Buying a Franchise: 5 Things You Should Get for Your Money
Buying a franchise requires a substantial investment. Owning a franchise, however, has distinct advantages over usual business ownership. A franchisee can start out with an established brand as well as an ongoing support system. Yet not every franchise is the perfect franchise. Franchisees want to get value for their money and they should expect specific benefits and services in return for their investment.
5 Things You Should Get for Your Money
1. Money Talk
If franchisees are investing their money, they need to know the whole story. Franchisors charge royalties. Franchisees should be aware of the percentage of the franchise revenues charged by the franchisor. The parent company can sometimes give a projection of future profits or a template to allow you to develop future projections but it may be an optimistic view. Franchisees can double check with other owners within the franchise to confirm all forecasts.
2. Technical Details
A franchisee should expect to receive all details about setting up and operating the business. If the franchise is a retail operation, the franchisee should get the schematics (‘nuts and bolts’) of the business including the build-out plans and the merchandising package. Knowing the technical details of your business is a necessity. Franchisors should provide franchisees with an ‘offering circular’ which contains the company basics including information about any additional franchises as well as data about their experience and legal history.
2. Solid Business Model
Franchisees should be getting a solid business model – systems, processes, and methodologies. This business model should allow the franchisee to stand out from the entrepreneur who is starting a similar non-franchised business. Of course, franchisees must also have a clear understanding about ‘package franchises’ in which the business model is mapped out by the parent company and the franchisee agrees to follow that exact plan. Franchisees may not have the same degree of control over their business in a “package franchise” as exampled in a ‘”product franchise.” When a franchise exists just to distribute goods they will have to strictly follow a formula whereas if it were a service Franchise there could be more flexibility on delivery of services..
3. Consistent Profitability
The franchisee should expect more consistent (as well as a higher degree) of profitability than in a non-franchise. The franchisor should have methodologies in place to achieve that goal. Since franchises define a niche, franchisees can experience consistent growth even during a downturn in the economy.
4. Adequate Training
The franchisor should provide a training program for the franchisee and this course should cover all aspects of the business. The franchisor should be able to give a detailed explanation of their training practices. Franchisees should not be satisfied with some vague reference to a program.
5. Value For Money
Ultimately, the franchisee must be getting value for their money. The franchisor should be able to provide proof of that value. After all, every franchisee can expect competitors. If a competitor is not a franchise, a franchisee will have a handicap of 4 to 10 percent (even more) in the form of ongoing royalties therefore this must be offset by better systems and marketing strategies created by the Franchisor.
A franchisee’s business success depends on a number of factors out of their control such as other competitors (franchises and non-franchises) and overall company policies. Yet franchising has proven itself to be a profitable and popular business opportunity. A franchise can be the perfect investment but the business has to be a perfect fit for an owner. Franchisees must feel comfortable that they are getting true value for their money.