Franchise owners are entrepreneurs who have bought a license to conduct business under an established brand. Many fast-food restaurants, convenience stores, and professional service companies are franchised, such as McDonald's and Kentucky Fried Chicken.
One of the main reasons people buy a franchise is because there is an already proven and successful business system in place, sometimes referred to as a turnkey business, that’s all ready to go from the outset.
Franchises generally get up and running faster, and become profitable more quickly, than stand-alone start-ups, because of the fact they are buying an already established business system, with proven marketing, and operating strategies.
This should provide a reduction of risk, and allow your franchise the very best chance of success.
Nine other reasons to consider a franchise:
1. Strong brand – A big advantage of buying a franchise is that the company may already have a strong reputable brand, which you can tap into without having to develop it over many years. This will, of course, provide readymade customers, who are already loyal to the brand.
2. Financial assistance – Because franchises are considered less risky than sole trader start-up models, banks and lending companies are more likely to make an offer for a loan, and possibly even on better terms to proven franchise purchasers. The franchise vendor is also likely to be able to arrange the finance for you if you need them to.
3. Excellent training schemes – Good franchise companies have exceptional training schemes, specifically designed to bring you up to speed quickly on the most successful way to run the business. They will also have written materials, such as an operations manual, to assist you in dealing with whatever comes up, while you're running your business.
4. Bulk buying power – Many franchisees can benefit from the bulk buying power of their franchise owner's overall business size, which enables the group to negotiate the best prices for everything you need to run your franchise. This could apply to premises, furniture, equipment, supplies, stock, uniforms, and anything and everything else you may need.
5. Help with marketing – The franchise company will provide marketing assistance and advice to help you develop the strategies, and plan for attracting and keeping your customers. They may even help with the printing or website design and upkeep to keep your costs down.
6. Property lease help – If your new franchise requires a physical property to lease, then some franchise companies will take care of all the paperwork, and hassle for you. They will negotiate the best possible terms and conditions because they are used to doing it.
7. Shopfitting help – Following on from help with the property lease, some franchise companies can also help with designing the layout of the business, and also select the right contractors to do your shopfitting for you. This should keep the look within the brand's style, and also be delivered on time and budget.
8. Ongoing support – Unlike running your own new business, when you can feel on your own sometimes, franchise companies have dedicated staff and experts on hand ready to provide ongoing assistance to franchisees as and when you need it.
9. Minimising risk – The reduction of business risk, or chance of failure, is a very significant reason why many people decide to buy a franchise, and not go it alone. It is statistically proven that franchise owners who follow the system correctly, are more likely to succeed than people who start up on their own as entrepreneurs or small business owners.
Five drawbacks when buying a franchise:
1. Initial franchise fee – You will have to pay an initial fee that could range from anything between £1,000 and £1m, depending on what sort of franchise you wanted to buy. An average price for many mid-tier franchises is circa £25,000 to £50,000.
2. Ongoing franchise fees – Some franchise agreements also include a provision to pay the overall owner, an ongoing license fee. This fee may be calculated as a percentage of your gross income, or any other metric, so you need to be very clear about all ongoing fees.
3. You must follow the system – Although you have bought yourself a franchise, and you may consider yourself to be the boss, you can’t do anything and everything you want to, as a self-employed entrepreneur would be able to do. You must follow the rules, or the way of doing things around here precisely, as set out in the franchise operating manual. If you bought a KFC franchise, you couldn’t just add a beef burger to your menu, because you enjoy beef burgers, as that’s against the rules!
4. Less control – You may discover that you have less control than you thought you would. If you are constantly told what to do, how to do it, what to buy, and how to sell it, you may not think you are in control, or your own boss any longer, as was originally the plan. Be sure to check the detail of the contract very carefully, and also ask other franchisees about their own experiences.
5. Location – Some franchise agreements restrict your areas of trade to certain postcodes or cities. This can feel restrictive if you are not able to expand into other regions because your contract does not allow you to do so. It’s especially frustrating if you secure a great customer, only to find out they are not based in your area, and you have to refer them to another franchise owner in your group. This may mean, you end up with nothing for your work. Other areas can be bought of course, but that then adds to the overall cost.
Different types of franchises
Business franchise – These are the most common types of franchise. The main franchisor, or original owner, expands their business by offering independent business owners their name, brand, and established business systems, in exchange for franchise fees and royalties.
Product franchise – Some manufacturers will allow retail stores to use their brand name, and product, in exchange for franchise fees. An example being, a premium tyre brand, being distributed under licence by a retail garage chain.
Manufacturing franchise – This is common among food and drink companies. The franchisor will allow the manufacturer the right to produce and sell its goods, using their brand and name, and of course for a franchise fee.
Examples of franchises available:
Franchise opportunities can start at a reasonably low price, allowing most people to be able to get a foot on an entry-level franchise, develop it, grow it, and ultimately upgrade to bigger and better opportunities, once the time arises.