A franchise is a type of business owned and operated by an individual but marketed, branded, and overseen by a larger corporation. The franchisor, usually a national or multination enterprise, sells the rights to open a business in their name to a franchisee. The franchisee becomes the business owner but can use the franchisor’s name, image, and products. Many of these types of businesses operate worldwide and vary in how the partnership between the franchisor and franchisee works. Franchise business opportunities exist in a variety of areas, from fast food and hotels to car dealerships.
When you buy the rights to open a business as a franchisee, you’re buying permission to use the corporate business model and system. You must also agree to exclusive products, prices, marketing techniques, strategies, and campaigns. Franchising opportunities are available with many of the stores and restaurants that you see every day.
Businesses such as The UPS Store, McDonald’s, Taco Bell, Ace Hardware, and Hilton Hotels are owned and operated under the franchise model. When you buy into one of these businesses as a franchisee, you get full access to all of the trademarked materials, logos, signage, and other items for that brand. The franchise system has become a successful global business model. Let’s take a look at some franchise opportunities and options.
The Franchise Model
To become a franchisee of a business, you will be required to pay an up-front franchise fee. This is similar to any other agreement such as a lease or mortgage where both parties agree to certain terms and conditions. Once you pay the franchise fee and sign the agreement, the franchisee gets the rights to use the business name and brand, the business model, the operations manual, marketing materials, software, and all other proprietary materials.
In addition to the rights of the products, brand, and business model, you might also be granted exclusive rights to a specific geographical area or territory. This is done to limit the number of businesses in the area and grant the franchisee a certain level of guaranteed sales and market share. Additionally, the franchise agreement might include assistance from the corporate office with building acquisition or construction and equipment. A franchise agreement is usually good for a certain period and will give the franchisee the right to renew.
Franchising is a great way for companies to increase their distribution without risking their capital for expansion and growth. Singer’s early franchise opportunities with sewing machines and Coca-Cola laid the groundwork for the business model today.
Perhaps the most popular franchise opportunities today are in the form of fast-food restaurants. Just about every fast food restaurant that you visit is owned and operated by a franchisee. From McDonald’s and KFC to Pizza Hut, all of these businesses exist because of entrepreneurial franchisees. Some of these businesses can be quite expensive to startup and will require some financing or significant capital. If a restaurant has a franchise fee of $40,000, the initial investment could be $175,000 when you factor in all other costs associated with opening a restaurant. On the other hand, though, the profit margin for many of these chain restaurants can be quite high.
Other businesses such as The UPS Store or Sports Clips offer a different type of franchise business. There isn’t any expensive restaurant equipment to purchase. However, each of these businesses will require its own equipment and physical locations. Home-based franchises such as Crusie Planners or Dream Vacations are lower-cost franchise opportunities as they require little additional startup and overhead costs above the franchise fee.
No franchise will be a one-size-fits-all opportunity. Entrepreneurs who want to open a franchise need to consider each opportunity’s financial and time obligations. With some research and careful consideration, you can determine if investing in a franchise business is the right option for you.