Franchise Businesses – Pros and Cons

Franchises are an excellent way to own a business without having to build the brand from the ground up. Because many franchises are well-proven business models, they tend to have lower risk associated with failure because of undercapitalization and brand awareness.

One of the requirements of being a franchisor is to provide initial and ongoing franchise training to management. When you buy a franchise and attend their management training, you are better equipped to avoid mistakes that other franchises have made.

Across the United States, there are thousands of franchise opportunities. Some are excellent ways to own a profitable business with significant upside potential to build a strong business. Some franchisors provide extremely good training and ongoing support while others take a less structured approach. If you do your homework well and pick a franchise that balances your needs, you can establish a profitable business quickly with minimal stress.

Prioritizing Franchise Needs

For a first-time owner of a franchise, an important consideration may be the amount of support given to you by the franchisor. Support includes training of your management and operational teams. Equally important is how well other franchises have done financially and if their actual historical records support their initial financial projections made before they bought into the franchise.

A really good franchisor will spend a great deal of time to understand your overall business and lifestyle goals so that you are a happy owner with minimal risk. Great franchisors understand the importance of having successful franchise owners.

Depending on the type of franchise you may be considering, added support might involve periodic safety and sanitation training for your operational staff and helping you improve the profitability of your business.

Existing Franchise Owners Seeking Expansion Capital

Most franchise owners believe you should own multiple locations of the same franchise brand. There are many who also believe you should cross into other franchise opportunities. For example, a popular franchise is Little Caesar’s Pizza. An owner of 4-5 locations of one fast food franchise featuring pizza might also own a franchise brand focused on hamburgers, comfort food, or some other non-competitive food concept in a proven, popular model. A good example might be Subway. Using this model for growth allows for predictable profitable growth using the same principals and repetitive models.

if your company currently owns one or more franchise locations under the same franchise banner adding additional stores requires minimal down payment capital and is relatively easy to finance.

If you’re an existing franchise with several locations and wish to buy into a different franchise banner it is also relatively easy to assist you, as long as it is the same holding company for both chains. For example, let’s say you currently own five Little Caesars pizza locations and wish to put in eight Subway locations, financing is both available and competitively priced.

Franchise Owner Concerns

The key to having a good experience and establishing a strong healthy business is picking the right franchising group and nearly as important, picking the right location.

Most franchises are consumer-focused businesses, so you want to build out your locations where consumers can find you easily and where the demographics make sense. The real estate saying, “location, location, location” is one of the most important considerations you can make as a franchise owner.

Some franchises have less skilled staff to help you find the right locations for your business. Great franchisors do have strong site selection departments.

Many franchise owners tend to be entrepreneurial in spirit. Some have a difficult time balancing their independent personality with a strong franchisor’s policies, procedures, and buying programs. If you believe that your philosophies about running a business don’t match those of the franchisor’s, you might not be a good fit for that franchise.

How Franchisors Get Paid

Franchisors are paid on an ongoing basis a royalty fee based on your franchise gross sales. Some franchises don’t have enough gross margin for the owner to make a reasonable profit after they have paid their ongoing franchise fees.

Great franchise programs provide deep discounts on inventory and various services that a franchise owner needs to use. Often, these discounts help make up some of the prophets given away to the franchisor. Perhaps more importantly, the franchise brand should be strong enough to help attract new business to a franchise location which translates to increased gross profits.

Franchise Due Diligence

As you do your due diligence on the franchise program, it’s important to make a list of all the potential negatives you might experience and think through ways you can use to mitigate your risks.

As with any other business venture, if you start your process in considering a franchise as a way to build personal wealth, weigh the risks and rewards, and have an exit strategy before you begin, you have a high chance of success.

Business Finance Solutions Can Help You Finance Your Franchise!

Business Finance Solutions can help franchisees obtain capital to buy and grow their enterprise using market competitive loans. To learn more about franchise financing, contact Lori Wickard (512) 961-4886 or by email lori@bfs-usa.com