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When you are looking to open a business, you generally have three options: establish a new business, buy an existing business or purchase a local franchise with a strong brand. The third option is one that is appealing to many people, even those who have never considered going into business.
Why is a franchise appealing?
- It gives you the opportunity to have your own business. Also, you can have a powerful national brand and a proven business model.
- The franchisor usually provides its marketing support, expertise and successful track record.
- It gives you a territory. If you open a franchise, you do not have to worry about competition from the same company in your territory.
- The odds for success are better for a franchisee than the person who starts a new business or even one who buys an existing, non-franchised business.
It is important to remember, however, that the same fundamental rules that apply to starting a business are also in play when one purchases a franchise. Being a franchisee can be just as hard as opening any other business. It can also be just as successful and, in some cases, more successful.
If you are considering becoming a franchisee, here are a few important things to keep in mind.
- The most important ingredient to being a successful franchisee is passion. Before settling on a franchise, really give some thought to your passions in life. In business, passion brings success, and that rule applies equally to franchisees and independent business people.
- Due diligence is important. Just because a national brand offers you a glossy book with lots of facts and figures and success rates, don't take it at face value. Do the exact same due diligence you would do as if you were opening an independent business.
- Remember you will have to pay a non-refundable fee to purchase the right to be a franchise. That fee will generally approximate the fees that you would pay for a startup or the purchase of an existing business. Furthermore, you will most likely be agreeing to pay a percentage of your gross revenues, to the franchisor. You will pay those fees for as long as you are a franchisee. Franchise agreements also usually include a provision that you will not compete with the franchisor in the future. So don't expect to open a franchise for a few years and then get out of the agreement and open up a competing business.
- You must be able to follow the rules of the franchise. The franchisor is going to prescribe the colors you use, the design of your space, personnel procedures and perhaps salary ranges, products, and pricing. If you are going into business to do things creatively and differently, franchising may not be the best fit.
- Make sure you assemble a good support team. Starting a franchise means opening, or perhaps building, a location. You will need a team to support you just as the independent businessperson would have, including: a lawyer, accountant, banker and potentially an architect and builder.
- Leverage the power of the brand when it comes to financing. One advantage a franchisee does have is a national brand, which makes bankers less hesitant to finance the business.
- Be ready to work. You have to ensure that you are following the procedures of the franchisor and you have to maintain communications with them as well. Educating oneself by going to trainings and other programs is vitally important, and that takes time.
Franchising is very similar to starting and operating a non-franchise business. There are pluses and minuses, and the prospective franchisee must do the arithmetic. So do your due diligence, think hard about what you hope to get out of it, reflect upon your passions in life, consider the risks, and if at the end of your analysis it adds up and makes sense to you, then put your best foot forward and strive for success.
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