How does a franchise work? You’ve come to the right place!
If you want to start a small business but have no clue how a franchise works, this article will provide some clarity. Today, we’ll go over what exactly buying into a franchise entails, how you go about doing it, and what the benefits are versus starting your own business from scratch.
Becoming a franchise owner doesn’t involve any less work than running a small independent business, but there are some key differences.
What Is a Franchise?
At its core, a franchise is a large company licensing its trademarked logo and business practices to a small business owner.
The relationship between the franchisee and the franchisor is central to the success of their business agreement. A franchisor must provide the tools to help the franchisee succeed. A franchisee must adhere to the methods of operation that the franchisor has laid out in order for them to succeed. It’s a two-way street.
It’s mutually beneficial because the franchisor can expand without the high cost of doing so. For the franchisee, they get to start a business with a built-in support system.
Both parties are working toward the common goal of running the business to the best of their abilities. One party is working on the macro level, while the other is working on the micro level. However, both are critical to their overall success.
How Does a Franchise Work?
Similar to other licensing opportunities, the franchisor will pay the franchisee an initial fee to start the business, then subsequent royalty fees to continue using the name and business methods.
The franchisor will have nothing to do with the actual day-to-day operations of the individual franchise. Instead, the franchisee acts as the employer, handling compensation, scheduling, hiring, employee culture, and employee discipline.
Often, the franchisor will provide guidance on how they want the culture of the business to operate. Moreover, they typically provide information on utilizing resources and maintaining best practices.
Company culture and things like uniforms are commonly put in place by the franchisor. Smaller scale things are left up to the franchisee. It’s kind of like running a small business with the backing of a large company.
What Makes Franchising a Good Opportunity?
Franchising is a great opportunity for someone who wants experience with running a small business but doesn’t know exactly how to get things started. The franchisor can act as a guide to the franchisee to overcome some of the initial hurdles of running a business.
A franchisor will probably have an established brand, which makes the franchisee more likely to succeed right out of the gate.
There are things that a franchisor will help with to get the franchisee off the ground. For instance, location scouting is usually aided by the franchisor. Large corporations have specialists that can analyze data in a specific region to determine whether or not a certain location is suitable for a new franchise.
The upfront cost of starting a franchise is much cheaper than the startup cost of a new business.
If money is tight, then franchising would be a better way to go. However, the success of a franchise benefits the franchisor just as much as the franchisee.
You’re somewhat limited as a franchise owner, but depending on the franchise you can always purchase more franchises once you’ve taken your first one as far as it can go. It’s not uncommon to see a franchisee with multiple establishments in one city.
There are also varying terms with regards to a franchise agreement. If you want to start at just one year or have an unlimited term for your franchise, you can negotiate that with the franchisor. This gives the franchisee the ability to determine their own level of dedication, so to speak.
How to Become a Franchise Owner?
Becoming a franchise owner requires a bit of research on your end. You have to find something that you can afford that will keep your interest for a long period of time. Different franchises offer different perks and have different requirements.
The requirements laid out by the franchisor will include a certain credit score, cash in hand, your industry experience, management experience, and net worth. These things differ depending on what the franchisor requires, the reason being that your prowess as a business person directly affects their reputation.
When searching for franchise opportunities, you would first consider your own interests. Do a self-assessment to determine what your skills and experience offer to the industry you’re looking to get involved in.
When you’ve narrowed your focus, look into the competition in the area you reside in. Considering where the franchise would fit in within the community will have an influential hand in the success or failure of the business.
Then, once you’ve figured out the route that you need to take to make your franchise opportunity successful, look into the financial and experiential requirements laid out by the various franchisors.
You can obtain applications and Franchise Disclosure Documents (FDD’s) that will lay out all of the requirements for you.
You can also attend an information session held by the franchisor that will have a representative to answer any questions you may have. It’s crucial to be well versed in a franchisor’s persona and culture before you go into business with them.
If everything looks good, then you can begin coordinating any loans that you may need and finding an appropriate location for your franchise. Once everything is sorted, you can get your franchise up and running.
Start Your Franchise Today
There are loads of money to be made in franchising without the high risk and fear of the unknown that comes with starting a business. Start doing the research for your franchise today.