Franchises: Is it the right business for you?
For starters, what are franchises?
Franchises are businesses that allow others (franchisees) to operate using their name and model. You technically own the business, but you have to follow a set of rules and regulations presented by the franchise business owners (franchisors).
There are several types of franchises:
- Business format: Most popular franchise type. This occurs when the franchisor gives all the rights, trademarks, names, etc to the franchisee. Think of it as the franchisor walking you through all the steps that need to be taken. This is done by a fee that the franchisee must pay in order for the operation to run independently. (Ex: you can get the same Zara sweater in London as you can in California)
- Product distribution: Simply put, you (the franchisee) distribute the products of the company. This is a bit more freeing than business format franchising as it does not include nearly all the rules, which gives more independence to the franchisee. (Ex: Coca-Cola, automobile/aircraft parts)
- Manufacturer: A franchiser gives the rights to a manufacturer to make, produce, and sell the products using its name.
Advantages and Disadvantages
Advantages –
- Higher success rate than startups
- Low failure rate
- Better finance security
- Reputation as a franchise is already a well known established name
- Loyal clientele
Disadvantages –
- Little room for independency
- Share of profit with the franchisor
- Rules/regulations which must be followed specifically
- The reputation of another franchise can affect yours
So, what do you need for a franchise business?
A few things to take into consideration is that each franchise and owner is unique from one another, so differentiation in papers, documents, and records is not uncommon. The basic guideline for buying a franchise is:
- Discovery Day – this is where you meet face-to-face with the franchisee and staff and get introduced to the business.
- Franchise Agreement – this is a contract between the franchisor and the franchisee. This is the most important legal document. This document grants you the rights to establish the franchise legally and, in turn, for you to pay the fees
- Obtain all permits, documentation, and documents
- Funding & location
- Hiring staff and officially opening your business
For more information on franchises and how to possibly turn your business into a franchise, contact us for a free consultation!