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Is Buying a Franchised Business Right for You?
There are
a lot of franchise opportunities available that cover almost every
conceivable area of the commercial world. They offer the chance to get
into a business of your own with products, systems and promotions that
have been tested and proven before you start.
A franchise can even be a way of ‘buying a job’ for those with
retirement savings or redundancy payouts. But is it right for you? Here
are some of the pros and cons that you need to consider.
Five Big Positives
- You are your own boss and you own your own business.
- You lower the risk of failure by starting in a business that’s already
been proven elsewhere.
- The business comes to you as a package. Usually everything from the
products to the look of the business and the operating system is
included in the franchise.
- The franchise has a name people already know. You don’t have to build
up recognition from a zero base.
- You have the assistance of the franchiser in sourcing products, in
providing training and in your marketing.
Five Big Negatives
- You have to follow the directions of the franchiser in just about
every aspect of the business so you’re not really independent.
- A percentage of everything you sell usually goes to the franchiser on
top of franchise fees and a contribution to shared promotional costs.
- Your sources of supply are limited to those stipulated by the
franchiser.
- If the franchiser has financial problems it can impact on your
business as well.
- If there’s a disagreement between the franchiser and yourself it’s
possible for your franchise agreement to be terminated (or not renewed)
and put you out of business.
So What’s the Answer?
There are these and many other reasons both for and against buying a
franchise but generally a franchise offers a range of advantages over
starting your own business from scratch. Whether it’s really for you
depends largely upon the type of person you are.
Understand that no franchise comes with a guarantee of profits. Every
business is an independent operating entity that will largely succeed or
fail on its own merits. Although the franchiser dictates the terms on
which you trade, your own input into the business will have an influence
on the bottom line.
You have to follow someone else’s way of doing business. If you can’t
see yourself doing that (and many very good managers are simply too
independent to accept this) then a franchise isn’t for you.
The franchise you buy should be in an area you can both relate to and
enjoy. Even if the business makes money, experience shows that a
franchisee needs to enjoy it to really stay with it and realize its
potential.
Not all franchises are going to work, regardless of what their
salespeople or literature may say. Some will fall by the wayside for one
reason or another, taking their franchisees with them when they close.
To avoid becoming part of a corporate wreck you need to do your own
research on any franchise opportunity.
Start by talking with other
franchisees. Ask them how they feel about their own business,
about the franchiser and about the money they’re making. What are their
thoughts on the future of the franchise? Are they getting value for
money from their investment?
Examine the franchise agreement carefully. Make sure it’s not all
slanted in favor of the franchiser; the best franchising relationships
are reasonably equal partnerships although it’s normal for the
franchiser to protect their interests from franchisees who let down the
system.
Get an accurate picture of the costs of the franchise – what it will
cost to set up the business and what ongoing fees, levies and so on have
to be paid. How long has the franchise been going and how successful is
the franchiser’s business?
Finally, do you have enough
capital to enter into the franchise? There’s nothing worse than
finding out you’ve exhausted your resources just as more are needed to
keep things going. Franchises are never a cheap way to get into
business, but they are a way with a few more certainties than going it
alone.
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