FRANCHISING..

A franchise is a type of business that is operated by an individual(s) known as a franchisee

using the trademark, branding and business model of a franchisor. In this business model, there is
a legal and commercial relationship between the owner of the company (the franchisor) and the
individual (the franchisee). In other words, the franchisee is licensed to use the franchisor’s trade
name and operating systems.
In exchange for the rights to use the franchisor’s business model — to sell the product or
service and be provided with training, support and operational instructions — the franchisee pays a
franchisee fee (known as a royalty) to the franchisor. The franchisee must also sign a contract
(franchise agreement) agreeing to operate in accordance with the terms specified in the contract.
A franchise essentially acts as an individual branch of the franchise company.
The Franchisor and Franchisee Relationship
The Franchisor is the parent company that sells the rights to franchise their brand to
prospective franchisees. The franchisor is the one who has developed the company, brand and
operating systems. Upon the decision to franchise their business, the franchisor offers franchisees
the rights to their proven business model, recognizable trademark, established business systems,
and their training and support.
The Franchisee is the individual who buys the rights to sell the products or services and
utilize the proven and established business systems mentioned above. Although the franchisee is,
in essence, buying a pre-established business, franchisees must work hard in order to gain loyalty
in their market, attract talent and grow their franchise business. After all, it is the franchisee that
runs the day to day business.
The franchisor/franchisee relationship should be one built upon mutual respect,
understanding, and support. Of course, as with all relationships, no two are the same. Although
relationships between franchisee and franchisor will differ from brand to brand, one thing always
remains the same: the franchisee/franchisor relationship matters.

