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To Franchise Or Not To Franchise

To Franchise Or Not To Franchise

There are a number of different opportunities when starting a small business; from consulting to opening a bakery to owning a franchise. Of the options available, owning a franchise is normally the most expensive. So the question is why do people do it? We will take a look at the possible costs and complications involved with owning a franchise as well as the benefits and what to be aware of as a franchise owner. Franchises aren't for everyone but if you have a certain type of mentality and enough working capital then it should be easy to decide whether or not a franchise is the correct decision.

First and foremost, all potential franchisees must realize that it is a monumental commitment with a significant financial investment. The average cost of a franchise nowadays runs in the $500,000 to $1,000,000 range. While most of the cost can be financed through business loans, franchisees are still required to have a certain amount of capital and a minimum level of net worth in order to qualify. You may be asking yourself why is it so expensive?

Franchises, more than any other businesses, are called "turnkey" solutions which means the entire business is prepackaged and ready to go from day one. For example, with a Domino's pizza franchise the only decision left to the franchisee is the location, and even then there are requirements about distance from other franchises in the area. All signage, food and other operating materials are provided by the corporate entity. This is to ensure consistency and a certain level of service for customers regardless of where they purchase a Domino's pizza. The only questions left to the franchisee are who to hire as employees and when to open the doors.

For some reason, most franchises revolve around fast food or other edible industries. This is primarily due to the amount of initial capital required and the fact that inventory can be provided on a consistent basis in both price and quality by a larger organization. Other industries which offer similar support are Mary Kay and Avon but they do not necessarily have operator owned franchises but instead independent sales contractors. Further down the list are resale agents who sell knives and vacuums were little outside support is provided other than processing orders.

To say that operating a franchise is a lot of work would be an understatement. A franchise is a full-fledged operating business right from the word go with little respite or room for error. Given the initial cash outlay, the stakes are quite high and many franchise owners put in long hours every day seven days a week. Support from a corporate office is not limited to inventory and additional assistance is normally provided regarding operations, labor, regulations and taxes.

The long hours and hard work can have a significant financial benefit which is one of the primary incentives for opening a franchise in the first place. Successful franchises can make significant sums of money for their owners. Keep in mind this is not a prediction and corporate offices never guarantee whether or not a franchise will be successful or profitable if ever. Another benefit is that franchises are normally from already established regional, national or global brands which obviates the need to build a customer base through extensive marketing and advertising campaigns.

Franchises are not sure things and a franchisees license can be revoked for numerous reasons at any point in time. It is important to understand a franchise owner's requirements in terms of branding, performance and general expectations. If you are willing to assume the risk, have enough money, are capable of working hard and to accept numerous limitations as outlined by a corporation - then being a franchise owner might be right for you after all.