Find a Franchise

How Does A Franchise Business Work? [INFOGRAPHIC]

  • On October 31, 2017

Perhaps the idea of starting your own business sounds a bit daunting. Getting the funding is only one piece of the puzzle. That doesn’t even include all of the time and research that it takes to either prove or disprove the concept of the business. That process includes

  • Finding a space for your business
  • Doing sales research about other businesses in the area
  • Getting an idea of what the traffic is in that area
  • Estimating what your capture rate is going to be
  • What your average customer is going to be spending
  • What your fixed and variable expenses are
  • If you are going to be in the right market
  • If your product or service is going to be in demand in that market

This is an exciting and terrifying process that takes a lot of time and cognitive strain. Since starting a brand new business can be so intimidating, have you ever thought of opening a new franchise or buying an existing one? Buying into a franchise can be a more risk averse way to starting your own business.

Not sure what a franchise is? No sweat. We are going to give you a breakdown of

  • What franchises are
  • Some of the pros and cons of having a franchise
  • Some popular and successful examples of franchises
  • How to do your research before buying into a franchise
  • What your income potential can be
  • Some of the best franchises to buy into
  • What starting your own business looks like vs. buying into a franchise

What is a Franchise?

A franchise is a business that grants its trademark, operations, systems, etc. to an entrepreneur so that they can use a recognized franchise name to start their business.

The entrepreneur pays an initial franchise fee and an ongoing royalty to the company or the franchisor, in order to use and represent the name of the company. In return the entrepreneur gains use of the company name, the systems that the company uses and support of the franchisor for starting and growing their own franchise.This gives the entrepreneur the ability and power to immediately offer and sell a known brand’s products and services

When you are starting a new business as an entrepreneur, you can often be wandering through the dark when it comes to developing marketing plans, hiring employees and managers, training team members and managing sales and expenses. The major advantage to buying into a franchise or opening a franchise is that you don’t have to figure out all of that on your own. In fact, the franchisor will have proven systems for operating, marketing, hiring and running your business so that you don’t have to do any of the guesswork.

As a new franchisee, you can avoid the mistakes and the steep learning curve that many entrepreneurs have to endure when starting and growing their own business. Thankfully, the franchisor has already mastered the art of daily operations through trial and error, and will continue to improve their systems as time goes on.

One of the greatest advantages that you get when becoming a franchisee is having all of the market research that you need before opening your franchise. Franchisors will typically do all of the market research and competitive research that you need before you build out and open a new franchise.

In essence, buying into a franchise gives you the ability to sell your product or service with the power of a recognized and reputable name. Plus, the franchisor gives you access to all of the pertinent information and research that you need for opening a successful business, and all of the systems and operations you need to avoid mistakes and grow your revenue.

Pros

Starting a franchise can sound like a wonderful, low-risk way to start your own business. It definitely can be, but like anything else, it also comes with its cost. There are advantages to starting your own franchise that you won’t have when opening your own independent business, just as there are certain freedoms that you have as an independent business that you don’t get when opening a franchise.

Pros to Opening a Franchise

You really do get a lot of worthwhile benefits if you decide to open a franchise. The chances are, you are buying into a business with a reputation and notoriety. That way, you can gain immediate recognition and credibility when opening up a new location. Customers who are already brand loyalists will embrace your franchise and likely be more than happy to give your franchise their business.The amount of know-how and knowledge you get from people that have operated this business for many years, will save you lots of money and time, when launching your business.

One of the other notable advantages to starting a franchise is that you will have more room and opportunity for growth. Starting off with one franchise and growing that to one, two, or three units is much more fluid and natural than it may be with opening more locations of your own independent business. Plus, you get access to all of the critical and relevant market and development information and research that you need to make an informed decision about opening up a new location. Your franchisor will have firsthand access to any listings and availabilities for new openings, and can give you an idea of what the sales potential can be like in those areas.

Some of the other benefits that come with becoming a franchisee can include

  • Reducing the risk of starting your own business
  • Easily expanding your business to more locations
  • Operations systems that are already in place
  • National or global reputation or notoriety
  • Having access to a knowledgeable franchisor that can consult you on your business
  • Collective buying power
  • Assistance with financing
  • Ongoing research and development that you don’t have to oversee or administrate
  • Assistance and materials for sales and marketing

Some Examples of Successful Franchises

Franchises are some of the most successful businesses in the world and buying into a franchise provides by far a greater chance of success than doing it on your own.  Check out the success some of these brands have had starting from one or two units just a few years ago. You are probably familiar with many of these which include

  • Subway
  • McDonalds
  • 7/11
  • Dunkin’ Donuts
  • Jimmy John’s
  • Dairy Queen
  • Taco Bell
  • Hardee’s/Carl’s Junior
  • Orange Theory
  • Supercuts

Doing Research and Buying a Franchise

Before you buy into any franchise, you need to make sure that you do plenty of research on the franchise and the location that you are buying into. This is one of the most important parts of the process when buying into your own franchise. It is arduous, and can take months or years to figure out if that business is a good or bad decision.

Income Possibilities From Purchasing a Franchise

The income possibilities of your franchise greatly depend on the kind of franchise that you plan to open, the location of your business and a variety of other factors. Having one or two small franchises can make you a decent living, and expanding to open other successful franchises can make you a small fortune or better.

As you become comfortable with running your new franchise, you can begin to purchase more franchises and operate the same business in multiple locations, sharing some of your resources and increasing your overall profits

 

What Type of Franchise Should I invest In?

The type of franchise you invest in has a lot to do with your interest and hobbies. You should look into an industry that you are interested in, then look up all the franchises in that industry and compare the advantages and disadvantages before you decide which one you should go with.  You should also be aware the trendiness of each industry and if the industry will remain hot a decade from now. You should request to receive the Franchise Disclosure Document (FDD) from each franchisor and read them carefully before you proceed. When looking at the FDD, you want to pay closer attention to Item 2 (work history of founders/officers), Item 3 (litigation history), Item 4 (Bankruptcy history, if any), Item 6 (operational costs), Item 7 (start-up costs), Item 12 (territory protection), Item 13 (trademark protection), Item 19 (past financial performance for their working locations) and item 20 ( showing the status of all their open and closed locations).


In Conclusion, buying a franchise is an extremely smart investment in your future. If you’re ready for the challenge and up for a rewarding journey, then send us a message or give us a call and we’ll get in touch with you!

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