Starting a new business is always a gamble. The number of startups that fail within their first two years far outweighs those that succeed. The ability to weather the risk of failure depends on individual circumstances. For instance, if you're still employed full-time and your business is a side hustle, you're more likely to absorb the risk of failure. However, if you've lost your job and are investing your severance package into a new business, the risk of failure becomes significantly more daunting. One way to mitigate this risk is by considering a franchise business.
Franchising is a business model where the owner of a business (the franchisor) grants another party (the franchisee) the rights to use its trademarks, business names, intellectual property, know-how, business systems, training systems, and operating manuals in exchange for a monetary payment. This payment usually takes the form of an initial franchise fee or purchase price and ongoing royalty payments, typically calculated as a percentage of the franchisee's turnover.
The franchisor has already established a system for the business, providing the franchisee with a roadmap to follow. This system has been tested and refined, sparing the franchisee the trial and error of figuring out what works and what doesn't.
Starting a business from scratch requires significant time and effort. The franchisor has already tackled many of these challenges, such as developing a reputation, obtaining finance, and overcoming competitive threats.
The franchisor has already invested time and effort into making the business known in the marketplace, benefiting the entire franchise group.
Franchisors often employ specialists within their organization to assist franchisees in successfully operating their businesses.
Depending on the size of the franchise network, the group may be able to negotiate favorable buying prices due to their ability to generate volume sales for the supplier.
By contributing advertising fees into a group fund, individual franchisees can benefit from much greater advertising exposure than they could afford individually.
The franchisor is likely to have invested in market research for the benefit of the group as a whole, providing a greater knowledge of their market(s) than local independent competitors.
Franchisors generally impose strict controls on aspects such as the quality and types of products and services that you may offer for sale, the types of local advertising you may undertake, methods of dealing with customers, and ethical conduct.
There may be an initial investment ranging from a few hundred to tens of thousands of dollars to buy into a franchise.
Most franchisors will also charge an ongoing royalty for the rights to use the franchised system.
Some franchise agreements can severely restrict your rights to sell your business to another franchisee.
Some franchise agreements state that upon the expiration or termination of the franchise agreement, the goodwill of the business reverts to the franchisor.
When considering a franchise, look for an established franchise system with a good reputation, comprehensive training systems, a relatively harmonious relationship between franchisor and franchisees, ethical business practices, an inclusive "partnership" approach, and exclusive territories.
Remember, while franchising minimizes the risks of business failure, it cannot eliminate them entirely. Any decision to proceed with a franchised business should only be made after thoroughly reading the franchise agreement and accompanying disclosure documentation and obtaining professional advice from both your lawyer and your accountant.
Flying Without a Net
Flying Without a Net © 2003 Elena Fawkner One of the most exciting and daunting things about starting your own ... business as your sole means of income is the reality that no one is ...
Diversify to Survive
... to Survive © 2002 Elena Fawkner Over the past few weeks and months the news ... have been focused on Wall Street and the downward spiral of all of the major stock indexes. As usual whe
Crafting a Distinct Identity: The Power of Branding in Business
Creating a strong brand is not just a concern for large corporations; it's crucial for businesses of all sizes, including solo entrepreneurs and home-based ventures. A well-crafted brand can significantly influence customer perception and set your business apart from competitors. It's a representation of your identity, values, and the quality of your offerings. In today's market, where consumers are bombarded with choices, a distinctive brand can be the deciding factor for success. This article delves into the essence of branding, its importance, and practical steps to build and leverage a brand that resonates with your target audience.
