Multi-Unit Franchise Experts

Franchise Guide

What is a Franchise and What to Consider before Investing

Longing to break the rat race, many entrepreneurs are turning to franchising to gain financial independence. But before setting out on this new venture, it is essential to understand what franchising is, the risks and rewards associated with it, and how to choose a franchise that suits you and your business goals.

A franchise is defined as an ongoing organization that allows an established business concept to be duplicated in another location or market. The franchisor, which is the business owner or corporation that owns the right to license the use of their business concept, grants franchises or licenses to others (known as franchisees) who want to operate under their name, system and brand.

Put simply, a franchise relationship is formed when a franchisor (company) provides the rights, support, and standards to a franchisee (the investor) to operate their business concept in an assigned territory. As an investor, the franchisee is responsible for the operational success of the business and their own profits. Franchisees pay the franchisor an initial fee and ongoing royalties as part of their agreement.

Though the costs of investing in a franchise vary by business concept, the total investment for an established, successful franchise may exceed $300,000 or more. This investment includes the initial franchise fee, startup costs and operating expenses. Additionally, franchisors may require store remodeling or other updates that substantially increase the costs of doing business. Such investments must be carefully considered and weighed against the potential rewards.

Before committing to any business, be sure to familiarize yourself with the franchise’s system and its performance to date. Take the time to understand the terms and rules of the franchise agreement and thoroughly evaluate the franchisor’s training, marketing, and operating systems. Likewise, it is essential to check out any claims made by the franchisor before making your investment.

Be aware that there are certain advantages and pitfalls that come with being a franchisee. On the positive side, certain costs associated with marketing, training and other support services are covered by the franchisor. Moreover, a proven system and successful brand may increase the odds of success. On the negative side, be prepared for distractions, constraints and potential conflicts with your franchisor that could threaten the success of your franchise.

Overall, the key to starting a successful franchise is to choose wisely with a clear understanding of your goals, costs, and responsibilities. When done correctly, franchising can be a great route to profitable and sustainable business ownership.




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