Becoming a Franchise
by Leeia Ladipoh on September 25th, 2007
A lot of people consider getting into the franchise business because it allows you to operate a business by simply paying a franchise fee and taking on another arm of an already established brand name and product. You are given the right to use the franchisor’s name, as well as help in running and setting up the business.
Franchises can be a good investment if you want to start your own business without as big a risk initially because you are setting up an already established business. Although start-up costs and fees can go up to hundreds of thousands of dollars, and you won’t have total control over how your business operates, many people are willing to take what a franchise has to offer and run with it.
When deciding whether or not a franchise opportunity is right for you, take the costs involved into consideration specifically, for each franchise you are interested in.
Research the initial fees and expenses expected of you – usually the first franchise fee is not refundable and can be quite costly, running into hundreds of thousands of dollars for major franchises. It can also be costly to rent, build, and equip the location and get started with your first round of inventory. Operating licences can also cost a pretty penny, as well as insurance coverage. Some companies make you pay a grand opening fee to fund the cost of promotion for the new location.
On top of all the initial fees you may be required to pay, you have to take into account royalty payments down the line. Royalty fees are usually based on a percentage of your weekly or monthly gross income, so it’s important to research royalty percentages and fees thoroughly before signing the dotted line and making a full commitment.
Sometimes royalty payments are due even if you fail to earn a substantial amount in a month – make sure you know what you’re getting into before making a final decision. Oftentimes royalty rates are levied just for the right to use the company’s name, so fees may remain due until the franchise agreement expires.
Advertising fees are another cost to consider. Some franchisors require that you pay into an advertising fund to help with the cost of national advertising or for the purpose of attracting new franchise owners to the business.
When researching different franchises, ask yourself the following questions so you can discover whether or not being a franchisee is the right decision for you:
What are your life and business goals?
How do you define success?
Will you need a certain level of annual income to get by?
Is there a specific industry that interests you that you would love to run a franchise in?
Is retail or selling a service product important to you?
How much time are you willing to commit to the venture?
Will you be running the business entirely yourself, or do you want to hire a manager?
Do you expect owning a franchise to earn your entire income for the year?
Is running a franchise something you want to do for a very long time?
How many outlets do you want to operate?
In the end, the decision is purely personal, so if opening up a franchise is right for you, go for it!