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Franchising 101_ What to Know Before Getting Into a Franchise

business-franchise

A business franchise is akin to a license that a mother company—hereafter known as the franchisor—gives to the franchisee to participate in their business venture as a semi-independent entity. In exchange for proprietary knowledge, such as designs, recipes, manufacturing techniques, and rights to use a trademark, a franchisee usually pays for the initial start-up operational costs and yearly licensing fees.

Buying a business franchise is a big decision to make. While getting into such a business deal can be cheaper than building a business from scratch, it will still incur a significant investment from your end. To help guide you towards making a decision, here are some of the advantages and disadvantages of getting a business franchise.

The Advantages of Franchising

As mentioned above, the franchise model offers a franchisee some unique advantages as compared to creating a totally new business venture. Here are three benefits of getting into the franchising business:

1. Instant brand recognition and a loyal customer base

Among the most apparent advantages of franchising is having access to the brand equity that the mother company has built up over the years.

As any business owner would tell you, establishing your brand and building a loyal customer base is among the most challenging parts of putting up a business. Many brands have to go through numerous false starts and re-branding efforts to finally land with one that gains traction—an effort you no longer need to undergo in such a set-up.

2. Minimal industry experience required

You don’t have to be an experienced restauranteur to run a fast-food franchise successfully. While you’ll undoubtedly need training, buying a franchise gives you access to the wealth of knowledge and operational experience that a franchise has built up through the years.

Instead of having to learn the ropes yourself, a franchisor will let you in on best practices that have helped them find success in their industry.

3. Banks will look at you favorably

Franchise owners benefit from being backed by a more massive corporation, making it easier for them to secure business loans from banks. This is because larger companies have already tested their business models and have proven their operational, financial, and managerial skills to be effective—factors that a bank or lending company holds in high regard when screening loan applications.

The Disadvantages of Franchising

Despite its merits, the franchising model has its set of cons as well. If these three things bother you, then franchising might not be suitable for you.

1. Initial High Investment

Some people find the initial costs of a franchise to be steep. This because, on top of licensing fees, a franchisee will also have to shoulder the startup costs of putting up a business, such as store fit-outs and hiring.

That being said, franchising costs are still below what it would take to put up another company in the same caliber.

2. Limited Creativity

Franchisors are very protective of their branding. While you may have been given the right to use a trademark, branding decisions are generally left to the franchisor alone.

Other aspects of the business, such as product development and customer service, are likewise at the mother company’s discretion. While this can be seen as a disadvantage by some people, others see this as a way to streamline their processes and focus on their bottom line.

3. Your franchise can be terminated

Like any kind of licensing agreement, a franchise has an expiry date that can be renewed by your franchisor. In case of disputes, that franchise can be terminated and left without your main revenue stream. That being said, if your experience has been less than stellar, you can also opt to not apply for renewal as well.

Conclusion

Like any other business model, franchising has its own set of pros and cons. The best thing to do is do your research about a particular franchise’s terms and have an expert such as a lawyer explain the agreement’s finer details. Ultimately, it will be up to you to decide if the franchise model works for your long-term goals or not.

Optamark Franchise offers you the chance to co-brand your printing and promotional products business with an established industry leader. Besides gaining access to our supply chain, we will also give you extensive support through our in-depth industry knowledge. Contact us today to get started!

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