Investing your capital in any sort of business is a very critical decision. There are plenty of challenges but with proper research and analysis, these can be controlled to a great extent. There are several advantages in holding a franchise business. The franchise industry is full of opportunities and one can find the perfect franchise business with some knowledge.
Since the franchise is a branch out of a parent company, the risk involved is less. Success is guaranteed as it is replicated rather than created from scratch. Due to this, the risk involvement lowers considerably.
The financing of a franchise business is also simpler. The franchise industry has the advantage where an investor has a near exact idea of how much money goes in and what the return on investment is. In addition, loans for a franchise business are easier to get as opposed to a new business.
A franchise business also gives you brand equity. The business already has its branding in place which is a major benefit for owning a franchise business.
Further on, the parent company provides plenty of support and training especially in the initial days of owning the franchise.
To own a franchise business, one needs to follow certain guidelines:
Legal formalities include registration, licenses and permits. Consulting a business attorney is helpful.
Financial documents entail previous bank statements, proof of funds, audited statements and financial stability. An accountant would be able to sort this out for you.
Having a regulated and proper system of operations is very important. Though the parent company will provide an infrastructure of all sorts, managing the operations lies in the franchisee owners’ hands.
It is also imperative to understand the negatives of owning a franchise business so that they can be worked upon to the best of your advantage and capabilities.
Firstly, owning a franchise does not allow 100 per cent control over the business. Since you are part of a bigger group, it is not possible to run your business on your own terms and you have to abide by the parent company’s standards.
The fees that you have to pay to own a franchisee are high and some franchisors may demand the full payment upfront. Also, the sales that you achieve as a franchisee demand royalties to the franchisor. These may or may not depend on how well the business is doing. Some of these payments are fixed and the franchisee has to pay them regardless of profits or losses.
The area of region you are allowed franchisees is also restricted and defined. You may not be able to hold franchise outlets outside of the stipulated area.
Owning a franchise business can be both rewarding and restricting. You have to make sure you understand both aspects of the business before stepping into it.