Your initial franchise fee, which may be non-refundable, may cost several thousand to several hundred thousand dollars. You may also incur significant costs to rent, build, and equip an outlet and to purchase initial inventory required to open. Other costs may include operating licenses and insurance. You also may be required to pay a "grand opening" fee to the franchisor to promote your new outlet in the press.
In addition, royalties usually are paid for the right to use the franchisor's name and logos. So, even if the franchisor fails to provide promised support services, you may still have to pay royalties for the duration of your franchise agreement.
You may have to pay into an advertising fund. Some portion of the advertising fees may go for national advertising or to attract new franchise owners, target the franchise system as a whole. In some circumstances, advertising may be directed to a particular outlet like during Grand Openings. To ensure uniformity which is one important reason franchising works, franchisors typically control how franchisees conduct their business.
These controls may significantly restrict your ability to exercise your own business judgment. The following are typical examples of such controls. Many franchisors pre-approve sites for their outlets. This may increase the likelihood that your outlet will attract customers as they have experience in how to pick a location.
The franchisor, however, may not approve the site you want. Franchisor experience with this is vitally important. Franchisors may impose design or appearance standards to ensure customers doing business with you receive the same quality of goods and services in each outlet in the chain regardless of where the outlet may be. Some franchisors require periodic renovations or seasonal design changes and inspections to assure their quality standards.
Complying with these standards may increase your costs. Franchisors may restrict the goods and services offered for sale. For example, as a restaurant franchise owner, you may not be able to add to your menu. Similarly, as an automobile transmission repair franchise owner, you might not be able to perform other types of automotive work, such as brake or electrical system repairs. Franchisors may require you to operate in a particular manner.
The franchisor might require you to operate during certain hours, use only pre-approved signs, employee uniforms, and advertisements, or abide by certain accounting or bookkeeping procedures. The franchisor may require you to purchase supplies only from an approved supplier, even if you can buy similar goods elsewhere.
Franchisors may limit your business to a specific territory described in your Franchise Agreement. While these territorial restrictions may ensure that other franchisees will not compete with you for the same customers, they could impede your ability to open additional outlets or move to a more profitable location. You can lose the right to your franchise if you breach the franchise contract.
A franchisor can end your franchise agreement if, for example, you fail to pay royalties or abide by performance standards and sales restrictions. If your franchise is terminated, you may lose your investment. Franchise agreements typically run for 15 to 20 years but are governed by your Franchise Agreement. After that time, the franchisor may decline to renew your contract.
Renewals need not provide the original terms and conditions. The franchisor may raise the royalty payments, or impose new design standards and sales restrictions. Your previous territory may be reduced, possibly resulting in more competition from company-owned outlets or other franchisees. Before investing in a particular franchise system, you must consider how much money you have to invest, your abilities and experience, and your goals. The following checklist may be helpful to make your decision.
Can Franchisor assist you? What is your credit score? What are your monthly expenses? Do you have computer, bookkeeping, or other technical skills?
Make a list of them. Like any other investment, purchasing a franchise has some degree of risk. When selecting a franchise, carefully consider a number of factors, such as the demand for the products or services, likely competition, the franchisor's background, and the level of support you will receive. Also, what is your enthusiasm level for the product or service? Is there a demand for the franchisor's products or services in your community?
Is the demand seasonal? For example, lawn and garden care or swimming pool maintenance may be profitable only in the spring or summer. Is there likely to be a continuing demand for the products or services in the future? Is the demand likely to be temporary, such as selling a fad food item? Does the product or service generate repeat business? What is the level of competition, nationally and in your community?
How many franchised and company-owned outlets does the franchisor have in your area? How many competing companies sell the same or similar products or services? Are these competing companies well established, with wide name recognition in your community? Do they offer the same goods and services at the same or lower price?
What can you do to establish a foothold in your market? Sometimes, franchise business systems fail like anything else. Will you be able to operate your outlet even if the franchisor goes out of business? Will you need the franchisor's ongoing training, advertising, or other assistance to succeed? Will you have access to the same or other suppliers?