What Franchisees Can Expect from Their Franchisor

The FDD
When a franchisee is serious about a franchise opportunity, the franchisor will share
their Franchise Disclosure Document (FDD), which holds imperative information about
bankruptcies, various fees, franchisee obligations, and more.
Financing Options
For interested and serious buyers, some franchisors offer financing programs that can assist
franchisees in finding a loan servicer or alternative methods of payment.
Location Assistance
If the franchise requires a physical location, usually, the franchisor will assist in site selection as
well as finding a local contractor to construct the approved architecture.
Training and Operational Guidance
Franchisors also provide franchisees with an operating manual and in-person or online training to
understand how the business runs. The operating manual includes all of the roles of employees,
performance standards, management operations, and other specifications. The training tends to
take place either at the franchisor’s corporate headquarters or a combination of online training and
in-person training.
Marketing and Advertising
Franchisors also supply their franchisees with marketing and advertising. This could be through
television and radio ads or through social media and email campaigns. Franchisees are usually
charged a marketing fee to cover this cost. Some franchisors also lend administrative services for
their franchisees, like human resources and accounting services.
Support
As a franchisee gets their business up and running there are bound to be questions and concerns
that arise. The franchisor will provide varying levels of support throughout the life of the franchise
agreement. Not to mention, franchisee also have access to an entire network of fellow franchisees,
who may be able to offer advice or offer you a solution to a common problem.
Types of Franchising - Two Primary Franchise Business Models
There are two primary franchise business models that exist today: The Product Distribution
Franchise Model and The Business Format Franchise Model.
Product Distribution Franchise - In the product distribution franchise model the franchisor
manufacturers the product and the franchisee sells the product. This relationship is similar to the
supplier-dealer relationship with a few differences. One major difference is that in the franchise
relationship the franchisee may distribute the products on an exclusive or semi-exclusive basis
whereas a supplier-dealer relationship may allow the dealer to sell several different brands at once.
Examples of product distribution franchises include Coca-Cola, John Deere, and Ford Motor
Company.
Business Format Franchise - The Business Format Franchise is the most common franchise
model. In this model, the franchise is allowed to use the brand and trade name of the franchisor,
like in the product distribution model, but they are also granted access to the product distribution
model. Most of the franchises that immediately comet o mind, like Wendy’s, Dunkin Donuts, or
McDonald's are business format franchises.
Different Types of Franchise Ownership
Single Unit Franchisee - When a franchisee purchases their first franchise they are considered a
single-unit franchisee. This is the most common form of franchise ownership.
Multi-Unit Franchisee - If a franchisee finds success with their first franchise venture they may
choose to open up a second, third or even fourth franchise from the same franchisor. When a
franchisee owns more than one franchise unit they are considered to be a multi-unit owner.
Multi-Unit Area Developers - Multi-unit area developers are similar to multi-unit franchisees
except that they agree, up front, to develop a certain number of franchise locations within a
specified time period and area. This approach is best for franchisees who are looking for market
exclusivity and have the resources to secure that exclusivity with the franchisor.
Master Franchisee - A master franchisee is very similar to a multi-unit area developer in that they
are obligated to open a certain number of locations in a specified time period and area. The
difference is that the master franchisee is also able, and sometimes obligated, to sell franchises to
other prospective franchisees. The master franchisee then acts as a middleman for the franchisee
and the franchise company.
Licensing vs. Franchising
One common area of confusion for prospective franchisees is understanding the difference between
franchising and licensing.
Licensing is a broad term that businesses use for contracting purposes. Licensing gives the licensee
a right to operate in cooperation with a brand, gaining access to the brand’s intellectual property,
brand, design, and business programs. In exchange, the licensee pays royalty fees to the licensor.
The licensor may have a say in how the intellectual property is used but not how the licensee
operates their business. A licensor will grant a licensee the right to use their intellectual property
but the licensor will not provide support or training or exert any control over how the licensee uses
that intellectual property.
A franchise, on the other hand, is a legal and commercial relationship between the owner of a
company (the franchisor) and an individual (the franchisee) who is starting a branch of that
business using the business’ trademark logos and business model. Essentially, a franchise is an
independent branch of the franchise company. The franchisee sells the product or service that the
franchisor supplies.
What’s the Difference Between Licensing and Franchising?
Franchise Opportunity vs. Business Opportunity
Another common area of confusion is franchise opportunity versus business opportunity. While at
first glance they may sound very similar, there are some major differences. For instance, a franchise
opportunity includes the licensing of trademark rights, offers robust training and operational
assistance throughout the life of the contract, and can often cost more than a business opportunity
due to the ongoing required fees.
While all business opportunities are different and can be hard to define, the main difference is that
typically when someone pursues a business opportunity they are unlikely to receive the same level
of support, training or guidance that a franchisee receives from their franchisor.
Not All Franchises are Created Equal
There are thousands of franchise opportunities for eager entrepreneurs who see the appeal in the
franchising model. However, not all franchises are smart investments. That’s why it’s important for
prospective franchisees to research the opportunities they are interested in.
To help prospective buyers find the best opportunities, each year, Franchise Business Review
surveys thousands of franchisees across hundreds of brands. Based on this research we are able to
determine the best franchise opportunities on the market today based 100% on franchisee
satisfaction. Details on this year’s.
Franchising is a business model that combines the best aspects of sole proprietorship and
Corporate America. It can be described as a "hybrid" model that fills the gap between working for
somebody else (whether a large corporation or a small business) and working for yourself.

Franchising has two main forms. In product/trade name franchising, a franchisor owns
the right to a name or trademark and sells or licenses the right to use that name or trademark.
Business format franchising, the type discussed in this guide, involves a more complex relationship
in which the franchisor provides franchisees with a full range of services and support, and
franchisees sign an agreement to conduct operations in conformity with specific rules laid out by
the franchisor.

According to the International Franchise Association, "Franchising is a method of distributing

products or services. At least two levels of people are involved in a franchise system:
1) the franchisor, who lends his trademark or trade name and a business system; and
2) the franchisee, who pays a royalty and often an initial fee for the right to do business under the
franchisor's name and system."

Franchising is a team effort. For any franchisor to succeed, the vast majority of its
franchisees (all, ideally) must operate profitable individual franchise units over the long term. A
brand's success depends on an ongoing partnership between franchisor and franchisee. One of the
most common sayings in franchising is: "Franchising means working for yourself, but not by
yourself."

For many, franchising's greatest appeal is the opportunity for an individual to control their
destiny and secure their future. In its earlier days, franchising was a way for an independent-
minded business person to "buy a job" — a sandwich shop or a home repair service, for example,
and showing up every day as a hands-on operator.

In recent years, the franchise model has caught on as an attractive business opportunity for
wealthier individuals and investors who buy many units at once; or who buy the rights to develop a
geographical area or "territory" and develop a certain number of units within a specified time frame.

