Starting a franchise business is similar to how you start your own business from scratch. As a franchisee, you have a brand and standard ways of doing business. As an individual entrepreneur, you have a bigger business to work with and you also have the benefit of a pre-existing customer base.
Franchising allows bigger businesses to create branches and grow while giving entrepreneurs and small business owners a chance to run their own small units with the help and support of a larger organisation with a proven formula for success.
Franchising is a kind of marketing strategy and distribution in which the owner of a business (the franchisor) grants to an individual (Entrepreneur) or group of individuals (the franchisee) the right to run a business selling a product or providing a service using the franchisor's business where the person get permission to use the franchisor's branding, trademarks, and rights under specified guidelines.
What is a franchise?
A franchise or a franchise business model is where a business owner provides products or services under the branding, rights and rules of a parent corporation. The parent corporation assists its franchisees with marketing, inventory and support under their name.
When opening a franchise, the franchisee pays the franchisor and usually submits an initial franchise fee or they can contract to do business under the brand’s name.
Types of franchise business
1. Job-Franchise:
This is a home-based or you can say a low-cost franchise that is managed by a person who wants to start a small franchised business as an entrepreneur. These types of franchisees are mainly by a single person selling products or providing a service within a specific trade or industry sector.
2. Product Franchise:
These are product-driven franchises and they are totally based on the supplier-dealer method, where the franchisee distributes the franchisor’s products and services. The franchisor licenses its brand name by not providing franchisees with a complete system for running their business.
3. Business Format Franchise:
This is a type of franchise business franchisor’s trademark and the entire system to manage the business and market the product and/or service. The franchisor offers detailed agreements and procedures on an aspect of the business model. It also includes initial and ongoing training and support.
4. Investment Franchise:
These are large-scale franchises requiring huge capital investment, such as hotels and restaurant sectors. The franchisees usually invest money and engage either their own management team or operate the business and produce a return on their investment.
5. Conversion Franchise:
It is a kind of creating relationship between the franchisee and franchisor, where many franchise models grow by turning their businesses into a trademark. The business grows in the same industry into franchise units only.
Why is franchising a smart business solution?
A franchise is a type of business in which anyone can do business. A franchise business is the most profitable business opportunity. It offers franchisors and franchisees both persons various opportunities. Franchisors can extend the reach of their business from the original business to aspiring franchisees.
Choose a franchisor that better suits their business tendency. These franchisees will have the opportunity to operate their own business in their area under the original franchisor’s business name.
Franchisors can also accelerate their business worldwide under the value of their corporate brand to aspiring franchisees who choose them as franchisors.
Franchising is an initiative that has greatly impacted many areas of today’s economy. It is not just about moving your brand to another location, it’s about giving you all the knowledge to do business and helping in growing industries.
Today, many entrepreneurs have invested in it and choose to set up their companies according to the franchising business model, characterized by the application network's variety, because it is an innovative business solution.
Buying a franchise lets you take advantage of a good name that you think is already on the market and whose reputation is recognised by customers. Reduce the risk of failure.
Statistics from the International Franchise Organization show that only 10 % of independent businesses survive five years, but for franchises (business owners who acquire franchises), that percentage rises to 90%.
Advantages of franchising business
1) Franchises give you instant brand awareness:
When you start a new business, it's the task of building a brand according to your vision. Brand building can be challenging but rewarding for you. When you open a franchise, you enjoy instant brand awareness and other benefits with it.
2) Franchise business operations are standardized
Operations are different for franchises and original businesses. Franchises follow your specific format and way how to operate a business. Franchises have a large audience of buyers and benefit from the brand name.
3) Marketing benefits
Marketing is essential for any business to get success with a franchising model, franchisees enjoy the benefits of having bigger marketing hands behind them, while the franchisor ensures their brand is being promoted consistently and uniformly in every market corner.
4) Lower failure rate
Franchises have a lower failure rate than other businesses model. When a franchisee buys into a franchise, they’re joining a successful brand and a network that will offer them support and advice, making it less possible they’ll go out of business.
5) Profit-making business model
Franchises see higher profits than individual established businesses. Most franchises have recognizable names in the market this popularity results in higher profits. Even franchises that require a high initial investment for the franchise fee see a high (ROI) return on investment.
6) You are your own boss
One of the biggest benefits of owning a Franchising business is being your own boss. When starting a franchise business, you get to be your own boss with the added benefit of receiving franchise support. A franchise gives you the benefit of being your own boss without taking risk of starting your own independent business.
Disadvantages of franchising business
1) Less freedom:
Starting your own business gives you the freedom to make every decision in your own way. Which allows you to create your vision, but it can be overwhelming. With a franchise business model, you have less freedom but more support. You sign the agreement with terms & conditions. You receive the tools, support and structure to run the business from the franchisor.
2) Franchising startup costs can be high:
Starting a new business and opening a franchise both require significant investments in the beginning. Franchise funding can be costly; you’ll possibly need to secure a loan or line of credit to cover franchising fees, real estate costs etc. However, you may be able to use your franchisor’s investor relationships to secure funding about still it can be costly.
3) Restrictions
While a franchise allows the franchisee to be their own boss, But not doesn’t give complete control of their business, nor can they make decisions without taking into account the opinion of the franchisor.
For most franchisees, comes with the disadvantage to follow the restrictions laid out in the franchise agreement. Depending on the franchise agreement, the franchisor can control any of these aspects of the business such as:
Business Location
Hours of operation
Holidays
Pricing
Signage
Layout
Decor
Products
Advertising and marketing
Resale conditions
Here are the steps you need to follow to start your own franchise
1. Research Franchises
Start with categorising franchises by the industry in which you want to invest. Then create the key points to keep in mind while you’re picking a franchise:
Industry fees
capital needed
Average monthly/yearly revenue
Royalty fees
Marketing fees
Other fees, etc.
2. See the opportunities
Before you start a franchise business, you should make sure that one doesn’t already exist in your locations. Although some companies can exist throughout a city, you just have to ensure you’re not setting up a competitive location that could underperform.
3. Investment
When you’re looking into starting a franchise business, you’ll have to check your investment and a few different costs. For example business costs such as rent and maintenance, you have to pay a yearly royalty to the franchisor etc.
4. Have a business plan
There are many aspects of the business to define, when you write your business plan, you can make an outline. Such as locations, your target audience, how things will work, etc.
5. License & agreement
The franchisor has to make a contract or agreement that they provide to franchisees in order to run the business. Before signing, make sure to read over the documents and understand all of the standards expected of your location. It’s important to know what business standards and regulations the franchisor has for franchisees, and make sure you’re comfortable with the business policy.
6. Choose your business space
When you have business from the franchisor you need to check what kind of space you’ll need in terms of size and setup. If it’s a restaurant, they also probably have specifications about appliances and amenities needed to keep the space in line with the overall brand.
7. Hiring the right person
Once you have done with your agreements and a location, you can start looking for employees. The franchisor probably has job descriptions and titles set up already so it’ll be easier to post the job openings and start searching for hiring the right person according to job titles.
To know about its Factors to investigate before you purchase a franchise click on the link.
Summary
Starting a franchise business can be as much work as starting a business from scratch but it's a smart business solution nowadays. Working with a franchisor allows you to focus on important aspects of doing business with lower risk. In this article, we explain all the aspects of why franchising is a smart business solution
