This article explores how to be your own boss by owning a franchise business. Are you considering buying a franchise? You’re definitely not alone. Did you know that a new franchise business is opened every 8 minutes of every business day. It is also an interesting fact that nearly 10% of all businesses are franchises. What is really mind blowing is that this ten percent accounts for over 50% of all US retail sales.
There are many reasons to seriously consider buying a franchise over starting your own business from scratch or buying an existing business. Let’s consider the potential advantages. Franchise outlets also have the advantage of marketing a product or service with good brand recognition. Many franchises have well-honed business systems that have a long and proven track record. Having been in business for a number of years, most franchisors, through trial and error, have figured out the demographic mix that best supports their business model. Many small businesses fail because they opened their business in a location that was ill suited for their type of business. Being a franchisee, can help you avoid this costly mistake.
Another advantage of buying a franchise is that you have access to well established training and support systems provided by the franchiser. A good franchiser is a mentor and a teacher that has probably encountered most if not all of the problems you will face in launching and running your franchise outlet. Since the franchiser receives royalties from your sales, they have a lot of incentive to make your business successful. Contrast this to starting a business from scratch or to buying an existing business. In these cases you are completely on your own. There is no one to go for advice or for support.
Another advantage of belonging to a large franchise organization is that its size translates to significant cost savings. Lower costs for ingredients or for finished products are usually a benefit from belonging to a franchise operation. A franchise business, because of it’s size, has tremendous leverage in squeezing the absolute lowest wholesale prices from it’s suppliers. These savings are often passed down to the franchisee. Infusion of capital by the franchisees also allows the parent company to perform ongoing research and product development. This is critical for keeping an edge the competition. Being part of a large franchise organization also gives the franchisees the advantage of group advertising power. The creation of effective advertising campaigns is shared by all of the franchisees. Their scale also gives them the ability to launch regional or national advertising campaigns. Costs from dealing with government regulations is also scaled down tremendously, since it can be spread over the entire franchise system instead of being born by a single business owner.
Buying and running a franchise can be very rewarding. However, it is not all a bed of roses. First of all beware of the misinformation that is often circulated by the franchise industry. The International Franchise Association, a trade group founded by sellers of franchises, often touts a favorable study that was done in the 1990’s that reported that 86% of franchises opened within the last five years were still under the same ownership and 97% of them were still open for business. They then compare this to other studies that show that over fifty percent of all small businesses fail in their first five years of business. Take this with a large grain of salt. The Small Business Association (SBA) in 2010 reported that franchisees have the same survival rate as independent small businesses, according to its latest study. The research, which leans on scholarly study as well as known statistics, puts the success rate at about 50% over the first five years for businesses with fewer than 500 employers. Further, the SBA says a third of those will last 10 years.
The franchise industry would like you to believe that opening a franchise is a one way ticket to riches. However, there are more times than they would like to admit that it can be quite the opposite. There are numerous examples of franchisees that have gone bankrupt. Some franchisees have lost their homes because they were used as collateral to finance their failed business.
Most franchises are well run and very profitable for both the franchisor and the franchisees. However, there are a few bad apples. Some franchises are literally in business to collect large initial franchise fees. These operators care less as to whether their franchisees are successful. Other shoddy franchisors will provide poor service or gouge their franchisees on overpriced ingredients, products or services. They may also charge exorbitant royalties that suck away most or possibly all of the potential profits. Therefore, it is incumbent on you to do your research.
If there is a certain franchise you’re considering, ask for a list of franchisees. Call them to find out how satisfied they are with the franchiser. Ask if the franchiser is easy to work with? Do they respond to their concerns? Ask them if their franchise is profitable. Find out how long it took them to break even and generate a profit. Also ask if their business generated the profit that the franchiser predicted they would make? Another important item to ask about is the quality of the training and support provided by the franchiser. Inquire about their competition. How competitive is their franchise compared with their competitors?
It also a good idea to scope out the competition for the franchise you are considering to purchase. If the competition is a franchise, it would be a good idea to compare their Uniform Franchise Offering Circular to that of the franchise you are considering. Ask for a list of their franchisees and question them similarly as you did with the initial franchise you were considering.
One website that is very helpful in researching potential franchises is http://www.unhappyfranchisee.com. This website lists comments made by existing unhappy franchisees. It also provides a list of SBA’S worst franchises by loan failure rate (2001-2911. Some of the failure rates were astounding. The bottom line is that it is very important for you to do your homework before plunking down your hard earned dollars to buy a franchise.
So are you ready to leave your dead end job and be your own boss? Are you sick and tired of earning meager pay with little chance of it ever getting any better? Does owning a turnkey business with a proven track record sound like a good idea? If so, buying a franchise might be your best solution for achieving the success you want and deserve. NewBusinessMarket.com is your best resource for finding that franchise opportunity you are looking for.
To learn more about franchising check out NewBusinessCreator.com. You’ll also find this website to be an invaluable resource for other business solutions.