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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!

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.

Franchise Location – Your Place or Mine?

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We’ve talked about the advantages of buying a franchise, and what it takes to set one up successfully. Let us now focus on an extremely important issue related to franchising – finding the right franchise location. What does it take to zero in on the ideal site? A quick look at this piece can be a good starting point.

The decision to award a franchise is highly influenced by territorial considerations. Very often, the franchiser will seek partners in specific locations, where their business might be unrepresented. So, when you sign up as a franchisee, you will have to work within a geographical boundary. In the happy event that you already own premises that are suitable for the new venture in the designated territory, cross out item number one on your to-do list. For the rest of us, scouting for a suitable franchise location is inevitable.

The space issue is a big deal with franchisers, so be prepared to let them have their say. This is only to your advantage, as they will speak from prior experience, and therefore, have a better judgment of the viability of a particular space. Franchisers will specify a few things – among them, size, layout, and the quality of the immediate neighborhood. There will be other considerations as well – such as approachability, availability of public transport or parking space, and visibility of signage. All these are very valid considerations, so think twice before you dismiss any. In addition, the franchiser may insist on a personal visit by their representative in order to reassure themselves regarding the appropriateness of the franchise location.

So, the place is identified. Bravo! But don’t pop the champagne yet – its time to get into the nitty-gritty of the lease documentation. If you’ve roped in the services of a real estate brokerage company, they will be able to guide you on the legal aspects of structuring the lease agreement. Alternatively, seek the help of a lease attorney. The franchiser is not likely to be left behind, and may have a thing or two to say about must and must not have clauses. Then there’s the landlord himself – if he is in a position of strength, chances are, you will have to accept the documentation the way he likes it.

That being said, most lease agreements will go by standard clauses – see for yourself at www.legalmessenger.net. From your point of view, watch out for the commercial terms – is the rental per square meter reasonable for that neighborhood and the condition of the premises? What is the stipulated escalation and when does it kick in? Another thing to consider while finalizing the paperwork for the franchise location is the term of the agreement and whether it comes with a lock-in period. A longer term saves you the bother of relocating frequently, but invariably specifies a minimum duration of occupation. This could be a good or bad thing, depending on how things pan out, but you don’t have the luxury of foresight when you make that call.

In case you have several options of space to choose from, go for a place that is the most commercial in character – by that we mean one that is located on the high street, or in the central business district of your city. Choosing to house your operations in a building constructed by a well known developer will offer the added advantages of well kept surroundings and a support system to handle any repair and maintenance issues.
Remember, the decision of choosing a franchise location is extremely crucial. Do it with care.

Investing In A Franchise – Will Someone Show Me The Money?

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You are investing in a franchise? Congratulations! Any thoughts on how you’re going to find the finances to grow this new business? Stupid question – the worry lines on your forehead say it all. Investing in a franchise may bring several advantages, and give you a head start on many counts; but sadly, when it comes to arranging the funding, you’re faced with the same uphill task as with any other form of business.

Finding money for a franchise involves arranging resources at different levels and times. At the outset, you may have to pay a fee to the franchiser, which secures you the right to use their brand, sell their products in a certain territory and so on. The size of the franchise fee can vary significantly, and is usually directly proportional to the strength of the franchiser brand.

Try to negotiate a staggered payment with the franchiser, mapping revenue inflows. Once you’ve handed over this check, it’s time to worry about another one. If you own the business premises from where you intend to operate the franchise, good for you! For those less fortunate, it’s time to find a suitable location and the money for making advance rental or security deposit payments. Not to mention, a broker fee. And we haven’t even talked about doing the interiors yet!

Costs of equipment and working capital make up a large part of funding a franchise. While there’s no getting around the expenditure, securing favorable terms of credit from suppliers can go a long way in easing the cash flow. Make sure you evaluate at least a few vendors to ensure that you’re not being ripped off. Also, look for opportunities to buy in bulk at discounted prices. Leasing, rather than buying equipment can work in some cases, but not all. “Negotiating Business Equipment Leases” by Richard M. Contino, available at www.amazon.com under the Professional and Technical books category can give you a better perspective.

