Tips for starting a franchise business
Starting a franchise business is perhaps the most common option for starting a business today. Working under the name of an already well-known and promoted brand is what more than 50% of many start-up entrepreneurs prefer.
World practice also confirms that this option not only has the right to life, but also has a high degree of success and effectiveness. For example, more than 30% of American companies prefer to work on a franchise, in Australia this figure is even a record 88%. How to open a franchise business? How to make the right choice from the general variety and avoid mistakes?
What kind of business to franchise?
the current market today has more than seven hundred companies offering a franchise program. Those who want to open their own franchise business should decide on the field of activity. This may be an area in which the entrepreneur has certain knowledge, experience, and has the appropriate education. Or to this "the soul lies." The ideal case is when both of these criteria coincide.
The most popular franchise business areas are retail, services and catering. Franchisors are classified by size: large with hundreds of regional offices, medium and small (no more than 30 branches). The former account for 28%, but a significant part is just the latter.
The cost of someone else’s name
The more famous the brand, the more stringent the criteria for starting work and the control of functioning under its name. This is a lump-sum contribution and monthly royalty percentages, the size of the leased premises, the number of staff, and so on. For example, to open a McDonald’s restaurant, you will need to deposit about $25,000 and be prepared for a royalty of 12.5%.
Beginners with a sufficient amount of starting funds should take a closer look at medium-sized franchisors. Although it all depends on the region where the business is opened. Optimal deposit:
- for million-plus cities – $6000-8000;
- regions – $ 3500-4200.
Although there are franchises, however, there are few of them where the lump-sum fee is completely absent. Offers with a low purchase price and low monthly fees (but with the promise of mountains of gold) should alert.
If the direction is chosen, and the amount of the franchise purchase is satisfactory, the next step is to check the franchisor:
- date and data of registration;
- experience in the market;
- the legality of the use of brand copyrights;
- business reputation;
- number of branches: successfully functioning and closed (for what reasons?);
- number of franchises sold;
- development dynamics;
- legitimacy of transactions;
- profit volumes, etc.
Companies that have nothing to hide willingly share such information. Analyze the market yourself and compare whether the data matches those provided by the franchisor. You can involve professional brokers. Meetings and close communication with already working representatives, a trip to branches or communication via the Internet, by phone with their leaders, reading reviews on the Internet are recommended. The more accumulated information about work experience, the easier it is to make a decision.
Starting a franchise business
If the legality of the work is not in doubt, and the amount of negative information is minimal, you can proceed to consider the contract. Before signing, you should use the services of a lawyer, especially if the amounts are significant. The term of the franchise business agreement is at least 3-5 years.
A franchise business can only be successful with the mutual efforts and cooperation of the parties. In no case should the franchisee refuse to train staff (for some franchisors this is a mandatory item of the program), trainings, consultations, seminars and gatherings of representatives. Professional personnel in the franchising business decide, if not everything, then a lot. The technology for selecting employees can be prescribed in the contract, the franchisee and the franchisor can conduct the selection both independently and jointly.