"Multi-brand" franchisees are also on the rise. These franchisees operate different brands under a
single organization, creating efficiencies, economies of scale, and market penetration to increase
sales and profitability. The two primary reasons successful franchisees seek additional brands are:
1) they have "built out" their territory for their current brand; and/or
2) they are seeking a new, complementary brand to smooth out the ups and downs of business or
seasonal cycles. Franchisors, too, are combining several different brands under one roof, and
frequently offer discounts to current franchisees who take on a second (or third) brand.
"Co-branding," in which a franchisee operates two brands from the same location, is another
ongoing trend. Co-branding saves on real estate or leasing costs, allowing more profit per square
foot and often balancing out day parts (breakfast, lunch, dinner). An increasing number of
franchisors now offer several different brands, and often provide incentives to franchisees to co-
brand.

Much of what prospective franchisees are seeking to buy in a franchise brand is peace of mind.
They want to know, with as much certainty as possible, that if:
1) the franchise opportunity is presented accurately and realistically by the franchisor;
2) they take the time to perform "due diligence" by speaking with current franchisees, reading the
Franchise Disclosure Document (FDD) carefully with the aid of an experienced franchise attorney;
3) after comparing the brand and sector under consideration with the competition (franchised or
not); then
4) their chances of making money and building a successful business are better than if they started
a business from scratch.

For those who investigate further, the answer is clear: they can make more money faster
through franchising than on their own; and they realize the potential for a greater long-term return
on their investment as well – despite paying an up-front franchise fee and a percentage each month
of gross sales for "royalties" and a company-wide advertising/marketing fund. Franchise fees range
from a few thousand dollars to tens of thousands, depending on the concept, while royalties
generally run 5 to 8 percent and the marketing/advertising fund an additional 1 to 3 percent.

Legally, franchisees do not "own" the franchise they "buy." They are granted, or awarded,
a license that gives them the right to operate and manage their franchise business. However,
franchisees do own the assets of their company, and as long as they adhere to the franchise
agreement they have specific rights under federal and state law. Franchisees can form franchisee
associations that can participate in corporate decision-making if the franchisor is amenable, or
band together to oppose decisions they see as detrimental to their operation and the brand in
general.
The Benefits of the Franchise Model
Franchising provides benefits for both seller and buyer. For franchisors, the primary benefit
is the ability to use other people's money to expand the brand more rapidly than they could either
on their own or through investors or lenders. The initial franchise fee and ongoing royalties they
collect allow franchisors to build their brand without sacrificing control to outsiders or the pressure
of repaying lenders. The fees and royalties are used to fund operations at corporate headquarters,
train and support franchisees, market and advertise the brand, improve the quality of goods or
services, and build the brand in the marketplace.
For franchisees, benefits include: a higher chance of success than in a sole proprietorship;
shorter time to opening; initial training and ongoing support; assistance in finding an optimal site;
the selling power of a known brand; lower costs through group purchasing; use of an established
business model; national and regional advertising campaigns; customer lead generation through
websites and centralized call centers; and a network of peers (fellow franchisees) to provide advice
and moral support through a company intranet, annual conferences, and franchisee associations;
and, increasingly, assistance with securing funding.
Potential downsides for franchisees include: lack of independence, from the goods and
services they sell to the color of the paint on their walls; mandatory company-wide promotions that
may not work in their market (price cuts, new products or services), yet cost money to implement;
costly required redesign of their unit(s); and, after signing a 10- or 15-year contract, a change in
management or ownership that takes the brand in a new, unwanted direction.
As with any business opportunity, there is no guarantee of success, and there are trade-
offs to be made. In some ways, franchising is like paying condo fees instead of owning a home. In a
condo association, monthly fees are pooled for common external maintenance (mowing, snow
removal, roof repairs, etc.) – a tradeoff many are willing to make to free themselves to concentrate
on their "core business" of living their lives (or business) within the walls of their condo (or
franchise) unit. And unlike renters, who can be evicted (or corporate employees who can be fired or
"downsized") franchisees have some power of their own: a franchisor cannot "fire" a franchisee who
is operating in compliance with the franchise agreement.

