In the 1880s, I. M. Singer & Company needed a convenient way to sell their sewing machines. The business wanted to expand into new locations, but it didn’t have the resources. What did the company do? Singer & Company sold the right to resell their machines.
This allowed individual operators to pay a fee and then sell Singer’s machines. Singer & Company grew, and its owners created a steady source of income from everyone who signed up to resell its products. This early franchise model helped Singer & Company earn more revenue without making big investments in infrastructure.
Franchises still have a positive impact for both franchisors and franchisees. Owning a franchise can be a simpler, safer way of opening your own business. Franchisors offer strong marketing and brand recognition, allowing you to focus on day-to-day operations. Being a franchise owner may intrigue you, but what do you need to know before starting a franchise?
Let’s learn what questions everyone should ask before becoming a franchise owner.
People become interested in franchises for a variety of reasons. Some individuals want to own a business without building up their own brand. Others want to switch job fields or eventually sell their franchise.
Once you decide what you want, you need to determine if a franchise is the answer. Will you get everything you want from a franchise? Which franchise will give you the things you need?
Knowing what you want out of owning a franchise makes it easier to choose the right one for you. An office worker wanted to replace her traditional desk job for a career that was more creative and profitable. After hunting for years, she stumbled upon an ad for a franchise that offered painting classes along with wine.
She quickly opened her own franchise. Keeping in mind what she wanted helped her recognize which business was the right fit for her goals. It can benefit you, too. Deciding what you want from a franchise means you can quickly pick out the one that works for you.
To find the best franchise, you need to know everything about it. Research every aspect of the franchise, from what type of job you’d be doing to the franchise’s success rate.
But, don’t rely on the franchise’s website as your sole source of information. Take advantage of independent research before you make a decision.
Knowing what the franchise involves stops unpleasant surprises from blindsiding you. For example, you may have found the perfect location for your franchise. However, does your franchisor regulate where their franchisees can start up? Will you have to move your desired location for that specific franchise?
There are three main types of franchises you can choose from: business format franchises, product franchises, and manufacturing franchises. Each kind controls different aspects of your business.
For example, a business format franchise involves buying the trademark and brand name as well as the franchise’s business process and systems. This limits how much control you have over your business.
A product franchise allows people with pre-existing stores to stock certain types of trademarked products. It requires that you already have a store.
A manufacturing franchise gives you the chance to set up a manufacturing plant that produces a trademarked product. The franchisor typically sells you the supplies for your factory, and you have to follow their directions for creating the product.
Franchisors deciding on everything for you can seem overbearing, but a hands-on franchise may be the best option for your business. A couple who ran a camper park franchise got into a scary situation. Over one Labor Day weekend, when they had a hundred campers, a huge tropical storm hit. Thankfully, their franchisor required every campground to have an emergency plan in place. This plan kept everyone safe during the storm.
Now that you understand what types of franchises are available to you, the next question is, can you afford it?
Different franchises have different requirements for their initial investment. While some have relationships with lending institutions that can help you out, others want you to make an out-of-pocket payment.
For instance, McDonald’s requires potential franchisors to have at least $500,000 in non-borrowed, personal funds for the down payment. Highly desirable locations need even more cash to get started.
Just because you can pay the initial investment doesn’t mean you’re done sending out cash. Many franchises have high royalties and advertising fees every month. Factoring royalties into your projected expenses may reveal cash flow problems that you need to sort out.
Now that you’ve discovered how much you’ll need to invest in your franchise, you need to know how you’ll run it. How do you create a successful franchise?
Franchises provide the experience of running a small business without having to build up a new brand. However, franchises are small businesses, and they take a lot of hard work to be successful. How can you run a lucrative franchise?
Talk to other franchisees about their experience. What have they learned? What would they have done differently if they were starting out again? Learn from other franchisees’ bad experiences so you don’t repeat them.
Finding a mentor helps you avoid disastrous mistakes and improves your chances of success. Ninety-two percent of small business owners agree that mentors have a direct impact on the growth and survival of their businesses. Your mentor knows what you have to do to make it as a franchise owner.
Learning from other franchise owners means you can take advantage of resources and help that you may not have known existed. Armed with this knowledge, it’s time to decide whether to become a franchise owner. Is it right for you?
I. M. Singer & Company needed a better way of selling their sewing machines. Selling the right to offer machines helped both the individuals selling and Singer & Company expand their revenue. Franchises were right for these people; how can you tell if they’re right for you?
Knowing what you want out of a franchise helps you find the right one. Learning how much you’d have to invest means you can decide which one is feasible for your budget. Finally, other franchise owners can share insights that make starting your own business easier.
Singer & Company’s franchisees were able to build a great business of their own. Can your franchise do the same for you?