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.
To learn more about franchise opportunities and business opportunities, visit us at FranchiseHelp.
How Much Money Can My Franchise Make?
That said, working out the numbers can be challenging if you don't have the proper guidance. Getting to the bottom line requires a basic understanding of franchise accounting, a willingness to do a bit of digging through FDDs / UFOCs (more on these below), and the ability to perform some simple arithmetic to build a basic set of financial projections (your mini business plan in numerical form).