Franchising involves an almost symbiotic relationship between the franchisee and the franchisor. The franchisee provides expansion, additional profit and increased brand recognition while the franchisor provides the basic know how, brand name, supply chain, and continuing support for the franchisee. To pay for this instant business, the franchisee shells out an up front fee or a franchise fee for the use of the business system and the brand name. Moreover, the franchisee has to pay a monthly or yearly percentage of the gross sales to the franchisor. Recouping the investment may indeed take some time but franchise companies will provide you an estimate ROI or return of investments to give you an idea on this.
For this reason, franchising has become one of the most profitable and strongest business systems in the world today and though franchises represents about only a tenth of the total number of businesses, franchises garners almost a third of the market share.
There are many types of franchise agreements. These different types differ only on the amount of participation a franchisee can have in making business decisions, advertising and marketing. Some forms of franchising such as those in the food industry strictly regulates how the business is run while other types gives a fair amount of space to franchisees to run their businesses as they see fit.
As they say, franchising can be considered the business in a box selling. Franchisees get to buy a business that already has all the components needed to make it a success. The operations manual for example includes all the forms that will be used in the operation, how much to pay and when to pay your employees, how to market the product or service within the first few months, policies and procedures, compensation packages, product and service information and just about everything to the most minute detail needed to run the business. Prospect franchisees and their people also have to undergo several months of training and drilling to prepare them in handling the store. This results in a uniform and consistent service that gives customers the confidence of knowing what to expect.
So if you are thinking on going into this business, how do you start? It is generally suggested that a franchisee should have at least a basic knowledge and interest in the business he will be going into because although he or she can hire someone competent to handle the store, the franchisor’s time will always be needed especially on the start up months.
You also have to learn how to evaluate the strength of a franchise offer. Are the upfront fee and monthly royalties well worth the cost of the brand name, the support system and the business system given to you? Talking to other franchisees in the system might help you get a general idea on this. Asking them of the amount of support they get from the franchisor, the amount of business the brand name generates and the effectiveness of the business system to deal with day to day as well as long term hurdles will give you a clearer picture if the franchise is worth it.
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