First Time Business Owners
First time business owners often turn to franchises because:
• although they may have the people skills and food industry knowledge they don’t know how to run a business
• they have been retrenched and instead of seeking another job they use their payout to start their own business
Backed by a national or international brand name they can use the business and marketing training they receive from the franchisor to overcome this lack of business knowledge.
The increased interest in franchising isn’t surprising given that franchise growth has historically been the strongest during economic downturns.
However be warned, many people believe that launching and running a franchise is easy. This is definitely not the case - running a franchise is a lot more work than a 9 - 5 job. You have to have a really strong work ethic. Many people choose the franchise route because they think it represents a shorter path to success figuring that if they do what they are told then that is enough to ensure success.
That is not necessarily the case. After all a strong brand name and business model cannot make up for poor business decisions made by the franchisee. While purchasing a franchise may not guarantee a business owners success it would increase your chances as 90% of brand name franchises are successful, a tribute to the system and training skills of the franchisor. This is definitely not the case in independent businesses, just go to your local shopping mall and ask the cafe operators how long they have been in business.
The Pro’s
Like independent business owners, many franchise owners pursue the opportunity not to make their millions but to become their own bosses and feel more connected to their communities.
Without a doubt franchises represent an important and growing part of our economy. Buying a franchise essentially enables potential entrepreneurs to use a corporation’s products, trademarks, advertising and business model to start their own business.
As many franchise owners point out, entering into such an agreement comes with a myriad of advantages:
• an established business system
• product exceptance
• extensive training
• ongoing marketing support
For these reasons a franchise is often particularly attractive to people who lack solid business experience.
and the Con’s
Franchisees pay handsomely for these benefits. Usually an upfront fee to cover start up costs and training, a monthly fee for marketing and advertising and then a monthly royalty of between 5% - 10% of profit.
While some franchises are more flexible than others, they do exert a lot of control over how you run the business. You are locked in to doing things that the franchisor wants it done.
When you start an independent business you can create something that can change over time, based on yours and your customer’s needs and preferences. If you are creative and entrepreneurial a franchise may not be for you.
Do your Homework
Anyone considering opening a franchise business is well advised to do their homework:
• have the contract reviewed by a professional franchise solicitor
• make sure you fully understand all of the implications of the contract
• speak to other operators of the franchise for their opinion
• try to find previous operators - people who have bought and sold their franchise to ask their viewpoint
• mall owners like brand name concepts in their malls, maybe you can get a concession on your rent and outgoings - it never hurts to ask
• conduct market research to test your customer base prior to purchasing.