Written by the Franchise Matchmakers Team
Owning a franchise business is a great way for many individuals to enter the small business world because there are a range of investment opportunities. Franchise start-up costs can be as little as $100k, or as much as $1m, and brokers like Franchise Matchmakers have the knowledge to help their clients choose the right franchise, and get the funding they need to get their business off the ground.
Entrepreneurs are attracted to the franchise model because it often comes with an existing customer base, an established brand, and a successful business model. However, if you are considering buying a franchise business, it is crucial to know the key principles of franchising before you set out. These fundamental principles are the foundation upon which businesses have found growth and success all over the world. As you consider your opportunities, keep these unchanging principles in mind.
- There are three entities involved. For a franchise to find success, three components must stand together to make the business work. The first is the brand – this is crucial because it establishes the customer base. The franchisor is the second element that makes these businesses work because they keep the brand relevant to the target market. Lastly, the franchisees are essential because they build and operate the actual business locations.
- There is information that franchisors must disclose to potential franchisees. Federal law requires franchisors to provide potential franchisees with an FDD, or Franchise Disclosure Document that details important information about the business.
- Franchisees must meet franchisor qualifications, including paying all franchise fees. Training and marketing fees, as well as ongoing royalty fees based on gross sales, may also be assessed.
- Franchisees never own the brand or the company’s intellectual property. They are granted a license to operate the franchise in a specific way and in a specific location for a specified time (typically ten years). This means that the franchisor develops the terms and conditions under which the franchisee must operate the business.
- Franchisees must do their research. It is crucial for anyone thinking of buying a franchise to look at other franchise network members, debts and assets, financial health, rules and regulations, and the entirety of the working mechanism before signing any contracts. Market research is vital in selecting a proper location and preparing for success, as well as being aware of competitors in the area, goodwill, brand awareness, and any other factors that will affect the potential success or failure of the business.
- It is not technically corporate ownership. The methodology of franchising allows company owners to open multiple store locations using other peoples’ money and time. The “corporation” in this instance doesn’t own and control all of the units. Keep in mind also that franchising is not an industry but a method of expansion that industries employ.
Before you set out to start your own franchise business, it is important to do your research. Knowing these franchise business principles is a great way to start but having a helpful advisor to assist you along the way is vital. If you are looking for help getting into the franchise world, Franchise Matchmakers is here for you. Reach out to us today at (888) 347-5187.