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If you are thinking about going into business for yourself, you might consider opening a franchise. In many ways, these opportunities require the same efforts as any startup, but there are some big differences. It is important to first understand what a franchise is.
Definition of Franchise
According to Small Business Law.com, a franchise is a “business in which the owners, or ‘franchisors,’ sell the rights to their business logo, name and model to third party retailer outlets, owned by independent, third party operators, called ‘franchisees.’ “In common terms, you buy the right to use the name and logo on your sign and advertising and to build your business in accordance with the original model.
How they Work
If you open a franchise, you will pay a franchise fee and you will be given a store in return. That doesn’t mean that the franchisor will pay for your business; you will have to take out a loan to build or rent a building, buy supplies and hire help.
Your franchisor will probably help you find a good location, however, and offer training and marketing. They may give you advice on managing your store. As a franchisee, you are your own boss, but you will have access to the support of the “parent” business. You will also benefit from regional or national advertising campaigns.
Sometimes the start-up fees for franchises are high. The franchisor may also require you to pay royalties and to conform to the parent company branding. Contracts generally last for fifteen to twenty years, but if your store isn’t meeting the parent company’s expectations, the contract may not be renewed.
Some Well-Known Franchises
One of the largest franchises in the world is Subway. This chain requires an initial franchise fee of $15,000. The company has a seven percent failure rate, and investors usually take out an initial $171,000 loan.
The Cold Stone Creamery is another large and well-known franchise. There are more than 1,400 locations. The average startup loan for the franchise, however, is more than $233,000.
Dunkin Donuts is such a popular business that its advertising has become part of the culture. If you want to open one of these franchises, your initial loan will average $580,000.
The Super 8 Motel chain is a nationally-known brand. If you want to buy one of these franchises, your loan will average $910,000, but the business failure rate is only four percent.
How to Open a Franchise
The first step is to contact the company in which you want to invest. They will have you complete an application that includes, among other information, your financial status and personal assets as well as asking about your business experience.
If the company approves your application, you will be asked to do an interview with company representatives. Legal Zoom.com says you will be given a copy of the company disclosure agreement, and you should research the information in it carefully. The document will tell you about the company officers and their financial backgrounds, about the franchise itself and the ongoing costs involved and other pertinent facts. Most experts advise that you have the agreement reviewed by both an attorney and an accountant.
If you decide to proceed, you will need to secure financing for the venture and decide upon a location. For other considerations, the Federal Trade Commission offers a Consumer Guide to Franchises. The most important step for you as a prospective business owner is to research the company thoroughly.
There are pros and cons to franchises just as there are to starting any new business. With this type of opportunity, though, you have the advantage of a brand that is already accepted in the region or in the nation. You also have access to the company resources and support. For these reasons, opening a franchise might be the right decision for your business future.
