The term franchising involves a relationship between two parties, the franchisee and the franchisor. We will start with the franchisor; they provide the guidance for the business, have an identifiable brand name, a substantial supply chain and give ongoing support to the franchisee. The franchisee will find a franchise for sale and lay down an initial investment to the franchisor, which will form the basis of the partnership. The franchisee will provide expansion, extra profit and increased brand awareness for the franchisor and then make themselves a viable business. The franchisee pays for the business model and brand name which has been tried and tested and therefore if developed correctly should be a basis for future gain. On top of this the franchisee will pay a certain percentage of their gross income back to the franchisor, this ranges from monthly payments to yearly payments. The initial investment may take several months to be recouped back but that varies with business sectors.
The franchise model has increased dramatically over the past 10 years and is now thought of to be one of the most profitable business systems in the world. Recent research has shown that franchises represent only about a tenth of the total number of businesses in the world but the market share that they have acquired is nearly a third.
When choosing your franchise look carefully over the agreement as there can be may different versions. The different versions only differ by the amount of participation a franchisee will have in making business decisions, advertising and marketing. Some franchises such as a fast food chain have strict regulations in place as to how the business is run while other franchises give the franchisee more options to offer other products and change pricing as they see fit.
A franchise opportunity can be thought of a bit like a lego set, all the pieces and instructions are there it’s just up to the franchisee to put them all together and build the business. The instructions will include all of the vital information such as, pricing structure, ways to market the product or service, terms and conditions, contract length, product and service information and any other criteria to do with running the franchise. Potential franchisees normally go through a training scheme to ensure that they are fully aware of their business and have the necessary tools to take over the franchise and make it a success. This training is a must for the franchisor, as this will give them a consistent flow of potential franchisees operating at the same high level.
You have got to evaluate the initial investment, the monthly or yearly percentage and decide if all theses costs add up for you to buy into the franchise. Is it worth their brand name, their support and the training given to you? If you can speak to other franchisees that have been part of the same franchise opportunity and ask them about the benefits and negatives when working for the franchisor. Ask detailed questions such as the amount of business the franchise generates, if the training system is adequate, what are the monthly percentages and how much support is given to the franchisee. These questions will give you a better idea of the franchisor and if you are ready to make a commitment find a franchise for sale.
