How does franchising work? I will answer that question but be advised it’s a vast subject. One that I will cover in this post and future post.
A franchise is a contractual license to do business using the brand and operations of an existing franchisor (owner of the franchise company).
The franchisee (the person who purchases the franchise) becomes a partner with the franchisor. The franchisor/franchisee relationship is of utmost importance.
What Does a Franchise cost?
Usually, a franchisor charges you a franchise fee up front to help defer the cost of support he will need to give you for years to come. The fee can range from 0 to $250,000 or more.
The franchise will also pay a royalty for their use of the franchise assets. This can range from 0%-10% of total revenue payable weekly, monthly or yearly. The franchisee gets a proven system that has worked in the different locations and by different people.
It is hard work, but you will reach your goals a whole lot quicker and more times than not they are profitable in year one. How franchising works? Hard work equals profits.
Why wouldn’t it be better to go it alone?
After all, you are smart and can figure out how it works profitably, right? Well, honestly the franchisor has learned a lot and believe me when I tell you he knows the road to the promise land. He knows the answers to how does franchising work.
You, on the other hand, would have to start from square one and there is a reason most small businesses in America go belly up in less than 5 years. My wife and I took the long road and opened our own. That was 10 years ago.
Knowing what I know now I would definitely buy a franchise to start a business. Don’t believe me then read this article.
Sure, you would save money, but the marketing and sales know-how of the franchisor is worth every penny.
Where Do I Start if I Want to Franchise?
- Learn all you can about how franchising works. Subscribe to my blog on franchising for free and read all the books you can on the subject.
- Call a franchise broker. Get a list of brokers at some of the franchise broker associations.
- Check locally for Franchise Expos or marketing shows in your area. Attend because they are generally speaking very inexpensive, and you will learn a lot from attending.
- Check out the small business association (SBA) in your area and after looking at their website go visit them and ask questions about how franchising works.
Now you can sit down with your spouse, girlfriend, best friend or mom and tell them what you are considering. Then just listen. They will tell you everything that can go wrong, and these are all things you need to hear and consider before purchasing a franchise.
If you still are excited about franchising after all this work, then you are ready to talk with franchisors directly. Just remember the hard work doesn’t stop here.
How to Find Franchises That You Are Interested in Pursuing.
First, I would look up franchises for sale in Google.
Believe me, you will find more than you will ever read about. So, I would suggest narrowing down your search to one industry such as the food industry.
Next pick a subset of the industry such as fast food, restaurants, catering, prepared foods, ethnic food etc. This will enable you to compare the different franchises to find one that will work for you.
Once you get a half dozen you are interested in sit down and try and make a list with your number one franchise first.
Next, go to their Franchise Opportunity site and fill out the contact form for more information.
This is important because before they can offer you a franchise they must get your personal information, a non-disclosure document signed and then you can talk to the owner to see if he shows any interest in you at that time.
The next step to get together with you and the owner and get you to sign a receipt for their Financial Disclosure Document (FDD).
The FDD is required by the Federal Trade Commission. This document is everything you need to know about the company’s franchise.
All the rules, financial documents and history of the franchise in writing. It is a complete and lengthy document.
The franchisor is required to wait 14 days after you receive the FDD before they can make an offer to purchase a franchise.
You see that is the basics for how franchising works. Stay tuned for more post on franchising.
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