The strategies we discussed above will help some, but funding a franchise takes a lot more. Unless you already have the resources to support the venture for a year or two, there’s no alternative but to borrow. If you’re going to take a bank loan, be prepared to hand over a copy of a detailed business plan, along with plenty of other documents. Also, visit our Finance section to find out more on the procedures associated with a loan application. Your chances of securing the loan will depend enormously on the collateral you can provide, your previous credit history and your personal and business reputation. In any event, you will have to fork out about 25% of the requirement from your own resources.

If you’ve decided to take the equity route for funding a franchise, be prepared to answer some stiff questions from prospective investors. There’s more on this in another article on Equity Financing on this site.

A piece of advice – in general, you will find that investing in a franchise becomes easier when you seek the help of the franchiser. A well established franchiser brand will usually have a system in place to help you along – this may include tie-ups with financing institutions. They will also help you build a business plan and financial forecasting model, based on the actual experiences of other franchisees, so you don’t have to plod your way through all by yourself. And last, but by no means least, projecting the strength of an established brand to prospective financiers will only help any quest for investing in a franchise.

Common Franchisee Mistakes to Avoid – Part II

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With innumerable franchises for sale across industries, the opportunities are plentiful but it has become increasingly difficult to pick the right venture to get into. To buy a franchise is definitely less risky than a startup from scratch but it’s not immune to failures either. When you get into operating a franchise, there are essential factors to take into account such as franchisor’s agreement and support, equipment costs, business model and brand history and performance to mention a few.

Understanding these key components will help you steer away from common franchisee mistakes that can make or break your business venture. Some mistakes to avoid include:

1. Not creating a frugal budget plan and not having enough capital to jumpstart the business. New ventures are expected to rack up steep startup costs but there are ways to lessen the blow. Equipment costs, for one, can be lessened by scouting for low cost options with equal quality. Do not simply rely on recommendations from your franchisor. After you buy franchise, the business is essentially ready for operation but make sure you have sufficient capital and a sound financial plan to keep it afloat until it get past the startup phase.

2. Not sticking with the business model provided by your franchisor. Exploring other cost-effective ways to do business is good but you can try to strike a balance. Most franchises for sale come with its own franchising system because it has been proven to translate into profits. This is also one of the reasons why you got into franchising in the first place because it eliminates the need to create your own business mode from scratch. Instead of ditching your franchisor’s business model, follow it through but stay flexible.

3. Not taking the time to read and understand the Franchise Disclosure Document (FDD). As a franchisee, it is your right to see the FDD as mandated by law. Before you invest and buy franchise, it is highly recommended to go through the document that will tell you of your franchisor’s turnover, sales history and cases of litigation if there’s any.

4. Not seeking franchisor support and failure to talk with current franchisees about the pros and cons of the venture. Don’t hesitate to seek out fellow franchisees. If you cannot get enough information from your franchisor, one of the best ways to acquire the details you need is through business owners who have already done it. Once the deal is done, make sure to take advantage of franchisor support and assistance. Most franchises for sale nowadays have support programs designed for franchisees to encourage them to invest. It’s only right to get as much help as possible until your business gets off the ground.

Easy, Simple and Low Cost Franchise Start-up Options

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If you’re scouting to buy a franchise for the first time, starting small and simple is the way to go. Doing so will provide a platform where you can learn and experience the basics of managing a business which will come handy in the future especially for expansion plans.

Set a budget and look for options that require minimal overhead costs. There are plenty of choices in the market from auto glass repair to pet care and free publications. If you want a business requiring minimal assistance, start a franchise that provides cleaning services to commercial establishments.

Considered as among the fastest-growing franchises, a cleaning business will only need as low as $8,000 up to $30,000 of investment as reported by Entrepeneur.com. It is one of the easiest start-up available today and with more businesses outsourcing their cleaning needs, the industry is poised to experience an aggressive growth rate. While the opportunity is very promising, when you buy a franchise in this niche, remember to partner with companies that provide sufficient training and overall business support for smoother operation from the beginning.

Another industry to consider if you want to start a franchise with stability in mind is the auto glass repair and replacement niche. The growing number of car owners will give you a steady and stable demand and all you need is a startup investment between $9,000 and $30,000 for auto glass panels and repair tools. This type of business requires flexibility since you’ll be catering to wide customer range from businesses to residential clients.

