Millions of people share a common dream: they want to own their own business. They have experience in a retail setting or the restaurant industry and want to put that knowledge to use. They want to earn their own money, rather than gaining sales and building profits for the company they are working for. Thousands out of these millions are actually able to make their dream a reality. They work hard and persevere through the many challenges that come with opening and operating a business.
To help alleviate those challenges, many of these dreamers and entrepreneurs look to franchises for their business model. Buying into an established company comes with many requirements in the way the business is operated (franchisers do this to maintain standards across the board), but the benefits of a franchise greatly outway the restrictions. Here, we weigh those benefits to help you decide if a franchised business is the best model for you.
Opening a business comes at a cost – an exorbitant cost. This could be anywhere from a few hundred dollars to upwards of a million, depending on the type of business you are starting. There are lease agreements or construction costs, business licensing fees, insurance premiums, and wholesale costs to factor in, along with many other expenses. Licensing a business through a franchisor can help with that.
The company will require a fee from the franchisee, either up front in a specific amount or as a royalty (a predetermined percentage of sales), or sometimes both. The average franchise fee is approximately $20,000 (approx. P1M) to $30,000 (approx. P1.5M) but could go as high as $100,000 (approx. P5M) or more.
You can either use your savings to pay the fee or take out a loan to cover the cost. Once the franchise fee is paid, the company will usually cover the remaining costs; essentially, they are investing in you and your business, as well as expanding their own sphere of influence, in hopes of beating out the competition. That million-dollar start-up cost just dwindled down 90% simply by licensing a franchise!
The costs of supplies and products will be cheaper through a franchise. The company has its own distribution network, with negotiated prices and terms, through which you will be able to pull from. If you were to open a single-store business, ordering through suppliers and wholesalers will prove more costly, and they will not give you the best pricing possible.
If a sole proprietor-owned business is struggling, the owner will typically either take out a small business loan to stay in operation or will sell their location. If there is no buyer for the store, then they will have no other choice but to close their doors. This can lead the owner to file for bankruptcy. With a franchised business, these are not necessarily the only two routes to take.
The franchisor has invested in you already. If they have done this, then it is in the company’s best interest to help keep your business profitable. For this reason, they will extend to you various forms of assistance. If there is heavy competition in the area, they may show you better marketing methods for your business, or include your location in a marketing campaign to help boost your sales.
Franchisors will often provide training in other areas of business management, to teach you customer service skills, human resources and labor management, legal matters, and more. They may also offer financial assistance to upgrade your business to make it more appealing to customers. This may come at the cost of increased royalties, but a remodel may be the boost you need to refresh and reinvigorate your business.
Kyle Kam is an online marketing specialist for Moneymax.ph, the Philippines’ leading financial comparison website. Whenever he’s not working, he’s busy at home watching MMA videos the whole day. You may follow him on Twitter @undisputedkyle