THINGS TO CONSIDER BEFORE SET UP A FRANCHISE BUSINESS
A franchise is a business model used in many of todays industries. Franchise businesses are also called chains. The Business Administration explains franchising is when a franchisee sells to a new business owner the use of his licensing trademarks and systems of business.In todays industries there are vast array of franchise opportunities available for entrepreneurs. Starting franchise business can seem overwhelming to a new starter. Doing thorough research before starting the franchise will help you overcome the hurdles of investing in a new business set up.
There are four main formats for a franchise business: -
1. Business format franchise:-
The first form of franchise business is the business format franchise, the most used type of franchise.2. Product distribution franchise:-.
A product distribution franchise model is similar to supplier-dealer relationship. However, the franchisee is required to observe a few guidelines e.g. agreeing to sell only the franchisors brand exclusively. This type of franchise will also include some form of integration of the business activities. The franchisee is allowed to be much more independent than if he or she was running a business format franchise. Some well known product distribution franchises are Coca-Cola, the Ford Motor Company, Exxon and Osim.3. Manufacturing franchise:-
Through manufacturing franchises, a franchiser grants a manufacturer the right to produce and sell goods using its name and trademark. This type of franchise is common among food and beverage companies. For example, soft drink bottlers often obtain franchise rights from soft drink companies to produce, bottle, and distribute soft drinks. In the case of Coca Cola, for example, Coca Cola sells the syrup concentrate to a bottling company, who mixes these ingredients with water and bottles the product, and sells it on.4. Management franchise:-
It is a form of service agreement whereby the franchisee provides the management expertise, format and/or procedure for conducting the business. Some examples of Management Franchise are Hilton, American Idol and UPS Store.Here are things to consider about getting into the franchise business.
BUSINESS MODEL
The first step is to brainstorm and consider the type of franchises to target. Having clearly defined goals for your franchise business will also help you with starting into the right franchise. Determine the industry and type of business you're familiar with AND would like to work in. This will narrow down the selection. Deciding what business model you want, whether you want your franchise to be sales oriented, or service type business will also make starting into the right franchise easier. Seek a Proven Model; this is an area where longstanding franchises provide the most benefits. There are even business coaching franchises. So if you're not already clear on which category you want to Set up a franchise in, spend some time researching your options. Ideally, it should be in an industry you have experience in. One of the fastest growing businesses using the franchise business model is the e-cigarette and vapor store franchise market. According to their global market summary report, Researchandmarkets.com states that the global e-cigarette market is expected to surpass $50 billion by 2025.STRONG BRAND
The success of the brand name and product gives a new franchisee a leg up over an unknown startup. When you set up a franchise, you can look to dozens or hundreds of other locations to see how popular they are, as well as get a sense for how much you can make as a franchise owner. Knowing what to expect with your franchise can cut down on some of the risk you take on as a business owner. There is a profitable benefit when the franchise name or their product is already well-known. If the product or trade name has a good reputation there is the basis of a pre-existing customer base. This translates into the ability to draw in new customers much more quickly than if the product or trade name is unknown.FINANCE
An important issue to look at in starting into the right franchise is the varied costs involved in purchasing a franchise business. Have a clear idea of the amount you are able to initially invest, and how much money you are able to continue investing as your franchise business grows. Franchise fees for the initially investment can run from the tens of thousands of dollars up to hundreds of thousands of dollars or more. Other investment expenses to consider are costs to rent a pre-existing office, store, building or facility, or the investment of building a new structure. Other start-up costs to consider may include equipment for the business, initial inventory, operating licenses, insurance, and promotion fees.KNOWLEDEGE AND SKILLS
When buying into a franchise business it is important to consider the skills, training and education you already possess. Some industries and businesses require training, licensing or certifications for their owners and employees. Examples of these types of businesses may include real estate agencies, auto repair, interior design or tax preparation. Focusing your search for a franchise business you already have a background in narrows down the possibilities. Investing in a business you already have knowledge of will also decrease the learning curve in owning a new business. A good franchise company has training programs designed to bring you up to speed on the most successful methods to run the business. They should also have reference materials to assist you in dealing with whatever comes up while you're running your business.RULES
The franchisor is required by regulations to provide you with the Franchise Disclosure Document for their business before you sign and documents or invest any money into their franchise business. The Franchise Disclosure Document is required to have 23 specific items that must include information about the franchise, the franchises offices and about other franchise owners. The Federal Trade Commission is the entity that enforces the rules in the Franchise Disclosure Document.Starting into the right franchise for your business takes time and diligent research. Follow the rules someone looking to snag a franchise business will need to understand the rules that come with the brand. Swerving away from the established template will likely be frowned upon and could result in a toxic business relationship between franchisee and franchisor. There are a lot of rules with a franchise; add a new product to the menu at your burger joint, or change the logo. If you're okay adhering to what the franchisor has set as the rules, keep considering the franchise. If you prefer to play by your own rules, you're probably better off starting your own business.
INVESTIGATE
The Business Administration emphasizes that knowing all of the fine details of what a relationship will look like as the franchise gets off the ground, and (hopefully) becomes a success, is another important step for franchisees to consider. They go on and provide a laundry list of items to verify: Before entering into any contract as a franchisee, you should make sure that you would have the right to use the franchise name and trademark, receive training and management assistance from the franchisor, use the franchisors expertise in marketing, advertising, facility design, layouts, displays and fixtures, and do business in an area protected from other competing franchisees.EXPERT GUIDANCE
Before diving in as a new franchisee; it's wise to consult tax and accounting experts. The Small Business Administration advises bringing those voices on board to get a more complete vision of what lies ahead. The tax rules surrounding franchises are often complex, and an attorney, preferably a specialist in franchise law, should assist you to evaluate the franchise package and tax considerations. An accountant may be needed to determine the full costs of purchasing and operating the business as well as to assess the potential profit to the franchisee.OPERATIONAL SUPPORT
A new franchise owner doesnt want to feel that he or she is on an island, isolated from the protective arm of the franchisor. Communication and guidance from the franchisor should continue beyond the opening date. Franchise companies have staff dedicated to providing ongoing assistance to franchisees. Support from the initial set-up of the new business by the franchisee helps the business owner to navigate the learning curve of owning a new business. This ongoing supports helps the business to grow into a successful part of the franchise. Other support from the franchise may include toll-free numbers, websites, newsletters, and workshops. You're not alone when you're building and running your business, and you can always call on experienced people when you hit a rough spot or want to share new ideas for growing the business.REGISTRATION
You will need to register your name and trademark as required by state and federal law. Franchise regulation authorities will require detailed financial statements, backed by an independent certified public accountant, to be submitted for review. It is also recommended to hire a reputable corporate lawyer and set up various sorts of contracts and agreements to protect your brand concept. This includes confidentiality agreements and non-competition agreements with all the parties with whom you share classified company information.CONCLUSION
When applying to become a franchisee, don't get crazy; the corporations have a proven system for success, and if you stick to the system, you will be approved and succeed. A franchise is an investment, but it's labor-intensive. Establishing the goals you have for your franchise, knowing what type of business you want to invest in, and what type of services you want to offer before investing any time or money will go far in helping you in starting into the right franchise business. Whether you are a franchisor or a franchisee, you will need to do thorough research before making any binding legal agreements. Franchising brings with it both big rewards and big risks, which both parties should be aware of. Before making the ultimate decision, it is important to remember that franchising entails full-time commitment so you need to ensure you can devote the required amount of time, effort and resources to this enterprise.Return to Articles Index