In the strictest business sense, franchising is defined as the right or license awarded by a company to an individual to market its products or services in exchange for a certain fee.
Yes, you get to use a company’s name, logo and the profit could be all yours thereafter, but it’s not that simple. Think of it as a ‘marriage’ between the brand’s strengths and your own. You may have found ‘true love’ (or at least, true profit) but you still have to work at it, and see if it’s a right match. Read on.
1. Franchising takes more than buying a name.
A successful franchise doesn’t ride on a business, but duplicates its best features and even builds on it.
The problem begins when the franchise you buy is just, well, a name. Go deeper. That business, whether it is a food or a service, must have a proven system intact and must have brand recall. It must also have a good track record of having excellent support and relationships with its franchisees. Will you be left out in the cold, all on your own, with no system or support?
2. The franchise must be aligned with your own interests.
Don’t just jump on a franchise because it’s successful or trendy. Like any other business you need to be personally interested in it, so that you’re inclined to learn the ins and outs, and master both the details and the ‘big picture’ (like competitor movements, market demands, etc).
You also have to be realistic about your skills, or at least, the ones you’re wiling to learn. For example, a spa franchise will demand some working knowledge of skin treatments, relaxation techniques, and new products. And if you’re going into the restaurant business, you’ll have to know how kitchens are run, plus safety and hygiene standards. Otherwise, you’ll be running your business blind.
3. Be prepared for the business costs.
Many companies offer franchising packages that include the franchise fee and the capitalization expenses. The former is the amount you pay to a company to obtain the right to set up shop and sell their products or services while the latter is the amount for operation expenses which may include equipment, materials, construction fee, among other requirements to start up the business.
4. Research on the industry and the business.
Beware of copycat franchises and fly by night franchises. Ask for details, do your research, and find out its ‘unique selling proposition’ versus other companies (which will help you gauge whether or not it will survive trends and competitor movements).
While franchising can be an attractive business especially for those who don’t exactly want to start from scratch, it is important to keep in mind that the universal rule about this endeavor still stays: there are still risks.
Be wary of franchise fees that are too low—there’s bound to be a catch. Call competitors to find out how much their franchise packages are.
5. Prepare for the work ahead.
Don’t expect instant profits just because you’ve bought a big name. A lot depends on location, customer loyalty, and of course, marketing challenges—people have to know you’re around!
You may have to ‘tweak’ the business in order to succeed in your unique business environment. Clarify early on how much creative freedom you have to spice up or market the business.
You also need to give yourself time to get to know the business. For example, which products sell better? How much stock should you kee pin the inventory? How much staff do you need?