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Buying a franchise can be the right initial business for people who have never run their own business before, but like all business purchases it must be approached with caution and a lot of careful thought.
This article will give you a good overview of how to approach choosing a franchise.
It is possible to buy a brand-new franchise from the franchisor, or to buy an established one from an existing franchisee who has decided to sell. This article begins by assuming you are setting up a brand-new franchise outlet, and concludes by dealing with buying an established franchise business.
What is a franchise?
A franchise is a licence offered by an existing well-established business (the 'franchisor') to others (the 'franchisees') to operate a similar business using the franchisor's fully developed business model, often trading under its brand-name in a defined exclusive territory. In return, the franchisee agrees to operate the business
systems imposed by the franchisor and pays an initial fee. Thereafter the franchisee pays commission to the franchisor, usually calculated as a percentage of sales. Many well-known names offer franchises including McDonald's, Benetton, Prontaprint, Body Shop and others.
What are the advantages of buying a franchise?
As a franchisee you are operating under the wing of the franchisor and will usually benefit from:
- Using a fully proven business model.
- Trading as a well-known brand.
- National advertising arranged by the franchisor.
- Comprehensive training.
- Help with initial set-up.
- Ongoing help and support.
Who is suitable to be a franchisee?
Franchisors target people who have a desire to work for themselves but, possibly never having done so before, would feel more comfortable to have a guiding spirit watching over them to reduce the risks.
Although the franchisor is there to train you, provide all the systems, and give you ongoing support, it is down to you whether or not you are successful.
Like all other business ventures, success in a franchise will require a businesslike approach, hard work and commitment. If you are in doubt as to whether you have these qualities, don't go for a franchise just because you think the franchisor can solve all the problems. He can't and he won't.
The other factor to consider with a franchise is this. The success of the franchisor and all the franchisees as a group depends on everyone following the system and maintaining the standards. Therefore, if you become a franchisee you will have to accept that the way you work, what you sell and how you charge will be dictated by the franchisor, with very little discretion for you to make variations. This is totally understandable. Every franchisee would lose out if each McDonald's or Body Shop you went into was different. Indeed, the most successful franchises are
the ones where the franchisor maintains the closest control. After all, their success depends on the customers always knowing exactly what to expect, whichever outlet they happen to visit. However, for the very entrepreneurial franchisee it can become very frustrating not to be able to make changes or diversify without permission, and to be bombarded with directives from head office, so you must be sure that you can work under these conditions before you buy.
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