Small Business Franchise
Franchising means that you get a license from a franchisor
to use their business concept and marketing material, normally in a limited
geographic area. In return, you agree to pay fees to the franchisor. This
normally involves a once-off setup fee as well as ongoing royalties and
marketing fees.
From a franchisor’s point of view, franchising allows the
company to grow more quickly, without requiring a large amount of capital. The
franchisor can open more small business franchise outlets more quickly than
otherwise possible. It is quite feasible for a large small business franchise
chain to be established on a relatively low capital requirement, since
franchisees are providing the capital required to establish individual outlets.
From a franchisee’s point of view, franchising allows you to
open a new business while reducing the risk. The failure rate of franchised
businesses is generally much smaller than that of other businesses. The
franchisee can take comfort with the fact the business model is well
established. The franchisor is likely to have a significant number of other
small business franchise outlets already established, so they will have a
significant amount of experience. Small business franchise owners can take
advantage of this experience. In fact franchisors often offer formal training
programs and ongoing assistance to their franchisees.
How do you evaluate a small business franchise?
A small business franchise opportunity should be evaluated like any other business opportunity. Below are some key points you should consider.
- Enquire with your local franchise council or franchising industry group about the standing of the company you are about to join.
- Talk to other franchisors of the company. Ask the company to give you a list of existing franchisors. Call them up or visit their outlets if possible.
- Talk to advisors such as your lawyers and accountants. Make sure that the business plan makes sense.
- Ask the company to provide you with revenue figures of other small business franchise outlets in comparable locations.
- Think about your exit strategies before you buy. A small business franchise is not a license to print money. But eventually, you will want to enjoy the fruit of your hard labour. Think about what will happen then. The most obvious option will be to sell your franchise to somebody else.
- Compare, compare, compare! The importance of this cannot be stressed enough. Create a list of similar small business franchises you are considering. Then create a spreadsheet to compare the advantages and disadvantages of each.
