In the evolving landscape of entrepreneurship, traditional and digital business models are coexisting harmoniously. This coexistence is evident in brick-and-mortar businesses venturing into digital marketing and online businesses adapting to both online and offline strategies. Despite the growth of online enterprises, traditional business models like franchising remain robust.
Franchising, in particular, is a compelling example of a lucrative and prevalent traditional business model. In 2014, the International Franchise Association projected the growth of franchise businesses to outpace the broader economy. This growth included an addition of 12,915 franchise businesses, bringing the total U.S. establishments to 770,368. The franchising industry was also expected to create over 100,000 jobs, with a significant contribution from the food service sector.
But what exactly is franchising? It’s a business arrangement where a franchisor, the owner of a trademark, grants a franchisee the rights to use their trade name, processes, and business systems to produce, market, and sell the same products. Typically, the franchisee pays a one-time franchise grant and royalties in the form of a percentage of sales revenue.
Here are the top five reasons to consider buying a franchise:
Immediate Brand Recognition:
Established franchises often have strong brand recognition. This familiarity attracts consumers, making it easier to lure customers, especially if you choose a good location.
Tried and Tested Processes:
Franchises have refined their business processes over time. Buying a franchise from a trusted brand eliminates much of the guesswork that startups face, such as sourcing suppliers and creating marketing strategies.
Built-In Support System:
A successful franchisor is committed to the business’s growth. They maintain a strong relationship with franchisees, offering support in various forms, including manpower assistance, technical support, and promotional support.
In summary, franchising offers numerous advantages for aspiring entrepreneurs, including brand recognition, established processes, and a robust support system, making it a compelling option for those looking to enter the world of business.
Favorable Financing Conditions:
Purchasing a franchise may come with a substantial price tag, but this doesn’t mean you need deep pockets to get started. Many well-established franchise operators provide in-house financing options. In other scenarios, the franchisor may suggest reputable lending institutions they have partnerships with, simplifying the process of securing a small business loan.
To maintain a high standard of quality, many franchisors develop their own training initiatives. These programs are designed to educate franchisees on business operations and ensuring a consistent customer experience.
Starting Your Franchise Journey
Once you’ve made the decision to venture into franchising, there are five crucial factors to consider:
Choose Your Business Type:
Franchising is a substantial commitment of both time and resources, so it’s essential to select a niche you’re passionate about. Determine the product or service you want to offer, conduct thorough research on franchising opportunities in that industry, and define your business’s purpose. Whether it’s a part-time endeavor or a full-time venture, understanding your goals will help you select the appropriate franchise size and manage it effectively.
Opt for Established Brands:
Launching a business entails risk, and purchasing a franchise from a reputable and well-established brand can help mitigate these risks. Trusted brands have a higher likelihood of attracting customers, and their business processes are typically more efficient.
Assess Franchise Costs:
While franchising may require a significant financial commitment, it’s essential to evaluate the costs associated with your top choices. In addition to the initial capital and royalties, analyze the potential annual earnings for franchisees. This assessment will help set realistic expectations upon opening your doors. Consider the reserves needed and other expenses, such as equipment purchases, supplier costs, managerial and personnel training.
Select an Ideal Location:
For brick-and-mortar businesses, the choice of location is crucial. Opting for a cost-effective location may seem tempting, but accessibility plays a critical role in attracting customers. On the other hand, a prime location might come with a higher price tag, but it’s worth the investment if it aligns with your target audience.
Plan Your Exit Strategy:
Many entrepreneurs underestimate the value of an exit strategy until it becomes necessary. If you plan to operate a franchise for a specific duration, it’s essential to have a clear plan in place. Consider whether you want to purchase another franchise and expand to new locations, or if you’re contemplating succession plans to transfer the business to an heir. These are crucial questions to address while developing your exit plan.
Challenges in the World of Franchising
While franchising presents an enticing opportunity to kickstart your business, it is not without its drawbacks. If you’re prepared to take the plunge, be aware of the potential challenges you might encounter:
The popularity of franchising as a business model has attracted numerous individuals seeking to start their businesses. As a result, expect to face formidable competition within your chosen industry. While exploring franchise opportunities, be mindful of industries that may already be oversaturated.
Although many believe business ownership equates to full autonomy, this is not always the case in franchising. Franchisees are often required to adhere to the company’s trade name and established processes, meaning they still answer to the parent company.
It’s a common misconception that operating under a well-known brand guarantees profitability. However, a franchise’s profit is influenced by various factors, including location, franchisee expertise, and operational costs. As a result, your revenue may not mirror that of another franchise location.
In addition to seeking guidance, it’s beneficial to consult with individuals who have successfully owned a franchise. Conduct thorough research on startup capital, unique value propositions, and regulatory requirements to determine if franchising aligns with your objectives.