A franchise allows investors to build a brand new business while using the name of an established company. The following tips cover some basics of franchising.
A businessperson who would like to start up a franchise must do extensive market research. It is important to be aware of any establishments that will be competitors for the new franchise. For example, a chain restaurant that serves pizza and Italian food will compete with established family-owned pizzerias and Italian restaurants in a community. Market research also involves finding out about other similar franchises that will offer the same products or services. For instance, there may be substantial competition if two exact franchises are located within a 5-mile radius of each other.
An entrepreneur must have a certain amount of capital to consider opening a franchise. Some of the most popular fast-food chains tend to have relatively reasonable startup costs that may be under $100,000. By contrast, hotel franchises come with hefty price tags for startup investments. Similarly, upscale services such as spas and massage parlors are also expensive franchises to open compared to fast-food restaurants and convenience stores. After making the initial investment in a franchise, the owner is legally bound to pay certain royalty fees and other charges to the parent company. Recurring expenses for managing a franchise include fees for payment processing, marketing, insurance, property lease and much more. The parent company is fully in charge of all the advertising campaigns that are displayed on TV, radio, the Web, and other media outlets.
An entrepreneur must build strong relations with the parent company that offers franchising opportunities. The company may be in charge of constructing a building for a new franchise location. Similarly, the parent company may require the franchise participant to order supplies from approved distributors. In other words, a franchise owner must obey all rules that are coming from the corporate level. The interior design and amenities of a franchise business may also be mandated by the parent company. Franchise owners must understand the importance of maintaining the established brand that is being franchised. Legal issues involve taking care of the Franchise Disclosure Document among other necessary paperwork. Franchise operators must also report all sales data and other information through an approved software that is connected to a company’s national network.
Franchise businesses come with minimum flexibility but the potential for significant profits. Franchise owners must work in close collaboration with the parent company that already has a good reputation on a national or global scale. Franchises, because they have an established history of success, certainly give the owners an edge over similar local businesses.