Franchises are becoming increasingly popular in today’s business market. It’s not just customers that are flocking to them, either. Entrepreneurs are looking to franchising to expand their knowledge in management and make a profit for themselves. However, what makes franchises different from other kinds of businesses? While you may be familiar with franchises in general, running them includes some specifics you might not know much about.
If you’re thinking of buying a franchise from a respected brand, you have to become well-acquainted with the business structure and policies of franchises. Here are a few things you should take into consideration before you decide to buy a franchise.
The costs may vary
One of the most challenging aspects of starting a business is calculating total costs. It’s difficult to assess how much each and every asset will cost you, and you’ll always run into small delays and unexpected expenses. Franchises are a bit different, as most of the math will be done by the franchise owner beforehand. However, there are still variables to consider that depend on suppliers and the location of your franchise.
Consider how large you want your franchise operation to be. One of the great benefits of franchises is that they often allow you to open a relatively large business even if you only have so much capital ready. Still, you need to consider operating costs, supplies, and employee salaries. Before you decide to purchase a franchise, make sure you’ve taken all these costs into consideration.
Think about your financing options before moving forward. Banks and other lenders are a lot more likely to offer substantial loans to businesses that are part of a franchise. If the brand has proven itself to be profitable many times before, it’s not a stretch to imagine it will continue to be successful in this example. This can help you acquire quite a bit of starting capital, which will help you finance the operation with ease.
Your talents need to be well-suited for the job
A lot of people try their hand at running a franchise simply because they enjoyed similar establishments. If you’re a fan of a chain restaurant or coffee place, you might think you have a distinct advantage. After all, knowing how to cook is half the battle when running a restaurant, right?
Unfortunately, this isn’t the case when it comes to owning a franchise. Your goal is not to become a dedicated employee. While this may be a part of some forms of franchise ownership, it’s hardly ever the primary goal. You have to run the business itself, while employees help you maintain it. Talents that complement the jobs within the operation are less of a focus. You have to be business savvy to understand how to finance and maintain the business in the long term.
Instead of weighing your talent for cooking or brewing coffee, you should figure out whether you are able to recognize that talent in others. This will help you find the right employee setup for the franchise you buy. Managing is the name of the game, and it requires a completely separate set of skills that few possess. If you know that you aren’t suited for this role, buying a franchise might not be the best idea. On the other hand, having an eye for talent and management should give you the edge compared to your competitors in the area.
It requires a sizeable investment of time
Starting any business will require a lot of your time and dedication. This applies to independent companies and franchises alike. Whichever business you decide to own, you’ll definitely have to carve out dozens of hours of your week just to manage it. This is why you should only go into the business fully aware of the time investment. Otherwise, you might end up with more on your hands than you might have expected.
Some franchises are more demanding than others. You could have to work sixteen-hour days in the beginning, just to prepare the business. Others will be more lenient and allow you to use your time more efficiently. This depends on the type of business and the services that it provides.
Franchises often have seasonal characteristics. If you specialize in products and services that are in high demand for summer or autumn, these seasons will be particularly difficult to handle. Make sure you’re able to plan ahead for these times of the year, as they will be very demanding of your time. Otherwise, you won’t be able to realize the full profit potential of the franchise.
Not all franchises are equally profitable
While franchises are considered pretty safe bets when it comes to the success of their operations, that doesn’t necessarily mean they are all equal. Depending on the brand that you choose to cooperate with, your mileage may vary.
Consider the demand for a particular franchise before entering into the market. The franchise can be profitable if run properly, but that doesn’t mean that profit margins will be large. If you intend to expand the business and run several franchises, choosing a slow-building brand that provides seasonal services won’t cut it.
Do thorough research into any franchise that you consider buying. Get to know the inner workings of the business and how it functions in the long term. If franchise branches last a long while and expand, this can be a sign that the business viable in the long term. However, you have to take success rate into consideration. If only a few of those franchises succeed, this can give you insight into how your own branch might fare.
Franchisors can help you prepare
No matter how much experience you have with running a business, it can still be a logistical nightmare. There are many hidden costs that come with preparation, and you often end up using more of your time and investment than you thought. Making sure the business is ready before officially opening is crucial, but it often takes a while to get the hang of the business operation.
