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How To: Finagle a Franchise

Published on May 22, 2013

Summary

Before you jump in feet first into buying a franchise, there are some important factors to consider and questions you need to ask yourself.
Image 3 Does the uncharted territory to starting your own business seem overwhelming? If so, you may want to consider buying a franchise. However, before you jump in feet first into this new adventure, as it is with any business venture, there are some important factors to consider and questions you need to ask yourself. To determine if you’re cut out to run a franchise, consider these following questions:
  1. Do you imagine yourself being your own boss?
  2. Do you have new business ideas that you hope to someday make reality?
  3. Have you had experience managing/running a business before?
If you answered no to two or more questions, a franchise may suit your business desires! Keep reading below to learn more about the type of franchises you could start and if it’s the right business step for you to take. Types of Franchises: A product and trade-name franchise generally involves the distribution of a product through dealers, like a car dealership. Business format franchises generally describes the ‘one-stop-shop’ franchise, where the product, trade names, operating procedures, quality assurance standards, management consulting support, and facility design have all been decided for you. A McDonald’s is an example of a business formal franchise. There are also some important pros and cons that you need to consider when making the decision to become a franchise owner. Benefits of owning a franchise:
  • Minimal Risk: The business plan already exists
  • Name Recognition: Buying a franchise can offer immediate recognition amongst consumers and market influencers
  • Cost Savings: Bulk purchase orders and discounts make for smart savings
  • Advertising: Large-scale advertising programs can provide national exposure at an affordable price
  • Financing: Lenders are more inclined to provide financing to franchises because they are less risky than businesses started from scratch
Disadvantages of owning a franchise:
  • Fees: To be paid to the seller immediately after signing the dotted line, ranging from anywhere between $1,000 to $500,000 depending on the franchise
  • Royalties: For almost all franchises, a monthly royalty (fee) based on a percentage of the franchise owner's income or sales must be paid even if the business is not profitable
  • Loss of control: The franchise owner must follow the franchise agreement, meaning little control over the operation
  • Termination: If the franchise owner does not meet the necessary agreement terms, he/she may lose the rights to the franchise
Whether you decide to take the plunge into starting up a new business or want to get involved in a business already off the ground, we want to hear about your experience. Use the comment section below to offer guidance to other entrepreneurs on your business.