Could you conduct the business alone if you must lay off personnel to cut costs? Of course, this could happen with any business regardless of what it is. One primary reason for purchasing a franchise is the right to associate with the company's name and services. The more widely recognized the name, the more likely it will draw customers who know its products or services. Therefore, before purchasing a franchise, you might want to consider:. Another reason for purchasing a franchise is to obtain support from the franchisor.
What training and ongoing support does the franchisor provide and for how long? How does their training compare with the training for typical workers in the industry? Could you compete with others who have more formal training?
What backgrounds do the current franchise owners have? Do they have prior technical backgrounds or special training that helps them succeed? Do you have a similar background? Many franchisors operate well-established companies with years of experience both in selling goods or services and in managing a franchise system.
Some franchisors started by operating their own business which is a very good way to start out. There is no guarantee, however, that a successful entrepreneur can successfully manage a franchise system. Carefully consider how long the franchisor has managed a franchise system.
Do you feel comfortable with the franchisor's expertise? If franchisors have little experience in managing a chain of franchises, their promises of guidance, training, and other support may be unreliable. A growing franchise system increases the franchisor's name recognition and may enable you to attract customers. Growth alone does not ensure successful franchisees; a company that grows too quickly may not be able to support its franchisees with all the promised support services.
Make sure the franchisor has sufficient financial assets and staff to support the franchisees. Attending a franchise exposition allows you to view and compare a variety of franchise possibilities, many at a time.
Keep in mind that exhibitors at the exposition primarily want to sell their franchise systems. Before you attend, research what type of franchise best suits your investment limitations, experience, and goals. When you attend, comparison shop for the opportunity that best suits your needs and ask questions.
An exhibitor may tell you how much you can afford to invest or that you can't afford to pass up this opportunity. An exhibitor may attempt to convince you that an opportunity is perfect for you. Only you can make that determination. Consider the industry that interests you before selecting a specific franchise system. Ask yourself the following questions:. If the industry does not appeal to you or you are not suited to work in that industry, do not allow an exhibitor to convince you otherwise.
Spend your time focusing on those industries that offer a more realistic opportunity that fits you. Visit several franchise exhibitors engaged in the type of industry that appeals to you. Listen to the exhibitors' presentations and discussions with other interested consumers. Get answers to the following questions:.
Where are they located? Are there any continuing royalty payments? How much? Exhibitors may offer you prizes, free samples, or free dinners if you attend a promotional meeting later that day or over the next week to discuss the franchise in greater detail. Do not feel compelled to attend. Rather, consider these meetings as one way to acquire more information and to ask additional questions. Be prepared to walk away from any promotion if the franchise does not suit your needs.
Some franchisors may tell you how much you can earn if you invest in their franchise system or how current franchisees in their system are performing. Be careful. The FTC requires that franchisors making such claims provide you with written substantiation. This is explained in more detail in the section "Investigating Franchise Offers. If the franchisor does not have the required substantiation, or refuses to provide it to you, consider its claims to be suspect.
Take Notes. It may be difficult to remember each franchise exhibit with all the excitement of the show. Page Count. Michael H Seid, Joyce Mazero,. Pick the perfect franchise for you Create marketing plans and branding for your new franchise Understand all of the complex legal issues surrounding the ownership of a franchise Uncover the secrets to continued success and future expansion Running a Franchise for Dummies is a clear and concise guide for anyone who wants to be their own boss and stand on the shoulders of franchise giants both big and small.
Download e-Book Pdf. Related e-Books. EMBED for wordpress. Want more? Advanced embedding details, examples, and help! Publication date Topics Franchises Retail trade Publisher Wiley Collection inlibrary ; printdisabled ; internetarchivebooks ; delawarecountydistrictlibrary ; china ; americana Digitizing sponsor Internet Archive Contributor Internet Archive Language English.
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