A franchise owner, or a franchisee, is someone who buys a business that is part of a chain, using the same name, trademark, product, and services. Buying a franchise establishes a relationship with the successful business (the franchisor), provides on-going brand awareness, and gives the franchise owner a proven system to work with. The business may be co-owned, or independently-owned, in a franchise business, the franchisor provides a developed way of doing business, ongoing guidance, systems and assistance in return for periodic payment of fees and/or purchases. Types of Franchises:
Business Franchise (most common) – the main company, or franchisor, can expand by offering independent business owners their name, trademark, and established business. They help the new owners with the launch as well as with training on how to run the business. In exchange, the franchisor is paid royalties and fees by the franchisee.
Product Franchise – manufacturers will allow retail stores to use their name, their trademark, and their product(s). They also control the distribution of their product, and usually have a minimum amount of product the store must purchase. There may be fees that need to be paid as well.
Manufacturing Franchise – is a common franchise among food and beverage companies (such as Coca-Cola). The franchisor will grant the manufacturer the right to produce and sell goods using their trademark and name. In the case of Coca-Cola, for example, Coca-Cola supplies the syrup concentrate to bottling companies, who then mix the syrup with water and bottle the product.
A big plus for the franchise owner is that the business is already ‘known’ and recognized by the public. Customers greatly prefer dealing with a brand they have heard of and can trust. They also know the quality of the product or service, as one location is comparable to that of another location. It is advisable to check out the background of the franchisor to find out more about their reputation before investing with them.
Advantages of buying a franchise;
• Franchises offer the independence of small business ownership supported by the benefits of a big business network.
• You don’t necessarily need business experience to run a franchise. Franchisors usually provide the training you need to operate their business model.
• Franchises have a higher rate of success than start-up businesses.
• You may find it easier to secure finance for a franchise. It may cost less to buy a franchise than start your own business of the same type.
• Franchises often have an established reputation and image, proven management and work practices, access to national advertising and ongoing support.
Disadvantages of buying a franchise;
• Buying a franchise means entering into a formal agreement with your franchisor.
• Franchise agreements dictate how you run the business, so there may be little room for creativity.
• There are usually restrictions on where you operate, the products you sell and the suppliers you use.
• Bad performances by other franchisees may affect your franchise’s reputation.
• Buying a franchise means ongoing sharing of profit with the franchisor.
• Franchisors do not have to renew an agreement at the end of the franchise term.
Franchising is seen by many as a simple way to go into business for the first time. But franchising is no guarantee of success and the same principles of good management – such as informed decision-making, hard work, time management, having enough money and serving your customers well – still apply.
Be cautious when buying into a franchise if you have to develop the market and the brand in your designated area. Make sure your investment generates healthy returns and a capital gain when you sell.