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Franchising with the Stars! Choosing the Size of your System

Every new franchisee wishes to own a large franchise. However it may not be possible for a multitude of reasons. Capital restrictions, lack of skilled labor and management, and even access to suppliers. Therefore before buying a franchise, one must consider all of the franchise options available to them. The following is a list of franchise favorites as well as the possible advantages and disadvantages of owning them.

The Franchising Superstars!

Think of Dunkin Donuts and McDonalds. These franchises are highly visible and are well capitalized. They have established themselves in the market and demonstrated a stellar track record with experienced and seasoned management staff.

Advantages

These are low-risk start ups and maybe even recession proof. Furthermore, these franchises are more dispersed and have more coverage due to its large audience. This means that co-operative benefits such as greater advertising reach, better brand recognition and equity, preferential treatment from suppliers and lower operating costs through volume purchasing are more of a factor for them then smaller franchises. One other major reason for choosing these franchises is that you have an existing customer base. People already know about the brand and can easily rely on the brand name then they would on any other franchise offering the same products.

Disadvantages

The biggest strength is also their biggest weakness. Due to their large market worth, they are often in incite competition with other large brands and this causes intense competition. Therefore marketing warfare cause sales to fluctuate during certain periods.

Similarly, since the brand has created its own worth and offers lower risk to the franchisee, then they naturally have higher entry fees and investment in these larger franchisees requires a lot of capital initially. Similarly the upkeep of these franchises requires stringent monitoring and has very strict rules and regulations which the franchisee must adhere to otherwise the license is revoked or not renewed.

Rising Stars

These are franchises that are slowly but surely building their consumer base. These franchises are smaller. They tend to offer services and products to a certain niche. Since these franchises are not as mainstream, their start-up fees are negotiable and allow for more flexibility. The fact that they are looking for franchisees to further their brand; it comes as no surprise that they welcome franchisees and offer them more incentives.

Advantages

The start-up for these franchises is relatively easier than of that for a large franchise. The low investment requirement and flexibility regarding estate and venue allow for quicker start-up options. It can also be noted sometimes that the franchisee has the option of selecting suppliers who offer them more competitive rates and quicker deliveries.

The small franchises often allow the franchisee the option to revise the agreement and they can negotiate regarding royalties, start-up fees and other payments as well. The franchise agreement is more of a general statement and can be modified by either parties and be altered based on the benefits and risks to each party.

Disadvantages

These smaller franchises are growing, therefore there may still be bugs existing in their system. This could cause problems in implementation, failure in communication as well as other things.

Also consider these franchises may not carry the advertising strength of larger franchises which could lead to low recall and recognition of the brand name. The franchisees may also have to bear the brunt of higher prices from suppliers due to lower volumes and lack of support from franchisor.

Conclusion

Both of these franchise sizes pose their own benefits and weaknesses to different people. It basically depends on the position of the prospective franchisee and what they have to offer the franchisors. Depending on their assets and their financial position they can choose either of the franchises. Starting a less known franchise does not necessarily mean low profits. Depending on your local market conditions, the smaller franchise may yield greater returns rather than a superstar in a competitive market.

To learn more about franchise opportunities and business opportunities, visit us at FranchiseHelp.

Know Before you Go – Non-Compete Provisions in Franchise Agreements

In general, non-compete provisions state that the franchisee will not, during the term of the franchise agreement and for a reasonable period thereafter (typically two or three years), own or be involved in any “competitive business.” What constitutes a “competitive business” will vary from franchise system to franchise system, but most franchisees can generally expect to be prohibited from taking part in any business that offers goods/services that are either identical to or competitive with the goods/services offered under the franchise system. Non-compete provisions must be limited in geographic scope, and generally cover a set radius (usually somewhere around 5 to 25 miles) around the former franchised outlet, and possibly also the outlets of other existing franchisees.

Why Should I Open a Franchise Rather Than Open My Own Business?

America has always been the land of free enterprise, and the prospect of self- employment may sound like a dream come true. Imagine the schedule flexibility, the freedom to explore and expand while pursuing an interesting career. The alleyways of entrepreneurship are so vast that it can be rather daunting to entertain. What is the right business for today? What product is in demand? Which business model is most profitable? What concept is most likely to succeed? Potential owners also must consider that franchising may be a better option than small business start ups. Yes, when entrepreneurship meets franchising, the parameters change. There may still be freedom, but new franchisees find themselves absorbed into a preset business model with a tried and true support system.

Advanced Franchise Accounting Terminology

Fair warning: If learning about things like GAAP, revenue recognition policies, and the intricacies of cost vs. expenses makes your eyelids droop, feel free to skip over to the next article.