If you are thinking of investing in a franchise, it is important to understand how franchises are similar to and how they differ from other types of business. If you’ve ever wondered “how does a franchise work?” then this article will help to answer a lot of your questions.
The Franchise Structure
Franchises expand their businesses by allowing investors (franchisees) to use their name, brand, system and product in exchange for a franchise fee. The franchisee owns and operates the local business and pays a percentage back to the franchisor by way of royalties. Usually, the franchisor will provide help and support in areas such as marketing, finding a location, training and so forth.
Why own a Franchise?
Owning a franchise is not for everyone. It does provide certain benefits over starting a business from scratch. Being a franchisee allows you to be your own boss, but it also provides a support network that you wouldn’t otherwise have from running a business independently.
As a franchisee, you can benefit from existing brand recognition instead of having to build your brand image from the ground up. You also have the advantage of large marketing campaigns run by the franchisor.
A franchisor that has been around for several years or even decades has a lot of experience with what works and with what doesn’t. Over the years, they have developed a proven business model.
Before You Invest
Even though there are many upsides to buying a franchise, there are several considerations that you should take into account before investing. Obviously cost is one of the biggest factors as start-up fees for franchises can be higher than with other kinds of businesses.
You also need to understand that even though you will be running your own business, you are not free to run it any way you choose. In order to keep a consistent brand image across all territories, franchisors have a set of rules that you will have to abide by.
Research is one of the most important steps in your process of finding the right franchise opportunity for you. Performing your due diligence and doing a thorough investigation of the business you are considering investing into is key in making a sound decision. Review the Franchise Disclosure Document, or FDD, for information on franchisor and franchisee obligations, litigation and bankruptcy, estimated initial investment and fees, earning and/or sales claims, etc. Review your franchise contract carefully and be sure to work with industry experts, like lawyers and accounts, to make sure all of your questions have been answered.
Now that you know how a franchise works, you are better prepared to decide whether investing in one is right for you. Keep in mind that every franchise is unique. Business models, systems and procedures and profitability will all vary, so once you decide you’d like to become a franchisee, there is still the task of finding the one that is the best fit for you. If you are ready to take that next step, contact FranNet or take this quick Franchise Assessment. We have helped thousands of entrepreneurs get started in the franchise industry and we can help you too. Learn more about your options for business ownership with a free, no-obligation consultation.