Top Reasons to Buy a Franchise
- An Existing Franchise Is a Turnkey Business Jetcityimage / Getty Images ...
- Proven System in Place When you buy a franchise, you buy a system - an entire method of doing business. ...
- Corporate Image and Brand Awareness ...
- Higher Likelihood of Success ...
- Easier to Obtain Financing ...
- Training ...
- Ongoing Support ...
- Marketing ...
Why you might consider buying a franchise?
Why Franchise?
- Lower Cost. Unlike employees, franchisees make an initial payment in return for becoming a part of your business and then they continue to pay you a percentage of their revenue, ...
- Simpler Management. ...
- Faster Expansion. ...
- Better Market Penetration. ...
- Greater Commitment. ...
- Less Recruitment. ...
- International Potential. ...
What to know before buying a franchise?
4 Things You Need to Know Before Buying a Franchise:
- Practice self-reflection. When you buy a franchise, it is vital you self-evaluate whether you are suitable for this action and, if yes, what area matches your personality and skillset.
- Make a list of all upcoming costs. It is of the utmost importance you make a list of all your future costs. ...
- Know the market well. ...
- Research available opportunities. ...
Why you should buy a franchise?
Discover how you can be successful in your franchise venture
- Offers the franchisor a method of rapid expansion
- Spreads the brand messaging and awareness over a large network of franchise owners
- Taps in to the franchise owner community’s “pride of ownership”
- Allows the franchise owner community to grow due to a duplicable system and support
Why not to buy a franchise?
The first reason never to buy into a franchise is the restrictions that the franchisor puts in place. You’re talking location, products and fees. So the franchisor is always gonna tell you where your location is. They will give you a set territory.
Why do people own a franchise?
Anne says, “Training, support and expertise are the main reasons people buy franchises. Many come to a particular franchise with no specific experience or knowledge of the general business.
Why you should join a franchise?
You get to focus on what you do best A huge benefit that comes from joining a franchise is that you get to enjoy all the freedom of running your own business without having to juggle every aspect of it. Nobody expects you to know everything, because you have a team behind you who do.
Why are franchises attractive to business owners?
Franchises offer easier access to financing and more predictable growth models than most sole proprietorships. To obtain financing for a sole proprietorship, you might have to convince your family and friends, a private lender, or the Small Business Association that you have a sound business plan and growth model.
What are the three benefits of franchising?
Advantages of franchising your businessGrow your business - franchising your business can be a cost-effective way to grow your business. ... Costs - each franchisee finances their own franchise outlet. ... Easier management - the franchisees also run their businesses therefore reducing the management demands placed on you.More items...
Is it a good idea to franchise my business?
You should only franchise if it is a part of your long-term growth strategy and goals. Only franchise if your goal is to expand your brand and to build an organization to support and assist your future franchisees.
What makes franchising an attractive option?
The primary reason most entrepreneurs turn to franchising is that it allows them to expand without the risk of debt or the cost of equity. First, since the franchisee provides all the capital required to open and operate a unit, it allows companies to grow using the resources of others.
Why are franchised businesses successful?
A franchise becomes successful because people recognize the brand, and people know the brand because of consistent services. This is why a standardized business process is essential to running a successful franchise.
Who benefits more from a franchise?
Franchising provides benefits for both seller and buyer. For franchisors, the primary benefit is the ability to use other people's money to expand the brand more rapidly than they could either on their own or through investors or lenders.
Why are franchises more successful than small businesses?
Franchise businesses have higher rates of success As a sizeable amount of work has already been achieved by the franchisor, high-brand awareness and recall has successfully been accomplished.
Why do franchisors want to become franchisees?
In their marketing, many franchisors emphasis the supply chain benefits of becoming a franchisee. Lower prices for equipment and inventory are an attractive reason for becoming a franchisee. Understand that mature franchisors are likely better able to deliver on that promise than emerging franchisors.
Why do franchises fail?
Great franchisors are focused on ensuring that their franchise system is sustainable. One of the major reasons for small business failure is too much debt and the inability of the business owner to service that debt. If the franchisor is more interesting in selling franchises than ensuring your business will be viable, they will show little or no interest on the amount of debt you will obtain. Great franchisors will review your business plan and cash flow and assist you in determining how much debt you can really afford. Most mature well-managed systems can make that prediction for you even before you sign the Franchise Agreement.
How good is franchising support?
As with all other benefits, the initial and ongoing support is only as good as the professional employed by your franchisor, the effort they put into supporting you, and the quality of the underlying franchise system. In a mature franchise system you should consult with existing and former franchisees to determine the actual quality and benefit of the franchisor’s support programs. In emerging franchisors you need to understand what the real capabilities of the franchisor are. You need them focused on you and not necessarily focused on the original location they used as a model for your business. Emerging franchisors need to transition from being operators of a location into being franchisors early in their franchising process.
How does a franchisor expand?
