Franchising

What are the considerations you must take into account before buying franchises, and how do you understand and evaluate the pros and cons? Well it is not an easy task but I hope the following will give you a head-start and illustrate the need for very detailed due diligence on your part.

Pros of Franchise Businesses.

A well-known and established franchise business be it global, national or regional will bring with it brand recognition, trademarks, logos and most importantly customer recognition of its product quality and service. This gives the new owner of a franchise an immense saving in establishing goodwill and advertising.

You receive an established business system that has been proven to work and so minimizes the amount of time and expense that would normally be experienced when starting a business from scratch. The system will have been subject to scrutiny from many franchise owner operators over the years.

Most Franchisors have highly developed advertising programs, supporting the sales and marketing systems that have been proven and the franchisors, in general, continue to provide help and support to their franchisees.

The franchisor will have established suppliers and the supply system will provide the support that a new fledgling business would take years to develop. You can be assured that the franchisor has an ongoing monitoring program that will quickly address any problems in the supply chain.

The collective purchasing power of the franchise and the central control of the purchasing mean that you get a consistent high quality product at the lowest possible cost. Most smart franchisors do not screw down their suppliers on price but by allowing them a reasonable profit they establish long and successful partnerships.

Franchisors have well developed training programs for you, your managers and staff. They will demand that you commit to a regular training program, which will ensure that your business is capable of operating to the level of service that is promised to the public through advertising programs.

Operational manuals covering all and every task in operating the business, from sweeping the floor to dealing with an irrational client, are provided and are constantly revised as new products or methods are developed. This gives standard quality and uniformity to the entire system.

As a franchisee of a successful franchise chain your access to finance is greatly enhanced. Financial institutions feel comfortable in dealing with known franchises that have a track record of success.

Many franchisors own or control the sites where the business is located and they will generally charge rent on a percentage of sales with a minimum monthly amount. Other franchisors allow the franchisee to own and develop the site and will generally provide help and advice with site selection, engineering, etc.

Finally if the franchisee operates the franchise business in accordance with the system and is professional in business dealings, has shown a commitment to the community and fellow franchisees, then that franchisee will normally be considered expandable. This means another store location is offered and if this succeeds then another and another. You can build a serious size business in this manner as many can attest to. Many millionaires have walked this road.

As with every type of business there are the Cons and a Franchise Business is no different and so below are listed some of the deterrents of Franchise Businesses.

Cons of Franchise Businesses.

The most obvious, but one that so many fail to take into consideration is the need to conform to the system. You no longer have total control of the way you operate a business. Your freedom to make decisions is limited however initiatives that help and strengthen the system as a whole are generally encouraged.

You will be paying the franchisor a Royalty Fee that you may come to consider excessive but you should have discovered this in your due diligence. No franchisor would or could by law not disclose this. They will not change it so don't ask.

There is generally a national/regional advertising fee and in many cases you have a say in how this is spent. Your opinion, although sought, may not be acted on and this may be because the greater picture dictates it or worst, the franchisor's executives controlling the funds are autocratic and/or incompetent or worst still dishonest, cutting personal deals with advertisers.

Because you are part of a system you are prone to attacks on the system from individuals, agencies or whoever, for something that you have had nothing to do with or any knowledge of. The systems problems therefore become yours.

Some of the decisions taken by the franchisor may directly affect your business and you find yourself with little if any recourse. The most common of these is known as Impact. Impact is when the franchisor opens another outlet in the area that causes you loss of business, and they may even sell the location to some one else or keeps it as a company outlet. Remember that the franchisor is always looking to maximize Total System Wide Sales even at the expense of your bottom line. You are not only expandable but also expendable.

Summary of the Pros and Cons of Owning a Franchise Business.

When you look at the world through rose tinted glasses, you see beauty and softness in all around you, but in reality the business world is far from being all beautiful and rarely is softness displayed, so leave the glasses at home when you start looking at franchises. Not all franchises are the utopia of money making. You need to be very careful and thorough in your research and due diligence before buying any franchise. Despite the disadvantages, a franchise business generally offers real advantages over doing it on your own.

Yes, a franchise business is considerably less risky than most start up businesses, however the franchisor does not guarantee you will be profitable. You the franchise business owner ultimately must take full responsibility for the success or the failure of the business and if you are good at what you do, then the rewards can be quite substantial.
Walter Raleigh - Copyright 2006©