Is Franchising an Option For Your Business?
Many new businesses and old businesses are failing in these aggressive economic times. The old saying " most businesses will fail within five years" may be generous in today's economy. As price increases continue to lag behind inflation, margins are still being reduced while volumes have remained the same over the last few years has resulted in lower corporate and personal profits and at times bankruptcy.
However, not all the reasons can be attributed to the general economy. Many old business owners have failed to stay current with technology and many new business owners are inexperienced in operating a full business as they tend to be good within what they have been trained for.
However, most that start a new business have limited capital resources and try to do too much themselves in order to save a dollar or two. They try to be the accountant, bookkeeper, lawyer, marketing expert, mortgage broker and still try to perform in their own field. On the other hand, the competition may have recognized the value of the other professional services and is already using them. At times it feels as if no real benefit is being obtained from these professionals.
However, in the long run the more successful businesses that have had a strong professional team will outperform those that did not have a team at all.
Pro's and Con's of Franchising?
Many people are procrastinators (April 30 tax filers as an example) and tend to be that way in areas of little experience or comfort zone. Then a franchise may be for you because the imposed franchiser structure may be of most benefit to you. When you spend between $50,000 to $500,000 (1996 values) for a proven franchise the purchaser can expect numerous benefits. These benefits are name recognition, a marketing plan, point of sale equipment and or advice, layout and floor plans, cash flows and a business plan deadlines and even help with them, use of franchiser patents, information about the industry, pricing and selling techniques, franchiser training and product manuals. Probably the best asset a good franchiser has is the wealth of information that the other franchise owners have obtained from past experience. If this information is passed on to the new purchaser then this can be of significant value as history tends to repeat.
The con's of a franchise is the larger upfront cost. This has to be either repaid from the earnings of the business or it becomes a sunk cost to the new owner of getting into the business. Secondly, the competition that is a non franchise and has a good professional team may be more cost effective than the franchisers team or have better local insight. Also, a franchise offers no guarantee, in many situations, that the location or territory you receive will be free from other internal franchisers and or other competitions franchises. The franchiser is in the business of selling franchises and may not always care about you or your location.
A franchise may have to pay for royalties for various marketing programs that do not always benefit the local area or region. The impact to the business can be significant in lost dollars for an ineffective marketing plan and it is always easy for the national marketing team to spend the small businesses franchise money.
Finally, group buying power savings may not always be past down to the franchise and the new business owner may not be able to support the local community by selecting its own suppliers. These suppliers may be at the same price and even offer better quality or service. Thus, a form of control and freedom in the business is given up and this may be the reason why one may have started a small business in the first place.
Do your Homework and it Does not have to be Alone!!
The decision of to franchise or not to franchise is ultimately one of personal choice. However, with or without a franchise a good professional team which is in place early will likely be one of the key factors to your overall success.
Please contact me if any questions or comments arise regarding this article.