How does owning a franchise work? Are you an entrepreneur thinking of owning a franchise of your own? Is franchising right for you? Just like any other business, owning a franchise is also a risky venture having its own benefits and downsides. The decision of owning a franchise takes long-term commitment.
It is not advisable to start the planning of owning a franchise system by forming a committee with friends or family members who don’t even own a business. In fact, it may very well lead to failure.
Is owning a franchise worth it? Do you know that 4 out of 5 franchise systems fail in the first few years of franchising? Some of the reasons include
• Over regulation.
• Litigiousness of the industry.
• Lack of capital.
Advantages and Disadvantages of Owning a Franchise
What are the advantages and disadvantages of owning a franchise? Owning a franchise is quite an enormous task and it requires considerable amounts of finances, time and also proper planning. Once it starts to operate, you’ll recognize that this business can be very profitable if done whole wholeheartedly.
In this post, I will be sharing some possible steps of owning a franchise, the pros and cons in owning a franchise so you can weigh it and see if you should continue with your drive for the project.
STEPS TO OWNING A FRANCHISE STORE
Understand what a Franchise Is and How it Works
How much money can you make owning a franchise? Before you begin, you need to understand the meaning of the word franchise. Franchises are business systems in which the franchisor (company) permits the franchisee (independent operator) to distribute and sell its services and products with its trademark.
To purchase the franchise, franchisees have to establish a contractual agreement with the franchisors. This agreement contains terms and conditions which have to be signed by the franchisee. These are largely binding.
Requirements to set up a Franchise
First of all, you will be required by the Federal Trade Commission to prepare a standard disclosure document for your franchise. This document is called Uniform Franchise Offering Circular (UFOC) required by all companies. In addition to this, there are many states that have their own requirements.
Make sure that you look into the laws pertaining to the state you plan to franchise in.
Second, you will be required to prepare an audited financial statement for the franchise company.
This is actually one of the requirements under the legal section we mentioned above. You won’t be able to complete any of the legal requirements until you have first completed the financial statement.
You will need an experienced accountant that is familiar with franchise accounting. This person will advise you on the financial structure of your enterprise.
Learn from People that have Started out Before You
It may seem like a simple observation, but there are many people that are running their own successful franchises. There are also people that have failed – and you should speak to them all.
Why? Because they will have valuable insights into what worked and what did not, and this will simplify your franchise journey.
Prepare a Detailed Business Plan
It is best for you write a detailed researched business plan for your franchise business for at least 2 to 4 years. This will be a benefit for you in the future as it can be a guideline throughout the life of your franchise business. It will prove to be a good path to assist you in overcoming future obstacles.
If you are still a newbie in business world, you can take some classes to gain knowledge in the business field you are interested in. Many colleges offer short term classes that cover these courses within 6 months. Alternatively, business consultants can also help you with valuable advice.
Establish a Franchise Agreement and Fees
As you are considering owning a franchise, you have to prepare a franchise agreement. This document will permit the franchisee to run the business according to the specified legal obligation and intellectual property rights.
The agreement must meet local law requirements, and it should protect the franchiser and present a workable document to the franchisee.
One benefits of owning a franchise is the fees you get from your franchisees. It is the first thing you need to consider to keep the business running. A franchisee will be required to pay an initial fee to the franchiser for the privilege of joining the franchise network.
Franchisees may also pay management fees, although they are sometimes included in the wholesale price of the product. Lastly, the franchisee pays an ongoing royalty fees that represent a specified percentage of it profits.
The Pros of Owning a Franchise
• Brand Recognition: One advantage of owning a franchise is that you easily get a brand recognition of your business. Since it is a franchise business, it means there will be many outlet carrying that brand name which may lead to many people seeing it and recognizing it by giving your products or services a try.
• You’re the Boss: With a simplified system of running the business in place, you don’t need to stress yourself. Your main job is to manage the business and profit from it. This one of the benefits of owning a franchise.
Cons of Owning a Franchise
• It’s Expensive to Start: It is more expensive to own a franchise than building a normal business. This is because of the process involve and the technicality of everything.
That being said, it is now up to you to take that final step. Make that decision after careful thought and considering all the aspects. Once you have made that decision, go for it. Best of luck!