An important step in the small business start-up process is deciding whether or not to go into business at all. Each year, thousands of potential entrepreneurs are faced with this difficult decision. Because of the risk and work involved in starting a new business, many new entrepreneurs choose franchising as an alternative to starting a new, independent business from scratch.
Franchising incorporates the features of both a start-up and an existing operation. The franchise is the right to sell a product or service. When you purchase a franchise you are basically paying for the right to market an already established product or service owned by somebody else (the franchisor). Under the franchise agreement, you (the franchisee) are expected to market the product/service successfully.
Proven Format
Buying into an established company reduces the risk of failure when starting in business. Not only because the business idea is already proven, but the infrastructure of a national or international organisation provides franchisees with ongoing support including corporate marketing, training and advice which is critical during those first tough years.
Training
It is a simple fact that no-one can be an expert in every facet of their business. For some learning by bitter experience or from 'the school of hard knocks' is where the fun and challenge of starting a new business lie. For others the recognition of where their strengths and weaknesses lie makes it more appropriate to work with a suitable business partner. A good franchisor will provide initial and ongoing training to help with most aspects of the business. Such training may cover how to manage the accounts, handling sales calls or general aspects about running the business successfully on a day-to-day basis.
Marketing
It is likely the franchise corporation as a whole, will already have a good level brand awareness within its target audience. As corporate reputations can take years to build this gives franchisees a real head start as they can immediately take advantage of this market recognition.
Choosing a Business Partner
Choosing a business partner whose strengths lie in marketing, training and providing a proven business model is not for everyone. The reason behind this is quiet simply that it does involve going into business with a partner.
A franchisee will only ever own a part of a much larger organisation and for the truly entrepreneurial spirit this may not be enough. Owning part of a franchise within a larger operation also has limitations when it comes to expansion. Where owners managers are at liberty to enjoy the unrestricted rewards of a free market economy, franchisees are typically licenced to a particular geographical territory and often tied into promoting the franchisor's own product or service to the exclusion of all others.
Of course these very restrictions are some of the elements that make franchising so successful - for example one of the great benefits of franchising is there is already a successful product range or service available for franchisees to distribute.
When it comes to choosing a business partner it is critical to select the right one. And as with any business partners some will be better than others!
Finance
One factor that cause people to shy away from franchising is that it has conventionally been seen as the 'expensive' option. The cost of purchasing a franchise can range from anywhere between £10,000 to £70,000 and upwards, depending on its particular business model. This fee will cover costs like: marketing, training, licence fee, stock and goodwill of the business. If a potential franchisee is to be taken seriously by a franchisor they must have assessed how the venture would be financed initially and for working capital purposes.
Always get an accountant to analyse the set up costs, projected turnover and expenses: a trained eye will spot whether the figures you have are optimistic or pessimistic. Some say, 'take 50% from any revenue projections and add 50% to the expense projection' - if these figures prove unworkable then it will be tough to survive.
Of course, those who start out alone often do not have the knowledge or experience necessary to look after the financial element of the business and under funding is one of the most commonly cited reasons why new business fail in their early years. So it is not that franchising is expensive, rather, it is that all the costs associated with starting-up are simply outlined upfront.
Risk versus Reward
With franchising, ultimately, the rewards may not be as great as with a fully owner-managed small business. However, it is true to say the risks are vastly reduced. And with so many new businesses failing in their early years it is worth looking carefully at the reasons to start up in business in the first place to see if franchising may be for you.
If you are the ambitious type, not adverse to risk and strive to be the sole owner and manager of a multi-million pound organisation, becoming hugely wealthy in the process then franchising is certainly not for you! However, if your aim is to make a good living out of running your own successful small business based on a proven idea and are open to working with a business partner to help you achieve this then franchising is certainly worth considering.
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