A Simple Buying Guide on Franchise Business
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In my post, How to Start a Part Time Business that Protect You Financially, I discussed the importance of a business to you and how it can protect your future. Starting a business is always the first thing you must consider if you want to be rich and financial free. Actually there are 2 reasons why you must do this:
- Business can be your insurance for life. How many years you can work to earn money? 10 years? 20 years? But a business with a good system can earn you money for several times longer than your working life. This is why business can be considered as a long term protection for your life. Even you are too old to work anymore one day, a good business still can generate income to you.
- Business can be your “Money Regeneration Machineâ€. There is no profit limit for a business but your job does. People always worry to invest due to the fear of losing money - their limited income! However, from my experience, if you have a business that is generating cash for you every month, you can reduce your emotion factors in investing and you can take action easier than others. As an investing beginner, you tend to lose money. So if you have a business, your business will cover the losses and at the same time you learn and gain your experience. One day, when you learn enough, you will start making money from both business and also your investment.
There are a lot of ways to start a business. Whether you want to start a business quickly with a good system by buying a franchise business or give a try to start up a business from nothing and taste the feel of entrepreneurship. You can read my articles called buying a franchise VS Starting Your Own Business to learn about what is the differences and benefits to start your business in different ways.
Today, I’m going to discuss more information about franchise business with you and see how you can invest one that protect your future and also support your investment plan to retire rich and financial free.
The Basic of Franchise Business
Before we start, let us read a simple definition for franchising from Wikipedia:
Franchising (from the French for honesty or freedom) is a method of doing business wherein a franchisor licenses trademarks and tried and proven methods of doing business to a franchisee in exchange for a recurring payment, and usually a percentage piece of gross sales or gross profits as well as the annual fees.
In a nutshell, you, as a franchisee, are buying a complete, automation, proven and profitable business system from franchisor. This is one of the biggest benefits of a franchise business. If you join McDonald’s Franchise business, you don’t have to worry how to make a burger, or how to serve your customer. The business system will handle all of this. All you have to do is recruiting staff to run the business system. This is why franchise business is quite a good choice for you if you are lack of business experience.
Besides that you also can leverage on the franchisor’s Brand power and also marketing plan. For example, McDonald is having a certain buying power in the market. So from time to time, McDonald will market its brand and products and you can benefit from it too. From here you can leverage on their brand awareness in the market.
The Pros and Cons of Franchise Business
Anyway below is a table showing you the Pros and Cons of a franchise business that help you to see whether it is suitable for you.
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Fees of a Franchise Business
In exchange for you to leverage on the franchisor’s name, business system and also assistance to run the business, you may have to pay up some fees. The fees are different for different kind of franchise business, depending on the terms and conditions of the franchisors. But anyway some of the common fees would be:
- Initial franchise fees. This happens to be your first deposit to your franchisor and is non-refundable. It may range up from several thousands to several hundred thousand dollars. This usually paid for the licensing to run the business and some other processing fees.
- Royalty payments. Most of the time, franchisor will ask to you pay a certain amount of payments based on the percentage of your weekly, monthly or yearly gross income. In returns, they will assist you to run the franchise business.
- Advertising fees. You may have to pay some advertising fees to improve the brand awareness of your franchise business. In most cases, this money will be spent for national advertising instead of on your particular outlet and local market.
- Others Expenses. You may also have to pay the significant costs to rent or buy an outlet and also purchase the initial inventory to run the business.
Guide to Research and Find the best Franchise
There are a lot of franchise businesses available in different kind of business fields such as food, health care, Retail and servicing. You must spend some time to do your research to find out which franchise business can work well with you.
Below are some of the tips that I can offer you:
Select base on the business:
- Franchisor’s details – Getting to know the background, record of a franchisor and see how well their business system works throughout the year. Please pay attention on their experience running the franchise business and also the business growth too.
- Demands & Competition - If possible, learn more about their marketing strategy and also market segment. Well, market is very important to a business. You must know how market demands for a franchisor’s products and services and what kind of competition they are having right now.
- Training and Support – Do some research over what kind of support and training a franchisor will be giving you to help you run the business successfully. You may also consider is there any fast support from them just in case any critical conditions happen.
- Terms and Conditions – You must read through the terms and condition of a franchise business. This will avoid any meaningless argument happens later.
Select base on your ability:
- Requirement – pay attention on the required experience, hours and personal commitment to run a franchise business. Are you willing to improve yourself by attending classes, seminars or reading some book to make this business succeed? Maybe you should consider the skill that you have which may help you to decide which franchise to go for.
- Your abilities – consider whether you have some experience on a particular field of franchise business. For example, if you are experience in food, then you may consider food base franchise business.
- Financial Costs – calculate out how much you must spend and pay continuing to operate a franchise business. Here you must understand your financial abilities and how much you can afford to pay for the business.
- The Outcome – what is your goal to buy this franchise business? Looking for a passive income? Or simply treat it as your retirement investment? Usually every franchise business has its outcome in terms of income and investment returns. By knowing your goal, you can easily select 1 or 2 franchise business that meets your goal.
Conclusion:
Please don’t hurry and spend some time to research the market and franchise business system before buying one for you. Maybe you can start by selecting out those business fields that you are familiar and passionate with. For example, if you love donuts, then you might spend some days or weeks to do research on Krispy Kreme, Dunkin’ Donuts and others. Don’t narrow down yourself with the choice and concepts. Do also spend some time to look on other field of franchise business.
To make you easy, you may start your research from the top 10 franchise business in 2007 that I listed below:
- Subway
- Dunkin’ Donuts
- Jackson Hewitt Tax Service
- 7-Eleven Inc.
- UPS Store, The/Mail Boxes Etc.
