Are you feeling stuck with corporate work and have the ambition to transition into business ownership? Franchising is a great choice, as it provides an opportunity to become an entrepreneur while significantly reducing the risks associated with starting a business. Though, a lot of people are unaware of how to get started and may have questions on crucial topics such as costs, regulations, and profitability. This article is designed to answer the most commonly asked questions about franchising and provide a thorough understanding of how to enter this business model of buying and selling goods and services.
The International Franchise Professionals Group (IFPG) is dedicated to helping aspiring business owners make the right franchise choice. As a membership-based franchise consulting network with more than 1,300 franchisors, franchise consultants, and vendor members, IFPG are experts when it comes to guiding prospective business owners through the process of identifying and investing in franchise businesses. Our purpose-driven mission is based on integrity, ethics, and collaboration.
What is a Franchise?
A franchise is a business model that involves a licensing agreement between a franchise owner or franchisor and an individual or business, known as a franchisee, who becomes contractually obligated to conduct operations according to the terms of the agreement. Franchising is a great option for entrepreneurs looking to launch a business as it involves the successful framework of an already established business brand, such as McDonald’s, KFC, or Burger King.
What are the Benefits of Franchising?
Franchising provides numerous advantages such as reduced costs, greater access to capital, and low-risk entry. A franchise provides a recognizable brand, existing customer base, and well-established operational processes, making it easier for franchisees to execute daily tasks and start earning a profit quickly. Additionally, franchisors have the resources to train and provide meaningful support and guidance for franchisees interested in opening a business under their umbrella.
In what Industries Can a Franchise Operate?
Franchises can operate in a variety of industries, from retail to hospitality, beauty to automotive. No matter the industry, franchises have a consistent competitive advantage over independently owned businesses.
How Much Does it Cost to Buy a Franchise?
The cost of starting a franchise can vary depending on the franchisor, industry, and location. The total initial fees can consist of an entrance fee, security deposit, initial franchise fee, and any additional fees. Depending on the franchisor, these fees can range anywhere from $15,000 to $400,000 or above. Additionally, there may be a requirement for continuing fees such as royalty fees, advertising fees, and/or additional fees charged to ensure the brand’s standards are maintained.
Are There Any Regulations Around Franchises?
Franchise operations are subject to federal, state, and local regulations. Federal regulations such as the Franchise Rule and the Lanham Act, which protects trademarks, are particularly important. State regulation, however, will vary where the franchisor and franchisee conduct business.
What Levels of Franchises are There?
Franchises are generally broken into three categories: single-unit, multi-unit, and area development. In single-unit franchising, the franchisor grants one franchise owner the rights to operate one business location. Multi-unit franchises, on the other hand, grant franchise rights that are tied to two or more separate locations. Lastly, an area development franchise allows the franchisee to operate multiple business locations within a given geographic area and maintain control over their daily operations.
What Are the Most Profitable Franchises?
The most profitable franchises are not necessarily the ones with the lowest initial and ongoing fees. Instead, those with a strong brand, successful business model, and large customer base are often more profitable. Some of the most profitable franchises include McDonald’s, 7-Eleven, and Subway.
What Are the Steps to Start a Franchise?
The first step to starting a franchise is to research potential franchises that match your interests and desired lifestyle. After identifying the right opportunity, contact the corresponding franchisor and ask about the costs, training, and contractual agreements associated with the business. After researching the business thoroughly, submit the initial paperwork and pay the entry fees. Once the franchisor approves your application, sign the franchise agreement, and you’re ready to open your business.
What are the Different Types of Franchises?
Types of franchises include product/trade, manufacturer/distributor, business format, and conversion. Product/Trade franchises are those that are licensed to distribute existing products or services. Manufacturer/Distributor franchises, on the other hand, grant franchisee rights to manufacture, distribute, and retail certain products. Business Format franchising involves granting franchisees the rights to sell goods or services and operate using the franchisor’s predetermined methods. Finally, Conversion franchising gives entrepreneurs the opportunity to convert their existing businesses into franchises.
Franchise business is a great option for entrepreneurs and those looking to transition from corporate work. Understanding the information outlined in this article can give you the information you need to assess the risk and benefits of franchising and make the right investment.