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What is a franchise? Can anyone start a franchise?

Written by: Roy Derrick

Article Overview: Are you consirdering starting your own business? If so here is some advice on how to choose the best business opportunity suited to your own needs.

What is a franchise? Can anyone start a franchise?

Franchising is when someone uses another person's idea or business formula to start their own business.

The person selling the franchise namely the franchisor grants the independent operator namely the franchisee to copy and distribute its products and use its trademarks and name in return for a percentage or royalty payment of the gross monthly /yearly sales. In most cases the franchisee will also have to pay an upfront one time franchise fee also to the franchisor. The franchisee must then follow certain guidelines already set up by the franchisor.

The history of franchising began in the 1850's when Isaac Singer began a franchise in order to distribute his sewing machines outside of his geographical area. He began by selling licenses to entrepreneurs in different parts of the country.

In 1955 Ray Croc took over a small chain of food franchise and built it up into the most successful fast food franchise in the world namely Mc Donalds.

Other modern day examples of successful franchises are Subway, Domino Pizza, KFC and Pizza Hut. There are currently 120 different franchises worldwide which include automotive, cleaning and maintenance, health and fitness and financial services franchises. According to Franchise Associations over 4% of all businesses are franchises.

Franchise products very often entail the franchisor providing advertising, marketing, training and even business loans as well as offering other support services. Franchise contracts normally last between five and thirty years.

Franchising is available to anyone and is particularly popular because it offers people the opportunity to buy into a brand and a business model that is already established and very well known. Today franchising is helping thousands of individuals to be their own boss and to operate their own business. There is also more likelihood of starting a successful business when a proven business formula is already in place. It is claimed that franchising has helped the economy grow in over 80 countries and generates over $4 trillion in sales.

However as with any business there are disadvantages to a franchise business. The main one being that it can be very costly to set the business up especially when having to purchase premises and having to employ staff. There is also the expense of having to pay royalties from any profits. Often the need to find the initial payment for the franchise opportunity can also delay starting up your own business.

There are however other businesses that can be started which are similar to the franchise business concept but without the disadvantages. There are many other business opportunities that too offer an established business system that can be set up straight away but without the need to pay any franchise set up costs or royalties. These opportunities offer the opportunity to set up a business working from home hence saving having to outlay vast amounts of money to buy premises. They can very often be set up with the simple requirements being to own a computer and have a phone line especially with the many internet home based business opportunities that are now available. These companies again offer the security of training and a proven business system to set up that is already successful. You can therefore set up your home based business straight away. Another advantage in this type of business is that you are not compelled to follow any set guidelines as you would be as a franchisee.

Indeed anyone can start a business but it is advisable before considering buying a franchise business to carry out a thorough research of the company and its products and to check details of how much cost is involved to be part of its franchise. It is also prudent to check out other business opportunities which also offer the same advantages that a franchise offers namely training, a one to one support network and a proven successful business system but without the large financial set up costs and royalty payments that can result in delaying setting up your business and reduce your profits. After all if you are going to take that all important step to become you own boss and start your own business it's important to ensure that you make the maximum profit for yourself to secure your ongoing success and prosperity.

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Related Forum Posts
How to Evaluate a Start-Up Franchise - Every mature franchise chain you see today was once a start-up franchise with just a few locations. Success didn't happen overnight and it didn't happen with good luck, either: many factors were involved to take a one or two location franchise national, even international. Without a doubt, one of these factors is the willingness of a few risk-tolerant franchisees to jump on board a budding concept and help it to grow. At least twenty new franchise concepts are being born every month, one of them which may have caught your eye. But before you buy, here are some warning signs to look for when evaluating a start-up franchise venture that looks good from far, but may actually be far from good.
Hello I am a franchise expert - Hello, I recruit franchise owners for successful franchise concepts based in the USA. Many of my franchises are looking to expand north to Canada in all major centers. I enjoy networking and answering questions about franchising. If anyone is interested in the franchise world or looking to buy a franchise then contact me. I have a wealth of information and like to help. Thanks for your time. Michael Somer
Re: Franchising Brokers vs Franchising Consultants - Franchise consultants are free and work with you without any obligation. they do not work for any one franchise but do get a percentage of the franchise fee when a franchisee that was registered with the franchise came from the consultant and the franchisee signs. They will try to match up your interests and skills to franchise businesses that are right for you. They can explain franchise guidelines and help you in any way they can. Franchise brokers usually get paid by the client and/ or franchise (generally get some type of commission). Additionally, they can get points or referral fee off the deal if they refer you to a lending resource too after they sell you on a franchise. Typcally they will try to sell a prospective franchisee on a larger deal so they get a larger commission.
Re: Which franchise would you buy? - The franchise to buy, the one that will succeed is the one that is either underrepresented or not represented in the community. Look at your community, identify what service is missing. That is the franchise to pursue. Too many people buy a franchise based on their "heart". A franchise is a "widget". I have found that once people began to investigate a franchise they had never thought of, but find their is a need; the entrepreneurial "gene" kicks in and they get excited. They began seeing the possibilities of success, and as they uncover the nuances of the franchise, they become more interested. It is the uninformed that are uninspired.
How Do I Start Franchise? - How do I start a franchise? Before one can start a franchise it is important that you do your homework and research your market thoroughly so that you know what you are getting into. To start a franchise, it is vital that you: First, investigate all the franchise opportunities available to you by visiting franchise trade shows or by contacting a franchise agent. Also talk to family, friends or relatives who have set up a franchise, or who know some one who has set up a franchise. It is good to get as much information as possible from fellow franchisees, as not all franchises are good investments Second, talk to franchise owners that are in a franchise similar in to the one you would like to invest in. Ask them if they are pleased they are with their decision, and how well their business is doing. Is it meeting their expectations? Also ask questions about the franchiser and how responsive it is. It is important to determine the integrity of the franchiser you are interested in doing business with. Third, consult any and all advisers. Have an accountant review the audited financial statements the franchiser presents you with, and bring in a lawyer to help review all the legal documents before you sing them. Fourth, thoroughly read the Uniform Franchise Offering Circular, which is a disclosure document in which the franchiser must release certain information such as, any and all administrative, criminal or civil litigation currently pending or completed against the franchiser involving allegations of fraud or misrepresentation. It is a recommendation of the FTC that all franchisers supply a UFOC to prospective franchisees. Also make sure to verify and confirm the UFOC facts. Do a background check on the history and experience of the franchise and its employees. Fifth, compare other franchises. Look for franchises similar to the one you are interested in investing in, and see how well they are managed and financed. Sixth, know and be fully aware of all the terms and conditions of the purchasing contract you are about to sign. Seventh, research as much as you can. Buying a franchise is a complex process and should be approached with caution. The more information you know, the better it is for you. Remember, only you can determine if owning a particular franchise is right for you. When starting a franchise it is key that you evaluate yourself and see if a franchise is the right business investment for you. Investing in a franchise should not be taken lightly as it can be a risky business. It is important that you consider all the facts before you make a decision to invest in a franchise.


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