A franchise is a type of license that permits a franchisee to access the franchisor’s proprietary business knowledge, processes, and trademarks. The franchisee sells the products or services under the well-known franchise.
Initially, a franchisee pays an initial fee and royalties to the franchisor and in return obtains his trademark and the right to use the franchisor’s system to sell its product and services.
Pros of buying a franchise
- Collective buying power
When you buy a franchise and become a part of the franchise system, you will get the benefit of your franchisor’s deep routed bonds with suppliers. The material will be less expensive due to the franchisor’s collective buying power.
- Loyal Customer Base
One of the toughest parts of any business is to find the customers. By purchasing a franchise, people bypass a lot of work that comes in marketing a new business. Investing in a franchise provides you with an established customer base and potential employees.
- Training Program
Every franchise system includes on-site training of employees on daily procedures.
- Benefits of “Economies of Scale”
After joining the franchise network, you will get the advantage in the areas of product and services supply, technological development, scientific research, and other business processes.
Cons of buying a franchise
- Working by the franchise’s rules
Most of the time you have to follow system regulations, operations, and instructions of the franchise. If you have found a more efficient way of doing the business, the franchise may not approve it.
- Limited Creativity
Franchises have a pre-established brand, therefore there are fewer franchisees who are willing to explore, make changes, and add something valuable to the company’s brand.
- Contract Agreements
When you decide to purchase a franchise, you have to accept the terms and conditions of the Franchise Disclosure Document (FDD). If you break any of the requirements, you can lose your business.
Things to do before purchasing any franchise
- Market Requirement
Understanding the market is a fundamental aspect of every business. Plan the requirements, observe the different brands, and determine your budget accordingly.
There are many franchise options but consider the one which suits your market requirement. Look for the potential growth of the brand in which you decide to invest. This will make your research better.
- Track the brand
Many brands in the market are open to franchising. List down some good franchising brands, track their records, their growth, their value, and their reach. It is very essential to investigate the business and track record well because having a franchise doesn’t show they are efficient brands.
- Expenditure
Before going into a franchise, make your budget. You will pay for the material, the location, the staff, and other necessary equipment. Look for the brands that match these expenditure criteria.
- Your franchisor may modify their systems like they may desire to change the look of their store and you will have to pay for these changes.
- Consumer wants may not be the same at every place therefore, one type of franchise may perform well while others may not.
- While you find cost-effective products through another supplier, your franchisor may own long-term contracts with the existing suppliers.
- Competition
Before selecting the right franchise, compare different brands and their competitors. Understand the audience’s expectations and choose a brand that can serve them better and help your business grow.
- Training
It is important to find a franchise whether they provide employee training programs. They provide you the operation manual of their organization, which contains all the fundamentals of the business the owners need to know for operating the franchise.
For hands-on training, they franchise them to their corporate headquarters, and then they provide on-site training along with some assessments at the end of the program.
- Franchise Agreement
Once you have taken up a franchise, there are certain guidelines you have to follow. These guidelines are made from prior experiences and expectations of the brand. It covers where and how will you run your franchise.
Once the franchise agreement ends, the franchisor has no responsibility to renew your franchise. So, the business you have established along with its goodwill can return to the franchisor. Therefore, it is better to consult a professional before signing this contract to understand your rights and responsibilities under every section.
If you once made the wrong decision, it will cost you millions of dollars. The time you spend investigating the franchise, market, and industry will give you more confidence to determine whether to buy it or not.
