became quite interested in the program but eventually changed minds after going through the difficulties. These include problems in the loan contract, legal concerns, and convincing the company’s board.

In order for such programs to be successful, franchisors are advised to ensure loan guarantees. Such strategy appeases lenders and increases the program rates, both of which consequently improve participation and ensures the program’s success. Furthermore, franchisors committed to loan guarantees tend to exert more effort in making the program to function as intended.

Despite the aforementioned troubles that accompany lending programs, some benefits can also be had. For example, Burger King’s program helped boost the fast food chain’s remodeling program. Denny’s, on the other hand, went through a significant kick start development when its lending program—amounting to $40 million—aided its franchisees to convert 140 restaurants located in Flying J Travel Centers. To cap it all, the lending program is a great tool in solidifying the relationship between franchisor and those who buy franchise.

If franchise opportunity sellers want to reap the benefits of lending programs, they must certify that the programs are going to be used, monitored on a daily basis, and have a solid contractual agreement. Soltero related how the lending programs she had been involved with never lost a dime because they were done correctly with full commitment from their franchisors.

Is There a Limit to How Many Franchises You Can Own?

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The benefits of franchising are its low priced capital yet at the same time earns sizeable income or profit. This is the reason why most restaurants love franchising. Although a franchise opportunity is a good business, some franchisors still think they need to operate on other locations to keep their credibility and earn more franchisees. Other continues to buy franchise and operate in different areas to check out new concepts that may or may not work for them.

Despite the number of units a franchisor own, the big question still remains and that is how much is the percentage profit of the company ownership? Some restaurant executives claimed that you’ll only know the amount once you know it. Confusing right? A conference in Four Seasons Las Vegas was held, “Franchise Finance & Growth” where most of the panel present in the conference were restaurant executives and they indeed claimed that the percentage is not done in magic. This was in fact said by Jim Greco who was the previous owner of Sbarro and Bruegger’s.

Most successful franchisors have long been unloading in different locations such as the famous Applebee’s or the Burger King. On the other hand, there are some franchisors who still believed to buy franchise based on percentage. According to the chief executive officer of Wingstop which is based on Texas, the practice of holding on to an owned franchise is not really needed. Charlie Morrison thinks that franchisors need to explore other places to check and better understand variables of other market consumers and its locations.

Lastly, Jim Greco provided a thought to ponder to those who want to buy franchise. He said never to combine a company to a franchise. By combining these two entities may result in chaos or conflicts. According to Greco, creating multiple franchises gives you an idea of the variable from one store to another. Franchise opportunity is everywhere but it must be understood properly to run it smoothly. Having multiple franchises is good and you’ll just know what ratio is enough once you’re starting to profit enough. After which, grabbing a franchise opportunity will then be considered as worth it.

Franchise Opportunities for Small Entrepreneurs

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The growing industry of franchising has undeniably attracted a lot of small time entrepreneurs to start up with their own franchise opportunity in hope of being a success and gaining profits more than other business type owners. Buy franchise restaurants is one of the most common type of franchise being sought after by entrepreneurs in the present because of the high profit results and low capital or income costs affiliated with this kind of business model. Most restaurant chains have already expanded from places to places since some, if not most of them, believe that there is a need for them to open up and operate in certain locations to test and prove their credibility to their franchisees and on the other hand to try out new ideas, strategies and concepts. With all this growing demand for franchise opportunity, how would you know the right and accurate percentage of your company ownership?

Jim Greco, the former CEO of Sbarro and Bruegger’s said in a conference held in Four Season’s Hotel in Las Vegas that there are no magic nor exact percentage that business owners should expect when it comes to company ownership. A number of restaurant heads and executives joined together on the Franchise Finance and Growth Conference sponsored by their sister publication the Franchise Times to discuss the recent trends and changes in the restaurant industry.

Subscribing to a percentage rule is done mostly by systems that operate on their own with the belief that there is a need for them to operate 10 to 50 percent particularly when their buy franchise is growing in demand. However more and more restaurant franchisors like Applebee and Burger King have set down their locations in the past recent years compared to those successful ones that have been profitable and buying.

