Franchising As A Vehicle For Financial Empowerment

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WHAT IS FRANCHISING?

The simplest definition for franchising is: “A method of doing business whereby a franchisor licenses trademarks, systems and methods of doing business to a franchisee in exchange for a recurring ongoing consideration i.e. a royalty payment or a franchise management payment”.

Franchising is a form of a business by which the owner (franchisor) of a product, service, or technique obtains distribution through affiliated sellers (franchisees). A franchisor is expected to supply help in organising, training, merchandising, advertising, and giving direction in return for a consideration.

Franchising normally involves a contractual arrangement between a franchisor (a producer, a wholesaler, or a service sponsor) and a retail franchisee, which allows the franchisee to conduct a given form of business under an established title and according to a given sample of business.

DOES FRANCHISING IMPLY THAT YOU ARE SELF-EMPLOYED?

In some respects, NO. You continue to have to answer to another person and comply with his or her direction. You don’t actually own the business; you own the assets you have purchased so as to set up the business. If you consider that you’re in business for yourself, however not by yourself, then YES…you’re self employed.

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FRANCHISING IS THE FASTEST GROWING BUSINESS ECONOMIC MODEL

Globally, franchising is the preferred and the fastest growing business economic model. It assembles business relationships that allow people to share brand identification, a proven technique of doing business and a profitable advertising and distribution system. When most individuals consider a franchise, they suppose quick food. Franchising, nonetheless, way back grew beyond the burger and fried-chicken shops. Right now franchise ideas span over 70 completely different product and service sectors, including such companies as auto-repair outlets, children’s artwork facilities, fitness clubs, law & consulting practices, and plenty of home based businesses. The franchising business model has become a major economic engine globally and it’s one which is offering growing opportunities for corporations and individual entrepreneurs alike.

The Advantages Of Franchising

1. An investment is normally made right into a proven business.

2. A quicker start up, developing a customer base quicker, and experiencing profitability quicker are key attractions.

3. There is a known quantifiable proven formula.

4. Proprietor transition and training are available, and there’s full control of strategic direction and ability to totally assess past data and company history.

5. The most important benefit of franchising appears to be the reduction of risk you will be taking for your investment.

6. You also normally get higher deals on provides because the franchise company can purchase items and supplies in bulk for the whole chain, after which pass that financial savings on to you and the other franchise units.

7. Clients are dealing with a “known” rather than an “unknown.”

THE DISADVANTAGES OF FRANCHISING

1. Some franchises may be very expensive. Franchisors count on you to comply with their operations manuals to the letter. No flexibility on your part.

2. Buying a franchise is like marrying someone you haven’t known for long.

3. The relative security offered by franchisors may be exaggerated. Some franchisors are in for a fast buck.

4. Franchising as a pyramid scheme. Some corporations attempt to generate income by simply collecting franchise fees, and will not spend the time or cash needed to help their current franchisees succeed.

5. Overcharging for supplies. Some franchisers might require you to purchase supplies solely from them at inflated prices.

6. Fees for pointless training.

7. Deceptive gross sales presentations. Some franchisors over-promise the moon of their pitches to prospective franchisees

BUSINESS OWNERS: IS YOUR BUSINESS FRANCHISE READY?

An appropriate first step in the decision to franchise is an examination of the question of whether or not a business idea is actually “franchisable.” Any group severely contemplating franchising ought to undertake this evaluation earlier than implementing a franchise strategy. While it’s impossible to find out the franchisability of a business idea without a significant amount of research, most franchise experts are guided by the following criteria to evaluate the readiness of an organization for franchising and the likelihood that it’ll obtain success as a franchisor.

1. Credibility: To sell franchises, an organization must first be credible in the eyes of its prospective franchisees. Giant organisation size, number of shops, years in operation, strength of management are key credibility factors.

2. Differentiation: Along with credibility, a franchise organisation should be adequately differentiated from its franchised competitors. This may come in the form of a differentiated product or service, a diminished investment cost, a unique advertising technique, or completely different target markets.

3. Transferability of knowledge: The subsequent criterion is the flexibility to teach a system to others. To franchise, a business must typically be capable to totally educate a prospective franchisee in a relatively short interval of time.

4. Adaptability: Next, measure how well a concept will be tailored from one market to the next. Some concepts do not adapt well over giant geographic areas due to regional variations in consumer tastes or preferences.

5. Refined and profitable prototype operations: A refined prototype is critical to reveal that the system is proven, and is usually instrumental in the training of franchisees. The prototype additionally acts as a testing ground for brand new merchandise, new services, advertising strategies, merchandising, and operational efficiencies.

6. Documented systems: All profitable companies have systems. However so as to be franchisable, these systems should be documented in a way that communicates them effectively to franchisees.

7. Affordability: Affordability merely displays a prospective franchisee’s ability to pay for the franchise in question. This criterion is as much a reflection of the possible franchisee as it’s of the particular cost of opening a franchise.

8. Return on Funding: This is the actual acid test. A franchised business must, of course, be profitable. However more than that, a franchised business must allow enough profit after a royalty for the franchisees to earn an adequate return on their investment of time and money.

9. Market traits and situations: While not an indicator of franchisability as much as basic indicators of the success of any business; these traits are key to long-term planning. Is the market growing or consolidating? How will that affect your corporation soon? What impact will the Web have? Will the franchisee’s products and services remain related in the years forward? What are different franchised and non-franchised opponents doing? And how will the aggressive surroundings affect your franchisee’s likelihood of long-term success.

