Owning a franchise is another type of entrepreneurship. A franchise is a license to use the trademark of an existing business. It is run by a franchisee under the brand name of the national or a multinational company (Franchisor). Starting a franchise can be lucrative if the brand already has a loyal customer base.
Practically, franchisees adopt the entire model of the franchisor, ranging from the branding and marketing to pricing. Once approved, the franchisee enjoys all the benefits of franchisor’s brand and the other resources such as logistics, accounting, and professional consultancy.
Apparently, franchising seems a convenient way to start a business setup however, you should not ignore the requisite features:
1 Know Your Personality
Do a detailed self-check. Dig deep; analyze yourself whether you’re a rule follower, or not. Self-reflection is definitely required here. If you are not good at following rules, then don’t go for a franchise.
Agreeing to follow the terms and conditions of the franchisor is somehow different than practically following them. Critically evaluate the following questions like
- Do you understand what it means to operate a franchise under its terms?
- Will you be comfortable in following those terms?
- Do you have a prepared business plan to run a profitable franchise?
Military veterans are successful franchisees because they’re used to follow the rules within a highly regulated system. Franchisees are not creators but they’re great implementers.
2 Do Your Research
Avail all publically accessible information on franchising. The Federal Trade Commission’s (FTC) Guide to Buying a Franchise is the best way to start your quest.
Some brands require their franchisee to have a net worth of $500,000. If your financial standing does not meet this criterion, find another niche. Similarly, do not ignore specific business only by looking the fine print.
Another important document is Franchise Disclosure Document (FDD). You will receive it from your franchisor. However, franchise representatives usually cannot provide information about earnings-related questions. You can get all these information from existing franchisees.
Therefore, you should make sure you have a franchise business plan before making any decisions. FDD is a highly informative document where you can find the answers about the type of training your franchisor will offer you, hidden costs in term of the opening day; discounts or special promotions, bankruptcy filings by the franchisor and litigation involving the management.
3 Check Your Financing
Being a franchisee, you must know about your financial standing. You will waste a lot of time in finding and searching franchise opportunities without knowing your budget limits.
It is best to prepare your net worth statement before deciding to become a part of a franchise business. Prepare a list of your assets and the liabilities. The difference between your assets and liabilities is your total net worth. Your franchisor will require this information from you. Mostly the franchisor set their minimum net worth requirements.
Always consider beyond the minimum buying requirement of the franchise, listed as registration fee and equipment cost. Do not ignore the costs that involve marketing and advertisement activities. You need a significant amount of money to survive on break-even point and the initial loss period before your business actually starts hatching the profits.
4 Beware of Consultants
Franchise consultants are salespersons. Beware of them while making any decision. Mostly, they involve you in a deal without providing adequate information about terms and conditions of a franchisor because they charge a handsome fee of $20,000 per deal. It is recommended to ask the consultants to provide you with absolute clear information regarding their consultancy charges before signing the agreement.
After carefully analyzing these steps, you can sign an agreement with your franchisor and pay an upfront fee. This is where it all begins. If all the process goes well for you, renew your franchise agreement and enjoy the bandwagon of an already proven successful idea.