Investing in a franchise can be a profitable and rewarding endeavor but before taking the plunge, it’s important to do your due diligence and be familiar with the ins and outs of the franchising industry. Many husband and wife teams who are looking for time freedom and flexibility are interested in franchising as their pathway to business ownership. Whether you’re just starting to research franchise opportunities or you’re getting ready to commit to one, having an understanding of the answers to some of the most frequently asked questions can help set you up for success.
What is Franchising?
Put simply, franchising allows entrepreneurs to use another company’s well-established business model and leverage its trademark, products, services or logo for their own business—all in exchange for an up-front fee and a recurring royalty. The franchisor, or the company granting the license, will provide the franchisee—the one investing in the franchise business—with a set of operating procedures, ongoing support, access to resources, and marketing assistance. The International Franchise Professionals Group (IFPG) has over 1,300 franchisors, franchise consultants and vendor members, and provides aspiring business owners with the necessary resources to make their franchise journey a success.
What Does it Take to Invest in a Franchise?
Different franchisors will have different requirements for prospective investors, so it is important to research the companies you are interested in. Generally speaking, you’ll need to have financial resources available to cover the associated fees, such as the franchising fee, legal and accounting fees, advertising fees, and training expenses. You’ll also need to adhere to the company’s restrictions- including but not limited to location, territory, and employee requirements. You’ll need to have the skills and resources necessary to successfully run the business, which might include marketing and customer service experience or personnel resources.
How do I Find a Profitable Franchise?
When choosing a franchise, consider factors such as the current trends in the industry, the level of competition in the area which you are considering, the franchisor’s reputation, the amount of ongoing support, and the franchise disclosure document. In addition, you’ll need to think about the amount of money it will cost to start and operate the business—including the up-front and ongoing fees—as well as the amount of control you want to have over the business. There are many resources available to guide you through the process of finding a profitable franchise—the IFPG provides franchise consulting and resources that can help you with the research process.
What is a Franchise Disclosure Document?
A Franchise Disclosure Document (FDD) is a document which must be provided to prospective franchisees as regulated by the Federal Trade Commission (FTC). It is designed to give investors detailed information about a franchise system, including the total investment to be made, the franchisor’s background, the franchise agreement, and more. The FDD is an important part of the due diligence process before investing in a franchise, and should be read and understood by both parties.
What Kind of Support Can I Expect from the Franchisor?
Franchisees typically enjoy the support of the franchisor when it comes to operations, training, accounting, marketing, supply issues and customer service. If you are considering investing in a franchise, look for a franchisor who has a track record of providing ongoing training opportunities and resources, access to industry-specific expertise, and a detailed support network that can be quickly accessed for guidance and assistance.
Are There Different Types of Franchises?
Yes. There are different types of franchises depending upon the business model and the agreement between the franchisor and franchisee. Some of the most common types are single- and multi-unit franchises, master franchises, regional franchises, business format franchises, and home-based franchises. Each type of franchise offers its own set of advantages and disadvantages, and it is important to research all of the different franchise models to understand which type is best suited for your long-term goals.
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