Franchising Basics

Is Franchising for you?

Because business ownership is such a significant responsibility, requiring a serious commitment of time, energy and resources, it would be putting it lightly to say that it isn’t for everyone. But entrepreneurship isn’t impossible – for many, it’s a welcome and rewarding challenge. Since you’re considering buying a franchise, we’ll walk you through everything you need to know about business ownership – and yourself – before you make the decision.

Let’s talk about you.

No two franchise owners are cut from the same cloth, but some of the most successful franchisees share a few key characteristics. Assessing yourself, your assets and your goals is a good first step to discovering whether you’ve got the same stuff.

Healthy

Any business owner needs to be physically and mentally fit. Some industries are more physically demanding than others, but you have to be able to work efficiently and consistently for long hours. The early stages of opening a business can be especially demanding – you’ll need to be able to manage stress, keep a cool head and stay productive under pressure if the going gets tough.

Financially Apt

Smart bookkeeping is a skill that generally carries over from your personal into your professional life. If you’re good with money, can create and stick to a budget and maintain a balance sheet in your personal life, those traits will work in your favor as a business owner as well. Franchisees have to be able to properly manage funds to ensure their employees get their checks, the product gets to the store and, if business slows, to make sure you can ride out a dry spell with savings.

Self-Reliant

In franchising, business owners can take advantage of pre-opening and ongoing support from the franchisor, but it’s still necessary to be able to make decisions on your own. Some franchises don’t have the structure for a comprehensive franchisee support system and, in any case, you’re the boss. You’ve got to be resourceful and confident in your ability to navigate any situation.

Teachable

Franchise or not, owning a business requires trust in the wisdom and experience of your advisors and mentors. As a franchisee, you’ll have to be willing to learn and follow the ins and outs of the franchisor’s system – even if you feel like you can improve it. The franchisee’s agreement to maintain brand standards and follow the rules and regulations of the company are integral parts of the franchise model.

Sociable

Being a business owner isn’t exactly running for mayor but being able to make and maintain personal and professional relationships is crucial to building a successful business. You’ll have to be able to listen to and understand the needs of your employees, make customers feel welcome and willing to buy your product, and build a network of contacts with other franchisees, local business owners and community leaders.

The traits associated with successful entrepreneurs are the same as those associated with strong, capable leaders – exactly what great business owners should be.

Startups vs. Franchises

You might be someone who’s well-suited to business ownership, but not necessarily a good fit for franchising. Let’s unpack two of the most common routes to entrepreneurship, startups and franchises, so you can see where you stand as you transition into the life of an owner/operator – and you can decide if you’ve got what it takes to be a franchisee.

Should you launch a startup?

Turning a great idea into a profitable business is the essence of the American Dream. But launching a startup isn’t for everyone – there’s a lot to consider before you decide on this avenue to business ownership.

The Pros

Benefits and advantages of launching a startup.

Cost

Depending on the type and scale of the business, you may need as little as $10,000 to get your business off the ground – and microbusinesses can be even cheaper. You could feasibly start a serious handmade jewelry shop online for less than $1,000.

Independence

Your own business is exactly that – yours. You’re the boss. You’re in charge of every decision, big and small, and can take full advantage of your position to make changes where and when you see fit. That includes scheduling and, to some extent, income.

Creativity

Alongside the independence that comes with owning your own business is the chance to rely and capitalize on your creativity. You’ll be challenged to innovate to overcome any setbacks and ensure your product or service is the only one of its kind on the market.

The Cons

Why you may not want to launch a startup.

Risk

The failure rate of small businesses after five years is over 50%. After 10 years, over 70%. That’s a disheartening statistic that makes launching a startup even more daunting than it already was. Because startups don’t have a tested formula to follow, success is uncertain – along with your income, return on investment and even confidence.

Stress

Launching a company is often a full-time effort – difficult to manage if you’re already relying on income from a full-time job for funding. Many startups can be pieced together over time while you work your current job, but the demands of the process can easily overwhelm any aspiring entrepreneur.

Support

Not that you’re without help entirely – in many cases, you’ll have your friends and family and maybe business partners and mentors by your side to make sure things go as smoothly as possible. But as the founder of a startup, you’ll have to be able to stay focused and motivated on your own.

Should you buy a franchise?

Franchising has become such a popular business model because it works. The model is designed to take advantage of an existing system to alleviate some of the risk associated with startups.

The Pros

Benefits and advantages of buying a franchise.

Lower Risk

Franchises are reliably more successful than startups. Statistics put the average success rate in between 80% and 85%, ranging between 60% to 99%. While the success of a franchise depends on the industry, the market and the drive and motivation of the franchisee, they’re more likely to succeed because they’re built on an already successful brand using the best practices of an already proven system.

Support

Because franchisors are generating revenue from each of their corporate and franchised locations, they have the means to establish and maintain a hefty support system that usually includes assistance for franchisees in real estate, construction, business and financial advisement, franchisee advocacy groups, training, market research and a larger marketing fund. And, because of the proven model and established customer base, it’s much easier to secure funding to cover initial costs.

Lower Operating Costs

Because franchises are widespread networks of buyers, the franchisor can leverage their influence to streamline their supply chain and maximize systemwide buying power and margins, keeping costs low and helping increase franchisees’ bottom line.

The Cons

Why you might not want to buy a franchise.

Authority

Buying a franchise isn’t a guaranteed success, but success is more likely if you follow the established system as closely as possible. That means many of the decisions that would normally be up to the business owner have already been made by the franchisor. That relationship continues similarly throughout the experience. Franchisees operate and manage the location, but ultimately, the corporate office is in charge.

Cost

As you’ve probably seen on America’s Best Franchises, there’s a pretty big range of initial investment costs for different franchises – but far more opportunities that are over $10,000 than below.

It’s worth mentioning, too, that royalties and other fees can add up to a significant initial price tag. Even if the franchise fee is around $30,000 – some of the most well-known brands (depending on the industry) might require millions of dollars of net worth before they bring you aboard.

Termination

If you try it out and learn the hard way that franchising isn’t for you, you might be out of luck. Getting out of a franchise contract prematurely can be a complex and expensive process.

Which is right for you?

That’s for you to decide. Business ownership can give you the lifestyle of your dreams, increasing your income and equity, growing your wealth. But be sure you know what you’re getting into before you sign a contract or a funding application.

If you’re still not sure, learn more about the franchising model right here or visit our FAQ if you have any questions.

0
Pending Request