In franchising, the process is made a lot easier with the help of the franchisor. It’s in their best interest that you succeed with a branch of the franchise, which is why they will help you with setting things up. They should already be familiar with the hidden costs and management aspects that you need to know. As with all of their franchisees, they will want to teach you the inner workings of the business and help wherever necessary.
Stay in contact with your franchisor and consult them whenever you hit a bump in the road. Bits of information could help you get through the tougher parts of opening the franchise. Knowing how much of the investment should go in certain parts of the business would help you budget more efficiently. Don’t hesitate to ask the most mundane of questions about the franchise. It’s an investment both parties want to see become successful.
Different endgames require different strategies
When you decide to buy a franchise, you have to be aware of your end goal. Do you want to run the business and see it expand as much as possible, or do you intend to sell it once it becomes valuable enough? Some business owners will aim to create a franchise that will be successful well after they retire so that their children can manage it. Any of these options are viable in franchising, but you have to know what your goal is from the start. With an endgame in mind, you can adapt your strategy to reach these goals as quickly as possible.
Your choice of exit strategy will affect every part of franchise ownership, right down to which franchise you choose to work with. Some are better long-term investments, while others see a quick surge in profit and can be sold rather quickly. The market for certain franchises is more dynamic than others, so keep that in mind. Keep an eye out for the right opportunity to match your goals and you will have a much easier time reaching them.
There are various fees associated with franchising
Buying a franchise entails taking on a brand owned by others and helping expand it. While this is very attractive for the franchisor, there’s no guarantee that they’ll gain anything from an attempt at opening a branch. Not to mention, having a successful business under your fold doesn’t mean much unless it’s making you money directly.
The franchisor will require fees for opening and running the business with their brand at the forefront. It’s a normal part of running a franchise, but not all franchisees are aware of all the fees that are associated with their purchase. The initial franchise fee allows you to open the business and take on the franchise itself.
Ongoing royalties and advertising fees are also paid on a regular basis, as the brand and its marketing directly benefit your business. Make sure you’ve taken this into account when calculating how profitable the business is. Your contract should state what percentage or flat sum goes to the franchisor, so it can’t catch you by surprise. The franchise might feature specials and promotions that are costly, but necessary for marketing. Opening day giveaways and free promo days will cost your operation, but the franchisor will insist that they are featured.
Negotiation is a big part of the business
If you’re looking to open a branch of a specific franchise, you have to make a compelling argument to the owners of the brand. Why should they give you the opportunity to run the business? Should the investment fail, it would affect the brand and be a waste of time and resources.
This is why it’s important to negotiate with the franchisor and present your arguments well. You have to analyze the market and provide arguments for opening a franchise in a particular location. Successfully opening a franchise requires solid management skills and an eye for profitable investments.
Legal assistance is often necessary when drawing up a franchising contract. It describes the relationship between the franchisor and the franchisee and dictates what the responsibilities of both are. A franchise attorney can help you create an ideal contract that will be attractive for the franchisor while giving you all the resources you need to create a functional and profitable business for yourself.
Accounting is key
Alongside an attorney, your business will also require a good accountant. You need to run the numbers for the franchise to help you get a perspective on the profit margins you can expect every month. Do a breakeven analysis and see if your current business practices will get you anywhere, or if they require adjustments.
Many franchise owners also enlist the help of an insurance agent. The good news is that franchisors will be very upfront about the insurance costs and how they fit into your business. You won’t run into any difficulties setting up the financial aspect of your franchise. Previous and current owners will share their experiences and help you get your business off the ground.
Buying a franchise isn’t too different compared to running any other business. There are some specifics involved in the process, but they are easy to get accustomed to. Other than the fees and negotiating with franchisors, most of the unique aspects of franchising are seen as benefits for the business owner. Even this is a small price to pay for a fully functional business with a pre-established structure.
This is precisely why franchising has become such an attractive and lucrative investment. Aspiring entrepreneurs are looking to franchising more and more in recent times, as they see it as a surefire way to either make a name for themselves or to create a profitable enterprise. The experience gained from managing a franchise helps as well. Before you decide to open a franchise, make sure you have all the above pointers in mind, so that nothing catches you by surprise.