Many people dream of being an entrepreneur. By purchasing a franchise, you often can sell goods and services that have instant name recognition and can obtain training and ongoing support to help you succeed. But be cautious. Like any investment, purchasing a franchise is not a guarantee of success.
Franchise opportunities are widely advertised, with thousands of franchisors vying to attract your money for the privilege of investing in their business. Whilst purchasing a franchise should be considered an investment, you should think very carefully about the level of business finance that you have available and what your overall business plan comprises of. Thankfully your financial advisor/business advisor can help you focus on the appropriate franchise for you.
Franchising is a way for a business to expand beyond its original owners. The most common form of franchising is a business format franchise where the franchisor contributes certain elements of the business sometimes including business finance, and the franchisee contributes certain elements. The power of franchising is realized through the combination of the contributions from the two participants. Franchisees pay initial franchise fees and then ongoing royalties for access to the business plan that the franchisor has developed and for ongoing enhancements to the system.
Franchising is a method of product or service distribution that is governed by an agreement. It is important for anyone deciding to start a business by becoming a franchisee to remember that in franchising a person is tied into a partnership for a defined period of time.
The franchisor contribution will include the brand / trademark of the concept; it will include the proven business system (commonly called the operating system); and the franchisor will provide the initial and ongoing support as the franchisee builds their business and executes their business plan.
The franchisee contribution involves the management skills to run the business day to day using the franchisor-provided brand and system; and the franchisee also contributes the working capital to fund the opening and continued operations of their own business. Finally, the franchisee brings a level of desire and interest in having the business succeed that is essential to franchising – as the focused desire is something the franchisor can’t replicate single handed.
There will be a formal agreement (the Franchise Agreement) signed by both parties that governs the relationship between the franchisor and franchisee and explains in detail the responsibilities of both sides. The franchisor is required to provide a draft copy of the Franchise Agreement early in the due diligence process, which will provide a roadmap for obtaining business funds and/or loans and specific financial advice to move forward.
A franchise is a legal and commercial relationship between the owner of a trademark, service mark, trade name or advertising symbol and an individual or group seeking the right to use that Identification in a business. The franchise agreement governs the method for conducting business between the two parties including the business finance requirements. Enormous growth has occurred in the franchising industry in recent years as industries also rely on franchised businesses to distribute their products and services ranging from automobile sales and real estate through financial services to fast foods and tax preparation.
In its simplest form, a franchisee sells goods or services that are supplied by the franchisor or that meet the franchisor's quality standards. A franchisor owns the right to a name or trademark and sells that right to a franchisee. This is known as product/trade name franchising. In the more complex form, known as business format franchising, a broader and ongoing relationship exists between the two parties. Business format franchises often provide a full range of services, including.
• Site selection.
• Training.
• Product supply.
• Marketing plans.
• Business Financing and Financial Advice.
There are a number of aspects to the franchising method that appeal to prospective business owners. For example, easy access to an established product and a proven method of operating a business reduces the many risks of opening a business and wasting working capital. If you are not prepared for the total commitment of time, energy and business funding resources that any business requires, you should stop and reconsider your decision to enter the franchise business.
A franchise typically enables you, the investor, (the franchisee), to operate a business. By paying a franchise fee, which may cost several thousand dollars, you are given a format or system developed by the company (the franchisor), the right to use the franchisor's name for a defined time, and assistance. For example, the franchisor may help you find a location for your outlet; provide initial training and an operating manual; and advise you on management, marketing, or personnel. Some franchisors offer financing and business advice as well as ongoing support such as monthly newsletters, and 24-hour contact capabilities for technical assistance, and periodic workshops or seminars.
Like any other business investment, purchasing a franchise is a risk. When selecting a franchise, carefully consider a number of factors, such as the demand for the products or services, likely competition, the franchisor's background, and the level of support you will receive. A primary reason for purchasing a franchise is to obtain support from the franchisor so it is essential to investigate what training and ongoing support the franchisor provides. How does their training compare with the training for typical workers in the industry? Could you compete with others who have more formal training? What backgrounds do the current franchise owners have? Do they have prior technical backgrounds or special training that helps them succeed? Do you have a similar background?
