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.
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.
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.
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.
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.
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.
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.
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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.
The first point I made ties into this, but you need to make sure you’ve done your research before you go ahead and sign a franchising agreement. And that doesn’t just mean from a financial perspective. There are so many other aspects in running a franchise that you need to understand before you get started. Most of this information can be found in the Franchise Disclosure Documents. Some of the most important things you should take a look at would be any legal issues the franchisor might have and the churn rate of franchises. Both of those could potentially be pretty significant red flags that might make you want to reconsider whether or not you want to open that franchise.