"Follow the system" is a mantra in franchising and critical to a franchisee's success. Franchisees
buy into the franchisor's operating system believing that if they follow it to the letter they will
succeed and be profitable. Smart franchisors are always open to suggestions from their franchisees
for change (as well as local or regional variations), but any franchisee departing from the "system"
without franchisor approval risks violating the terms of the franchise agreement, which can result
in revocation of the franchisee's right to do business under the franchisor's name. Franchisees also
must agree to keep the franchisor's proprietary system and trade secrets confidential, as well as
sign some type of non-compete agreement.
Not everyone is cut out for franchising. Some need total independence to succeed or fail on
their own, while others prefer the tradeoffs found in working for a larger organization. For the
franchise partnership to succeed, the buyer must be comfortable not only with the franchise model,
but also with the culture, values, and goals of the franchisor — and vice versa.
In this light, many view franchising as a commitment much like a marriage. A good match
between franchisor and franchisee, sharing mutual goals over the long term, is essential to the
success of each franchise unit, and thus the brand as a whole — an essential factor that must be
considered seriously by both parties before any contract is signed.
Established Brand Awareness
Everyone knows what the McDonald's logo looks like and what the "Golden Arches"
represent. No matter where you go in the world, if you set foot inside a McDonald's you can order a
Big Mac or Quarter Pounder and know exactly what it's going to taste like. Established brand
awareness, reliability, and uniformity are part of the power of franchising.
Imagine the time and resources needed to create awareness for an independent, start-up
brand. It would be tremendous. An established franchise brand already is well-known and provides
each new franchisee a market presence that is recognizable locally, nationally, and globally.
Brand awareness -- typically through coordinated marketing and advertising efforts -- is
something a franchisor handles, while you and your fellow franchisees reap the benefits.
Established, successful franchisors will prepare and pay for the development of professional
advertising campaigns at the national, regional, and local levels -- a practice that benefits all the
franchisees in the system and builds the brand.
Many franchisors also work directly with their franchisees to provide advice and resources to
help them develop effective marketing programs for their local area through a cooperative marketing
fund (you and all of your fellow franchisees have already contributed to the fund through your fees
and royalties).
Franchisors also provide marketing materials to their franchisees, as well as marketing
guidance starting with initial training and continuing through the length of the franchise
agreement. One of the biggest benefits of owning a franchise is the marketing program, so keep that
in mind as you make your franchise selection.
From a competitive standpoint, franchising couples market penetration with brand
awareness. As additional franchised or company-owned locations are opened in your region (and
throughout the world), the brand's name recognition increases -- further enhancing the value of
each franchised unit.
Economies of Scale
Any large organization has built-in economies of scale. Franchising is no different, and the
economies of scale created by the franchisor are available to all franchisees. That's something that
you won't find when starting your own business, perhaps ever. There's power in numbers.
So how do these economies of scale benefit you, the franchisee? For starters, a franchisee can
typically buy goods and supplies through the franchisor at a discounted rate -- everything from
cleaning supplies and uniforms to food products and ingredients. Franchisors that purchase
products and services for their franchise network have the power to negotiate significant volume
discounts from vendors and suppliers. The end result is a competitive advantage that results in
higher operating margins for each franchisee.
 This power in numbers also benefits other areas of operations, such as marketing and advertising,
as described above. Because the franchisor, you, and your fellow franchisees are contributing to a
regional and/or national marketing fund, the amount and quality of your advertising efforts are
significantly greater than if you were an independent business operator -- providing a tremendous
advantage over independent and smaller competitors.
Most independent businesses can only dream about the research and development
programs available in many franchise systems. This ongoing R&D makes a huge difference in
product development, quality, and profitability -- further increasing your chances of success and
profitability, while allowing you to concentrate on running the business. The franchisor can try out
new ideas, products, and services at their company-owned units, delivering them to franchisees
after they're perfected.
And when you become a franchisee, you gain immediate access to a peer group of
franchisees all across the country and world. Experienced franchisees have faced the same
problems and questions that you will face for the first time as a new franchisee. Since every