The CEO of Texas based Wingstop Charlie Morrison once said that holding to the percentage of unit ownership is not necessary, since franchisors need to keep in mind that enough locations is done to be able to understand the changing variable and demand of vast markets especially in a franchise opportunity. He says that when you are an owner you will know when you already achieved the right numbers. When you are an owner remember to keep in mind when you buy franchise to not mix franchise market with company because it creates problems and conflicts. Merging the two can give rise to competition for employees and locations that are not supposed to happen when approving for a franchisees new location. Looking for locations for company units is a much different thing as stated by Greco.

Why Start a Franchise Business Today?

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It is a common perception for start up entrepreneurs to think that when you venture into a small business the major problem that you experience is funding. Recent report shows that one type of small business has shown stability during the past five years. This type of business is franchising which has been reported to receive more funding than any other small businesses in years after the global recession.

The year 2013 is a good year for start up entrepreneurs who wants to grab the franchise opportunity for a small business. Small Business Lending Matrix and Analysis reported that the franchise venture will release more or less $23.9 billion in a form of a loan which has been the biggest amount given since 2009 in financing and funding the industry. This available loan for franchise opportunity is deemed to sustain more than 59,000 franchise businesses, which gives more opportunity for entrepreneurs to buy franchise as their business venture. The government’s Small Business Administration has contributed to the loan program by granting about $5.6 billion to interested applicants.

The advocacy group International Franchise Association Educational Foundation prepared a report that mainly focuses on promoting the franchising industry by doing things like advancing the knowledge and professional standards in the industry of franchising. The business is said to generate almost 800,000-employment opportunity and about $106 billion in sales advancing the industry and attracting entrepreneurs to buy franchise. The report also states that the franchise opportunity for entrepreneurs has shown great improvements for four succeeding years followed by improved chances of growth, higher demand of transaction for unit and more banks willing to lend for an industry that has shown positive results and continues to improve year by year.

All the reports that was shown and released all produced positive feedbacks for businessmen to be convinced to buy franchise as their start up business. With the increased loans that are readily available to be granted to those who are interested to franchise business it is not a doubt that the industry of franchising will soon be a big one before other know it. However, with all the loans given the International Franchise Association reports that the $23.9 billion money is actually short for the total $26.5 billion that is actually needed to fund any start up operations or current business franchise opportunity at the present. The report was accumulated mainly using the data released by SBA, the Franchise Business Economic Outlook for 2013 and some other useful references available for compilation.

Franchising: The Common Errors to Avoid

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In any business venture, there are always advantages and disadvantages. Same goes if you want to buy franchise, it has a lot of benefits yet it also comes with a lot of downfalls. A franchise opportunity is great and it’s easy to operate, you can instantly run it without wasting too much of your time. Applying for a loan is also easy if you’re going to franchise rather than start an entirely new business.

However, a franchise opportunity is not an assurance you’ll earn big time. In fact, it is also possible you’ll lose your money. To avoid losing your money, here are some common points you need to consider if you plan to buy franchise.

1. Don’t Tumble Over Too Much Publicity – Franchising is most of the time over publicized sending wrong notions to the public. Franchising is not an assurance that your business will not fall. Some popular personalities are aware of this over publicity that they too have agreed that franchising is not as easy as it seems. A franchise adviser named Joel Livaba once said that a franchise opportunity is great as long as one should be realistic about it. A long time marketer Sean Kelly also said that there’s no such thing as low risk in terms of business because not all franchising venture flourishes just like McDonalds.

2. There’s No Harm in Calling – Before you buy franchise, it is better to check on the FDD or the Franchise Disclosure Document which contains contact information of multiple franchisees. There’s really no harm in calling some franchisees and ask them about their experience. By doing so, you will have a better grasp of what you’re about to venture in. Of course, make sure to ask franchisees the most important question and that is if they still want to do it again if given an opportunity.

3. Ensure a Back-up Fund – One of the most common mistakes in franchising is giving everything without a back-up fund during lean times or emergencies. Starting up a franchise involves great amount of money and some franchisee tends to give all without saving some for the future.