If you have a keen interest on publishing, you may want to consider getting involved in a free publication or magazine business. Naturally, you’ll need experience in writing, editing, lay-outing and designing to get the business going. Selling ad space is crucial to the operation, either you do it or hire someone else for the post. To buy a franchise in this category, you’ll typically need to invest around $9,000 to $10,000. Make sure to choose an established brand to get you through the start-up phase as smoothly as possible.

The Pet Care Service industry has showed phenomenal growth in the past decade and projected to steadily increase in the coming years. Get involved in this industry and turn your passion for pets into a profitable business venture by starting a simple home-based pet care operation. From walking dogs to pet grooming, you’ll have plenty of clients to serve starting in your neighborhood. If you have $7,200 to $31,100, you can start a franchise offering in-home pet care and grooming services.

Home-based Franchise Opportunities

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Are you familiar with that dreadful feeling that creeps on you when the alarm goes off and it’s time to get up and prepare for work? If you want more flexibility in your schedule while working at home, home-based franchise brokering –is the perfect solution to your dilemma! This is the best franchise opportunity for people who feel constricted with the standard 9 to 5 job.
For instance, if consulting is your area of expertise, you serve clients by providing advice for a price. If you want are intent on having a full-grown business, staying at home may not be a good idea because it means that you won’t have access to capital or infrastructure that is required by your business expansion.
Through home based franchising, you can eliminate a lot of problems related to setting up your business. You will be spared from worrying about business strategies, infrastructure shortage or development plans for your business! Franchisors will be there to assist you in strategic and development planning for your business expansion. However, an initial investment would be necessary to get things moving. Needless to say, this implies that you need to be familiar with franchise brokering to enter the market place. On top of that, you need the trainings and the support required for this franchise opportunity.
There are innumerable opportunities for home-based franchises. You can kick-start your home-based franchise by choosing your field of expertise. You can venture into any area that you wish to. By building ties with the Internet Service Providers, you can provide internet services in your locality. You can take advantage of the current demand for professionals in consulting and training, venture into home improvements, launch your own holiday and cruise planning agency, choreograph wedding events, offer your advice in debt and mortgage planning and much more.
The greatest advantage about going for home-based franchising is that you won’t be a stickler to a fixed job schedule. You can work when you want to and leave without worrying about getting an incident report. This way, you can get the job done when you are most productive, find leisure when and where you wish while earning the same, or even greater monetary benefits from your franchise.
This home-based franchise opportunity is the perfect remedy for people who find working at home more advantageous. If your calling is to be an entrepreneur, entertaining home-based franchise brokering is the perfect way for a business to grow, expand, infiltrate the market and succeed despite the limitations on your ability to raise capital for your business expansion.

Key Characteristics of Successful Franchise Owners

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Before starting your search to buy a franchise, you might want to sit down and assess whether you have what it takes to be a successful franchisee or not. While there are over 1500 franchise companies in the US to choose from, getting a franchise is not as easy as you’d like to think. Each of these companies has different requirements before they partner with a potential franchisee. Working with a franchise brokering consultant might help match your needs to a suitable franchise brand that work out well for both parties.

According to Steve Hocket, president of the FranChoice Inc, a premier network of franchise referral consultants in the United States, there are a few key characteristics that every franchisee should be familiar with to determine if venturing into the franchise industry will work. Here are five considerations to look into:

Ability to Make Connections

Socket pointed out that a good franchisee should possess good interpersonal skills. Examine your past and current jobs, do you enjoy working with people or would you rather work on your own? When you buy franchise, you’re not a one man business but you become a manager of employees, building relationships and nurturing trust and loyalty.

Following a System

Unlike starting your own business where you’re the boss, franchising does not have the same environment. Instead of having complete autonomy on your franchise, you relegate some of the power to your franchisor. You’ll need to follow a system that has been tested and proven to work. You may not be comfortable with limitations on control but this is the essence of franchising as any franchise brokering firm would confirm.

Openness to Franchisor Support

As a franchisee, you are representing the brand and in most cases franchisors have teams of people to support, assist and even train you to fully understand the nature of the business. As Socket profoundly puts it, “The motto of franchising is that you are in business for yourself but not by yourself.”

Hard work Pays Off

Even if you work with the best franchise brokering firm, without hard work, success is going to be elusive. As Socket reiterates, “If you are someone who understands what it takes to be successful and have the motivation to make your business succeed, you have the cornerstone of a winning franchise personality.”

