Franchising is a type of business organization that lies somewhere between buying a business and starting a business. This involves an agreement between the franchisor (Burger King, Subway, Mail Boxes, etc.), and you, an individual business person, are called franchisees.
The franchisor offers its brand names, experience, experience, training, support and proven methodology of the franchisee. In turn, the Franchisee pays a down payment and continues to pay royalties.
I bring Franchising in the context of Bootstrapping, since it almost completely solves a part of the experience / know-how of the limited resource equation. As for cost, many franchises will be clearly from most startups. to reach. However, the franchise industry is so large and diverse that many of them have a relatively low initial cost. Lately businessman the magazine had an article on 80+ franchises that required an initial cost of $ 25,000 or less. (Entrepreneur.com)
Franchising is a large business sector. There are more than 300 types of business categories that support more than 18 million employees and constitute 3% of the gross domestic product of the United States (GDP). For franchising there are many different categories of enterprises. Partial list of various franchise companies - car, business services, products and services for children, education Financial services, food, health care, home improvement, hotels and motels, services, personal care, pets, recreation, Technical business and more from year to year.
Jeffrey Tannenbaum, the former The Wall Street Journal franchising expert, described franchising as a mixed bag. He said: "For many people becoming franchisees, this is a label for prosperity, but for others it is a label for hell."
Let me take a look at the pros and cons of franchising.
ADVANTAGES
- Lets be in your own business with limited knowledge of the industry and business. You get the advantage of the success confirmed Franchisor success, their training, their methods of work, their suppliers, their credibility, continued support, etc.
- Some basic risks business decline.
- Fast start to make your business work. Every aspect of starting and running a business is provided to you. An entrepreneur starting alone will take much longer.
- expansion : If you become successful, you can quickly expand your experience and cooperation with the Franchiser. They seek to discover successful operators who have proven that they have everything they need to grow. Sometimes the Franchiser blocks your expansion plans, despite your successful success. If this happens, you can inspire Sam Walton, the founder of Wal-Mart. Sam's initial entry into retail was as a franchisee for Ben Franklin 5 and 10 Cent stores. He followed their formula and added his creativity and work to become a leading franchisee. It began to expand in the neighboring cities of Arkansas. Previously, Sam noticed the emergence of retail discount stores. He approached Ben-Franklin’s leadership to allow him to become the pioneer of the discount store under their umbrella. They fired him, and Wal-Mart was born. Little did the leadership of Ben Franklin realize how much they would affect the history of retail.
- Due diligence: Franchising is a very regulated business. By law, every potential franchisee upon request must be provided Franchise disclosure document from the franchisor. This will give you detailed information about the arrangement with the franchisee, the financial strength of franchisors, their list of existing franchisees and in many cases lists of past franchisees. You want to know everything you can about your potential partner.
- Training provided to you and your staff. The learning curve for business is accelerating.
- In most cases Advertising and marketing from the brand. In some cases, you may need to contribute to its costs.
- territory: You are assigned an exclusive franchise for a specific geographic area. No one can use your brand in this particular area. This provision must be specifically stated in the contract.
LIMITATIONS
- Lack of control: You do not have the independence of the business owner. The franchisor requires you to strictly follow their rules and use their systems. Changes require approval. You are also limited in where you can buy your products, how to advertise, what products you can and cannot offer, voluminous goals, etc. An organization can upset a creative person.
- Costs can be high, both the initial fee and current royalties. However, costs should never be considered in a vacuum. They need to be measured against the profits you create.
- deductions paid by volume, not by profit in most cases. This is usually not a great deal, as one party may lose money and the other profit. Their interests do not coincide, although this is a partnership.
- Inequality: This is an unequal partnership. The franchisor has much more power. If the Franchiser does not fulfill his promises of support, you may not have much recourse, since most of the contracts are in favor of the franchisor. In addition, you may not have the money to pursue your costly legal opportunities.
- Company sale may be difficult. Let me say that you have been successful for many years in creating a franchise and now you want to retire or change your lifestyle. In an independent business, you can freely sell to anyone at any price. This is not necessary for the franchisee. Some contracts will not allow you to sell, or you can only sell to the franchisor. This may not allow you to get a fair price. Therefore, you should try to solve this problem in your original contract.
