Franchises: What They Are and What You Need to Know
Bizymoms has graciously shared all the basics you need to know before considering a Franchise Business.
What is a Franchise?
When the owner of an established brand decides to lend his brand name and goodwill to a potential business associate, along with a business plan and the business systems to make it work, it is known as a franchise business. It creates a win-win situation for both the franchiser and the franchisee in the sense that the franchiser is able to expand his business by inviting business partners who invest their time and money in selling his branded product or service and pay him a part of the profits. On the other hand, the franchisee gets a readymade business system and an established brand and is able to run his business systematically from day one.
New entrepreneurs will usually opt for a single unit franchise where the franchisee is required to run only one unit from one location. The franchiser will usually provide a specific territory to the franchisee so that there is no overlapping of competition within the franchise. For large entrepreneurs, there is also the option to run multi-unit franchises. This requires a higher investment and superior management skills on part of the franchisee to be able to run multiple units efficiently and achieve desired sales results from all units.
What is the process of starting a Franchise Operation?
Franchising may appear to be a simple option but in reality it requires sharp business acumen to start and run a successful unit as a franchisee. The following steps are key to making the right start for a franchise operation:
- Selecting the appropriate franchise: You need to do thorough homework before deciding upon the kind of franchise opportunity that you wish to go for. The business must match to your interests and skills, the financial requirements must be within your budget, and the business must have a strong future for growth potential.
- Understanding the franchise agreement: It is critical to understand all the details of the franchise agreement that is drawn between the franchiser and the franchisee. If necessary, you may hire a franchise lawyer to advise you in this matter. It is important to know all the pros and cons of the business that you are going to invest in.
- Verifying the track record of the franchiser: Before going ahead with signing the franchise agreement, you ought to do your homework regarding verifying the reputation and past performance record of the franchiser. If possible, you may speak with the existing franchisees of the company and review their comments and responses regarding the franchiser company.
- Creating your own business plan: Although the franchiser will provide you with detailed business systems and parameters within which you ought to operate your business, it is still wise to have your own business plan in place that includes your personal sales targets, expected profit margins, expected overhead expenses of the business, and your marketing strategy at the local level within the framework allowed by the franchiser.
Types of Franchise Ownership Opportunities
While you are considering various franchise options for your business, you also need to understand the various types of franchise ownership opportunities available in the market. Each type of ownership comes with its own set of challenges and benefits. You ought to choose the type that matches most closely to your needs, interests, capabilities and aspirations. The basic types of franchises are listed below:
- Single Unit franchise: Usually a new entrepreneur with limited resources would choose a single unit franchise where he can focus exclusively on developing the business unit with personal attention. It allows him to consolidate and gain essential business experience before he may think of expanding the scope of business further.
- Multi-unit franchise: For larger entrepreneurs who have the capacity to invest bigger amounts and who may preferably have past business experience and expertise, a multi-unit franchise is a viable option. Here the franchisee uses his management skills to run multiple business units from multiple geographical locations successfully, and maximizes his business volumes with efficient handling of the multi-unit franchise operation.
- Acquiring an existing franchise: Sometimes an entrepreneur may come across a business opportunity where the existing franchisee is willing to exit the business. If the price is attractive and the opportunity is promising, the entrepreneur may take over the entire set-up and gain from this opportunity in terms of lower investment and readymade systems and experienced staff.
- Master Franchise: In case of very large or global brands, there is an opportunity to become a master franchisee for a large geographical territory, and manage the franchise operations for the entire area on behalf of the parent company. It involves superior business skills and major investments to become a master franchisee.
There are many new franchise options coming up, and the franchising model has proved to be highly sustainable and successful for most entrepreneurs if only the management is committed and sincere towards building a customer-centric franchise organization.
Bio: Bizymoms has been helping women start work at home businesses for over 10 years. Now, with our Franchises for Moms section giving great home business ideas, women can start their own franchise business!
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