Franchises are a great way for new entrepreneurs to dip their toe into the business world. Owning a franchise is both rewarding and challenging. It can also offer a great introduction to the world of running your own business.
Franchises are owned and run by independent owners under a single brand. Franchises have a unified concept, and every store has to be the same. There are very few requirements to start a franchise, apart from being able to afford the upfront costs. Franchisees pay an initial fee and ongoing annual royalties to the franchisor. In return, they get the use of the franchisor’s brand. They have the right to sell the franchise’s products and services. They also receive ongoing support from the franchisor.
Franchises offer many unique benefits, but they also come with several drawbacks. By understanding the pros and cons of owning a franchise, you can decide if owning a franchise is the right move for you.
Benefits of Owning a Franchise
Pre-existing market research
Many new businesses fail because of inadequate market research in the early stages. Franchisors will often do market research in a specific area. This provides potential franchisees with a clear picture of current market conditions. It also gives you an idea of what factors to consider before buying into the franchise. A significant benefit is that you’ll know you’re entering into a profitable market.
Lower risk
Franchises are part of a larger, established corporation, making them a less risky venture than starting up a new business. The main reason for this is that franchisors want to get money from their franchisees. To do so, they provide support services to franchisees to help them succeed.
Franchisors will do their utmost to support franchisees. Their support includes ongoing training and providing access to established accounting software packages. You get the benefit of years of first-hand experience without having to go through the trial and error process yourself. Even people with minimal business experience will be able to learn how to run a franchise outlet.
Collective buying power
Franchisors have long, established relationships with their suppliers. When you become part of the franchise system, you get access to these suppliers. The franchise’s collective buying power will ensure you get the best prices possible, allowing you to lower your costs and make more profit.
Sales and marketing
One of the significant advantages of owning a franchise is that you get the use of an established trademark. You don’t have to worry about creating and running a marketing campaign to foster brand-name recognition; it’s already been done for you. This isn’t free, though, and you’ll have to contribute to an advertising fund.
Drawbacks of Owning a Franchise
Lack of control
The major drawback of owning a franchise is that you have to stick to an established business model. If you’re fiercely independent, you may find these restrictions prohibitive. Many franchises have plenty of rules about how stores operate. They also control which products you can sell and which marketing activities you can use. The most control you get as a franchisee is control over your employees.
Many franchises also operate under lengthy contract terms. If you break them for any reason, you’ll have to pay hefty penalties. So if your franchise is in trouble and you have to close down, you’ll get an extra fee to add to your woes. Since you have so little control over the store, you may find yourself closing through no fault of your own. And you’ll still have to pay the penalty for doing so.
Franchising is a group activity
While being part of a franchise community has many benefits, it does also has drawbacks. As a franchisee, your success is tied to that of the franchise as a whole. You have to rely on every aspect of the franchise to work properly. If the franchise is in trouble, for whatever reason, you’re in trouble as well. Even the actions of an unrelated franchiser can have an impact on your franchise. If another franchisee damages the reputation of the franchise, your reputation will suffer as well.
Costs of Owning a Franchise
Initial costs
The main hurdle to owning a franchise is knowing how to buy into a franchise and coming up with the initial costs. The main fee you have to worry about is the upfront franchise fee. This fee gives you the right to use the franchisor’s trademark, signage, and logo. It also covers your training and gives you access to various franchise-based systems. Depending on the franchise, this can be between $10,000 to upwards of $1 million.
Unfortunately, this fee doesn’t cover extra start-up costs. You still have to pay for all the associated costs that come with running a business, including:
- Location: it’s your responsibility to secure the location of your franchise. If you’re renting a space, you have to be able to pay the monthly lease as well as the up-front security deposit. In some instances, you may also have to pay for leasehold improvements. Luckily, some franchises do offer to cover some of the leasehold costs for you.
- Equipment: it’s your responsibility to get all the equipment you need to run your franchise effectively. Luckily, most equipment can be purchased on a long-term payment plan. Banks are happy to give out loans for equipment as they can use it as collateral for your loan.
- Opening inventory: opening inventory is the first stock you buy before opening. It should cover about two weeks’ of use. Most franchisors will tell you how much you need to buy.
- Signs: most franchisors have sign packages that you need to buy and install yourself.
