If you’re thinking of starting a business venture but don’t know where to begin, buying into a franchise might be a great idea. Being part of a franchise means access to a proven business model and strategies for building a sustainable company in a specific industry. You can replicate this multiple times while ensuring that your chances of success are high. However, many investors make the mistake of thinking of franchising as a turnkey solution and end up with dismal results. Therefore, before jumping into it, you must first know what franchisors can do for franchisees and what they can’t.
The basics of franchising
A franchisor is the company that owns and operates the overall framework and business model. In contrast, a franchisee is an individual or company that purchases the rights to operate under the franchisor’s brand, using their business model and trademarked products or services.
In exchange, the franchisee is responsible for paying certain fees and royalties to the franchisor. These cover initial investment costs, ongoing support and training, and assistance in running the franchise.
How franchisors help franchisees
Keep in mind each company’s franchise agreement is different from another, but here are some common inclusions.
1. Support and training
The best franchisors provide outstanding training and support to their franchisees. Most franchise operations have initial training programs lasting several weeks or months, where new franchisees learn the company’s practices, business model, and industry-specific standards.
Additionally, ongoing instruction will often include updates and upgrades as the franchisor evolves their practices. For instance, computer systems or software improvements can be quickly rolled out across all franchise locations to enhance management and provide a seamless experience for consumers.
2. Marketing and branding
Franchisors help franchisees by heavily supporting brand awareness and marketing efforts to benefit all franchisees. The franchise company typically handles centralized advertising campaigns, which would be cost-prohibitive for individual franchisees to afford.
For example, corporate marketing campaigns can generate leads that are passed along to franchises to handle on a more localized level. Franchisors offer branding and marketing materials that can be customized for the local market or readily used by the entire network.
An added benefit is brand recognition and trust across all franchisees. Consistent branding (coupled with positive customer experiences) mean each franchisee can piggy-back on the success of fellow owners.
3. Real estate and site selection
Another area where franchisors help franchisees is finding and securing suitable real estate for their businesses. Franchise experts can provide guidance on site selection based on customer insights and location insights, such as local competitors and accessibility, and aid in negotiating leases or buying property.
Given their extensive reach and experience, they may use their reputation and leverage to help franchise licensees land excellent locations in prime areas that can draw more business.
4. Ongoing support
Lastly, franchisors can help handle challenges and assist with other operational issues.
From troubleshooting software and equipment issues to fielding questions on management and marketing, a reliable franchisor will have teams and resources in place to help franchisees handle anything that may arise.
What you shouldn’t expect from your franchisor
Don’t hold your breath for these things from the franchise owner:
1. Financing
While many franchisors offer support in finding financing options, the reality is that they cannot guarantee secure funding. The franchise companies are unlikely to serve as lenders themselves. Still, they can often connect individual franchisees with reputable financial institutions or help get the licensees’ plans in front of the right investors.
2. Hands-on management
Ultimately, it’s the franchisee’s responsibility to personally handle the day-to-day franchise operations, not the franchisor’s. Thus, the licensees must be accountable for hiring, firing, and managing staff, setting business hours, and maintaining profitability.
While it’s true that most franchisors do offer support to help with business strategies. This should not be mistaken as a replacement for individual management capabilities and skills.
3. Revenue and profitability
The franchisee’s success is ultimately up to them. While the franchisor’s role is to offer guidance, the franchise owner cannot guarantee revenue or precise profit margins for each franchisee.
Instead, franchisees are encouraged to work with their franchisor to develop a detailed business plan, monitor performance carefully, and make changes along the way as needed.
A critical tip here: you’ll need to dig deep to validate the numbers provided by the franchisor. Find out exactly how you can turn out a profit with the assumptions they provide. Don’t just take the franchisor’s word for it—do your own probing. Then, of course, be ready to walk away if the figures don’t add up (we can’t stress this enough!).
4. Legal advice
Franchise agreements can be complex, particularly for inexperienced individuals. Thus, consulting with an external attorney is highly advisable. An experienced legal professional can help identify potential pitfalls, analyze contracts, and evaluate your chances of success.
The bottom line
In general, investing in a franchise can ensure that franchisees will receive support in specific areas, from marketing and advertising to training and site selection.
However, it’s essential to know that franchisors cannot operate the business for you or guarantee positive financial results. Successful franchises take hard work, voluntary dedication, and determination from the franchise licensees. So, yes, go ahead and dream of franchising success, but do your due diligence with your eyes wide open.
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