successful franchise unit helps the brand to grow as a whole, most "veteran" franchisees will be
happy to share with you how they've handled those issues, and provide you with solutions and
advice on avoiding beginners' mistakes.
There are many, many strengths franchising offers a business operator.
There are many other good informational websites to use in choosing the right franchise for you.
Here is a selection, by no means complete, that should give you a well-rounded perspective on both
franchising in general and on specific brands you may be interested in exploring as you start out on
the path to controlling your own destiny.
1) Associations
International Franchise Association
This national trade association site is a gold mine of information on all aspects of franchising.
Coalition of Franchisee Associations
This franchisee-focused organization consists of independent franchisee associations working
together to protect and promote the interests of franchisees.
American Association of Franchisees & Dealers
The AAFD is a national non-profit trade association representing the rights and interests of
franchisees and independent dealers throughout the U.S.
American Franchisee Association
The AFA is a national trade association of franchisees and dealers that works to improve the
industry of franchising while protecting its members’ economic investments in their businesses.
2) Publications
In addition to franchise trade magazines (Franchise Update, Multi-Unit Franchisee, Franchise
World, and Franchise Times), many business magazines provide in-depth information about
franchising. Two in particular – Entrepreneur and Inc. – offer specialized areas where they have
gathered an enormous range of information on franchise brands. The sites also provide rankings,
advice, and how-to sections, along with many useful links.
3) Government
Before wading into the numerous websites offering different brands for sale, apply the brakes and
take the time to check out the two U.S. government sites below. They can save you a lot of grief (as
well as money), as they detail the laws and regulations governing franchises. They also provide a
cautionary voice, in contrast to the enthusiasm of the sales-oriented portals listed next.
Small Business Administration
This site provides information on franchising that includes an overview, a consumer guide and
instructions on purchasing, how to research brands, and what you need to prepare for franchise
ownership.
Federal Trade Commission
This site, though more legalistic than the others listed here, provides a hard-nosed look at the
realities of buying a franchise, with a focus on protecting yourself and your investment.
4) Portals
These websites provide extensive lists of franchises for sale, grouped by categories such as industry,
price range, home vs. retail, service vs. goods, and include subsectors within larger categories such
as food (by type of food: chicken, burgers, pizza, etc.); or by type of service provided: (fast food, fast
casual, sit-down, etc.). These websites make their money from the franchisors that pay to advertise
on them.
5) Franchise consultants and brokers
Working with a franchise consultant or broker is comparable to using a real estate
broker: the seller pays the fee and you get free expert advice. But buyer beware: that expertise often
is limited. Consultants work from a list of their franchisor clients and make money when a sale is
consummated. And while good consultants will have your best interests in mind, regrettably, some
are hustlers out to make as many sales as they can – at your expense, and even that of their
franchisor clients. However, since franchisors pay them to find good candidates, consultants and
brokers know that mismatching candidates with brands is a short-term game. Also, they may have
their favorite brands (or brands that pay them more for a sale than others), so take their advice
under advisement and speak with several sources.
6) Franchisor websites
These sites are excellent for researching specific brands to learn as much as you can about them,
and if their opportunity aligns with your goals. Look for minimum financial requirements (net
worth, liquidity), investment and startup costs, and available territories to winnow your search
before contacting any franchisors.
7) Research
Franchise Business Review
FBR is a market research company focused on measuring franchisee satisfaction based on feedback
from franchisees. The information is intended to provide franchise buyers with feedback from
franchisees on franchisee-franchisor relations – a key component in the franchise selection process.
FRANdata
This independent research company has been supplying objective information and analysis for the
franchising sector since 1989. Services for prospective franchisees include company profile reports,
industry reports, and financial performance assessments, as well as Franchise Disclosure
Documents.
Franchise Grade
This company provides research, analytical, franchise investment, and grading services based on
analysis of each system’s Franchise Disclosure Document (FDD) and other sources.
Franchise Research Institute
FRI was established to study and promote high standards of excellence within franchising. Its Fran
Survey is an evaluative tool used to measure the quality of the franchisor-franchisee relationship
(fransurvey.com).
8) Other
Better Business Bureau
