Patricia
Opening a franchise is one of the most popular ways of investing by starting a business. The latest reports estimate that around 753,770 franchise organizations exist in the USA, most of which provide food or fuel.
Like any other investment, unfortunately, success is not guaranteed when investing in a franchise. However, they do come with unique traits and benefits that make running them (and keeping them open) easier in some respects. If you’re interested in this type of investment, learn about locating great franchise opportunities and their unique benefits below.
Franchises as Businesses
Modern-day franchising started in the US in 1851 with Singer sewing machines and has been a popular arrangement ever since. A franchise is essentially a joint venture between two parties: the franchisee and the franchisor.
The franchisor is the person or organization with some established capital (trade secrets, serialized products, a firm client base, etc.). They offer a license that allows others to use their knowledge, trademarks, and name.
The franchisee usually puts up the startup capital and pays annual fees for the franchisor’s license. In return, the franchisee gets a business with an already recognized and sought-after product or service as well as a more recognizable name.
Franchises vs. Startups
The benefits of running a startup instead of a franchise are that you escape licensing fees and you have much more freedom as to what you want to sell. The downside is that you have to come up with a good idea on your own and pray that people like what you sell more than what they can get at a franchise.
Every franchise comes with the same base benefit that the business model, product, and name are already trusted. This ensures that your store gets traction straight out of the gate. The franchise owner also saves a lot of money that would have gone to research, development, marketing, failed ideas, and other such intangible but costly business experiences.
Furthermore, most get additional support from the licensing company that keeps them open in conditions where a traditional business would have to close. This is because franchisors benefit more from licensing fees when more of their stores are open.
Finding Great Franchise Opportunities
The key to making a franchise work for you as an investment is recognizing the ideal conditions for a successful franchise. Different conditions can work better for different ways of acquiring a franchise. The franchise’s success will also depend on what kind of product the franchise sell.
Buying an Existing Franchise
The easiest way to invest in a franchise is by buying one from someone who already set one up and is willing to sell. These types of franchising opportunities are hard to come by, but they’re great when one does come along. You need to be involved in the local business community to be able to spot these when they come your way.
In these scenarios, you’ll be taking over an establishment rather than starting one from scratch, so there are a few things to look out for. Mainly, you’ll want to know why the current owner is selling their franchise. Personal reasons such as moving away or retirement don’t give off red flags, but if the location isn’t doing well, then you should exercise caution.
However, you can also view this as a special challenge if you’re willing to get involved in a high-risk, high-reward scenario. Turning the franchise into something profitable will give you more goodwill than the previous owner left you. You’ll then be able to sell it for way more in the future.
Buying a New Franchise
The most common way to invest in a franchise is to buy the license and start from scratch. Finding a franchise for sale is not difficult, as many are available online. What can be tricky is meeting the franchise’s requirements.
You make a long-term commitment when you buy a franchise, so you should choose something that you’ll be interested in for many years (even decades). Even though this isn’t a strict requirement, it will help you find passion and meaning in running the business.
The franchisor may have strict requirements for those looking to become franchisees. Everyone faces the initial startup fee (which can be lower than $10,000 or over the millions of dollars), but you may also need technical skills, a sales record, or another form of qualification. This way, the franchisor knows they’re putting their name in capable hands.
Some franchisors even have strict standards for the location or stand of their store. A classic example is that Mcdonald’s will only allow their stores to be built in particular locations. These often come with strict standards for the design and layout of the building itself.
The reason many people choose to open their own store rather than a franchise is that these costs seem too high. However, the support you can get from the parent organization almost always makes it well worth it.
Converting to a Franchise
Sometimes startups convert to franchises because they want the support and already meet the franchisor’s requirements. This is an excellent way of “buying a franchise” because all the startup capital is ready.
With a good track record, you can borrow against your business’s assets. This offers the flexibility to buy a more valuable franchise than you could with cash on hand. The only downside is that you won’t be operating while the renovations happen.
Make the Right Investment Decision
Starting your own store is a great way to invest and make money. If you don’t think you have an idea that will stand on its own, then you can take advantage of the many available franchise opportunities.
Buying a franchise, or converting to one, comes with a huge amount of support and a sure-fire business model. Start by researching franchises to buy, see if you have what it takes, and get started. Opening the right franchise in the right place guarantees years of success.
Running a business, even a franchise, is hard work. It takes a lot of skill, grit, and knowledge. If you want to improve your business skills and knowledge then check out more from our business blog today.
