Franchising has always been a popular business model. Some of the most popular brands in the United States are franchises. Think McDonald’s, 7-Eleven, and Ace Hardware. They have sealed their place in the country’s consciousness.
Franchises are also a significant contributor to the American economy. Their economic output in 2020 amounted to $670 billion, with a workforce that was 7.49 million strong.
What is Franchising?
Simply put, franchising is the practice of borrowing a brand and its business model. The franchisee buys the rights to a brand, its business model, and marketing methods. All these were set up by the franchisor, who started the business.
It is an easy way for new entrepreneurs to dip their toes into building an enterprise. You can skip the whole experimental stage of a venture and adopt a business model that works.
The success of the business thus relies on the performance of each franchise. Since all branches share a brand identity, there is a sense of community to help the company thrive.
Factors to Consider
Experts still contest the actual success rates of franchise businesses. But, many assume that it is still the same as regular businesses. Still, they seem to be thriving, depending on the industry. In 2020, about 753,770 franchise businesses were in operation in the United States.
Despite this model’s supposed ease and convenience, it is still a business decision. Not all franchises are created equal, and it’s best to be discerning. Here are some factors you should consider before picking up a franchise.
Track Record
Do your research first before signing on with the first business to offer you a franchise. The point of a franchise is buying into an already successful model. You’ll need to find proof of this success before committing to it.
You can do this by looking them up–whether online or offline. Franchisee and customer reviews can be beneficial in this regard. Does the franchise offer good products and services? How big is their market? How happy are their franchisees and customers with the current operations?
Every business requires some degree of risk. But it’s still best to be smart about the risks you’re taking, especially if you have limited resources.
Success Stories
You’ll need to assess your chances for success if you do buy into a specific franchise. Their general track record is essential to know. But, another factor that could help you gain more insight is the success of other franchisees.
There might be some members of the franchise who struck it big, and that’s excellent news. You’ll have to look further, though. What about the franchisees that didn’t achieve great fame? What is the general status of the franchisees’ businesses? You can even talk to them personally and gain insight into how running that company goes.
Compare their circumstances to yours and learn from their experiences. See if you can replicate their successes and avoid their mistakes.
Competition
Scope out the competition, especially in the area where you’re planning to operate. Establishing a franchise in an area with a lot of competition can be a considerable challenge.
For example, it wouldn’t be wise to set up a coffee shop franchise in a town with several coffee shops. The competition would make the venture more difficult for you to start and sustain.
It’s best to do your research on the businesses in your area. You can then get a franchise in an underrepresented industry. This approach can give your new business an added boost. Being the first at something does have its perks.
Cost
Of course, the cost is a huge factor when considering a franchise. Starting a new business costs quite a bit of money, and a franchise is no exception
Upon setting up a franchise, you’ll first need to pay the franchisor an initial capital. This usually covers licensing rights, training, and equipment. Aside from this initial payment, most franchises also need monthly royalties. These are monthly payments that franchisees pay to the franchisor.
You can seek out different franchises and compare their rates. It’s ideal to find one that can cater to your business needs and financial capabilities.
There is always some degree of financial risk when it comes to business. But, with the proper research and decision-making, you can find a sustainable model.
Personal Interest
Last but not least, it’s essential to choose a franchise in an industry that interests you. Running a business is already stressful in itself. It will only help if you’re doing something you like.
Doing something you’re passionate about can help in sustaining your business. You’d have more reasons to improve your business and see it succeed.
Franchises, like any other business, can fail when mismanaged. It’s crucial to maintain a degree of interest if you keep your business running for as long as possible. Passion for a particular product or industry can go a long way in helping you thrive and succeed.
The Bottomline
Franchises seem like an easy way to get into business. And it is, to some extent. But, like other businesses, it also involves risk, hard work, and commitment to make it last. Starting a new business venture is a significant undertaking. We hope these tips can help you make the best decisions for your business.
