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Franchise - « back to Articles

Buying a franchise may be an option if you're looking for a way to blend the ownership of an independent business with the reduced risk of a tried and true business concept.

A franchise is a contractual privilege granted by an individual or company, known as the franchisor to another individual or company, known as the franchisee. The privilege is the right to sell, in a specific manner and usually within specified territory, the goods or services developed by the franchisor.

Retail sales figures indicate franchising is one of the fastest growing segments of the retail market place.

Three Reasons for Franchise

There are three main reasons why a franchise may appeal to many first time owners.
  1. The franchisor offers basic training in management of the franchise and provides an operations manual.

    In some cases, franchisees have little practical hands on business experience. Franchisors help their franchisees to overcome this by providing a strict set of systems and procedures for the owner to follow.

  2. In a well established franchise risks of failure are considerably lessened.

    Small business startups are risky ventures, the owner often is inexperienced, the business may be undercapitalized and it has no track record. If you buy into a respected franchise chain, you will operate under an established name or trademark with notable public awareness. In addition, reputable franchisors grant expansions to their operation only after extensive market research and planning to ensure the new franchise is likely to succeed.

  3. If a franchise does well there may be an opportunity for a quick return.

    When you build a business you can expect a number of months or even years of development. If you purchase a successful franchise, you may be able to duplicate success in a much shorter period.

    Take careful steps to ensure you are suited to the franchising life. You will choose the right franchise only after making your decision based on solid business principles.

    Before you make the decision to pay a typical franchise fee of $20,000 to $50,000 and royalties that average four to eight percent of your gross sales, take a look at what franchising really is.
Franchising is a Method of Distribution

People tend to mistakenly believe franchising is a business in itself. It is, more truthfully a method of distribution. The key to a good franchise is that they operate according to a well-tested, long-established system. Often, however there is no allowance for a new franchisee to add a personal touch.

A successful franchisee must be prepared to follow the established system. You have to be independent and resourceful, but only to the extent that you still can conform to your agreement with the franchisor. If you're unable to follow a system and accept the guidance of the franchisor you will not succeed as a franchisee.

Checking the Agreement

Before you sign a franchise agreement, check all aspects to ensure you can meet the conditions imposed by the franchisor. In addition to paying a franchise fee and royalties, you may be required to buy specific products and use retail pricing as the franchisor directs.

Buying into a well known franchise with a solid reputation is certainly among the safest ways of operating a business. The same system that offers this benefit can also present potential problems for the owner who fails to research the franchisor and the franchise agreement to ensure that all conditions can be successfully met.


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