The Benefits in Owning A Franchise

If you’re an aspiring business owner you might be weighing the options or a franchise vs. an independent business. It’s an interesting quandary… can I go at it alone? Or do I need some support… some guidance… a proven system. That’s a key distinction when you invest in a franchise. The concept is simple, you’re purchasing a license to operate a business model that someone else has developed. With a franchise system, provided the model works and you’re comfortable that it can be successful, it does come with costs including: Franchise Fees – This is a fee you pay for the license, or right to operate another companies business model. The franchisee fee is not just for the license, but also covers the cost of training for you and your team to learn how to operate the business. Royalty Fees – Royalty fees are ongoing fees that the franchisee (you) pays to the franchisor. These fees are usually paid monthly are typically calculated as a percentage of gross sales. Advertising Fee – This is an ongoing fee that is typically a percentage of your gross sales. You advertising fees are typically invested into a fund that is used to help you and other franchisees to advertise your product or service. When you buy a franchise, the initial and ongoing costs are typically higher than starting your own business. You’re buying the right to operate a business model, the franchise, royalty and advertising fees are essentially the compensation to the franchisor. While there is a lot of debate as to whether a franchise system is better than starting a new business from scratch, if you’re confident that the franchise system works, the main benefit could be “reduced risk”. Please note, I said “could be”. The reason for the qualifier is not all franchise systems work. It’s important for you to do your research to determine that the franchise model of interest actually works. Here are some of the benefits of a successful franchise model: A Proven System When you buy a successful franchise system, you’re purchasing a right to operate a business model. When you start your own business, you will likely face challenges including: 1) Developing your own systemrn2) Developing marketing materials and unique selling pointsrn3) Identifying the ideal locationrn4) Identifying your target marketrn5) Delivering your product or service A good franchise system should already have established procedures in place. They have developed a system that can be replicated and taught to others. Brand Recognition Some may consider brand recognition as the most important part of a franchise. I personally think the system has more value, but you can’t underestimate the power of brand recognition, particularly brands like Dunkin Donuts, Subway, etc. Buying an established brand means instant credibility. It makes it easier to enter a new market as your customers are already familiar with you. Purchasing Power Purchasing power, the ability to use the value of a collective group to negotiate better prices for your inventory. With a proven system and the ability to guarantee your suppliers with larger purchases you can reduce your costs and increase your profit margins. Ongoing Support With your own business it can be lonely at the top. With a franchise system you should have the benefit of initial training and on-going support. It’s a partnership where all parties have a vested interest in their success. Having an ally and mentor can help you address the challenges you’ll face as you develop your business. Owning a franchise versus owning an independent business has its benefits. While it’s pricier than starting from scratch, the benefits (provided the franchise model validates and you’re confident the system can be successful) may exceed the costs, particularly given the reasons listed above. The bottom line is you can be successful with either option. It’s all a function of your goals and objectives.