To Open or Not to Open a Major Franchise Business

If you are tired of working for someone else and exploring opening and running your own small business, you are probably confused about the multitudes of available business possibilities. To make matters worse, authoritative voices differ in their opinions of whether opening a major franchise business is preferable to starting an independent business.

As an owner of nine franchise businesses, I have personally experienced the benefits as well as the limitations of opening and running franchise businesses. The following is a list of pros and cons of owning a major franchise business.

1.(Pro) Pre-existing building layouts and décor requirements lesson start-up confusion and facilitate quicker and easier start-ups.

Many pre-existing franchisors “The Franchise Giver – Big Daddy” usually equip their new franchisees “You – The Little Fish” with possible layout and decor drawings and requirement spec sheets, thus taking the guesswork and hassle out of trying to figure out how you are going to build-out and equip your new business.

2.(Con) Loss of creative control over business layout and décor appearance.

The benefit of being told where and how to build and place everything comes with loss of freedom you may want to express your creative decorative expression in your business. If you want to decorate your business with freedom, research the franchise décor rules and regulations before you purchase a franchise.

3.(Pro) Franchise agreements and structures set up to save you money on business, service or food products.

Because of the greater number of franchises, “Big Daddy” usually has arranged cheaper national contracts wherein you can get certain services, business or food products at a significantly reduced price. You get to save money.

4.(Con) The products and/or services you provide are regulated and controlled by “Big Daddy”.

These cheaper prices are usually accompanied with regulation and control by the franchisor as to what type of products and services you can or cannot purchase. In other words, “Big Daddy” tells you what you can or cannot buy and from whom.

5.(Pro) National Advertising included.

Well known, established franchises typically have a National Advertising campaign in place that provides TV, radio, and printed material advertising. This way, you don’t have to spend a lot of your own money locally advertising your business.

6.(Con) Loss of promotion/advertising freedom.

Great national advertising promotions are typically accompanied by blanket: “You will promote this product or service during this campaign” ruling. Hopefully, their advertising campaigns will make sense, won’t cost you too much money, and bring in more business. Sometimes it works and sometimes it doesn’t.

7.(Pro) Name recognition.

Who has not heard of Baskin Robbins, Subway or GNC? If you haven’t, you’ve been living in a cave. Franchises typically have wonderful name recognition benefits to them. In other words, people will actively seek out a particular franchise wherever they go.

8.(Con) Customer holds other franchise experiences against YOU.

If a customer has had a bad experience at one franchise location, he tends to hold all of the other franchise owners responsible for that one bad experience somewhere else. In other words, I’ll never go to another Subway because I didn’t like the meatball sub I got at Joe Blow’s location.

9.(Pro) Potential for higher sales.

With the national advertising campaigns and name recognition, your franchise business has a better potential for much higher sales than a similar business with a no-name, no experience rating history.

10.(Con) Handing over a percentage of your sales to “Big Daddy”.

Yeah, higher sales! But ouch, you have to hand a large bulk of your sales over to “Big Daddy”. For every dollar you earn, your franchise fee rips away anywhere from .04¢ to .25¢. Pull your wallet out and hand it over to “Big Daddy”.

As with any situation in life, there are resulting pros and cons. Simply study the nature of the franchises completely and talk to other franchise owners to get a feel of whether you will want to purchase that particular franchise. If it’s a good fit, go for it!

Good luck and good business!

About the Author

As a Mind Power Leadership coach, trainer, and speaker, Ronya Banks has helped others become leaders and business owners since 1992. Frequently featured in radio, magazine and newspaper articles and interviews, Ronya helps you find the great leader within by accessing the natural power of your minds. Discover more of Ronya’s proven leadership success secrets by subscribing to her Mind Power Leadership ezine newsletter at: http://www.livinginaction.com/newsletter.com

Pros and Cons of Franchise Businesses

For the individual owner, there are definite advantages to franchising, some of which are outlined in the list below.

Pros of Franchise Businesses

Well-known trademark, either regionally or nationally, and its cumulative goodwill – saving the business owner the cost of creating and advertising a name that customers already recognize.
Established business framework – minimizing the startup problems and guesswork involved in starting a new business.
Well-tested sources of supply and service – saving time and trouble in finding suppliers of needed products and equipment.
Ongoing sales and marketing assistance – franchisors have proven, existing, and successful systems of advertising and marketing.
Financial assistance – banks and similar lending institutions are willing to lend money to a business that has the backing of a successful franchisor. Most franchisors have direct financial assistance or help in finding adequate sources of financing.

