Pros & Cons Of Franchising
Franchising is a multi-billion dollar industry and there are more than 5000 different franchises one can launch. Millions of us spend at least one third of every dollar on a franchise product or service. There is still room to get in on the incredible franchise boom.
There are plenty of different independent and interdependent ways to start a business. Have you been thinking of starting your own business this year, but don't want to launch a business completely from scratch? Then consider a business opportunity often referred to as a turnkey business, or consider a franchise. With a business opportunity package you are purchasing a system of doing business that often comes with an instructional manual or a video. There are no royalties to pay but there is often no support or follow-up opportunities.
With a franchise, you are getting involved in a long term relationship with a franchisee. You are purchasing their signage, logos, uniforms, and systems of doing business. There is no originality that you can bring to the business. You must support the proven franchised system of doing business.
There are fundamental differences between a business opportunity and a franchise. A franchised business is based on a proven method of doing business. Most often, franchised businesses are "look-a-like" businesses, meaning that signage, outfits, offerings, menu, vans, logos, etc. are identical. When you pay the franchise fee, you are purchasing the rights to use these clearly identified logos and business symbols from that particular franchise corporation.
In order to run the franchise, you must follow the rules and regulations as set forward by the franchisor. They will want you to attend training classes, perhaps attend an annual convention, and will want to make sure you keep up with their standards. According to the International Franchise Association, you are in business for yourself, but not buy yourself.
Many entrepreneurs like the idea of purchasing this proven system of doing business. The franchisor will even help pick the site and will help design the store, the restaurant or office center.
You will be required to pay royalties every year to keep your franchise operation. The royalty fees go to a national advertising fund and also to a general fund to keep the franchisor operating at a profit.
There are several "pros" to investing in a franchised business. 1. You are purchasing a proven system of doing business. The franchisor has already checked it out in the marketplace and found that it works. 2. As a franchisee you can take advantage of multiple purchase discounts. The franchisor is buying goods for franchisees in bulk and passes on the discounts to the franchisees. 3. The franchisor will advertise nationally for the franchise operation as a whole. This creates an awareness of the franchise venture. 4. You have the ear of management who can help point you in the right direction. 5. There are training programs and other forms of follow-up support to assist you in all phases of running the franchise operation. Some franchisors even offer grand opening day assistance.
The "cons" or disadvantages to investing in a franchise operation include the following. 1. The start-up costs tend to be much higher than starting an independently owned business. 2. You'll have to pay the franchisor royalties each and every year. 3. The contract with the franchisor may or may not be renewable. 4. If the product or service has not been fully tested in your particular area of the country, it could be a risky venture. 5. If you have the type of personality that doesn't like to take "orders"--as many entrepreneurs do have--you might not like conforming to all of the particulars that are involved in a franchisor-franchisee relationship.
For more information on franchise options, we suggest you turn to the International Franchise Association. The Association, founded in 1960, is devoted to enhancing and safeguarding the business environment for franchisees and franchisors all around the world. IFA is a great resource center and has been instrumental in developing legislation that safeguards the entire franchise industry. IFA represents 30,000 members both in the U.S. and internationally.
The International Franchise Association publishes a guide every year that list their members. It contains a history on the company, franchise fees and other cost data, training program information and complete contact sources. To order this guide ( about $15) contact the Association at their headquarters: 1350 New York Avenue, NW Suite 900, Washington, DC 20005-4709 or call 202-628-8000. The fax number is 202-628-0812. IFA's Fax-On-Demand Information line is 202-628-3-IFA. The e-mail address is: franchise @ msn.com
The Federal Trade Commission publishes a number of free booklets on Franchises, Business Opportunities and on Multi-Level Marketing programs. For a free copy of their booklets, call the FTC at 202-326-3650 and ask them to send you a list of their other publications.
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