The term franchise implies a relationship between two parties, the franchisee and the franchisor. We’ll start with the franchisor; they provide guidance for the business, have an identifiable brand, a substantial supply chain, and provide ongoing support to the franchisee. The franchisee will find a franchise for sale and establish an initial investment for the franchisor, which will form the foundation of the partnership. The franchisee will provide expansion, additional profit and increased brand awareness for the franchisor and then it will become a viable business. The franchisee pays for the business model and brand name which has been tried and tested and therefore if developed correctly should be the foundation for future profits. In addition to this, the franchisee will pay a certain percentage of their gross income to the franchisor, ranging from monthly payments to annual payments. The initial investment can take several months to recover, but that varies across business sectors.
The franchise model has increased dramatically in the last 10 years and is now considered one of the most profitable business systems in the world. Recent research has shown that franchises represent only around one tenth of the total number of companies in the world, but the market share they have acquired is almost one third.
When choosing your franchise, take a good look at the contract as there may be different versions. The different versions only differ by the amount of involvement a franchisee will have in business, advertising, and marketing decision-making. Some franchises, like a fast food chain, have strict regulations as to how the business is run, while other franchises give the franchisee more options to offer other products and change prices as they see fit.
A franchise opportunity can be thought of a bit like a lego game, all the pieces and instructions are there, it’s just up to the franchisee to put them all together and build the business. The instructions will include all vital information such as pricing structure, ways of marketing the product or service, terms and conditions, contract duration, product and service information, and any other criteria related to franchise management. Potential franchisees typically go through a training plan to ensure they are fully aware of their business and have the necessary tools to take charge of the franchise and make it a success. This training is a must for the franchisor as it will provide you with a steady stream of potential franchisees operating at the same high level.
You have to evaluate the initial investment, the monthly or annual percentage and decide if all these costs add up so that you can buy the franchise. Is their brand, their support and the training they have given you worth it? If you can talk to other franchisees who have been part of the same franchise opportunity and ask them about the benefits and negatives of working for the franchisor. Ask detailed questions such as how much business the franchise generates, whether the training system is adequate, what the monthly percentages are, and how much support is given to the franchisee. These questions will give you a better idea of the franchisor and whether he is ready to commit to finding a franchise for sale.