Do you want to start a proven business? Start a franchise business. Do you know it’s only a franchise business that gives you both a proven business plan and existing customer base? And most of all, a business location free of competition from the same brand.
According to Statista report, there are estimated 745,290 franchise establishments operating in the United States from 2007 to 2018. And that is in the U.S alone. Also, the retail franchise industry brings in nearly 70 billion dollars per year and directly employs over 815,000 people.
Is Coca-Cola a Franchise?
And most entrepreneurs don’t know that even Coca-Cola is run as a franchise. So, it’s not just retail operations that can be franchised, even manufacturing outfits can sell franchise like Coca-Cola.
In the early 1890s, Coca-Cola chose to franchise the rights to bottle its carbonated beverage to a large number of independent businessmen who received exclusive territories in which to distribute the product in return for paying for and assuming the risk of distributing the product. Read more from Informit on Coca-Cola franchise.
You too can think about selling or buying a franchise business. But in this article, I will major on purchasing a franchise business, and you will be glad to know what I have found.
What is a Franchise Business?
A franchise business is that in which the owners, or “franchisors”, sell the rights to their business logo, name, and model to third parties, called “franchises”. Franchises are a standard way of doing business. A startup with limited knowledge and experience can start a franchise business successfully.
Another way to look at a franchise business is a business that has been tested, proven and has wider market acceptability, that is now sold to third parties in the form of rights of ownership within an agreed location.
However, franchise business cost more to start, because is like buying an existing business from the owner. The difference here is that the owner is only selling you the right and will still earn Commission from sales made from the franchise.
How it Works
If you have plans of buying a franchise business, you might as well understand the fundamentals to better judge which franchise is right for you. You need to know what rights you have in a franchise, as well as your responsibilities.
A franchise works like a branch of an existing business. It generally involves the franchisor (known as the owner of a company) licensing to a franchisee (third party) the right to operate the same business or distribute same brand goods and/or services using the franchisor’s business name and systems.
And it varies, depending on the franchisor, for an agreed period of time, in return for a fee. The franchise fee may be an upfront payment by the franchisee to the franchisor, an ongoing fee (e.g. an agreed percentage of revenue or profit) or a combination of the two. Franchising is an alternative to the franchisor building a chain of stores.
Reasons to Buy a Franchise Business
And there are many reasons why someone would buy a franchise. Beginning from wanting to start a business, etcetera. For example:
- You enjoy incentives in owning and operating your own business, like monetary rewards
- It’s easier to start on a brand that is well established.
- You also get assistance like in identifying suitable business locations with a miniseries risk for operation.
- There is also a flexible term of the agreement to limit your risk exposure.
- You will enjoy support, training and business knowledge, which will help you avoid mistakes. And above all, you will have a specific business model and training in areas like marketing, merchandising and accounting.
- It’s obviously cheaper to buy a franchise than starting your own business.
- It also gives you access to lower prices for goods, better than a stand-alone business, because of access to bulk discounts.
- There are also indirect benefits from advertising by other franchisees.
- And there might be protected from competition as well, depending on the terms.
Things to Consider Before You Buy a franchise
Just as we reviewed the benefits of a franchise, there are also some disadvantages you need to weight in as well. For some, it might also form good reason they shouldn’t be buying a franchise at all. So consider them and align them with the benefits before making a final decision.
- There may be restrictions imposed by the franchisor as to how correctly the business may be operated, as against how you may want to run it.
- There is a less independence than when you are running your own stand-alone business.
- You are bound by the contractual agreement as included in terms of the franchise,
- Also, if any damage is caused to the brand by any of the franchise holders, it will reflect on you as well.
- and there may be ongoing payments to the franchisor, which should have been useful if reinvested into the business.
- There will be upfront payment to the franchisor for the purchase of the franchise.
Action Points to Buy A Franchise
There are many franchise opportunities you can tap into. You can even buy a franchise business from another country and offer it in your own country. Huge franchise brands like McDonald, Domino, KFC, etcetera, are all offering international franchise deals.