Before you contact a franchisor, it’s a good idea to do a little checking with the Better Business
Bureau in your area. This organization logs complaints about businesses. See if any of the brands
you’re considering are on their list. These sites also provide business advice and resources.
Franchise-Related Blogs
These make fascinating reading, but don’t believe everything you read. Many are “seeded” with
positive reviews of franchise brands (an ethical no-no, but a fact), as well as personal rants against
brands. While these could provide a valuable perspective, use your own judgment in assessing their
credibility and motives.
The online resources listed here are only a starting point for your research on choosing
the franchise brand that’s best for you. Don’t be seduced — or turned off — by what you find online.
It’s only a first step. Once you’ve done your online research, take the necessary next step and
contact the franchisors you’re interested in learning more about. Speak with real people, including
franchisees, not only to find the answers to your business questions, but also to get a feel for the
franchise organization, and how comfortable you feel with the people you meet as you move ahead
in the franchise exploration process.
Weighing The Pros And Cons Of Franchising vs. Traditional Business
Going into business for yourself is a major life decision. One path is to start your own business or
buy an existing one. Another is to choose the franchising model and buy into a proven system with
a known brand name. Each path has its own promise, as well as its perils. Once the choice is made,
the question becomes what type of business to choose.
Passion and enthusiasm are key ingredients in steering a business from startup to success.
Many customers of their favorite sub shop or pizza place think, “I’d love to own one of these!” That
is, until they realize they’re not cut out for retail, managing teenagers, or spending 60 or 70 hours a
week in their new restaurant for a year or two... or three. Choosing a business — and a business
model — should be a “business decision.” After all, you’re in it to make money, right?
Weighing the benefits and costs of franchising against those a traditional (non-franchised)
business should begin with a self-assessment. Are you able to follow a prescribed system, or do you
need the freedom to innovate and experiment? Do you need total independence in every aspect, or
can you follow a ready-made system 100 percent?
In terms of “cost/benefit,” there is a price to pay for buying into a franchise system. But there
also is a price to pay in starting your own business. The pros and cons, detailed below, must be
weighed in terms of both investment and personal values and goals.
Brand awareness
If you walk into any of the 40,000-plus Subways or McDonald’s around the world, you’re
guaranteed your meal will be the same (or nearly) no matter where you are. That’s the franchise
proposition of uniformity and replicability. Customers know this and seek out the reliability and
familiarity of their favorite brands, which have been established over years or decades.
Control/autonomy
When you start your own business, you’re in control over every detail, large and small. With a
franchise business, you sign an agreement to follow the rules laid out by the franchisor.
(Remember, franchisees don’t “own” their franchise unit: they are awarded a license to use the
franchisor’s brand name, operating system, equipment, uniforms, etc. that have been fine-tuned
and perfected over many years.) Yes, you control your franchise unit in terms of the culture and
values you set, and who you hire and fire, but you must follow the franchisor’s operating system.
Operating system
Would you rather invent the wheel, or buy one ready-made? If you’re the creative, innovative type,
starting your own business is the way to go. A franchised business provides a complete, out-of-the-
box business, ready to “plug and play.” Just follow the operating manual. If you can’t, fly solo.
Equipment and supplies
Outfitting your new business with everything you need to succeed means researching what
equipment to buy, finding suppliers, and negotiating deals. You may buy a pizza oven that’s too big
or buy more fresh food than you need; or you may buy one that’s too small and run short on
capacity as your business grows, or run short on pepperoni on a busy evening or weekend.
Franchisors can provide invaluable help in knowing both what and how much to buy — often at
reduced prices.
Economies of scale
If you’re a sole entrepreneur, you have the buying power of one. If you’re a franchisee, your
franchisor can negotiate bulk rates and pass along the savings to you. Also, having the power of a
recognized brand behind you often eases the mind of a supplier in extending credit: if a successful
franchisor is willing to trust you, vendors are more likely to do so as well.
Legal disclosure
Franchisors are required by law to disclose certain information about their business in documents
regulated by federal and state law. If you’re looking to buy an existing business from an individual,
can you (and your attorney) trust the seller? And if the seller disappears, where’s your recourse?
Even if a franchisor opposes you in court, at least you have a fighting chance.
Financing
Starting your own business can cost less than buying a franchise, and many entrepreneurs have
