In this article I cover the most frequently asked question about the franchise industry, the opportunity costs, and my responses to the question posed.
Question: What is franchising?
Answer: Franchising is where you buy the rights to a business concept, trademarks and know how. In return you pay a franchise fee and a percentage of your profits.
Question: What is a franchise?
Answer: A franchise is, in its simplest terms, an agreement between the franchisor and the franchisee, whereby the franchisee has the rights to use the logos and trademarks of the franchisor and the ability to market the franchisors products. Both parties commit to a legal agreement which protects both their interests. The franchisee usually pays an initial franchise fee and ongoing royalty payments.
Question: Is it better to buy a franchise opportunity or start my own business?
Answer: Based on the surveys carried out by the US Department of Commerce and NatWest/BFA, the majority of franchisees are still trading profitably after five years. Everyone knows that the majority of people who start out in business on their own, I am sad to say, end up failing within the first three years. When you buy a franchise business, in return for a franchise fee, you receive training and ongoing support. You also benefit from the knowledge that the franchisor has picked up over many years.
Question: How much does a franchise business cost?
Answer: There are no fixed prices for a franchise opportunity. Depending on your budget there are franchises to suit most people ranging from only a few thousand, to over a million.
Question: What's the first step to buying a franchisee?
Answer: Do a search on the internet for the following: "franchise", "business franchise" and "franchise opportunity". You will find a wealth of material on the internet. You can also buy magazines that specialise in franchises and of course, you should attend franchise exhibitions where you can meet the franchisors or their agents and ask questions. At the exhibitions, in some cases you will also be able to touch and feel the products that form the cornerstone of the franchise!
Question: How do I raise the funds required to buy the franchise?
Answer: Most banks have special units set up to help potential franchisees. In many cases the franchisor has done the hard work for you and arranged special terms with lending institutions.
Question: Which franchise is right for me?
Answer: The best franchise for you is not necessarily the business that makes the most money! Buy a franchise which suits your lifestyle and is interesting to you. If you like the products that you are marketing, then you are much more likely to enjoy your work!
Question: Can I sell my business when I want to move on?
Answer: If your franchise business is trading profitably, then you should be able to sell it like any other business. Your franchise agreement will go into detail regarding the processes that are involved in selling the business. Unfortunately, if your business is not making a profit, then it will be difficult to find a buyer.
Finally, always take legal advice before signing any franchise agreement. Your lawyer has to ensure that the agreement is fair for both parties. Your accountant will help in evaluating the profit potential of the franchise opportunity.
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