At FranchiseHelp, we get asked a lot of questions around franchising and how you can tell if a franchise is right for you! Here are six commonly asked questions potential franchise owners have when considering a franchise investment:
1. What is franchising?
In its essence, franchising is a way of being able to open your own business with the guidance and support of a larger parent company.
A contractual agreement is entered into by the franchisor and the franchisee. The franchisee agrees to pay an initial fee and royalties to a franchisor in order to use the trademark, business system, and sell the products and services of the franchisor, as well as complying with certain standards the franchisor puts in place. The franchisor provides access to the brand name, operational manuals, initial training, and some ongoing business support. Depending on the franchise, they may offer even more than this - ongoing training, marketing support, technology programs, and so on.
Franchisors do well when their franchisees do well, so it is in the franchisor’s interests to ensure their franchisees can thrive.
2. Why should I buy a franchise?
Buying a franchise is a great route if you are looking to become an entrepreneur but don't want the risk of starting a business from the ground up. There is a low risk and high revenue possibility in owning a franchise as well as brand awareness. Along with high profit margins, you are provided all the support and resources of a larger company. Owning a franchise gives you the independence of a business owner while offering guidance.
3. What are the benefits of owning a franchise?
Some of the most successful businesses across a variety of industries are franchises - it’s not just fast food chains! Buying a franchise is a great route if you are looking to become an entrepreneur but don't want the risk of starting a business from the ground up. As a franchisee, you benefit from the brand name, marketing, operational systems, and the products and services of the franchisor you work with. This gives you access to a wealth of knowledge on how to succeed in your business, giving you the independence of a business owner with the support of a bigger company’s resources and knowledge
4. How do I decide what franchise is right for me?
Given the wide variety of franchises available, it can feel overwhelming to decide which one to choose! We recommend narrowing down your options through our franchise quiz to get a set of personalized recommendations based on your interests, available amount to invest, and location.
5. How do I buy a franchise?
Buying and investing in a franchise is a process involving careful consideration. This process includes finding the right franchise for you, tailored to your skills and interests, within your budget.
Once you determine your franchise or franchises you are interested in, submit your information to the desired franchises and do your research. Find out anything and everything you can from competition, revenue, and their background. Explore the geographic location you desire to see if it is a good fit for your franchise and scope out what competition might be present.
Then you will undergo a discovery process with the franchisor where they learn more about you, you learn more about them, and ultimately you'll decide if you want to invest in the franchise! (More details in future blog posts on this process.)
6. How do I conduct a due diligence of a franchise system to decide if I should invest?
Once you’ve selected franchise systems to investigate further, you’ll need to do additional due diligence to determine if the franchise is as good as it sounds in its promotional materials and sales pitch! Things to look for include:
- Does the company have a good reputation?
- Is the company growing?
- Is the company well managed? Does it seem well organized?
- What are customers and franchisees saying about the company?
- Is the franchisor profitable? Are the franchisees profitable?
- How much would you need to invest and how long would it take to break-even?
There are many questions to consider around franchise ownership and doing your research is key to finding the best franchise for you.
5 Ways to Evaluate Your Franchise Options
A great way to go and figure out whether or not the franchise you’re thinking about is the right one for you is to just go into a location and take a look around. Watch how things run. Talk to some of the employees or the customers. Figure out what day to day operations are like. If you have a big problem with the day to day business for any reason then it probably isn’t the right franchise for you. But if you go there and think that the business is great then it’s probably a good fit.
Why Do Companies Franchise?
The most successful entrepreneurs, however, eventually come to recognize that achieving long-term success requires that they step back and put in place the right systems, processes, and people to expand their company beyond what any one individual -- no matter how motivated and sleep deprived -- could possibly manage on his or her own. Once a business owner sees what's possible when employees take on operational responsibilities that free management to actually manage instead of act like their own employee, he or she quickly understands the enormous power that scalability means for a business.
How Do You Pay for a Franchise?
Whether you’re purchasing a whopper from Burger King or joining the Burger King franchise system, the old mantra holds true: there’s no such thing as a free lunch. When you first get started running a franchise you need to pay a fee to allow you to enter into that franchise. These fees are the largest fees that you will normally pay a franchisor and typically range between $5,000 and $1,000,000 depending on the franchise. The franchisor charges this fee as a way to recoup the costs of expanding the franchise and to continue to grow. From a franchisee perspective, this is a major outlay and can take a long time to make back, but is a necessary step. Aspiring business owners must understand how much capital is available to them so they can ascertain how much they can afford. The cash you have at your disposal is known as liquidity, and there are numerous ways to increase your liquidity above the balance in your bank account. As a result, many people don’t realize how much capital they actually can use for investments, like launching a franchise branch. We’ll run through some of those methods below.