4. Have a Way Out – In case you reached the darkest moments of franchising, you must have a ready plan to get out of such situation. First, you must have read the agreement or contract right before you agreed to any of it. You may lose everything when franchising; there’s a possibility of foreclosure even before the contract ends, you may have a pending loan you need to settle and you don’t have money left because you’ve given everything to start up the business. Overall, you must be clever enough to have an exit plan in cases like this.

5. Always Do Reality Check – Franchisees are sometimes blinded with excitement that they tend to ignore reality. You must question yourself if the franchise is easy to market and will you profit from it. You must not lose your focus and always get in touch with reality.

6. Is it Profitable? – Just like any other business, you must check the financial history of the franchise. Financial reports must be checked so you can weigh things before investing.

7. Business is Business – Franchising is a business so expect to maintain a business relationship. Although there are some franchise owners who wants to help, it is still better to take caution. In business, money is the main priority.

8. Make use of a Third Party Consultant – Consultants are there to offer you a hand in decision making. Never fail to have your own franchise consultant, this way you’re assured your consultant will tell what you need to know about the franchise.

9. Spend a Little for a Good Lawyer – Venturing into the world of franchising is tricky so you need to have a good and reliable lawyer to help you with your franchise contract. So invest a little in your lawyer to expect a good service.

10. Don’t Take the Bait – One of the most common misconceptions in franchising is assuming that all the hottest and newest franchise can help you earn a sizeable income. This is not true! Franchising is based on proven methods and success therefore a new franchise with no track record is a not guarantee that it will flourish.

To venture in the world of business may take years of experience, if you’re an aspiring entrepreneur then take these points seriously to avoid the common mistakes in franchising business.

Things to Ponder Before Purchasing a Franchise

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Entering into the world of business comes with risks however franchising offers limited or calculated risks. Franchising made a name for many young and old entrepreneurs in the world of commerce and it has a lot of benefits to offer. One of the many benefits it can bring to a business is a national recognition of its brand, supported trainings, and unlimited management and marketing seminars. Starting a business is tricky but with a franchise opportunity, entrepreneurs are able to avoid problems normally faced by newbie’s.

There are different types of franchise and we frequently encounter the business format franchising. This type of franchising is like spoon feeding all the needed things the franchisee has to know about the business. The franchisor is in charge of supplying the blueprint of the following; building, marketing strategies and the entire process of its goods and services. In addition, it is the responsibility of the franchisor to endorse everything he knows about the business.

A franchise opportunity such as the business format franchising is simple; the franchisor is responsible in guiding the franchisee on how to set up the business which involves strategies in terms of advertising and other services that is beneficial for the business. Another type of franchise opportunity is the product and trade name franchise. This type of franchise are common in automobile dealership where widespread research and buying ability are provided to allow an entrepreneur to provide products that are not locally found in the area.

However, when you buy franchise it doesn’t only comes with a lot of advantages. It also comes with some things to consider such as paying for the business trademark, royalty and an up-front fee. Aside from these payments, one might need to spend a lot for the equipments needed to jump start the business. The most important part to consider when you buy franchise is the guidelines you have to follow set by the franchise owner. This is a legal agreement that you must consider before you buy franchise.

Before jumping on a decision, you must thoroughly research the things you need to know about the type of franchising you want. Each franchise agreement is different from the other so start harvesting information to give you enough knowledge about franchising. You can start checking on www.ftc.gov if you want to know more about federal regulations. If you want to read more about franchising, www.entremkt.com/ifa can provide you informative franchise books. Franchising is a sure fire way if you want to start your business on the right track, however you must be diligent enough to do your research and harvest the needed information before jumping into one.

Franchise Investigation – Five Things To Find Out

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Let us first understand what is meant by ‘franchise investigation’. These are the areas of information you need to discover before investing your hard earned money on a new franchise opportunity. This is sometimes called ‘due diligence’.

When doing a franchise investigation, a prospective buyer of a franchise gathers detailed information about the business potential and profitability, financing requirements, operational risks and other factors that must be discovered and analyzed before proceeding with the deal. In turn, this also enables the seller or franchiser to evaluate the terms of the sale, the creditworthiness of the buyer, tax consequences etc.

