The game of franchising has become much broader and ever-expanding in recent years, with many business-owners seeing tremendous success and large growth as a result of franchising their business model. For aspiring entrepreneurs, franchising offers an opportunity to capitalize on an existing proven concept and capitalize on shared success, while also getting to share in the risk and rewards of an established brand.
At the International Franchise Professionals Group (IFPG), our purpose-driven mission is to guide aspiring entrepreneurs through the process of identifying and investing in the right franchise business. Today’s guide provides an introduction to frequently asked questions related to popular franchises and provides answers to each question from the perspective of a potential investor.
What Is a Franchise?
A franchise is an agreement between two parties, in which one party – the franchise business owner – grants another party – the franchisee – the right to market a certain product or service. The franchisee is responsible for marketing and selling the product or service locally and furthering the franchise brand. The business owner gets a share of the profits in return.
How Does a Franchise Work?
In a franchising agreement between two parties, the franchisor grants the franchisee the right to operate a business using its brand name, proprietary products, and trademark rights. The franchisee agrees to pay the franchisor a fee and a portion of its profits in return for the right to market and distribute the franchisor’s products. The franchisor provides the franchisee with a business model, training, and support to help the franchisee succeed.
What Is the Difference Between a Franchise and an Independent Business?
The major difference between a franchise and an independent business is the level of support and guidance that the franchisor offers the franchisee. With an independent business, you are largely on your own to figure out the best way to market and distribute your products or services. With a franchise business model, you have the benefit of the franchisor’s experience and guidance in helping you to make your business a success.
What Are the Benefits of Investing in a Franchise?
Investing in a franchise offers several unique benefits that you may not enjoy with an independent business. First and foremost, investing in a franchise provides you with a proven business model and a recognizable brand, product, and/or service that customers have come to recognize and trust. Furthermore, franchises often have strong relationships with vendors and suppliers, which can help you get the best possible prices for your goods and services. Lastly, the franchisor provides a level of guidance and support that is not available to non-franchise businesses.
What Steps Are Involved in Investing in a Franchise?
Before you can become a franchisee, you must first identify a franchise opportunity that fits your skillset and interests. Once you have identified a franchise that you are interested in, you must complete a thorough due diligence process to ensure that the franchise is right for you. You will then create a business plan, assess your finances, and negotiate the terms of the franchise agreement.
What Are the Costs of Investing in a Franchise?
The costs of investing in a franchise will vary depending on the type of franchise and the requirements of the franchisor. Generally speaking, franchises require an initial investment that is typically in the range of $50,000 to $100,000. This usually includes the franchise fee, the cost of equipment and/or inventory, and the cost of training. Additionally, most franchises require an ongoing royalty fee, which is typically a percentage of your gross sales.