What is a franchise--and how do you know if you're right for one?
To put it simple, a franchisee pays an initial fee and ongoing royalties to a franchisor. In return, the franchisee gains the use of a trademark, ongoing support from the franchisor, and the right to use the franchisor's system of doing business and sell its products or services.
In addition to a well-known brand name, buying a franchise offers many other advantages that aren't available to the entrepreneur starting a business from scratch. Perhaps the most significant is that you get a proven system of operation and training in how to use it. New franchisees can avoid a lot of the mistakes start-up entrepreneurs typically make because the franchisor has already perfected daily operations through trial and error.
Reputable franchisors conduct market research before selling a new outlet, so you'll feel greater confidence that there is a demand for the product or service. Failing to do adequate market research is one of the biggest mistakes independent entrepreneurs typically make; as a franchisee, it's done for you. The franchisor also provides you a clear picture of the competition and how to differentiate yourself from them.
Finally, franchisees enjoy the benefit of strength in numbers. You'll gain from economics of scale in buying materials, supplies and services, such as advertising, as well as in negotiating for locations and lease terms. By comparison, independent operators have to negotiate on their own, usually getting less favorable terms. Some suppliers won't deal with new businesses or will reject your business because your account isn't big enough.
How do you know you are ready to be a Franchisee?
Plan to finance your start-up costs with a bank loan. Build a relationship with your banker. Getting to know your banker at an early date should speed the loan process once you've decided on a franchise.
Franchisors should provide you with some broad guidelines for the type of facilities required for their concept. Establish a relationship with a commercial real estate broker. But do not commit to a lease until you've signed your franchise agreement.
Begin to research and interview advisors to find professionals who are competent in their field and with whom you can establish a personal rapport. Selecting an attorney with franchise experience will speed up the review of your franchise agreement, as these attorneys know what is acceptable in such agreements and won't try to negotiate the nonnegotiable.
If your career to date has been in a specialized area of business (e.g., accounting, human resources, marketing, sales, etc.) and this franchise is your first venture into owning your own business, you'll find your new life requires you to be more of a jack of all trades. If you feel you're weak in any areas of business management, now is the time to take a class or visit the library and do a little studying. Once you decide on a concept, your time will be consumed with getting your business started. And while franchisors do provide training, their training programs are designed to teach you their system. For example, your franchisor will train you in their chart of accounts, financial reporting forms, cost structures and pricing techniques, etc. They will not teach you how to be an accountant.
In short, now is exactly the right time to do some general preparation and lay the groundwork for a successful launch to your franchise.
Courtesy: -
http://www.entrepreneur.com