Reduction of risk – you are buying into an established concept so the risk of failure is lower.
Ongoing research and development – most franchisors constantly research and look into vital information such as competition, product demand, seasonal variations, and community attitudes.
Site selection and business support – the franchisor helps with selecting a suitable site location, building construction design and supervision, employee training, and operational support.
Proven operating methods and procedures for creating and selling the product. Standard quality, uniformity, and desirability of the franchisor’s product or service.

Collective buying power and centralized purchasing system – franchises may be able to purchase supplies at a reduced cost since the franchisor can purchase in bulk and pass the savings to the franchisees. Furthermore, with franchising expansion seems to come more naturally. Operating a successful franchise may quickly lead to building a second and then a third business, and so on. In fact, some franchisees own all businesses of a particular franchise in an entire geographical area. Fortunes have been built this way.

However, despite the advantages to franchising, buying or starting a franchise business is not for everyone. Some of the disadvantages to franchising are discussed in the list below.

Cons of Franchise Businesses

Loss of control and freedom – since the franchisor’s standards have to be adhered to, a franchisee may have limited scope for individual personal initiative.
Ongoing royalties could be as high as 10% (or more) of revenues – this amount could determine whether you business is profitable or not.
The initial franchise fee can be quite substantial. It can range anywhere from $4,000 to $20,000 and, in some cases, up to $50,000!
Advertising fees – there is usually a fee for advertising on a regional or national basis. If the franchisor does not make the best use of your advertising dollars, this could be a waste of money.
Required Signage – most franchisors have a developed sign package that the franchisee is required to purchase. This can be very expensive for the small business owner.
The franchisor’s problems are also your problems – for example, you could have a serious issue if there was a conflict between the franchisor and a major supplier.
In summary, despite the disadvantages of owning a franchise business, it generally offers real advantages with considerably reduced risks over going it on your own. All franchises are not created equal and research and due diligence should be done before starting or buying any franchise business. Franchising cannot guarantee a profit. You, as the business owner, are ultimately responsible for the success or failure of the venture.

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About the Author

Jim Brown is Director of Marketing at GlobalBX, http://www.globalbx.com. Buy a Business or Sell a Business on GlobalBX, a free business for sale listing exchange that provides a confidential forum to facilitate the buying and selling of businesses with thousands of businesses and franchises for sale as well as comprehensive business information for business buyers and business sellers. Lists businesses for sale, business brokers, and franchise opportunities.

Franchises – A proven Business System
by: Ernie Horning

Franchises offer the first time business owner a proven and successful business opportunity. If you are looking to start your own business for the first time, franchises provide you with the greatest opportunity for success. When you purchase a franchise from the “Franchisor”, and become a “Franchisee”, you are not only purchasing a business, but a complete business system.

Franchises have over a 90% success rate, compared to about a 15% success rate for those indidviduals starting their own businesses from scratch. Franchises have spent years developing and modifying their systems of doing business, and they pass that “trail and error” knowledge on to their Franchisees. Initial training exists for every aspect of the business, which can last anywhere from 1 to 2 weeks. Training usually takes place at one of the franchises existing locations or their corporate office. Training may consist of the day to day “hands-on” positions required to run the business, to marketing, hiring, purchasing, bookkeeping, management and supervisory techniques.

Assistance is available with “demographic” reports to aid in selecting the right location. Support is also available for lease negotiation and “build outs”, if necessary. Pre-opening strategies and marketing materials for newspapers, print-ads, handouts, yellow page advertising, radio and even TV ads are are complete and professional.

During the first few weeks of business the Franchisor may provide its own personel to the Franchisee for assistance and support. This helps ensure a smooth opening. Additionally, once the business is open, a Franchisee will receive ongoing assistance and support from the Franchisor, not to mention support from the other franchisees, all who are all just a phone call away.

Once a year or more Franchise Meetings occur between the Franchisor and their Franchisees to exchange ideas, develop new techniques and startegies, and to compare progress and profits.

All of this is not free, of course. Franchisees normally pay the Franchisor an initial Franchise Fee, plus monthly royalties which can range from 3% – 12% of their total income per month. But it can be well worth it!

In owning a Franchise, you are in business for yourself, but you are not by yourself!

About The Author

Ernie Horning is a Franchise Consultant and owner of multiple businesses. He is a former franchise owner, and writes articles for www.businessventureinc.com.

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