- Domino’s Pizza LLC
- Jiffy Lube Int’l. Inc.
- Sonic Drive In Restaurants
- McDonald’s
- Papa John’s Int’l. Inc.
You can get a full list of top 500 franchise business over Entrepeneur.com
Action Plan : Now it is time for you to take action and collect the franchisees’ information. You can pick up your phone and call as many as franchisee you can or even pay a visit to them.
Good Luck!
Harrison
Edit on 16/6/2007 : Thanks to queencardboard for sharing BlueMauMau.co. This is a good site to read about the trend, news, and research over franchise business.
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Comments
11 Responses to “A Simple Buying Guide on Franchise Business”
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PLEASE stop promoting franchises like The UPS Store as ‘SUCCESSFUL’ . They are NOT successful.
1. Potential zees need to look into the lawsuits that have been filed over this failed model.
2. Potential zees need to look at the churn rate located in the FOC.
PLEASE STOP PROMOTING THIS FAILURE
I would suggest to any potential TUPSS franchisee to take all the money they have, this amount should be in the neighborhood of $225-250K and dump it into the nearest trash can.
This will give the potential franchise owner the advantage of owning the next 10 years of his/her life and the accompanying minimum loss one could expect to lose buying one of The UPS Store franchises. Simply losing this amount of money is one thing, but giving up your life for the next 10 years is priceless.
Someday the full story of this fleecing of potential franchise owners will be told… too bad so many lives will be wrecked before this will happen…
Thanks for the comments. It sound like we have to pay attention before dumping any money into the UPS franchise store
IF YOU COMPARE THE UPS STORE TO ENRON,,,THE UPS STORE MAKES ENRON LOOK HONEST..THE UPS STORE IS THE BIGGEST SCAM OF THE 21st CENTURY…
This has to be one of the best thought out fanchise scams ot this century (UPS STORE). Purchased one of these franchises in 04 at the height of the scam and low and behold closed down 2 yrs later. This particular store had a 3 yrs track record and had the appearence of hype that was promoted durning the impossible task of due dilligence. Changed nothing at the transition and in one month instant 35% decrease in sales. This is the time the UPS corp business model put the dagger into the hearts of the franchisees. This can only happen when you consistantly build up your customer base with all your efforts only to have it given directly to your franchisor. Guess what happens when your franchisor decides to be in direct 100% competition with the store owner? On another note the rating of this franchise by Entrepenuer or any other magazine is at full tilt toward the franchisor since the only data the magazines get is from you know who UPS ONLY!
Thanks for the comments. Well it seemed like UPS is giving a lot of negative impression to you all. Would you all mind to share with us some of the stories that you encounter which make you think that something wrong with UPS?
DIdn’t UPS franchisees ttake legal actions against the company? What happened exactly?
CURRENTLY THERE ARE 3 MAJOR LAW SUITS AGAINST UPS/MBE.THE GROUPS THAT ARE IN LITIGATION ARE …IAMCO…PSA…BSA..AS WELL AS MANY INDIVIDUAL SUITS FROM FRANCHISEE’S.MORE INFO IS AVAILABLE ABOUT ALL THE LITIGATION AGAINST UPS/MBE AT WWW.TALKBROWN.COM
Entrepreneur’s Top Ten: “All companies, regardless of size, are judged by the same criteria: objective, quantifiable measures of a franchise operation. The most important factors include financial strength and stability, growth rate and size of the system. We also consider the number of years in business and length of time franchising, startup costs, litigation, percentage of terminations and whether the company provides financing.”
Figures don’t lie. But data can be manipulated.
Did Entrepreneur judge individual UPS Stores or UPS, the shipping behemoth in Atlanta, one of the cash-richest companies in America?
What system? The system grown by the former Mail Boxes Etc franchisees? The group that swelled the ranks to nearly 4500 stores? Or UPS’ distribution system?
Years in business & length of time franchising - sorry that belongs to Mail Boxes Etc not UPS.
And who validates UPS’ figures and how do they do it?
The TUPSS is a scam of epic proportions. The 3200 or so stores that converted were instantly turned into staffed drop boxes for UPS. The franchisees were forced to sign away their rights and UPS contracted themselves into position to be able to take a store owners business legally. For example the”mystery Shopper” program. Three material faults and UPS has the legal right to take a store away from the owner. A material fault could be: no name tag on an employee, not mentioning UPS first for shipping options, failure to promote other services in the store, a customer misleads you on whether a shipment is residential or commercial. and you ship it incorrectly. It may sound far-fetched but these issues were discussed in UPS controlled presentations and they, UPS, refused to omit this clause or modify it.
You parent company is your competitor and they control your retail rates as well as your cost.
This is but a minute fraction of the problems with The UPS Store Franchise system
Under Pros and Cons you have listed a PRO as a franchise offers a proven business model. That may have been true 15 years ago, but do your research. Most of the franchises listed in the Entrepaneur Top Ten did not exist just a few years ago. A proven business model is not assured by selecting a franchise.
Utilizing Entrepaneurs Top Ten list without questioning the data is very misleading to the public you appear to be serving. You would do more good for potential franchisees if you posted the names of frachisors and the websites that their franchisees have developed to share their stories. May I suggest that you always include BlueMauMau.com when ever you write about franchising. Blue Mau Mau is not dedicated to any one franchisor and would be a great source of information for prospective franchisees to get REAL information.
Hi queencardboard, thanks for giving your comment.
I would like to say that I don’t have any intentions to misleading my readers that Entrepreneur’s Top 10 franchise business is the bes franchise business to start with. Instead, I’m using it in my articles because I think it will be a good start to do the RESEARCH from the top 10 list. At least to my readers, they will have some kind of targeted list for researching after reading my article.
Anyway Thanks for sharing a good site with us