You might be surprised to discover the basics of a franchise is about the relationship between a franchisee and a franchisor. The selection of a potential franchisee varies significantly between companies, but you can learn some basics here. Many companies have similarities between them for franchising. When buying a franchise, we recommend spending time researching numerous options to find one right for you.
Purchasing a franchise is the perfect middle ground between buying someone’s existing business and starting your own from scratch. The business blueprint is already laid out, and you only need to execute the plans. According to Investopedia, a franchise is a type of license that grants franchisee access to a franchisor’s proprietary business knowledge, processes and trademarks, allowing the franchisee to sell a product or service under the franchisor’s business name.
We’ve created this article to teach you the basics of buying a franchise with any company. After reading, you’ll have a more robust understanding of franchises and some steps to follow for continued research. As a result, you’ll be able to make a more informed decision. To start, we will list some pros and cons of owning a franchise.
JDI Cleaning System franchises are well received; a socially and environmentally responsible company providing excellent support for you as a franchise owner in a growing market. Read more about our franchise opportunities.
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Franchises pose a reduced risk for banks: Franchises are a more secure investment than new businesses because they typically support a more extensive, established corporation. Their business models have often been tested and proven in different markets across North America. As a result of historical success, obtaining a franchise business loan is more manageable. The banks know that investing in an established franchise is a safer bet than a brand new business.
Instant brand recognition means faster Return on Your Investment (ROI): One of the challenging aspects of starting any new business is finding your first customers. This is one of the main reasons people turn to franchises to avoid the work that goes into setting up a new and unknown business.
Investing in a franchise allows you access to an established, loyal customer base and a potential employee pool. Buying an established and recognized brand can give you an accelerated path to profitability by bringing in customers and prospective employees from day one.
A collective buying power translates to better supplier pricing: When you become part of the franchise system, you’ll benefit from the franchisor’s established relationships with suppliers.
You’ll take advantage of professional training and knowledgeable advice: Guidance and assistance with training can provide a big head start. Processes already have a track record of operational success, saving you a lot of trial and error. Many franchisors offer experienced advice, training programs and support. Aside from becoming a profitable franchise, franchisors want your help upholding the company’s reputation, and your success is their success.
Assistance with marketing and advertising is always available and encouraged: There’s no need to reinvent anything when marketing a franchise. Most companies already have effective strategies in place, and in most cases, this is one aspect in which you don’t need to invest much time. If the company’s marketing efforts continue to be effective, your location will gain new customers.
Downsides to Owning a Franchise
You have less control than you may have hoped: A loss of business control is not ideal for some people. Once the business is up and running, you may have ideas for improving operations. Implementing them may be restricted by company policy and rules. The company’s decisions are also your decisions.
Contractual agreements may make you nervous: Agreements outline all the legal requirements and expectations between a franchisor and a franchisee. If you don’t comply with the contract, you could lose the right to the franchise in which you’ve invested. Contracts typically last between 10 and 30 years. Depending on the company, contracts are demanding and strict for the franchisee. Once your contract has reached its end, franchisors have the power not to renew it.
Startup costs may be higher for a franchise: The initial investment can be increased depending on the franchise you select. The popularity and track record of the franchisor play a significant role in determining cost.
Some associated standard costs you’ll need to consider are:
- Opening inventory
- Working capital
- Advertising fees
- Franchisor royalties
- Business insurance
Is a Franchise Right for You?
There are several questions we recommend asking yourself before proceeding with the research. Answering these will help you determine if a franchise could be an excellent fit for you. Answering these questions and committing to the answers is the first step toward buying a franchise.
Your investment and contribution:
- How much money do you have to invest confidently?
- How much time do you have to invest in the franchise weekly? Think about the short and long-term commitments.
- Do you need financing? If yes, what is your credit score, and which bank offers the best terms?
- What special skills and experience can you contribute to the franchise’s success?
Your business goals:
- Do you need a specific minimum annual income?
- Do you plan on operating the business yourself or hiring a manager?
- Are you interested in the franchise for the long term?
- Are you willing to let the franchisor be your boss?
Selecting a franchise by doing your research
The second step to investing in a franchise is in-depth research, which you shouldn’t take lightly. Expect to dedicate several weeks to this process. We recommend looking closely at the franchise’s following criteria:
A consistent track record of excellent sales: It’s advisable to choose a franchise with long-term proof of being profitable with its franchises.
Is the franchise part of a growing market? The franchise you choose should be in a market that has growing demand over time. This aspect is crucial over the long term.
Can the franchise say it is socially and environmentally responsible? Social and environmental responsibility is becoming increasingly more important over time for consumers.
What is your local competition? A little competition nearby can be useful, but too much can stunt a franchise’s growth.
Is there an opportunity for repeat customers? What is the likelihood that the franchise could bring you repeat business? The frequency of your customer’s purchases can make a massive impact on their lifetime value.
Are there opportunities to upsell products and services? This also impacts the lifetime value of one customer. A great example of a company that excels at upselling products is McDonald’s or Tim Hortons. They regularly offer beverages or additional food items when customers order.
What are the differences in franchise fees? How much are the costs, and what do you gain from them? For example, you should hope to hear that you will receive excellent marketing, training and grand opening support.
What it’s like to work as a franchisee in the company. You may be able to interview or shadow an existing franchisee, and you will get a far better sense of the business and how you could fit into it.
If you are interested in learning more about our franchise process, please fill out an application form.
There is a lot to learn about franchising as a business opportunity. We hope this article has helped you learn some basics to get started.
For more specific details, we recommend directly contacting companies you may be interested in. Processes, criteria and costs for franchises will vary between most companies.
For more blog content from JDI Cleaning Services, you can visit our blog page.
For the most updated Franchise Legislation, we recommend visiting the Canadian Franchise Association’s website.