Franchise Business Opportunity

A franchise business opportunity is a way of doing business where a franchisee purchases a license for a successful business and trademark, duplicating operations as determined and directed by the franchisor. The franchise owner is contracted to operate the business within set parameters. Franchises are also known as “cookie cutter” types of businesses, because all franchised locations operate the same.

A franchise agreement is a binding contract that directs the franchisee on all operations aspects of the business from following a business plan to hiring and training employees. A franchise agreement allows the franchisee to use the businesses name and sell a product or perform a service in a specified territory according to a proven formula. In return, the franchisor supports the business by providing guidelines on training, marketing plans and advertising campaigns where the franchise shares coop print and broadcast ads. Generally every step required to operate a successful business, is outlined in the franchise agreement.

A franchise business opportunity offers quick start ups of an established business and a working game plan.

• Ongoing training provides operational expertise without trial and error.

• Operations manual provides written guidelines easily consulted.

• Supervision and problem resolution readily available.

• Benefits from franchisor research and development programs

• Reduction of risk, costs and time needed to attain the necessary knowledge to succeed, are reduced, especially dealing with aggressive competition.

• Standardized system that works Proven methods that provide assistance in hiring, training, marketing and advertising.

• Group purchasing buying power of equipment, supplies and pooled advertising.

• Customers awareness quality of products or services established by other franchisees in other locations, often several in the same town. Knowing what to expect quickly establishing brand identity as does uniform packaging.

• Turnkey operation

• Marketing and sales assistance for local, national and point-of-sale advertising programs and marketing.

• Standardized financial and accounting systems greatly reduces errors and streamlines accounting.

• Financial assistance for purchasing of site location or the franchise.

Success of a franchise does have some disadvantages.

• Eighteen-hour work days six days a week for up to two years are common.

• Loss of control from binding contract limits autonomy. Individual franchisee changes to adverting or marketing aren’t allowed. Ads must be run according to placement guidelines without deviations, unless submitted to the franchisor for approval.

• Litigation can result as issues between the franchisor and franchisee over incompetence or a lack of good faith arise. Because litigation can affect franchise brand identity, most franchise agreements include binding arbitration clauses.

• A bumbling franchisee can damage goodwill of the business brand by providing lousy service or cutting corners to produce substandard products. A headstrong individual can choose to ignore the operations plan, opting instead to incorporate his own untried ideas.

• The franchisor's problems can become the franchisee’s. A franchisor can destroy the business with insufficient promotion or by excessive profit sharing percentage requirements that are required to be paid whether the business shows a profit or not. Franchisee pleas and requests for assistance can be ignored. Supplies can be delayed or dry up completely. Another business can be opened nearby, since franchisees have no control of franchisors selling additional businesses in nearby locations.

• Front-end fees

These range from $4,000 to $20,000, with some costing up to $50,000. A one-time charge is assessed for the privilege of using the business concept, attending training programs, and learning the entire business. Ongoing royalty fees are 3 to 8 percent.

• Facility/Location

You may be required to buy land or a building, or lease, pay security deposits, and be responsible for leasehold improvements performed by the building owner who will factor these additional costs into rent. The franchisor may reimburse you for leasehold improvements about $5,000 to $30,000 as a set fee.

• Equipment

Equipment needs vary. Banks will write loans to cover these costs using the equipment as collateral.

• Outside signage

A very expensive requirement that must be purchased from the franchisor.

• Inventory

Opening requires a 14-day supply.

• Six Months Working Capital

Overhead includes first and last months' rent and security deposits, and electric, gas and telephone deposits. Operations money includes cash drawer change, and purchases of supplies on a weekly or monthly basis. Money will be required for payroll until positive cash flow can cover it. Customer charge accounts will require additional funds on hand to pay your vendors until your customers pay you.

• Advertising

Funds to cover regional or national advertising fees will be needed. Some franchisors require a specified percentage amount paid into a national fund used to advance the brand and establish company awareness in target markets.

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