Following are the five most important things you will need to do as a prospective buyer before you take the final step of signing up:

1. Understand your market: Once you have made up your mind on what type of franchise you want and can afford, investigate the demand for that particular product or service in your area. Just because the idea might have worked out perfectly for someone located elsewhere, does not mean it will work in the place where you want to open your franchise. Some issues you need to consider include the level of competition in your target market and whether the concept has only seasonal marketability.

2. Compare opportunities: Even if your heart is set on one franchise brand, it never hurts to look at other opportunities to make sure you are signing on with the best option that matches your skills and interests. Attend a franchise trade show and/or use a franchise consultant who will enter your criteria into a database and then present companies that match your parameters. There are also numerous websites that allow you to see a snapshot of several concepts at once.

3. Scrutinize the offering: Do not sign any contract or make any payment until you have had the opportunity to investigate the franchiser’s offering. The FTC requires all franchisers to disclose important information about the franchise system including their past earnings, franchise agreement terminations, number of operational outlets etc. You might do well to take the help of a franchise attorney and review the UFOC and franchise agreement, as well as have an accountant review the franchiser’s earnings claims.

4. Any training or support?: Before taking on a franchise, make sure that the franchiser provides intensive training on how to run the business and also offers some kind of ongoing support. This is very important because without it you will have no way of making a success of that business.

5. Talk to existing franchisees: The most important step you can take before signing the final contract is talk to other franchisees. They can give you honest feedback and validate what the franchiser tells you. Ask them about their experiences, and if they have any advice for you. Their input could be very valuable indeed.

Conducting a franchise investigation is an important information gathering process that will enable you as a prospective purchaser to assess the strengths and weaknesses of the target business, rectify and renegotiate any new terms of agreement, minimize post purchase “surprises” and determine whether or not to proceed with the deal. Make sure you do it well.

Franchise Investment – How Much Will It Actually Cost You?

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So, you want to own a franchise but are wondering what franchise investment you need to make. Like all things in life, you have to pay a price for owning a franchise – remember, there is no free lunch.

The price tags for franchises vary depending on the type of business you choose, with mobile and home-based business franchises being the most affordable category. Here are some indicative costs:

  • hotel franchises: $4 million to $6 million
    full-service restaurants: $700,000 to $3.5 million
    fast food restaurants: $250,000 to $1 million
    auto repair: $200,000 to $300,000

There are different types of costs involved in owning a franchise. While some of these costs are typical expenses that you would expect to pay in any small business, there are other franchise investments you will need to make. This is the price to be paid for the added value a franchise presumably brings to your business venture.

You will incur both initial and ongoing costs. The initial or upfront costs include:

1) Front-end franchise fees: You will have to pay an upfront fee for any franchise that you choose. This fee can range from $5,000 to $50,000 or more. In exchange for this fee, you receive the right to use the franchiser name and business concept. In most cases, you also receive a certain amount of training from the franchiser.

2) Initial investment: Apart from the franchise fee, you will need to have some amount of money readily available to you to meet your initial setup and working capital expenses. Depending on your business, you may need as little as two to three months worth or as much as two to three years’ requirement of working capital. You can get an estimate from the franchiser as to how much this amount should be.

3) Other expenses: You will have to pay professional fees for legal services and operating licenses. Things like insurance, employee training, inventory, rental and equipment will also cost money. Depending on the franchise, you may also have to pay up advertising costs upfront and buy signage packages from the franchisor.

The ongoing expenses include:

Royalty Fees: In addition to the upfront franchise fee, many franchisers also require an ongoing royalty fee. This fee is assessed on a percentage basis and usually ranges from 5% to 10%. In return for the royalty fee, you are entitled to participation in national marketing campaigns, ongoing training and territory rights.

Other expenses: Apart from the royalty fee, you will also incur regular ongoing expenses on advertising, equipment maintenance, employee salaries, insurance and inventory.

It is better to be prepared with complete knowledge before you take the plunge. Before you make the decision to buy into a franchise, make sure you have a thorough understanding of the total the franchise investment you need to make.