Risk Avoiders

In general, people who prefer to buy franchise rather than start a business by oneself are considered as risk averse. These successful businessmen target franchises with a proven track record and a tested business model to reduce risks as much as possible. If you’re a bold risk taker, it’s possible that franchising may not be for you.

Key Factors That Will Help with Your Franchise Decision

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Starting a business is not a walk in the park. You may have the funds and entrepreneurial motivation but you need to consider other crucial factors before diving in and buy franchise. If you want your venture to bear financial rewards, you’ll need to know the business and industry you’re getting into.

The key is to take risk but a calculated one. You can do this by asking the franchisor the right questions. Or you can work with a franchise brokering firm to help you make an informed buying decision. As an aspiring entrepreneur, it is your responsibility to stay informed to minimize future mistakes and increase the potential of business success. Here are some key factors worth checking when looking into a franchise option:

1. Number of franchises and location
A great number of franchises usually suggest success while knowing the location will tell you if you have to deal with a nearby competition. Consider it a red flag if previous locations become company owned. This may mean that a franchisee did not renew the contract due to poor profit margins.

2. Training or assistance provision
Before you buy franchise, make sure that you have sufficient training provided by your franchisor. Some franchisors charge for assistance so it’s better to get this straight beforehand.

3. Initial and long-term costs and fees
Franchisors normally require an upfront fee and a certain percentage of your annual sales depending on the contract. In order to keep your finance in check, know if there are any royalties that you need to pay.

4. Relationship with other franchisees
One of the best ways to assess the franchise of your choice is to talk to current franchisees. If you talked with the right people, you’ll have a clearer and more accurate perspective about the pros and cons of running the business.

5. Federal Disclosure Document (FDD)
Any franchise brokering consultant would tell you that any franchisor is required by law to provide you FDD. This document will tell whether the franchisor has been involved in any litigation cases or lawsuits against company executives or anything about fraud or federal injunctions.

6. History of profitability
It is common business sense to inquire about past profitability before deciding to buy franchise. Looking at the company’s history of profit margins will tell about how the franchise is doing financially.

7. Franchise restrictions
Since this is not a start-up from scratch, there are going to be restrictions with how you operate the franchise in exchange for an established system that has been proven profitable.

Buying a franchise entails tremendous monetary returns if you fully know what you’re getting into. If you must work with a franchise brokering firm in order to understand the business then do so before you make a franchise decision.

The Difference between Franchising and Licensing

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The terms franchising and licensing are two common terms and you might find the two as similar as they may sound. However, there is a big difference between the two and you must know how they differ from each other. Identifying the difference would surely be helpful to you especially if you are planning to buy a franchise or in the process of looking for a franchise opportunity.

Franchising can be defined as a business arrangement allowing the other party, called the franchisee, to conduct the business of providing and selling products or services. The other party needs to abide to the certain rules and regulations.

The two parties involved in franchising are the franchisee and the franchisor and they need to work closely to each other, creating a good working relationship. The franchisee is considered as the extension of the parent company. Thus, the franchisee can use the company’s brand and image. Since the franchisee can retain the company’s logo and trademark, it is best for franchisor to provide necessary training to the franchisee. It is worth to give the franchisee the support they need and some amount of territorial exclusivity. When you buy franchise, you and the franchisor should maintain a visible relationship.

Different from a franchise opportunity, a licensee is not really required to build a strong and close relationship with the parent company. Thus, a licensee doesn’t receive the same amount of training and support compared to the amount of a franchisee received. Licensing companies can get the opportunity to sell similar products or services of the parent company but they don’t have the right to retain the trademark as well as the company’s brand and logo. Lastly, in licensing, a licensee does not get the territorial rights as oppose to franchising.

Knowing the difference of licensing and franchising, you might think that looking for a franchise opportunity is better than a licensing opportunity. However, licensing also has its own advantages. One notable advantage is lesser cost. Licensing requires minimal financial investment compared to franchising. In franchising, you need to pay royalty fees but in licensing, you are not required to pay the same expense. Another advantage of licensing is once the licensee can stand on its own, the relationship between the licensee and the parent company is restricted to the frequent product purchase.

Now that you finally know the difference between the two, which would you prefer? Will you buy franchise or will you settle for licensing?