Do you want to own a company with a well-established brand and business model. Franchising might be the right choice for you.
Franchising refers to the sale of rights to a company’s existing business model and products.
A franchise is a great business venture that offers high support and low risk. However, it is important to be familiar with the requirements and factors that will make your franchise successful.
Although costs can vary, the average cost of a franchise startup is $50,000 to $200,000
This article is intended for business owners and entrepreneurs who are interested in purchasing and operating a franchise.
Entrepreneurs dream of their future and franchising is not often a part of that vision. Although it might not be the first option, purchasing a franchise can bring you many benefits. You can open a franchise and start your own business, while also purchasing a business model and brand.
What is franchising?
A franchise is a company that sells its business model and products rights to another company or businessperson. The Federal Trade Commission (FTC), as well as individual states, have different definitions.
When you purchase a franchise, it is buying a business that has already been established and ready to market a product or service. A franchise usually comes with a well-known brand, a proven business model, and a repeatable marketing strategy.
Costs for buying a franchise vary depending on what type of business you are interested in. However, the average startup cost is between $50,000 to $200,000
These are the costs associated with buying a franchise.
- Initial franchise fee
- Corporate fees
- Application fee for financing
- Attorney’s fees (to have a lawyer review the contract).
- Accounting fees
- Taxes and permits
- Franchise regulations
Federal regulations are in place to protect both the rights of the franchisees and the franchisors. FTC oversees and enforces franchise laws. This ensures that both the franchisee and the franchiser are fully informed about the status of the business and protects the brand.
Franchisers must give a franchise disclosure document (FDD), to potential franchisees early in the process of purchasing a franchise. The FDD, also known as an offering circular or a disclosure document, outlines the fees and investments of the franchisor company, bankruptcy history, and any litigation history.
The registration and relationship laws govern salespeople, advertising and franchise registration. There are many laws that govern termination of a franchise, notice periods, cure periods, grounds to refuse renewal, equal treatment, and grounds for nonrenewal. These laws and regulations can vary from one state to the next.
How to choose a franchise
There are thousands of choices when it comes to selecting a franchise. It can be overwhelming to choose the right type of franchise if you don’t know what you want. Let’s take a look at some factors to consider when selecting a franchise.
While franchising offers many advantages to entrepreneurs looking to start their own business, it can also be costly. Before you can start setting up your business or selling products under the franchise brand, you will need to pay an initial fee.
Your business autonomy
Although franchising is attractive because it gives you a brand and name, the franchise model can limit your business’ autonomy. Franchises may limit your ability to grow and move your business in different directions to benefit from local business opportunities. Before you invest, think about how much control and influence you would like to have on the business.
A sustainable business model
It is important to choose a business that has a proven track record of success and has a viable business model. Before becoming a franchisee, make sure you research the company’s history.
Rob Holt, founder and CEO of Two Maids & A Mop said that his franchise went through growing pains after he switched from a traditional corporation into a franchise.
How established is the business?
It is important to know the current financial status of the parent company, as well as its business valuation. Two Maids & A Mop’s first franchisees were patient during growing pains. Today, however, Two Maids & A Mop franchisees have joined a larger business.
While neither option is correct or wrong, it’s important that you understand the situation before opening a franchise.
It is important to consider the market competition for franchises. Because there is a demand for the product or service, competition is not necessarily a bad thing. However, if there is a lot of competition, you will have to work harder to make your business stand out.
It is important to assess the company culture of potential franchisees. How you manage your business and how it earns income will be influenced by the parent company. They will be your business partners throughout your franchise ownership.
Be attentive to how you interact with company management and what level of support they offer. Are they available to answer your questions and offer resources to assist you?