Common questions answered about franchising
The term Franchise is part of our daily language but what does it really mean? It is a right or license granted by a Franchise Company to a business to use the Company’s name to sell its products or services in exchange for an initial franchise fee and ongoing royalties. Franchise Companies invest hundreds of thousands of dollars in some cases to develop a strategy to gain huge market share! Although Franchise Companies account for only approximately 10-12% of all retail and service businesses. They receive almost 50% of the retail and service dollars spent in the United States annually. Franchise Companies have sales of over 1 trillion, 500 Billion and are growing!
The majority of franchise buyers are success oriented, educated, family minded and ex corporate people. These people are comfortable with long term commitments, have some business experience, and are willing to learn new skills and procedures. They have enough cash reserves for the franchise fee, start up costs and operating capital for the time period before a positive cash flow is reached.
A good franchise business has been tested! You’re buying into a company with a proven track record, established operating systems and sometimes a recognizable brand. Even if the franchise is fairly new, the franchisor has done the hard work of developing the product or service and overall vision. Franchise companies provide training, structure, support, market expertise, and they have a vested interest in your success! An unsuccessful franchisee is a black mark on the entire system and therefore, they make sure you are the right person for their franchise.
Start up costs are predictable, and you can verify actual experiences by talking to as many current and former franchisee’s as you would like. These are some of the reasons why over 90% of all franchisee’s are still in business after 5 years! Financing is available in many cases through the Small Business Administration along with the opportunity to use your IRA or 401K without penalty.
A study conducted by the International Franchise Association pinpointed the typical franchise buyer. Franchise buyers will come from all walks of life, educational and economic backgrounds, although some of the typical traits are the following:
Royalties are the magic that make the formula work. What would it cost you to hire a management, marketing, training and customer support team? The answer is a lot more than a typical owner would ever spend! The vast majority of royalties are only between 4% and 8%. A franchisor provides you with ongoing knowledge, assistance and support so you can reach your financial goals! It’s worth it!
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