Franchise or Independent
Franchise or Independent
Once you have decided to open your own retail business, you are often faced with the choice of applying for a franchise or doing it on your own. Which to choose is a matter of weighing the benefits against the disadvantages of being a franchisee.
Franchising is a common method of doing business in which you, the business owner, enter into a contractual agreement with a larger corporation to do business in their name. There are two main forms. The complete franchise is, well, complete. You, the business owner, run a company that is fully identified with the franchise company and follows its business format. An example of this type of franchise would be McDonald’s. The second would be a combination of your own business and the franchisor’s product. Automobile dealerships follow this format.
The benefits of franchising are many. Name recognition is probably the most important. If your customers can identify with the name, they are more likely to give you their business than to an unknown. You will also receive training in the parent company’s business and their methods of operation. This is to protect their reputation by making you qualified to act as their agent with customers. This training can be invaluable in increasing your confidence to run a business. Advertising arrangements are usually made in which either the parent does all or part of the advertising. They also often offer co-op money to absorb some of the cost to you of your advertising. This will allow you to market your business on a larger scale than you would have been able to do as an independent retailer. Also, floor plan arrangements to finance your inventory are sometimes available through the franchisor, freeing up cash on hand.
Be prepared, however, to give up some of your autonomy as a franchisee. The independence of being your own boss is often a reason to open your own retail business. There is a clear set of rules established in the franchise agreement and you can have your franchise taken away by violating any of those rules. When that happens, you will often lose all materials that you were required to purchase from the franchisor, including signage and other promotional materials. Buying them does not make them yours, and leaves the franchisor the right to resell them to someone else.
The cost of becoming a franchisee can vary widely based on the type of store and the recognition of the product. This can range from a few thousand dollars to over a million. There is no guarantee of the profit to be gained from such an investment. However, depending on the corporation, the franchisor may be offering a sustainable and effective business plan that, when combined with your hard work, may pay off handsomely.
Never enter into a franchise agreement without due consideration of the facts. Research your market to determine if you are more likely to succeed as a franchise or not. The percentage of your competitors that are independent and how their business is faring will offer some good indications. Also, pay an experienced business attorney to review and, if possible, negotiate the terms of the agreement for you. They may be able to work in details like exclusivity or right of first refusal clauses. These will prevent the franchisor from allowing another franchise to open within a stated distance from your business. Indications of a questionable franchise offer can include promises of large profits with small investment on your part, or large investments on your part with little contractually binding efforts on their end. Remember, you want to have your own business, so whether as a franchise or not, do it on your terms.
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