Why Franchise when I can open my own business?
This is a great question and before I answer, we need to understand what a franchise is.
Franchising is when someone like Ray Kroc (McDonalds founder) records all the steps to open and operate a business, refines the process, perfects it then duplicates it. Franchises are awarded to qualified candidates. This is the right to use their name, operating system, trademarked logo, proprietary products or services, the list goes on. The franchisor (the company offering a franchise) and new franchisee (the person investing in the franchise business) enter a long term legal agreement referred to as the Franchise Agreement.
When a franchise is awarded the new franchisee will pay a franchise fee. The franchise fee is like paying your initial membership to the club. The fee may not even cover the cost of finding and training the new franchisee, so the franchisor makes their money from royalties paid by the franchisee. Royalties are like paying for your monthly membership to a club for use of the facility, products or services.
Now that we have a better understanding of franchising, I will go over why you might consider a franchise over starting a business on your own.
Royalties are often a % of gross sales. So if the franchisee is not making money the franchisor will not make money Therefore it is in the best interest of the franchisor to help their franchisees succeed. The franchisor promises to help their new franchisee become successful, and the franchisee agrees to follow the proven system and all other requirements.
The franchisor has put a great deal of time into developing their process and system. They have made it easy to learn and duplicate, successful location, Site selection, lease negotiation, build out, suppliers for equipment and products, where and how to find good employees, marketing, training employees, salesmanship, accounting, advertising and ongoing support. There is no doubt why franchises are so successful. Buying power alone can help offset most of the royalty the franchisee pays. The Business Format Franchise is many times the quickest and easiest way to start a business.
Total sales by franchised businesses reach over $2 trillion yearly. One out of every eight businesses is a franchised business and franchises account for 42% of all retail sales, this is projected to reach 50% in the next decade.
Why franchise when I can start my own business?
Because of the research, development of systems designed to streamline the process, support in start up, buying power, training, ongoing support and brand recognition. A person can start their own business and try to learn everything from scratch, or they can buy a franchise and have a proven system with all the training and support at their disposal. The goal of the franchisor is to help the franchisee become successful. The more money the franchisee is making, the more the franchisor makes, this is a “win” “win.”
Most commonly asked questions about franchising >>>Franchise Q&A HERE<<<
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