And it’s not just the food industry that has a franchise. There are franchise opportunities online as well. You can also buy already existing franchise license from a franchisee.
Step One: Potential Franchise Opportunities
Before you decide to buy a franchise business, you should start with researching on the different opportunities available. You will need to verify the viability, budget, personal interest and even qualification before going into any franchise deal. There are many franchise business opportunities from Franchise Direct.
And it’s better to start by researching franchise based on your qualification and feasibility information, before considering your own skills, resources and interest. Knowing the opportunities, you can tap into will help you choose the right franchise business.
Step Two: Franchise Disclosure Document (FDD)
Below are the common types of information included in the FDDs:
- It should contain the franchise system size and at least 3-year growth trend.
- With the manifest presence of the franchise brand in the prospective state.
- Also, the franchise leadership team and their experience.
- What the initial investment would be, the one-time fees and potential ongoing charges
- The kind of support to be provided to the franchises, like training, financing, operational assistance, etcetera.
- And the franchisors current financial performance.
Step Three: Franchisor’s Discovery Day
A discovery day’s common agenda involves group presentations, one-on-one meetings and interviews, and visits to existing franchise locations. Try to look out for possible red flags during discovery day, which include the following:
- Personality or cultural misfits
- Disorganization at the corporate level
- Promises and/or assurances that are not put in writing
- Questions that are not answered directly
- Concerns that are not addressed clearly
- Hard sells
Step Four: the Franchise Agreement
The franchise agreement is the formal contract that a franchisor will provide if you are considered as a good franchisee candidate. This contract gives you the legal right to own and open a franchise under their rules and regulations.
It’s advisable to hire a lawyer with franchise business experience to review and discuss the contract with you so you can fully understand your rights and obligations.
Step Five: Financing Your Franchise Startup
You will need money to pay for the costs associated with buying a franchise business. The first that you need to pay is the franchising fee, which is typically due when you are returning the signed agreement.
And if you are going to borrow funds for your franchise, You need a convincing business plan, with years of growth projections. You should also include things not addressed in the franchise document, like franchise location revenue potential, startup operating expenses, and the cost of financing.
Step Six: Choose a Location.
You will need to choose a location where to operate your franchise. The franchisors may likely provide you with guidelines to ensure that you meet their location requirements. And which may require a certain distance from other franchises, minimum area, and the number of parking spots.
You should seek the help of a commercial real estate agent to ensure you find the most suitable place that meets these requirements.
Step Seven: Training & Workshops
Training is vital in starting a franchise business. First, because you are not conversant with the model. And secondly, because you may not even have been in business before.
You shouldn’t only train on running the franchise but running a business in general. Although the franchisors provide training, you should also seek more training from reliable sources. Online training on Udemy my help save you valuable time. And you can also find topics that would enhance your franchise business.
Some franchisors offer training in marketing, negotiating with suppliers, hiring and managing employees, filing permits, bookkeeping, creating reports, and more. These sessions will likely combine classroom lessons, hands-on work, and on-site training with equipment and systems.
Step Eight: Your Grand Opening
A grand opening for a franchise is important. You should treat it like a branch opening. Take advantage of the vast brand the franchise offered you. The important thing is to create huge publicity. You can invite the governor or top government personality in your area to boost the media coverage.
You can also invite some fans and old customers of the brand to attend the opening. And you can interview them to get testimonials your an use for your social media marketing.
Also, streaming it live on Facebook live is another advantage you can implore. In your earlier publicity before the opening, you should inform the people about the live streaming as well.
The franchise industry is a $75 billion yearly potential. It’s more than the annual budget of some countries. And more than the reserve of some Africa countries. If the franchise were to be a country, it would be a thriving nation.
Now you have the opportunity to be a part of this enormous market. However, you might also need to trade with caution. Your understanding of the franchise business is your advantage. And I ex-rayed some of these steps that would help you land the best franchise in the industry.
Also, with the right approach, you can start a franchise without capital. Some of the best franchise gives you access to financing and huge brand advantage to existing customers to help you start making a profit from day one.