Congratulations!! You’ve taken an important step toward making your life more successful when you began searching for details on how to buy a franchise opportunity. Evaluating the pros and cons of owning your own business is an exciting beginning–bringing thoughts of a new dawn for your financial independence and career satisfaction. I hope this information will be an important part in helping you choose the right franchise business.
During my 30+ year career in franchising, I’ve witnessed many intelligent businessmen with great business concepts fail in their ventures. Often a small “piece of the puzzle” was all that was lacking. At the same time, I’ve seen those with lesser skills and experience succeed in earning above-average incomes at the helm of a franchised business. When you explore the advantages and disadvantages of franchising, I think you’ll agree that first-time entrepreneurs should buy a franchise.
What is a Franchise?
As we begin, let’s establish the definition of a “Franchise.” The International Franchise Association suggests that when one party (usually a corporation) allows another (again, often a corporation) to use its name, logo, and system of business to generate sales and profits, a franchise arises. One of the earliest franchisors was the Singer Sewing Machine® Company, which set up dealers shortly after the Civil War to sell and repair its revolutionary machines throughout the country. Shortly after the turn of the century, Coca-Cola® licensed others to manufacture and distribute its wonderful elixir. Ford Motor Company® later set up dealers to sell and service its products. Of course, McDonald’s® is an example of how an entrepreneur , Ray Kroc, could take an idea and quickly spread it coast to coast (and eventually around the world) without starting out with millions of dollars in capital.
Many companies turn to franchising as a system for expansion because they recognize that they can grow rapidly with a minimum amount of capital and enlist top-notch partners if the company is willing to share the profits. The company that sells licenses to its system is called the franchisor, while those who open their own units are called franchisees.
How can you gain financial security through franchise ownership?
- Earn what you’re worth! Thousands of franchise owners report they were handicapped in their corporate careers by company policies and supervisors that put a cap on their earnings. When you own your own company, your efforts are rewarded and your personal income shows it!!
- Build Equity. Financial strength comes to those who succeed in running a business. A recent survey indicated approximately 75% of all millionaires in the U.S. own their own business. If great wealth is one of your goals, entrepreneurship is the answer.
- Satisfaction of Achievement. Many business owners report that seeing their actions turned into reality without stagnating for months in committee meetings (as often happens in big companies) is a major reward of owning their business.
- Gain Tax Bonuses/Perks. The Internal Revenue Service tax code rewards small business owners. While company employees buy most things in after-tax dollars, many entrepreneurs can write off expenses for major purchases such as automobiles, insurance, and travel, as well as paying their spouses and children for doing part-time work.
- Choose Your Own Job Description. When you’re the owner, you can delegate certain aspects of the business to others and create a job description that suits your personality, skills and interests. Naturally, the industry you choose and the size of your operation will affect your flexibility in this area.
- Control Your Future. Business owners live the scripture “You reap what you sow.” You can budget your work schedule against family needs and recreation–if you’re willing to share some profits with additional employees.
- Never Transferred, Laid Off or Fired. Major companies are notorious for relocating their employees and downsizing their staffs at the most inopportune times! When you run your company, you’ll decide when and where to operate.
- Why Buy a Franchise? There are many reasons why franchising is the best type of operation for the majority of first-time business owners. Most revolve around the increased probability that the business will succeed and provide profits to the owner in a shorter time frame than an independent business. This allows the owner to address her or his personal goals both financially and personally.
- Lower Costs Than an Existing Business. When buying an existing company, you will usually pay the seller 2.5 to 3.5 times its earnings. Starting a franchise is almost always less expensive.
- Less Risk than an Independent. Start-Up Napoleon Hill, in his classic book “Think & Grow Rich” suggests that one spends 3 to 5 years as an apprentice in an industry before considering owning a venture in that field. Buying a franchise eliminates this need and puts you on the road to success quickly.
- Gain Advice on Site Selection, Unit Design, Operations, Capitalization and Marketing. A good franchisor provides instruction and support on ALL aspects of running a business in its industry. It’s as though you are hired and trained to open a branch for a major national company–Except that you OWN the “branch”.
- Receive a Proven, Profitable System for Doing Business. When you’ve had a chance to talk to other franchisees, you’ll recognize how important it is to have a system to follow for your venture. This plan is easily worth $100,000 or more. Luckily the franchisors typically charge $12,000 to $25,000 for an initial fee (similar to a down payment) and then accept a percentage of sales as an ongoing royalty for the use of their name and business system. These are good investments in return for the improved probability of success; the quicker sales growth curve; the research and development of future products and services offered by the franchisor; and the business plan itself.
- Benefit from Quality Research & Development. Most small business owners are just too busy making money to research the future trends in the industry and develop new products or services to meet the needs of their customers. A franchisor will always be searching for ways to make its network more successful.
- Gain Access to Trained Support Personnel. Your royalties and advertising fees provide regular improvements in the franchisor’s systems and these are provided to you for implementation in your venture.
- Quicker Start-Up than Independents. A proven plan out paces an independent’s hit & miss operation almost every time. Looking at just independents that succeed–you’ll find that franchises grow quicker, reach break-even sooner and succeed more regularly than others in the same industry as depicted in the accompanying chart.
Singer, Coca-Cola, Ford, and McDonald’s are registered trade names of Singer Sewing Machine Company, Coca-Cola, Inc, Ford Motor Company, Inc, and McDonald’s, Inc. respectively.