Starting your own business can be overwhelming for first time entrepreneurs. Investing in an already successful franchise concept may be a great choice for your new business venture.
What is franchising?
Franchising is a way of distributing products and services. The franchisor (original business owner) grants a licence for the use of their trade-mark or trade name for a fee. The franchisee (person who buys the franchise) is allowed to use the franchisor's business name and branding for the business.
As a franchisee, you pay the franchisor a certain amount of money (royalties) from your franchise's profits. Normally, the franchisor would draft a franchise agreement with you that includes details about how the franchise will be run.
People choose to open a franchise for many different reasons. Some of the advantages of choosing to operate a franchise may include:
- You start with a proven business idea.
- You get help with business start-up (equipment, suppliers, training).
- You can buy your supplies in bulk.
- Your business benefits from existing brand name recognition.
- An established supply chain and customers are already in place.
- Buying into a successful franchise can be very profitable.
- Franchises have a lower failure rate.
A franchise offers many benefits but there can also be disadvantages. Some of the disadvantages may include:
- Franchises are run the same way, so you have less flexibility to run the business the way you would like. This can sometimes be frustrating if you have your own ideas on how the business should operate.
- The more successful the franchise, the more expensive it usually is to buy.
- There are ongoing costs, such as royalties and advertising.
- Some franchisors may not provide a lot of support, such as training or mentoring.
- Franchise agreements generally favour the franchisor, so be sure to have your own lawyer review the agreement carefully before signing.
- The location of the franchise is at the discretion of the franchisor.
- Not a lot of legal protection is available for the individual franchisee/owner.