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Popular Franchises | What You Need To Know

Today, being the business owner of a franchise can be a great way for people who want to spend more time with their families and having a steady and booming income. But the complexities involved in purchasing a franchise require a lot of research and also mastering the franchising process.

To make sense of the franchising industry, the International Franchise Professionals Group (IFPG) offers help and guidance for emerging entrepreneurs. From identifying the right franchise to learning more about the process, the IFPG provides a comprehensive guide for business owners who are looking to invest in franchising.

This article will shed some light on the commonly asked questions regarding franchising. What is franchising? What are the advantages and disadvantages of a franchise? How much does it cost to purchase a franchise?

These questions, together with others, will be discussed in detail throughout this guide. Hopefully, after reading this comprehensive article, readers will have a better understanding of franchising and the process of purchasing a franchise for their businesses.

What is Franchising?

Franchising is a form of business in which a franchisor (a company or individual) licenses its services and products to one or more franchisees. A franchisee is an individual or company that purchases the right to use proprietary information, trademarks, products and services from the franchisor for their own commercial use. Franchising is seen as a successful way for individuals to launch a business with minimal risk and with the support of an established company.

The most common example of franchising is a fast food restaurant, such as McDonald’s. McDonald’s provides all marketing materials and training to a franchisee who wishes to open a restaurant. The franchisee, in return, pays a fee and a percentage of profits to McDonald’s. Franchisees usually pay a one-time initial fee, an annual fee and ongoing support and royality fee.

What are the Benefits of Franchising?

There are many benefits of franchising for both franchisors and franchisees. For the franchisor, its brand is quickly and extensively promoted to more locations under the control of independent operators. This maximizes profits and allows the franchisor to leverage its resources to gain an enhanced level of success.

The franchisee benefits from franchising in several ways. For starters, the franchisee avoids the trial-and-error of developing a business, as the franchise model has been tested and proven. Secondly, the franchisee gets assistance from the franchisor in the form of training, advice, and marketing materials. The strength of the franchisor’s brand also helps to attract customers and increase sales.

Lastly, the capital cost of opening and operating a franchise is usually lower than what it would take to start and maintain an independent business.

What are the Drawbacks of Franchising?

Franchising is not without its drawbacks though. For the franchisor, finding reliable, dedicated franchisees can be a challenge. It is important for the franchisor to conduct thorough background checks before granting a license to any prospective franchisee.

From the franchisee’s perspective, there is a significant cost associated with franchising. The initial fees, ongoing royalties, and various operational costs are all taken from the franchisee’s profits. Additionally, the franchisee may not have much control over the operations of the business and is subject to the rules and regulations set by the franchisor.

How Much Does It Cost to Own a Franchise?

The cost of owning a franchise varies widely depending on the type of franchise and the level of support provided by the franchisor. On average, the initial cost of owning a franchise ranges from $50,000 to $100,000. This includes the initial franchise fee, start-up costs, equipment, supplies, and working capital.

It is important to note that franchise costs do not stop at the initial fee. As part of the agreement, franchisees are also expected to pay an ongoing royalty fee, ranging from 4 to 8% of their gross sales. This fee is payable to the franchisor on a regular basis and is used to cover marketing and training costs.

Franchising is a viable option for those wanting to invest in their own business. Investing in a franchise has many advantages, while the drawbacks can be managed if proper due diligence is conducted. Additionally, the cost of owning a franchise can be quite affordable, as long as the franchisee understands the licensing agreement and is committed to upholding its terms.

Topics:

Franchising,

Franchise Fees,

Investing

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