A Simple Buying Guide on Franchise Business
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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Pros of Franchise Business |
Cons of Franchise Business |
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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.