How the franchisor expands is also important to you. Many new or even mature franchisors allow the telephone to define their market expansion strategy. Some use nationwide brokers to market their franchises, and between the telephone and the brokers may not have a well-defined expansion plan. When this occurs, critical mass is not sufficiently established in any market to build significant brand recognition and many franchisors don’t have the resources necessary to support franchisees in every corner of the country, as they should if that is where their locations have been established. However, where franchisors are disciplined and build their market development strategy intelligently, in addition to creating brand awareness there are significant other benefits for the franchisor and the franchisee, including but not limited to support, marketing, a proper supply chain for products, etc.
How to predict success in a franchise system?
The best predictor of your success in a mature franchise system is not how quickly the system is growing, but the performance of the existing franchisees in the system, and how frequently and under what circumstances the franchised units are turning over. In my workbook “ Making the Franchise Decision ,” which you can download for free from the Resources section of the MSA Worldwide website, you will find due diligence questions I would ask if I was considering investing in a franchise today.
Why is it important to know where a franchisor is focused?
If most of their staff is focused on recruiting new franchisees or taking the franchise system into international markets, you should not be impressed by the franchisor’s domestic or international growth. That is not directly helping you. You should be looking for the franchisor to be focused on supporting you and your sustainability.
How to determine what direct and indirect financing programs are available from the franchisor?
You can determine what direct and indirect financing programs and other benefits are available from the franchisor by reviewing Item 10 of the franchisor’s FDD and in their marketing materials.
What does it mean to be a franchisor?
Becoming a Franchisor and using franchising as the method to grow means other individuals (franchisees) will pay a franchise fee to gain access to your brand. Also, the franchisee will fund building the restaurant and assume the location's financial responsibility.
Why do investment firms buy restaurants?
Why? Because unlike profit earned by restaurant operations, royalty driven profit is virtually endlessly scalable. Franchisors usually have a lower operating cost with less overall risk compared to corporate-owned chain restaurant companies.
Is Forbes opinion their own?
Opinions expressed by Forbes Contributors are their own.
Can a potential buyer pay a higher price based on a multiple?
In that case, the chance is a potential buyer will pay a higher price based on a multiple on your profits. All too often, non-franchised restaurant owners sell their corporate-owned restaurant chain at a price based on two or three times multiple of their bottom line profit.
Why do people become franchise owners?
One of the most significant reasons individuals become restaurant franchise owners is because they get to benefit from instant brand recognition and gain the trust of consumers that generally takes many years to build. This familiarity and reputation allows an owner to instantly take over a franchise, without needing to start from scratch to gain a customer base. New franchise owners benefit greatly from this scenario of an immediate customer following, and are able to reap the rewards since the franchisor has already taken the risks, learned the ropes, and survived so new owners don’t have to.
Why do franchises succeed?
Recognition also lends itself to the psychology behind why restaurant franchises tend to succeed more so than independent ownership. A franchise becomes linked with an already established brand, and customers then associate this brand with a certain level of quality that they come to know and expect. Customers don’t care who owns the business, but what they do care about is that they will continue to get the same great product each time they come back. Customers thrive on consistency and knowing they can get the exact same product or service from any franchise location, and take comfort that they are less at risk when spending money since they already know what to anticipate. Restaurant franchise owners will be providing customers the same menu, operating hours, design, layout, policies, prices, and services that customers would be able to find in the same franchise hundreds of miles away.
What are the downsides of a turnkey restaurant franchise?
The downside of a full turnkey restaurant franchise is that an owner can expect to pay a lot more than with a partial or limited package. An owner will be responsible to pay the turnkey package, which is included in the initial franchise fee, as well as continuing fees and royalties for however long the franchise is contracted to last.
What do franchise owners learn?
The first piece of knowledge an owner will learn is the franchise operations manual . This acts as a franchisee’s textbook and includes all the standards that a franchisor requires of each new franchisee, not to mention company history, goals, business model, food preparation processes, accounting, customer service, and personnel structuring. Next, the real training process begins at the corporate headquarters or at an existing franchise location where owners learn the daily operations and take part in extensive hands-on training that reflects what they will likely experience in their own restaurants. This training period is an opportunity that significantly increases the franchise owner’s rate of success, compared to independent restaurant owners who have to go it alone.
What happens if a restaurant fails?
However, if a restaurant fails, the franchisor won’t be responsible for picking the owner up; the loss of profits is the owner’s responsibility.
How much does it cost to open a franchise?
There is no “average cost” of purchasing a franchise since it depends on many factors, but owners should expect to pay upwards of $20,000 for the initial franchise purchase. Even before the contract is signed, owners will need money to cover the cost of the following:
Why is expansion limited for a restaurant franchise?
A restaurant franchise owner should understand that expanding their business might be limited due to the parent company’s territorial restrictions. Parent companies do not want multiple franchises competing with each other, so spatial and geographic growth might be limited for an owner. Owners who purchase a franchise should not expect to open another one on the other side of town, since this could conflict with competition of the overall brand.
