Franchise Tips

Why a Franchise?

New Businesses are Higher Risk

In a sense, franchising is a business model whose primary purpose is risk minimization since starting a new business is typically a higher risk venture. Unless you have considerable experience in the specific type business that you are considering going into, it is more likely that you will fail. New business owners have to endure the steep learning curve of operating an unfamiliar business and, unfortunately, the market place is not very tolerant of the novice trying to learn how to operate a new business.

If you can't succeed in the market place, you fall hard and fast. Failing in business can be a horrible experience that can leave you with large debts you are unable to repay.

Franchises Offer Security

In all human endeavours there is a learning curve that exists based on trial and error and eventual success.

While there is never a rock solid guarantee in business, franchise business formats provide you with the most support and knowledge that you can have when starting a business. The franchisee purchases not only a trademark, but also the experience and expertise of the franchiser's organization. The franchiser has already gone through the business start-up learning curve and has learned the secrets of success for the specific business. The franchiser then passes this knowledge onto the franchisee. When failure does occur in franchises, it is primarily due to the franchisee not sticking to the franchisers operating system or poor location choice.

This is the fundamental reason why a franchise is safer than starting up a new business. The risk is minimized along with the hardship of trying and failing, giving you the best chance to succeed at operating a business.

Piece of Mind

With a new business start-up (non-franchise) you are always operating in the dark. No matter how much research you do it is very difficult to get a handle on all the many aspects of a new business.

Unlike business start ups, franchises can be thoroughly researched before any expenditure is made. There is an abundance of information available from how to prepare a balance sheet estimating your expected financial figures based on previous business operations, known as a pro forma, to the best personality traits for specific business operations and the opportunity to experience and understand the operations of existing franchises.

A systematic approach to researching your franchise of choice will get you the crucial information you need to make a well thought out decision. Who better to ask than someone who went through the same though process you are going through right now?

Questions you may want to ask a current franchisee include:

• Do you feel that you were properly trained?
• How long did it take before you reached the projected break even point?
• Was this an accurate reflection based on the franchisor’s prediction?
• Where there any geographical or control limitations to your business growth?
• Do you feel that you have adequate support from the franchisor?
• How much control do you have over your business?
• What are your most favourite aspects of running this franchise?
• What are your least favourite aspects of running this franchise?
• How do you feel about the day to day duties of the business?
• Would you do it again?
• Are you satisfied with the financial income for your efforts?

Strength in Numbers

Franchising posses the inherent opportunity for rapid growth since there is a continous supply of expansion and advertising capital. There are few restraints to growth in franchising. As a franchise system expands into hundreds of units many positive things begin to happen. The name begins to become well known because people see it everywhere. The large number of franchises implies success in the market and reinforces a high quality and/or level of service to the consumer.

A synergy is created in which success begets success- and keeps growing. The franchise begins to squeeze out competition through its sheer size. The franchise can also buy products in large quantity at significant discounts which it then passes on to the franchisees.

A recent Gallup Poll of franchisees found that over 94 percent of franchisees considered themselves successful and over 75 percent of franchisees would buy their franchise again if repeating the process again. The same poll also found that the average pre-tax gross income was $124,290.