Is franchising the right move for you? You’re eager to become an entrepreneur, which means you look towards some of the more traditional ways of going down that path. For most people, this begins with a business idea that they turn into a profitable company. You’re building everything from the ground up – but is there another, better way of entering entrepreneurship?
As you’ve read in the title, we’re talking about franchising. What is franchising, and is it going to be the right move for you? All aspiring entrepreneurs should learn about this topic as it can be a great alternative to the “traditional” way of starting a business.
Is Franchising The Right Move For You?
Franchising Explained
Franchising refers to a specific business model involving two main parties:
- Franchisor
- Franchisee
The franchisor is an existing business or brand – like Starbucks or McDonald’s – that will sell licenses to entrepreneurs. A franchisee is the individual who buys these licenses and then gets to run a business under the franchisor’s name.
When you get involved in franchising you have the opportunity to run a business that already operates under an established brand. For example, you buy a McDonald’s franchise, and this lets you open your own branch and handle the operations for that specific branch.
You’ll make money the same way any business does – though you will have to pay royalties to the franchisor because they technically own the entire brand. According to Investopedia, ongoing franchise royalties can be between 4.6% to 12.5% of earnings.
Pros & Cons of Franchising
The best reason to consider franchising is that you immediately benefit from taking on a business with lots of established potential. You don’t have to worry as much about branding or marketing because you’re running a company that already has a target market and could be known throughout the world. This makes life easier for you (the franchisee) as you can spend less money building your brand from the ground up. It also means you’re likely to generate customers almost immediately, thanks to the franchise’s brand power.
When it comes to the downsides, the main issue is the cost of franchise ownership. You have to pay royalties to the franchisor – but you also have to maintain certain goals. Despite being a business owner, you still have someone above you to please. You’re also putting a lot of faith in the franchise brand; if it fails, your business fails. That’s why it’s important to consult with a franchise expert before investing in anything. Expert guidance will help you pick out a franchise that’s more likely to result in long-term financial gains.
Is Franchising The Right Move For You?
Franchising is the right move for you if you don’t have an existing business idea but want to run a business. It gives you a good entry point into the world of entrepreneurship – especially if you’re not that good at building a brand. The reliance on existing branding is a great safety net for many entrepreneurs.
On the other hand, you’re unlikely to enjoy franchising if you truly want to be the boss at the top of the table. You will have to answer to a franchisor and meet their performance targets, so it’s understandable if you’d prefer to go at it alone – despite that option carrying more risk of failure.