- Working capital: you need to have enough money up front to pay the business expenses for the first month or two. These include wages, rent, utilities, and petty cash. This initial working capital has to last until you start generating a steady cash flow.
Ongoing costs
Each franchise comes with either an annual or monthly royalty fee that ranges from 2% to 10% of your earnings. You will also be expected to contribute to the franchise’s national or regional advertising fund. This fund is often used to run local or national marketing campaigns.
Apart from franchise-specific ongoing costs, you’ll have to factor in business-specific costs. These will include supplies, rent and utilities, employee wages, and other costs specific to your franchise.
How Loyalty Brands Helps Franchisees
Loyalty Brands is a group of franchise businesses and service offerings aimed at franchise businesses. This synergistic relationship between franchise opportunities and franchised-aimed services can help business owners. By taking advantage of these services, you can hit your initial goals quickly and start the path to long-term success.
First Choice Business Brokers is a network of business sales franchises that operates nationwide. When you buy a First Choice franchise, you get access to the extensive training that will set you up for success. With training in marketing, negotiations, and business evaluations, you’ll have all the skills you need.
If that’s not enough, you’ll also get one of the best business software platforms in the industry. This platform has everything you need to manage your franchise, including accounting software. You also get access to exclusive business and franchise sale listings, giving you a headstart on the competition.
ATAX is a nationwide full-service tax preparation and business services franchise. It sets itself apart by being 100% Latino-owned and offering services in English and Spanish.
If you already have a tax or accounting firm, ATAX can help convert you to an ATAX-branded organization. This gives you the benefit of ATAX’s winning formula and decades of expertise. If you’re just starting up, ATAX can help you grow your business from the ground up.
Loyalty Networking is a service that helps business owners grow their business. It does this by connecting them with specially selected members of their communities. The multi-faceted referral program includes regularly scheduled meetings with like-minded local business owners. Members also get invited to local chapters that feature guest speakers and offer many other benefits.
Business owners in the Loyalty network can find new solutions to their challenges. They can also become more efficient at running their franchise business. Loyalty Networking encourages people to forge new relationships and extend their business reach.
When you become a Loyalty Networking member, you also get partnership perks with other Loyalty Brand companies. You’ll also get invited to the annual convention that will help you hone your business skills and take your franchise to the next level.
SBA is a Loyalty Brand service that offers high-quality accounting and tax services for small businesses. It provides expert tax planning and business advice aimed at franchises. You’ll even get access to large-scale advisory services to help your business flourish.
By working with Small Business Accounting, you’ll quickly identify areas where you can save costs. You’ll also find areas where you can increase revenue, which will lead to increased profits and business growth.
Barter is one of the oldest forms of business exchange. It is still commonly used in areas where using fiat currency isn’t viable due to massive inflation. The Loyalty Trade Exchange has taken the concept of bartering and updated it with several modern improvements.
Simply put, the Loyalty Trade Exchange is made up of international member businesses that barter goods and services. LTE members use trade dollars (T$) to buy and sell products and services from other LTE members.
The main benefit of using LTE is that you’re able to access a global array of services and products, as well as expand your customer base. You can sell excess inventory or surplus stock for a fair market price and get a useful service or product in return.
Conclusion
Owning a franchise is an excellent way for novice business owners to learn the ropes of operating a business without taking on too much risk. Franchises offer many benefits to help business owners succeed. These include access to advertising, expert advice, and an established brand.
Tried-and-tested business models may be suitable for novices, but established business owners may not like them. Franchises aren’t flexible, and you can’t tailor them to your particular needs. Franchises are also expensive to buy-in. They have a high upfront cost and hefty penalties if you decide to end the contract early for any reason.
Reputable franchisors will often offer excellent support for all their franchisees. This support often includes ongoing training and access to established accounting systems. However, many franchise owners may want more help than they receive. In such a case, it may be worthwhile to look at Loyalty Brand’s host of services. These are all aimed at franchise business owners.
Loyalty Brands offers a synergistic blend of franchise opportunities and additional support services. The provide franchise owners with the tools they need to succeed.
If you’re considering opening a franchise, take a look at various opportunities found under the Loyalty Brand umbrella. They offer a solid range of businesses that you can sink your teeth in to. You can then use Loyalty Brand’s other services to tweak your business and take it to the next level of success.
