Thinking of starting your own business but worried about the risks? Franchising may be the perfect compromise. It offers the independence of business ownership with the reassurance of an established system. But what exactly is franchising, and would it be right for you?
Franchising Explained
Franchising, in its simplest form, is a business relationship where one company (the franchisor) gives the right to use its brand, business system, and operations methods to another (the franchisee). It’s similar to getting the formula for a successful business rather than having to create everything yourself.
When you buy a franchise, you’re not just buying a business name. You’re buying into all that allows the business to operate: their recipes, their marketing techniques, their business procedures, and in many instances years of trial-and-error experience. The training, ongoing support, and marketing materials are all supplied by the franchisor, and you supply the investment and day-to-day management.
Here’s the twist in franchising: you are an independent business owner, but not an employee. You own your location, you do the hiring, and you keep the profits (after paying fees to the franchisor). But you must follow the franchisor’s established systems and standards.
Why Franchising Works
For Franchisees:
The greatest advantage is less risk. Building a business from scratch is hard – most new companies fold within their first couple of years. Franchises have much better success rates since you’re working with a formula that’s been tried and true. You’re not speculating on what will work; you’re doing what’s already been shown to succeed.
You also get ongoing support that independent business owners can’t always tap into. Need help with marketing? The franchisor often provides campaigns and materials. Struggling with operations? There’s usually a support team to call. This guidance can be invaluable, especially if you’re a first-time business owner.
For Franchisors:
Franchising allows companies to expand rapidly without the huge amount of capital it would require to open company-owned establishments. Instead of funding each new establishment themselves, they partner with business individuals who invest their own money but utilize the company’s proven system.
The Problems You Need to Be Aware Of
Franchising is not all advantage. The initial costs can be high – often ranging from tens of thousands to hundreds of thousands of dollars, depending on the franchise. On top of the initial investment, most franchisees pay ongoing royalties (typically 4-8% of gross revenues) and advertising fees.
You’ll also have fewer freedoms to be creative than if you started your own independent business. Want to change the menu or try a different marketing approach? You’ll likely have to ask the franchisor for permission. For some business owners, these restrictions are maddening, especially if they have strong ideas about how to run their business.
Another consideration is that it may be hard to maintain brand consistency across a number of disparate sites. As a franchisee, you are representing someone else’s brand, and your performance doesn’t only reflect on your business, it reflects on the entire franchise network.
Is Franchising Right for You?
Do your homework before jumping in. Research numerous franchise opportunities thoroughly. Talk to current franchisees – most will be open about their experiences, both positive and negative. Attend franchise trade shows and review the Franchise Disclosure Document (FDD) for any franchise you are considering.
Consider financing in advance. Most franchises offer financing assistance, and there are lenders that specialize in franchise loans. Some people use retirement funds, and others accept investors or business partners.
Most importantly, make sure you’re ready for the commitment. Running a franchise is still running a business, with all the same long hours and problems that entails. The franchisor provides systems and support, but your ultimate success is still dependent on your dedication and follow-through.
Making Your Decision
Franchising is an excellent method of entering business, offering a middle ground between guidance and autonomy. It is not a guarantee of success, but it will definitely weigh the odds in your favor compared to starting from the ground up.
Do not rush the research process if you are considering franchising. The right franchise opportunity, combined with your commitment and diligence, can lead to a successful and rewarding business venture.
Remember, this is a significant investment of both time and money. Make sure you understand precisely what you’re getting into, and don’t hesitate to seek the advice of accountants, lawyers, or business advisors before you make your final choice.
Interested in learning more about franchising opportunities?
Contact us at franchising@ctrlvarcade.com or (226) 336-9670. We’re located at 170 Columbia St W #4, Waterloo, ON, Canada N2L 3L3.