Franchising 101: The What, Why and How

 

With its tracked success, many are drawn to franchising and the potential profit it can bring.

Done well and through hard work, it can be a path toward a profitable business ownership.

After all, there’s tremendous value to opening a business under the name of a strong brand with an existing customer base and loyalty.

We break down franchising: what it is, why it’s popular and how to become a part of this growing trend.

What is a franchise?

So what is a franchise? According to PointFranchise:

“a franchise is a type of business that is owned and ran by franchisees, but is branded and managed by a larger company (the franchisor)”

We see franchises everywhere we go, from McDonalds restaurant branches to The Body Shops and Zara clothing stores.

Why franchising is popular

Franchising has become increasingly popular with time, particularly growing in the past 10 years. It has become a significant source for jobs in economies across the world.

Of course, there are numerous reasons why franchising has grown so much, including the following:

Be your own boss

Have you ever imagined being your own boss and taking orders from no one directly above you?

For many of us, that is the dream. It also means that all profit goes directly to you as owner, rather than only receiving a monthly salary.

Owning a franchise also means managing a staff and all the challenges and thrills of being a business owner.

Great potential for profit

As a franchisee, your potential for profit is large, making the investment very wise. The franchise model provide a safety net and security.

As a matter of fact, a whopping 97% of franchises are profitable, with over half reaching high profitability.

Well-known, trusted brands

When opening a regular business, the challenge is in marketing a brand so potential new customers know to approach and trust the company. At the first stage, the brand is unknown.

However, with franchising, customers already know the brand due to prior experiences or reputation, so there is no need to place effort into building a trusted brand.

After all, customers already know big brand names like McDonalds, Subway, Lululemon and numerous other successful franchise-based businesses.

Customers know what to expect from the branch and how it suits their needs and desires.

Hand-holding through the process

The moment a franchisee signs the contract, the franchisor commits itself to helping build a successful branch.

The franchisees are provided with every tool to become a successful business, including tried-and-tested business models.

Additionally, the franchisor assists with picking the right locations for the branch based on profitability goals and budgeted expenses.

Business-in-a-box

A franchising commitment also comes with all necessary tools, equipment and training required to open a franchise.

Instead of having to research and make decisions regarding how to set-up the business, the franchisor sells the necessary stock and equipment to the new branch.

This ensures quality control so the branch fulfills the guidelines of the business.

What’s in it for the franchisor

Businesses look to franchise as a powerful method to expand the company. It’s considered the ultimate form of scaling an operation.

This system of expansion has proven to be immensely successful and profitable; it’s why we see major brands reaching all corners of the world and even thousands of cities and towns.

Using the franchisee’s capital provides the franchisor with the ability to grow and evolve the business without requiring any other outside investment. This means they do not need to give up equity or control of the company.

It’s also a great way to ensure that all branches commit to providing the same products, pricing models, and standards of the brand.

How to open a franchise

Opening a franchise is a process than needs to be well research and based on appropriate decision-making.

Following are some basic steps to opening a franchise:

  • Decide on the desired franchise type: If you’re looking to become a franchisee, the first step is to decide on your desired franchise business. The varieties are endless: from businesses involved in the food industry (restaurants like Subway and Olive Garden), to clothing, personal services, manufacturing, and so on.
  • Know your budget:Each franchisor offers a different upfront franchise fee for joining, so price should be in consideration. Make sure to understand your budget in order to assess franchising possibilities.
  • Research the brand and franchisor’s fine prints:Businesses may have requirements that don’t fit your background. For example, a franchisor may require a certain minimum net worth in order to approve a franchisor.
  • Reach out to the franchisor and franchisees: contact the franchisor to start the conversation. Ask all the questions you may have and get as much information as possible. It’s also a good idea to contact other franchise owners to hear about their experience.
  • Sign the franchise agreement: Once you’re ready, sign the agreement and cover the upfront fee. At this point, you will also need to make your initial investment and buy all necessary equipment and products.
  • Renew your franchise: Franchise agreements usually have an expiration date, so make sure to renew it if you’re interested in continuing the business.

With thoughtful execution, you too can be a franchise owner and reap the rewards and profit from the hard work.