Beginning a firm from scratch requires both time and financial investment, and even after you have created your business model, it may take several years of continuous improvement before it begins to provide a profit. Purchasing an existing company is a prudent choice since it provides the buyer with an established client base, a successful business strategy, and an established reputation for the brand.
If you are interested in purchasing an existing firm, consider purchasing a franchise. This summary of the pros and cons of buying a franchise will help you decide if this is the best thing for you to do.
- A tried and tested approach to business. When you buy a franchise, the company will provide you with access to its tried-and-true business model and operating system. Because of this, purchasing a franchise is associated with lower levels of risk than starting your own company, and it also requires less effort to get it up and operating.
- Ongoing assistance and instruction are provided. The franchisor is responsible for providing continuing assistance and training on all aspects of the business, including but not limited to the following: operations, sales, customer service, marketing, buying, and software and technology. Some franchisors, such as McDonald’s, provide their franchisees with extensive training programs. The franchisee training program offered by the quick-service restaurant corporation consists of a one-week seminar held at the company’s corporate headquarters, 9–18 months of training in a restaurant located near you, as well as regular seminars, conferences, and one-on-one training sessions.
- Recognition of the brand. You will profit from your franchisor’s reputation when you purchase a franchise, which may make it easier for you to bring in a more significant number of consumers in a shorter amount of time.
- Trademarks, logos, and marketing plans Many franchisors want their company to have a recognizable brand, so they will give you trademarks, logos, and tried-and-true marketing methods.
- Reduce the price of the inventory. It is common practice for franchisors to make bulk purchases of goods and equipment for their franchisees, which reduces the overall cost to you. Because they are typically unable to receive discounts on inventory and equipment, small firms that are just getting started typically struggle to compete successfully on price.
- A complete and total lack of control. You must abide by specific guidelines if you want to become a franchisee. Your franchisor may make it mandatory for you to follow specific operating procedures, an inventory list, and a marketing plan that they’ve prepared.
- Fees. You will be required to pay an initial fee when you sign the agreement for your franchise; in many instances, this may be a significant amount. In addition to this one-time cost, you must make ongoing royalty payments regularly. These payments can be made weekly, monthly, quarterly, or yearly. There is a chance that your franchisor will charge you more money for things like advertising and real estate.
- You have no say in the matter of your reputation. Even though a well-known brand can assist in luring consumers into your establishment, the kind of publicity that your brand receives can have an effect, for better or worse, on your bottom line. For example, in 2012, protesters responded to public statements by the Chief Operating Officer of Chick-fil-A that he was against same-sex marriage by not going to the restaurants franchised by Chick-fil-A.
- The possibility of inadequate help. Even though your franchisor should provide sufficient training, continuing support, and assistance in securing a good site for your business, there is a possibility that your franchisor may fall short on these goals, leaving you with a firm that is having difficulty succeeding.
What information do I need to gather about a potential franchisor?
You are required to get the following pieces of information before immediately agreeing with a franchisor:
- Suppose there are any, the franchisor’s financial statement (or statements). Take note: you shouldn’t put too much stock in the so-called “pro forma” financial figures. These predictions are given to you in advance as a rough idea of what might happen.
- Copies of profit and loss statements for each franchise location you pick. Whether or not any franchisees have filed lawsuits against the franchisor has been determined.
It would help if you also made it a point to conduct interviews with other franchisees as part of your due research. Ask about the training and help they got from the franchisor and any successes or problems they ran into along the way.
The Process of Franchising Your Business
If you want to turn your existing business into a franchise and give other people the right to use your brand name, you should be aware of the following potential pros and cons:
- Expansion capital The acquisition of growth capital with a small outlay of initial capital is made possible through franchising.
- Expansion into new territories By using franchisees, your company’s reach can quickly increase over a large area.
- There are no fees or problems associated with employees. You will not be obligated to offer worker’s compensation or health insurance to your franchisees since they are not employees, nor will you be forced to handle any issues regarding human resources.
- Those motivated to operate Franchisees have higher levels of motivation and dedication than workers since they have staked their financial future on the franchise’s success.
- A complete and total lack of control. Even though you have a franchise agreement and might supply a manual for your franchisees to follow, you will still be turning over control of your company’s reputation to another party. In addition to this, you will be expected to comply with all applicable state and federal franchising regulations.
- Unprofitable or tough franchisees pose a threat. If a franchise is unprofitable, your earnings will suffer. If a franchisee is troublesome, their franchise may be more trouble than it’s worth.
- Initial Expenses: Creating your franchise agreement, operations manual, training manual, and marketing strategy will require time and resources. You may also opt to establish a training program, the implementation of which will require continuing assistance.
Create a list of firms you would be interested in owning a franchise business, and immediately get started on your business plan, whether you are acquiring an existing company or investing in a franchise, following the goals you have set for your company.