Is A Franchise Right For You?
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A proven way to own your own business is to purchase a franchise. Whether you select a new location or acquire an existing one, there are some key things to consider before investing any money. Franchises have distinct advantages and disadvantages, and it takes a particular type of person to operate one successfully.
What exactly is a franchise?
A franchise is different from a general business opportunity because it is very structured and well defined. There is not a lot of room for interpretation or experimentation, as everything from the business concept to the details of operation is clearly specified along the way.
A franchise operates under the franchisor’s established brand, trademark, and name recognition. In return, the franchisee must operate under strict rules and restrictions set up by the franchisor in order to preserve and protect the brand. It is common for franchisors to set rules to address location, marketing, daily operations, hiring practices, uniforms, customer service expectations, etc.
The franchisee is responsible for paying a franchise fee and start up costs. He or she must also pay royalty fees to the franchisor, which can be as much as 3% to 8% of gross monthly receipts, and contribute to a cooperative advertising and marketing fund. The franchisor is responsible for providing ongoing support and advice to the franchisee. This should include training during start up and frequent opportunities for asking questions and solving problems.
What are the advantages and disadvantages of a franchise? As good as a franchise sounds, there are advantages and disadvantages to this kind of business.
Advantages include:
- Established name and brand recognition
- Standardized systems for products, operations, training, accounting and financial reporting
- Access to consultation and advice from the franchisor
- Group advertising rates and national/regional marketing support
- Assistance with start up, including financing, site selection, etc.
- Training on all aspects of franchise operations
Disadvantages include:
- Strict contractual obligations pertaining to royalties, advertising, operations, advertising, marketing, etc.
- Long term contracts
- Franchisee success is tied to overall franchisor success; a weak or failing franchisor will drag down its franchisees
The specific advantages and disadvantages of a particular franchise depend somewhat on your own personality. A very independent, creative, risk-taking person would probably feel strangled in most franchise situations, while a more cautious, flexible and risk averse person would probably thrive in this environment.
What does it take to be a successful franchise operator?
A successful franchise operator has many of the same qualities as any other business owner. These qualities can be learned and practiced, making it possible for most people to run a successful franchise operation.
A franchise operator must work hard. You cannot simply buy into the business and sit back while it makes money. You must be willing to do anything and everything required, from running the cash register to cleaning the floors. Active involvement in business operations includes being physically in the business every day, putting in the long hours necessary to run it well, and taking care of critical functions such as accounting, marketing, business planning, and such.
The most successful franchise operators do not try to invent systems and structures from scratch. Instead, they look for established, proven systems and implement them. Examples include product lines, accounting systems, financial systems, and operations. They do not like to take unnecessary risks, and in fact look to established systems as a way to minimize risk.
These same operators actively network with other franchise owners and franchisee representative in order to uncover and duplicate best practices and good ideas. They know when to ask for help and advice, understanding that they do not know everything about running a franchise. They connect with others to share important knowledge.
Finally, a successful franchise operator has excellent interpersonal skills. This means interacting with customers and employees in a way that is productive, positive, and professional. The operator must be able to manage employees for maximum performance, providing coaching,
correction, and feedback as needed. Interaction with customers is vital, too, so that people who come into the business receive excellent service and want to come back repeatedly.
How can I prepare to be a successful franchise operator?
If you decide that a franchise might be right for you, it pays to prepare and plan. Taking some key steps in advance will help position you for greater success with your franchise. Look around your community for organizations or professional groups that offer franchise assistance.
A good place to start is financing. Some franchisors will help with these arrangements, but many do not. You will need to establish a strong working relationship with your banker to handle your long term and short term financial needs with regard to a franchise. Along with a good banking relationship, you also need a good legal relationship. Look for an attorney with franchise contract experience to guide you and advise you in evaluating any potential contract. He or she will know which parts are not negotiable and which parts may have room for some adjustment.
An experienced accountant is critical to running any franchise business. Your books must be 100% accurate and up to date so that you can verify (for yourself and for the franchisor) that all royalties and other fees are properly calculated and paid. Accounting support is also important for payroll functions, tax functions, and general financial reporting.
Regardless of the franchise you end up selecting, you will need competent computer skills. If you have already decided on a specific franchisor, find out what system they use and brush up your computer skills on that same system. If you are still evaluating franchisors then a general computer skill class might be helpful to improve and polish your skills.
It doesn’t hurt to start scouting locations for your business well in advance, especially if you know the type of franchise you plan to acquire. For example, a restaurant franchise will do best in certain locations, while a retail franchise might do better in other locations. Never sign any lease agreement until you have a franchise contract in place, but do get to know the real estate market in your area so you can quickly find a suitable location when the time comes.
Finally, successful franchise operators have good, broad-based business management skills. This means having at least a working knowledge of accounting, marketing, employee relations, hiring practices, pricing strategies, and such. You do not need to become a total expert in these areas, but you should be familiar with them. The franchisor will then give you the very specific training you need to conform to their requirements.
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