started on a shoestring budget and succeeded. But most new businesses require startup capital,
especially for retail space and equipment. While most franchisors do not supply financing, many
have relationships with lenders who will view that brand’s referrals more favorably than an
independent business owner just starting out.
Marketing
If you’re Joe’s Pizza, you’re on your own when it comes to marketing and advertising. If you’re a
Pizza Hut franchisee, you have the power of the brand’s multi-million-dollar national and regional
marketing and advertising behind you. There’s a price to pay for these benefits: a monthly
contribution to a national advertising fund. But if you’re Joe, every penny to market and advertise
your business comes directly out of your bottom line.
Speed to market
You can build the most beautiful retail store or buy the perfect van for your mobile business and fill
both with the most expensive equipment. That takes time, as well as money. Or you can sign up
with a franchisor who’s done this hundreds of times and be handed a shopping list of exactly what
you need to set up shop, allowing you to open for business more quickly than if you had to research
it all on your own.
Faster ROI
No matter how grand your opening, when you start your own business it takes time to build a client
base and local reputation. When you advertise a known brand name in your new market, customers
come ready-made, and the cash starts flowing faster.
Training
You may be the best at what you do, but do you know how to manage a business, hire and train
employees, market your product or service, keep the books, etc.? When you start your own
business, you must learn all these things on your own, with “rookie mistakes” part of the learning
curve. Franchisors provide new franchisees with extensive training in every aspect of their new
business, from flipping burgers to which point-of-sale system to buy. And many offer advanced
training to help you stay on top of your business as it grows.
Franchisor support
Most entrepreneurs, franchised or not, love what they do. In fact, they’re rather do what they love,
which can result in neglecting how they manage their business. Additionally, caught up in the day-
to-day details of such “mundane” details as taxes and supplies, they fail to innovate and to develop
as leaders and executives. Many franchisors provide field support specialists to help keep their
franchisees on track, training them to become managers and leaders “working on the business, not
in it.”
Peer support
If you own your business, you can join the Chamber of Commerce, Rotary, or other local business
organizations, so you’re not completely alone. As a franchisee, you receive ongoing support not only
from your franchisor, but also from your fellow franchisees. This can be locally, regionally, at
annual national conventions, through an online support network, or just by picking up the phone.
Local business groups are invaluable for the networking connections they can provide, but who
better to ask for help with your business than someone who’s already solved the problems you’re
facing for the first time?
Product/service innovation
Introducing a new product or service that flops costs precious time and money. If you own a
traditional business, it’s your time and money down the drain. Franchisors develop new products,
try them in their company-owned stores or with other franchisees willing to test them. By the time
McDonald’s introduced its new line of coffees, the kinks had already been worked out. So while it
may cost a franchisee some big money to install new equipment or introduce a new store design,
the ROI is more likely than with your own new great idea.
Site selection
There’s a lot of competition out there in the retail sector. Setting up your coffee and breakfast
business on the wrong side of the street can severely hurt sales. You can hire a site selection expert,
but what do they know about your business? A franchisor can provide teams of real estate experts,
advanced site selection software, and years of experience in finding the best sites for their brand.
They also can provide expert assistance negotiating leases with landlords — an oft-ignored, yet
critical component of profitability.
Culture/fit
In your own business, the only person you have to get along with is yourself (and your customers
and employees, if you want to have any). Many franchise experts describe the franchisor-franchisee
relationship as a marriage. Unlike a marriage, you don’t sign on for life (it’s usually 5, 10, or 15
years), but you do need each other to succeed. That’s why it’s so important to ask if your values and
goals align with those of the franchisor. They don’t award a license and say “See you in 10 years. Be
sure to send us a check every month.” It’s an ongoing, win-win proposition.
Exit strategy/resale value
Selling an independent business can be very lucrative — but the pool of potential buyers is smaller
than with a known brand. prospective business owners often opt for the safety and familiarity of a
known brand over a private business, just as consumers do when looking for a burger. And in
tough times if you need to sell you may have to do so at a bargain basement price — if you can find
a buyer at all. With a franchise, there’s always a buyer of last resort: the franchisor, who can always
buy your unit and run it as a company store until they find a suitable buyer.

