To Franchise or Not To Franchise

Franchising can be a great alternative to starting a business on your own from scratch. Many entrepreneurs choose to purchase a franchise, because it offers a proven business concept, support, visibility, and instant credibility. If a franchise offers all of this then why isn't everyone doing it? Well, there are also some drawbacks to a franchise which I will discuss later in this post.

Let us first discuss what the franchisor provides to its franchisees. A franchise means that the franchisor grants the franchisee a license to use its business structure, services or products, trademarks, and brand identity. The franchisee cannot have all these goodies until they pay up. This involves an initial franchise fee and royalty fees thereafter. Also, don’t forget about the minimum startup capital required to start the franchise.

It is reported that there is a lower failure rate for franchisees than independent businesses. This is overall true, but it does not mean that if you own a franchise it will not fail. There are several reasons why a franchisee will be more inclined to succeed. The first reason and main reason is the requirement of startup capital. Most independent businesses fail, because they started their business with insufficient funds. There is no way an entrepreneur can start a franchise with little capital, because the franchisor will simply not allow that to happen. Another benefit for success is the fact that a franchise is usually based on a successful business model. Somewhere there is at least one business flourishing from this business structure. That is why it is appealing to potential entrepreneurs. The third reason why franchises are more successful is because of the training and support provided by the franchisor. Knowledge is the key here, because many new entrepreneurs have little to no knowledge about running a business.

Even though there are many benefits to owning a franchise there are also some things to remember. Starting a franchise means that you will have instant visibility which can be a double edged sword. Most customers do not think of a franchise as independently owned. They expect the same service or product that they received from another franchisee. This means that there will be a steep learning curve from the very beginning to ensure your customers are getting consistent service or products across the board. Another aspect of a franchise is the fact that there is not as much freedom when operating under a franchisor. You have to abide by the rules and regulations that the franchisor has set in place. Some entrepreneurs also get tired of paying the royalty fees. They do not think that having the franchise is worth having to pay fees so frequently.

To own or not to own a franchise is a personal preference. If you are interested in the franchise concept than here are some resources to gain more knowledge.

http://www.franchise.com/
http://www.entrepreneur.com/franchise500/
http://www.franchise.org/