10. Capital: While franchising is a low-cost technique of expanding a business, it is not a “no cost” technique of expansion. A franchisor wants the capital and sources to implement a franchise program. The sources required to initially implement a franchise program will vary depending on the scope of the expansion plan. If an organization is seeking to promote one or two franchised models, the necessary legal documentation may be accomplished at low costs. For franchisors targeting aggressive expansion, nonetheless, start-up costs can run into Hundreds of 1000′s and more.

11. Dedication to relationships: Profitable franchisors focus on constructing long-term relationships with their franchisees which are mutually rewarding. Sadly, not all franchise organizations understand the link that exists between relationships and profits. Strong franchisee relationships enable the franchisor to promote franchises more effectively, introduce wanted changes into the system more easily, and inspire franchisees and their managers to offer a constant level of products and services to their customers.

12. Energy of management: Finally, the one most essential aspect contributing to the success of any franchise program is the strength of its management. More often than not, new franchisors will attempt to take every part on themselves. Along with absorbing a number of new jobs for which the franchisor has little to no time, the franchisor must exhibit experience in fields in which she or he might have little or no experience: franchise advertising, lead handling, franchise gross sales, ad fund management, training, and multi-unit operations management.

ENTREPRENEURS: HOW TO SELECT THE RIGHT FRANCHISE

Buying a franchise could be a daunting task. With hundreds of franchises in over 70 different industries out there worldwide, finding the best franchise will be like finding a needle in a haystack. Furthermore, the best franchise for your neighbour is likely to be a disaster ready for you. How do you spend money on the proper franchise?

1. Why?: First, you need to ask yourself certain questions and be very objective. Why do you wish to own a franchise? If it’s to get rich or to get on easy road and never should work, then franchising will in all probability not meet your expectations. If you are like many people who have the dream of owning your own business (however not being by yourself), being your own boss and having control of your life, then franchising may be for you.

2. Strengths: Be sensible and fully understand your strengths and weaknesses. Invest your strengths into the proper sort of franchise. Do not explore each franchise opportunity. Select only those you imagine co-incides with your strengths

3. Research: Compile a listing of the franchises that interest you. Go through their websites and set up conferences with the franchise supervisor/director.

4. Disclosure Doc: Examine the franchise disclosure doc or prospectus. Right here you wish to see robust monetary historical past, experienced people in key positions, and an organization that has been in business for 3 years or more, the longer the better, has a lot of shops and has few closed or bought back.

5. Franchise Agreement: Intently examine the franchise agreement. This is the contract between you and the company. Franchise agreements are all the time biased in favor of the franchisor, that’s simply the way it is. This may be good and bad. The company will be unfair in it’s dealings with you and the franchise agreement might allow this, alternatively it’s best to desire a robust franchisor.

6. References: Call as many franchisees as possible. Call no less than 10. Learn how they’re doing. The important thing question is “Would you purchase this franchise once more?”

7. Visits: Visit personally as many working units as possible. At least three. Often the owner or supervisor will be more forthcoming in person than over the phone.

8. Verify Financial Data: If every part still seems to be good, then contact the sales rep and get as much definitive sales info as possible. Most franchisors won’t make earnings claims however they’ll present info with which you’ll extrapolate gross sales.

9. Advisors: If everything still looks good then go for it. If you are not sure, speak to qualified advisors.

THE FIVE REASONS FRANCHISES FAIL

Typically, on a global level, 30% of small independent companies fail within the first year, with less than 20% going beyond yr 5. Franchises, alternatively, are considerably more successful. Lower than 5% of franchises fail. The reason(s) for failure may very well be numerous factors, most of which might have been prevented by due diligence during the early phase. The next are the primary causes franchises fail:

1. The Idea. Whether or not you’re franchising your own company or buying right into a franchise system, how the idea is acquired by the neighborhood is critical. While burgers seem to have universal appeal, not all food chains meet with majority approval. Additionally, if your small business model is sophisticated you’re in for a struggle. You wish to create an operational standard that can be taught to and replicated by any businessperson. An organization may be profitable when run by the entrepreneur who dreamed up the idea, nonetheless, if the business model or prototype is just not easily duplicated the chances for success should not so optimistic.

2. Bad Location. Ask seasoned franchisees to name one of the most essential keys to a profitable franchise and undoubtedly they’ll say, “Location, location, location.” Even with a well-branded name, in case you are off the beaten path, inconveniently positioned or in an isolated space the chance to be as lucrative as possible diminishes.

3. Poor Marketing/Advertising. Many well-established and reputable franchisors have marketing and advertising funds into which franchisees contribute monetarily. Chains like McDonald’s and Subway have national campaigns, while different sorts of franchises might promote on an area level. Some franchise ideas require a number of legwork on behalf of the franchisee. Depending on the business you selected, you might have to solicit your own shoppers, as in technical and computer support franchises. If you are contemplating a concept that requires outside sales abilities and also you lack them, chances are you’ll wish to rethink your choice.

4. Competition. There are roughly one hundred sixty thousand franchises in operation in the US. Which means loads of competition. In case your market already is saturated with a concept chances are you’ll wish to consider one thing that still is popular however not yet tapped out. Medical spas and restaurants offering healthy choices are gaining ground among the public however there’s ample room on the business owner side.

5. Unrealistic Expectations. New franchisees are notorious for having very high expectations for his or her businesses. It could take 2-3 years before you see a profit and if you happen to don’t plan for that you could be sink before you have a chance to swim.

A word to the wise: For those who do not like people you shouldn’t purchase a franchise. If you want to make it it’s important to put in long hours and work with all types of personalities. It is an indisputable fact that some persons are more difficult to interact with than others. As a business owner you want to be able to interact well with people from all walks of life. The ability to manage workers also is essential to the success of your business.