Franchising dates back to the middle ages, where the idea was to monopolize commercial ventures. In the modern day, franchising is a concept of having rights or license to sell or perform services under a specific name for a particular location. You may be today’s old to realize that franchising didn’t start with food or commercial services.
Modern-day franchising dates back from the 1840s with the first German beer to ever be franchised under the trade name Spaten. Then the food business and janitorial services started franchise ventures with McDonald’s and Jani-King in the ’60s.
Now before you contemplate on which type of business to invest your money in, let’s take a closer look at how franchising works. It is imperative to know how franchising works before you decide where to go from food, general merchandise, or commercial cleaning services franchise opportunities.
How exactly does franchising work?
Individuals looking at starting their own business have aspirations of their own – their trade name and their style of offered services with a personal touch. And then there are those people who told themselves, “One day I’ll have my own McDonald’s outlet,” and they are OK with the idea just like that.
Franchising works with an individual starting with $1,000-$15,000 investment, on an average commercial services franchise, to start a business under its brand name. If you are OK with strict and standard operational requirements and specifications already established for the business, then franchising is for you. Otherwise, you may want to start from scratch and build your material, research, branding, and valuation on your own.
With the right choice of brand or company, franchisees enjoy the benefits most startup businesses struggle to establish. Business ventures may lack the basic structure franchisers offer since most of them have established their market, product valuation, and reputation that constitute profitability for goods or services.
How does franchising ensure profitability?
Market research and feasibility studies have been completed long before a franchise opportunity is offered. Reputable franchisors ensure profitability in an area before prospecting individuals for a new outlet. Proper and sufficient market research and analysis are what most individual entrepreneurs fail or struggle to accomplish, and with franchising, it is done for you.
As a franchise, you will receive every training and support you will need for the business. In general, all you have to do is sell or perform the services available for the business. The franchise company does everything else from advertising, customer service, and on-going research and development. And again, choose a company that has already built a reputation in the franchising business.
When can I start a franchising business?
After you have chosen the right business for you, start by analyzing its associated cost. Most franchising companies over packages on a wider scale. Companies offer from $1,000-$100,000 or more depending on the business type, range of services, and the systems needed.
It’s also best to consult a certified public accountant (CPA) to help assess your current financial standing and give you a proper cash flow projection for your intended business.
Most franchise companies offer seminars to provide you with the knowledge on when you can break-even and start taking in profits. Also, educate yourself on franchising laws as they differ from state to state. Some states require sellers to register their franchise, but generally, FTC doesn’t require registration to any government agency.
While franchise companies will give you the support you need for the business, you need to understand that most of the time it’s not an “all-in” type of deal. Some might require you to provide your resources before they shake hands with you. It’s best for you to consider the following based on your capability to meet them:
· Facility location – You may have to rent out or buy a place for the business.
· Equipment – Varies depending on the type of services.
· Startup inventory – Most franchise deals offer packages with inclusions for opening inventory.
· Capital – Apart from the initial investment for the business, you will have working capital for initial components for the business like electricity, phone, and employee salary for the first months.
· Advertising – The company usually provides signs and markers, but they might require an advertisement fee for regional or national adverts.
Like any business venture, franchising also has risks associated with them, although these risks are quite minimal compared to a solo startup gamble. Franchisees are bound with a contract, and the typical concern is the lack of control over the business in terms of new ideas or a say on where the business should go moving forward. While you enjoy the benefits of a good standing reputable business, of course, you also carry the same risks associated with the business. Your business choice is crucial, and your belief and trust in your chosen franchise company will all depend on your sound judgment.