Next: Buying a franchise: What’s this going to cost?

 The Costs Involved in Opening a Franchise
You have to spend money to make money. So the old saying goes.
In franchising you can spend a lot or a little, and still make money.
Once you've decided:

1) that you want a franchised business, and 2) what industry segment you'd like to work in (fast
food, home repair, pet care, etc.), it's time to determine what you can afford. Your "budget" will limit
your choices.

Knowing how much you have to invest at the front end for the franchise fee and to set up your
operation -- whether a retail store with inventory and staff, or a home-based or mobile business
with just one employee (you) -- allows you to focus realistically on which industries and which
brands to consider.

Even before you sign a franchise agreement, you will incur costs such as professional fees. And
before you open, depending on the type of business you choose there will be costs for building out
your store or office, inventory, equipment, insurance, employee training, business licenses, rent,
landscaping, signage, etc. Buying your own real estate can be a significant, separate expense. Also
be prepared for grand opening and initial advertising and promotional expenses. After you open,
there ongoing expenses such as interest (if you have a loan), supplies, salaries, professional fees,
rent, utilities, maintenance, uniforms, and more.

Then, of course, there is the franchise fee -- the one-time entry price to use the franchisor's brand,
operating system, and to receive ongoing support in management, training, marketing, and more.
Franchisors usually have minimum financial requirements before seriously considering a candidate:

 Liquidity -- Unless you're printing money, your franchise business will take time to turn a
profit (your franchisor should be able to tell you how long). Franchisors know this and usually
require new franchisees to have a minimum amount of liquidity in order to keep the business afloat
during its first year or more, until your bottom line turns from red to black.

 Net worth -- Franchisors also usually set a minimum level of net worth before they consider
someone a true candidate for their brand.

Entry costs vary based on the brand, size (population) of the territory awarded, real estate, and the
level of services and support. Some brands offer incentives and operating models for new
franchisees to get them started and through their start-up years. Examples include reduced
royalties for the first year or two; deferred franchise fees; or smaller-scale versions of their brick-
and-mortar concepts.

Many franchisors offer discounts to veterans, minorities, and women. As noted above, these can
include lower initial franchise fees and/or reduced royalty payments. Franchisors usually promote
these incentives on their website.

Franchisors also offer limited-time deals on franchise fees and royalties, deferred payments, money-
back guarantees, and other promotional incentives. These can be limited to specific geographical
areas or markets where the brand is seeking to break in or expand its penetration.

Although the entry costs and ongoing expenses of getting into franchising may seem steep, it also
costs money to start your own business. One of the advantages of choosing a franchised business is
that you enter with your eyes wide open regarding startup and future costs. Based on the
experience of existing franchisees, franchisors can provide you with a very accurate picture of what
it will cost to start the business, your ongoing expenses, and a good approximation of when your
revenue stream will turn positive - valuable information you won't have if you start your own
business.
Franchising Offers Hundreds Of Opportunities To The Discerning Prospect
Franchising can offer a great business opportunity, but there are many different kinds of
franchising models and business structures, and so many different brands and concepts. How do
you know what's right for you?
Begin your research by conducting a thorough and honest internal audit of yourself. Look at how
you like to operate. Analyze your strengths and weaknesses. Review the things that make you tick,
and the things that tick you off. Do you like to be in charge and calling the shots, or do you like to
delegate?
Do you like to be behind a counter or desk all day, or do you prefer being out in the field working
one on one with customers and potential customers? This is just the tip of the iceberg for the kinds
of questions you should be asking yourself. Give this some serious thought. The worst thing you
can do is prematurely choose a franchise concept you will be unhappy working in day after day.

Now, armed with a general idea of what you think you'd like to do, regularly read every franchise-
related publication (and website) you can get your hands on. Talk to friends and acquaintances who
have been in franchising. And don't be afraid to ask the franchise owner down the street for their
take on what it's like to be a franchisee. You'll want to process and evaluate all of this information
with trusted friends and advisors.

Brokers

At this stage in the game, many prospects turn to franchise brokers or consultants. These
professionals do come with strings attached and are not the answer for every prospect. Brokers
essentially work much like real estate agents. They can help you find the ideal franchise for your
budget. Brokers can help you determine what brands and concepts would be a good fit for you
based on your strengths, weaknesses, and interests.

For example, if you have strong sales skills and a demonstrated history of being able to manage
yourself, you may not need a higher-priced retail franchise to succeed. You might just be able to
leverage your sales and self-management skills and purchase a home-based or mobile franchise.
Brokers and consultants are especially valuable to anyone new to franchising.

Of course, these professionals don't represent or have knowledge of every brand and concept out
there, but the good ones will be knowledgeable about the industry in general and about specific
brands or industries. They can be a good place for you to turn. Be aware that franchise brokers
generally represent a finite list of brands that they are compensated for representing. Nevertheless,
brokers can be another tool in your franchise selection arsenal.