So you want to have your own business. Good for you. The world needs entrepreneurs willing to risk their time and money on new ideas. However, the sad truth is that even with brilliant ideas and enthusiastic entrepreneurs, most businesses that start fail within the first two years. Take heart though, all is not lost. It is possible to own your own business and drastically increase your chances of success.
What is this miracle of modern business? The answer is the franchise.
What is a franchise?
Now, before we go any further, let’s clarify what a franchise is (and isn’t). A franchise is not just the right to use a brand, although the brand will be a crucial part of the deal. No, a franchise is much more than that. A true franchise is a complete business system, comprising all aspects of how to operate the business. This will include:
• the products or services offered for sale,
• the methods for delivering those products and services to customers,
• marketing and promotion,
• deal with customer complaints,
• billing and credit control
and any other operations and processes necessary to operate the business.
The business system will be combined with the training and support provided by the franchisor to the franchisee and their employees. It is this trinity of recognized brand name along with business systems and training and support that together characterize a true franchise.
In this way, a franchise is like following a recipe. The franchisor will already have the recipe for creating and running a successful business. If the franchisee follows the same recipe, the franchisee should also end up with their own successful business. By replicating the franchisor’s tried and tested business model, the franchisee dramatically increases their chances of success compared to operating as a stand-alone business.
A tried and tested model
In an established franchise network, the business model will have been tested many times, not just by the franchisor, but by dozens of other franchisees. This means that the franchisor will also have the opportunity to collect key performance data from its franchisees. In turn, this allows the franchisor to establish benchmarks that will serve as early warning systems, identifying potential problems in a franchisee’s business before they become significant problems.
Of course, the franchisor is not going to share his secret recipe for free. The trinity of branding, business systems, and training and support comes at a price. Typically this will include both an initial license fee and ongoing administration charges calculated as a percentage of billing. These fees mean that buying and running a franchise business is more expensive than setting up an independent business. However, higher up-front costs can turn out to be money well spent in the long run, particularly if the alternative is a significantly higher risk of business failure.
Let us conclude on a note of caution. Like all recipes, some are tastier than others. It is vital that before investing in any franchise, the franchisee thoroughly research the industry, as well as the specific franchise network they are considering joining. Buying a franchise can be a fantastic business opportunity, as long as the franchisee does so with their eyes wide open and fully understands what they are taking on.