Purchasing a franchise means getting to be your own boss without the hassle of starting from scratch. You benefit from a tried and true business formula and the support and knowledge from a franchisor. According to Statista, in 2020, the economic output of franchises in the U.S. was about $670 billion. Many people are eager to get into business franchising because of the associated advantages. However, entrepreneurs should ensure that they have an in-depth understanding of the basics of franchising before jumping on franchise opportunities.
What It Is
A franchise is the legal right or license given by an established company — a franchisor — to an individual or to business partners — a franchisee — so that the franchisee may market and profit from products or services sold in a specific area. The franchisee uses the branding granted by the existing company. In addition, the franchisee receives training, and possibly materials, to get them started in their territory.
Franchisees have to abide by fixed guidelines and regulations set by the franchisor for the purpose of maintaining consistency under the brand name. The agreement that a franchisor and franchisee come to is dictated by a legal contract, referred to as a franchise agreement. Under this lawful document, a franchisee is agreeing to operate under the arrangement for a set period of time, typically ranging from three to 20 years.
Where Franchising Began
Though there is speculation as to whether or not franchising began with beer being sold in Germany in the early 1800s, most believe that franchising as we know it began in New York in the late 1850s. Isaac Singer developed the Singer Sewing Center after creating an innovative design for the sewing machine. Singer was finding trouble funding the sale of his invention, as well as teaching customers how to use it.
He began to sell the rights to his business so that other individuals could sell the sewing machine and train users as well. This strategy served him well and his operation expanded quickly. Singer was the first to take on mass-licensing a product, and the business model went on to become modern business franchising.
Types of Franchises
Today, there are three traditional types of franchises that you could invest in. Knowing the difference between the three will serve to guide you in your search for franchise business opportunities.
- Manufacturing franchises: These allow a franchisee to manufacture a product under a brand's trademark, brand name, or using the brand's logo. Franchisees may receive detailed instructions on how to manufacture specific products to ensure consistent quality under the brand's name.
- Product franchises: These offer a franchisee permission to sell a product under a brand's trademark, brand name, or with the brand's logo.
- Business franchises: These franchises entail a franchisor licensing an entire brand over to a franchisee. With this comes struct rules for operation set by the franchisor. This is the most popular type of franchise opportunity and incorporates restaurant franchising opportunities that you may have heard of. Examples of business franchises would be Mcdonald's and Subway.
Popular Franchising Sectors
Being informed on some of the common sectors of franchising helps in deciding which route is best for you as an entrepreneur. If you have a particular passion, you may want to prioritize investing in a franchise that aligns with that passion. For example, if you have spent years as a home contractor but are now looking to challenge yourself as a business owner, you may want to consider purchasing a home improvement franchise.
However, if you simply seek to manage a thriving business, then you should be aware that there are plenty of franchising opportunities to choose from. Some popular franchising sectors to know of include:
Franchising sectors expand far beyond these common examples. Locating a reliable franchise marketing system like Franchise Recovery can help you to settle on an opportunity.
New vs. Established Franchises
When making the important decision of investing in a newer franchise or an established one, know that there are benefits and drawbacks to both options. Successful franchises can be tempting to buy into, as you feel like you can trust brands that you know and love. Customers may also be more likely to trust brands that they are familiar with. However, big-name brands are a dime a dozen, and you may find more competition in the saturated market. This makes it tougher to earn a profit. Additionally, fees associated with buying into a big franchise tend to be a bit higher.
On the flip side, investing in a franchise on the rise gives you the chance to get in on the ground floor. Choosing a business with a strong unique selling point and some history of success can prove to be profitable for you. Be aware, however, that you may have to work a bit harder to establish the brand's name within your community. Failing to earn the trust of potential customers results in low profits.
The amount of money spent on a franchise greatly depends on the type of franchise you invest in, the franchise's business sector, and whether it is an established or new franchise. Franchises that can be run from the comfort of your home will, by nature, have fewer associated costs. This is because there is no need for a large amount of equipment, a building, or a fleet of vehicles.
Understanding the one-time and recurring costs of business franchising allows you to adequately prepare and increases the chances of your business' success. Aside from the initial cost of buying a franchise, which should be outlined thoroughly upfront, you will need to pay costs that cover insurance, services received from professionals such as lawyers and accountants, and renewal fees. When planning, you must also factor in the cost of renting a building, hiring employees, and purchasing required materials or equipment.
How to Succeed
There are a few habits that all franchisees can keep in mind in order to do better in their business franchising endeavors. Integrating certain behaviors into your management style can keep a business running smoothly.
First, never cease working on your leadership skills. Your team, should you have one, will only flourish with a leader that is motivating, organized, and dedicated. Keep communication flowing between yourself and your employees so that you always have an understanding of what their mindsets are.
Next, do not be afraid to speak up to your franchisor. This does not mean that you should go looking for things to nit-pick and change about the way that your franchisor runs their business but that you should not be afraid to let your voice be heard as a franchisee. If you notice something that could be done more effectively, do not hesitate to reach out to your franchisor. Who knows — perhaps your idea will be seriously considered and implemented across the franchisor's network.
Lastly, do not expect the franchisor to do everything for you. You have to take initiative, as the franchisee, to make some crucial decisions on your own. Your franchisor is not your boss and you should not anticipate running to them with every issue that you have. Practice your decision-making skills daily so that when it comes time for a key decision to be made, you will feel prepared without the aid of your franchisor.
For more information about the basics of business franchising, do not hesitate to reach out to the experts at Franchise Recovery. Our professionals are eager to align you with a franchise suited to your unique background and goals.
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