Franchises Can Be an Alternate Route for Potential Entrepreneurs




  • by David Kiger February 20, 2016
    February 20, 2016

    franchises


    For people interested in starting a small business, the promise of starting from scratch can have significant appeal — the “I built this from the ground up” kind of pride. But there are challenges galore that go along with a startup, most of which are undesirable to many potential entrepreneurs.


    The alternative is to get on with a franchise. The initial cost may be pricier, but the support and guidance of the franchisor can provide a considerable boost. Here are 10 things to consider about getting into the franchise business.


    1. Find the Right Fit


    The first step is to brainstorm and consider the type of franchises to target. Start with areas you’re familiar with and are interested in. It’s a wide open market, Melinda Emerson tells us in a story for SmallBizTrends.com.


    “There are food franchises, health franchises, grooming, boutiques; you name it,” she says. “There are even business coaching franchises. So if you’re not already clear on which category you want to buy a franchise in, spend some time researching your options. Ideally, it should be in an industry you have experience in.”


    2. Analyze Your Budget


    The next step in researching a franchise is determining which ones fit your budget. As Joel Libava writes for the Small Business Administration, this is a crucial step to take on early in the process.


    “If you don’t know what you can afford, and what you’re willing to risk, you’ll end up spending time learning about franchise opportunities that don’t fit your budget,” he warns. “It’s a huge waste of time. It’s also not good for your psyche to get excited about a franchise or two and find out that they’re out of reach, financially.”


    3. Seek a Proven Model


    This is an area where longstanding franchises provide the most benefits. The success of the brand name and product gives a new franchisee a leg up over an unknown startup. Emerson discusses this further in her SmallBizTrends.com story.


    “When you start a business from scratch, there’s no guarantee that your business will thrive,” she writes. “When you buy a franchise, you can look to dozens or hundreds of other locations to see how popular they are, as well as get a sense for how much you can make as a franchise owner. Knowing what to expect with your franchise can cut down on some of the risk you take on as a business owner.”


    4. Be Prepared


    The Small Business Administration emphasizes that knowing all of the fine details of what a relationship will look like as the franchise gets off the ground, and (hopefully) becomes a success, is another important step for franchisees to consider. They go on and provide a laundry list of items to verify:


    “Before entering into any contract as a franchisee, you should make sure that you would have the right to use the franchise name and trademark, receive training and management assistance from the franchisor, use the franchisor’s expertise in marketing, advertising, facility design, layouts, displays and fixtures, and do business in an area protected from other competing franchisees.”


    5. Investigate Capital Requirements


    The costs involved in getting a franchise business differ significantly from that of a startup, which may mean finding additional funding in order to get the doors open. But as Emerson writes in her SmallBizTrends.com piece, doing so can have an advantage.


    “Typically, buying a franchise is a fixed fee, and an ongoing royalty fee,” she says. “You can find out what it is by inquiring with the company you’re considering. This will likely cost you far more than starting your own business from scratch. But one advantage is that at least with a franchise, you know what to budget for startup costs.”


    6. Follow the Rules


    Someone looking to snag a franchise business will need to understand the rules that come with the brand. Swerving away from the established template will likely be frowned upon and could result in a toxic business relationship between franchisee and franchisor, Emerson writes.


    “… There are a lot of rules with a franchise!” she says. “You can’t, for example, add a new product to the menu at your burger joint, or change the logo. If you’re okay adhering to what the franchisor has set as the rules, keep considering the franchise. If you prefer to play by your own rules, you’re probably better off starting your own business.”


    7. Take Advantage of Marketing Aid


    Another benefit of partnering with a franchise whose already established a reputation is the marketing aid that comes with it. The agreement with a new franchisee should include instruction and direction on how to publicize products or services involved. Jeff Elgin examines this for Entrepreneur.com.


    The franchise company has marketing assistance to provide you with proven tools and strategies for attracting and retaining customers,” he explains. “Usually, the staff helps you develop the actual marketing plans and budgets for your grand opening as well as your ongoing efforts to market your business effectively.”


    8. Continued Support


    The last thing a new franchise owner wants to feel is anxiety that he or she is on an island, isolated from the protective arm of the franchisor. Communication and guidance from the franchisor should continue beyond the opening date, Elgin writes.


    Franchise companies have staff dedicated to providing ongoing assistance to franchisees,” he writes. “You’re not alone when you’re building and running your business, and you can always call on experienced people when you hit a rough spot or want to share new ideas for growing the business.”


    9. Seek Tax Guidance


    Before diving in as a new franchisee, it’s wise to consult tax and accounting experts. The Small Business Administration advises bringing those voices on board to get a more complete vision of what lies ahead.


    “The tax rules surrounding franchises are often complex, and an attorney, preferably a specialist in franchise law, should assist you to evaluate the franchise package and tax considerations,” the story says. “An accountant may be needed to determine the full costs of purchasing and operating the business as well as to assess the potential profit to the franchisee.”


    10. Lean on Real Estate and Construction Expertise


    Another benefit of the successful franchise formula is determining where a new location should be and building an efficient construction plan. That assistance can be a crucial piece to ensuring a successful launch and extended longevity. Elgin writes more about this in his Entrepreneur.com piece, saying:


    “Most franchises have manuals and other documentation, as well as staff, to help you find the right site and negotiate the best possible deal on your site,” he explains. “This is a very important advantage that can hold costs down and provide the best possible chance of success in any site-driven business. … Franchise companies can also provide a wonderful benefit in helping you design the layout of the business and select the right contractors to do your build out, as well as making sure you get the exact mix of furniture and equipment you need to maximize the efficiency of your initial investment.”

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