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Is Franchising Right For You?

As a franchisee, you’re in business for yourself but not by yourself. This guide runs through some benefits and challenges posed by the franchising business model

is franchising right for you

Brief Overview of the Industry

Buying a franchise grants you the right to trade under a growing business’s brand name and follow its winning formula, backed by training and support from the organization’s head office.

Meanwhile, for the overall business – the franchisor – franchise development is a way of rapidly growing a brand regionally, nationally or internationally by licensing use of its brand and business model to aspiring entrepreneurs.

To become a franchisee you pay an initial franchise fee, invest often comparatively modest start-up capital and, usually, pay ongoing royalty fees – typically a percentage of sales. The franchisor reinvests these funds into training you and your team and supporting you with advice and relevant resources, as well as to finance further expansion into new territories.

Such is the success of this business model worldwide that franchising contributes more than $1.75 trillion to the $100 trillion world economy, according to the World Franchise Council (WFC).

The WFC, which represents more than 40 national franchise associations, also found that two million franchised businesses account for more than 19 million jobs worldwide and, on average, 2.7% to the GDP of WFC members.

Why the Franchising Model Could Be Right For You

A franchise arguably offers the lowest risk route into business ownership provided you choose a reliable brand that fits your attributes and needs.

Some of the following benefits are almost universal – a few substandard or unscrupulous franchises aside – while others are more apparent in some franchise systems than others.

Establishing which benefits to prioritize when choosing a franchise requires patience and thorough due diligence. Do your research and find something that meets your needs (such as working Monday to Friday office hours) and attributes (such as customer service skills).

Affordability

Starting an independent business from scratch involves a lot of trial and error in the early stages – potentially resulting in costly mistakes with branding, prices, product ranges and so on.

Franchise systems, conversely, offer off-the-shelf business models that were fine-tuned before the brand was franchised.

Consequently, multi-unit franchise networks can often afford to keep franchise fees reasonably low, and subsidize or outright pay for stock, materials and technology – safe in the knowledge that the franchise will likely, soon enough, generate healthy revenues both for the franchisee and franchisor.

For example, global convenience store giant 7-Eleven says it pays for building acquisition costs or rent, real estate taxes, and water, sewer, gas and electric utilities.

Moreover, banks will typically lend to new franchises on favorable terms as they’re generally seen as a low risk proposition.

Home-based franchises, such as digital agency brand iOB Business, are often particularly cheap to start as premises are not required.

Site selection and launch support

Franchisors should provide particularly substantial guidance and support during the pre-launch and launch phases, including site selection and lease negotiations.

Whether it’s a high street, shopping mall or business park, franchises have the contacts, expertise and financial clout to help you find the right location at the right price.

This is particularly useful if you’re hunting for property in a city with sky-high real estate, such as Paris, Milan or Tokyo.

To give one example of the support on offer, Subway, the world-famous sub-sandwich brand, negotiates leases for franchisees and says its flexible floor plans makes it suited to non-traditional sites such as colleges, airports, hospitals, convenience stores, cinemas, museums and amusement parks.

Pre-launch support programs also potentially cover fitting out the premises, staff recruitment, generating leads to kick-start sales and delivering a launch marketing program.

Training and ongoing support

Reputable franchises provide ongoing training and support in things like marketing, payroll and business development, as well as access to proprietary and non-proprietary technologies.

For instance, car hire giant Hertz offers comprehensive training before and, on an ongoing basis, after launch, as well as procurement discounts, access to reservation booking channels like the Global Distribution System, and point-of-sale computer integration with the Hertz Reservations System.

On the sales and marketing front, Hertz, which has 12,000 corporate and franchisee locations in 160 countries, delivers promotions across various media and a global sales force that sells car rental services worldwide.

Freedom and control

To invest in a franchise empowers you to become your own boss, but with the added benefits of a proven business model and training and support from a team with expertise, experience and resources you would otherwise lack. In other words, you’re in business for yourself but not by yourself.

Some franchisors are less restrictive than others in terms of granting you freedom over setting prices, developing marketing campaigns, choosing which products or services to sell, and so on.

Online franchises usually offer considerable flexibility with working hours, for example, while there’s sometimes more leeway in how you deliver certain services than, say, a menu at restaurant franchise, where consistency across the network is paramount.

Scalability

Some franchises are more scalable than others too. Van-based opportunities are often the most readily scalable as it’s easier to build a fleet than fit out additional premises.

If you have designs on eventually owning multiple sites or outlets, then check promotional literature for success stories of multi-unit franchisees, and quiz the franchisor about how you might emulate them. Dessert franchise Ice Lab is among the franchise opportunities offering a multi-unit investment tier, where franchisees are promised four shops across their territory within four years.

Internationally renowned brand

Many of the world’s most famous brands, such as McDonalds, Domino’s and 7-Eleven, grew through franchising.

Others are widely recognized within a country or region. Consider for instance FirstCry, an Indian e-commerce franchise with 7.5 million users and annual revenue of US$130 million.

Buy a franchise, even those with less spectacular reach, and you automatically inherit all the customer goodwill generated by the company founders and franchisees that came before you.

Growth potential

Also watch out for up-and-coming brands – those that perhaps launched within the last few years but are among the fastest-growing franchise networks.

Ask franchisors why their business model is achieving, or primed to achieve, significant market penetration.

They might offer evidence of operational efficiencies that lower costs and prices charged to customers, innovations that improve service delivery or unique products that meet durable, growing demand.

Franchising is often conducive to facilitating rapid growth because it decentralizes both management and funding in a way that powers rapid growth.

Income security

The greatest advantage of buying a franchise is arguably the income security that comes with buying into a proven formula.

Franchises may promise a guaranteed minimum income or, say, a strong likelihood of earning US$100,000 a year by year three.

And the bigger the franchise has grown, the longer it’s been established, and the more resilient demand seems for its services – all the more reassuring for income security.

Algorithmics, a programming and mathematics schools for 5-17 years old, has a compelling pitch in these terms.

It claims to have 150,000 children studying in more than 35 countries and offers potential attainment of operating earnings within around two months and the prospect of breaking even on your investment within roughly one year of trading.

Deciding if Franchising is Your Route to Ownership

It’s important to recognize both the benefits and challenges associated with buying and running a franchise before you pursue the opportunities of franchising.

Your due diligence should begin with yourself – what are your talents and limitations, your needs and ‘red lines’?

If you’re willing to stick to a tried-and-tested formula, then you should choose a franchise that fits these criteria and is as successful and supportive as its marketing materials claim.

The patience and determination you apply to the research process is every bit as important as your exertions in starting and building the business.

Whether you want to buy a franchise in India, Germany, Spain or elsewhere, online resources such as BusinessesForSale.com provide an invaluable first step. You can get free, immediate access to information about a wide range of franchise opportunities.

If a franchise brochure piques your interest, there’s a short form for quickly requesting additional information and asking questions about the franchise.

If the response increases your interest further still, the franchisor may invite you to complete a questionnaire, attend a ‘discovery day’ or conduct an interview over the phone or in person.

If things progress further, then discussions will turn to the franchise agreement, which grants you the right to operate the franchise, and developing a business plan, securing finance and a territory, and finally launching your business.

If you have any further questions about buying franchises or other businesses on BusinessesForSale.com, then you can read our FAQs or contact our customer service team.