Friday, February 1, 2013

Is a franchise business right for you?

There are few instances in which the American dream isn’t somehow tied to owning and operating one’s own business. Franchises have their own drawbacks and advantages, though, so you’ll have to discern for yourself which outweighs which. You may think that franchising simply doesn’t offer the kind of autonomy you’re looking for in a business, while at the same time, another small businessperson may be overwhelmed by going it on their own. Either way, the road isn’t an easy one, but if you do decide to invest in a franchise, it has been proven time and again that your chances of success are far greater.

Perhaps the greatest benefit to operating a franchise as opposed to starting out a brand-new business on your own is the assistance you get to help ensure your small business’ success. Once you contact and are approved for a franchise, you’ll get access to every sort of assistance that the franchising company offers. Some offer financial assistance with loan paperwork while others will help you to choose the right location in your area. The reason for this is that the company itself has a vested interest in your franchise’s success. Not only do they make money on your franchise fee, but successful franchises boost the company’s stock value and enhance its public image. More than anything, franchised companies thrive on becoming household names. Think McDonald’s, for instance.

A great way to find a franchise business that’s right for you is to check on, which annually lists the best companies according to their startup costs, industry, and performance in the marketplace. The list is available throughout the year online or annually at newsstands. It actually makes fun reading, though, more than a “shopping list” of companies. It tells you how much you can expect to pay upfront, the experience level you should have before you dive in, and a host of other tidbits.

While franchises do sound great when you enumerate all the benefits to owning a franchise, it’s important to note that they do have their share of drawbacks, and those drawbacks can be deal breakers for potential franchisees. First, while the business is technically yours, in that you pay for it and run it, the license and the company name can be taken away from you at just about any time, and for any of a wide array of reasons, leaving you essentially holding the bag with a business you’ll then have to rename and possibly even re-equip if you plan to continue in business. Second, there’s always a franchise fee. 

Franchise fees vary widely in how much you’ll have to pay. Large companies may require fees that amount to tens of thousands of dollars per year, while other, less well known companies may charge only a one-time fee. Some have no fee at all, but make money from your franchise by selling you the specialized equipment you’ll need to be in business. This is particularly common in the vending business, though that is by no means the only time you’ll run into it. Make sure that you completely read through all the paperwork that you receive from the company you’re researching so that there won’t be any surprises a few months or years down the road. If your investment is a large one to you, you would be well advised to seek the counsel of a lawyer to help you make sense of the various contracts and agreements you’ll have to deal with.

Owning a franchise is far from easy. In fact, it may well be the most difficult thing you’ve ever done. If you proceed carefully, though, it could be the most rewarding decision you’ve ever made.


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