Carefully consider how long the franchisor has managed a franchise system. Do you feel comfortable with the franchisor's expertise? If franchisors have little experience in managing a chain of franchises, their promises of guidance, training, and other support may be unreliable.
A growing franchise system increases the franchisor's name recognition and may enable you to attract customers. Growth alone does not ensure successful franchisees; a company that grows too quickly may not be able to support its franchisees with all the promised support services. Make sure the franchisor has sufficient business funding and staff to support the franchisees. While investing in a franchise may reduce your investment risk by enabling you to associate with an established company, it can be costly.
Before investing in a particular franchise system, carefully consider how much money you have to invest, your abilities, and your goals. Be sure to get a copy of the franchisor's disclosure document. Sometimes this document is called a Franchise Offering Circular. You should read the entire disclosure document. Make sure you understand all of the provisions. You often must contribute a percentage of your income to an advertising fund even if you disagree with how these funds are used. The disclosure document should provide information on advertising costs It may take several months or longer to get your business started. When budgeting for your franchise, make sure that the business financing and/or working capital that you attract covers all expenses, both for the business and personal living for at least a six-month period. You will then have the financial freedom to focus on your business to enable you to execute the optimum business plan. An accountant and your financial advisor can help you to evaluate this information.
Your franchisor may restrict how you operate your outlet. The disclosure document tells you what the franchisor limits. You would be best advised to seek legal advice from a business attorney or a franchise attorney before proceeding. Understand that some restrictions may significantly limit your ability to exercise your own business judgment in operating your outlet.
The level of training you need depends on your own business experience and knowledge of the franchisor's goods and services. Keep in mind that an attractive reason for investing in the franchise, as opposed to starting your own business, is the training and assistance available. If you have doubts that the training might be insufficient to handle day-to-day business operations, consider another franchise opportunity more suited to your background.
When purchasing a franchise, the cost will reflect on the size of the company you are interested in buying into. Your financial adviser will give you sound business advice on the business financing package that should be considered. Franchise financing is a specialized field which our strategic partners are well-equipped to handle. Depending on your circumstances, various aspects of financing the business could include equity finance or even a venture capital firm to come on board to ensure that your funding needs are met when executing your business plan. Whilst some franchise opportunities offer in-house financing, it is comforting to know that there are other options for you.
Franchises and Franchising - To learn more about this author, visit Joe Cooper's Website.
Like this article? Share it with your friends
|
|
Joe Cooper
(Visit Joe's Website)
Funds and Loans provides start-ups,
entrepreneurs and businesses with the
opportunity to raise capital to start a
new business or take an existing business
to the next level. Small businesses and
investors can move quickly and decisively
because there are no regulatory hurdles
that make it difficult for the average
person to obtain a small business loan
from a bank as we are a private fund.
Over the past 25 years, the company has
facilitated in excess of $90 M in small
business loans through the owners and a
further $30 M provided by associate
private investors. “Funds and Loans” have
developed many relationships in the US and
have recently launched the website www.fundsand
loans.com in order to capitalize more
efficiently by being online.
The size of loans that we approve, vary
from $100,000 to $20 million, with the
average loan coming in at approximately
$750,000 and vary from collateralized to
non-collateralized, on a case by case
basis.
“Funds and Loans" is also a trustworthy
resource guide, which lists the details of
qualified professional services firms who
are members of the network, including
accountants, insurance brokers, business
attorneys and others
|
|
 |
|
|
Joe Cooper's
Complete
List Of
Business-Coach
Articles
|
|
|
If you enjoyed this article, get Joe Cooper's Complete List of Business-Coach Articles For FREE!
|
| |
|
|
|
![[Get Copyright Permissions]](http://license.icopyright.net/images/icopy-w.gif){kind=small}
