Franchising has been around for a really long time, with the first modern use of this particular model from as early as the 1850s. While some believe franchising is a recipe for success, there are others who critize the model. Whatever the case, and like almost everything else, success or failure really depends heavily on the stakeholders - in this case, the franchisee.
When Franchising Might Work...
If You Are A Novice At Business Ownership
Franchising might work for those who want to start a business that is associated with a known brand name, possesses established operations and offers proven products or services. Compared to setting up a totally new business, this cuts out the processs of building brand awareness and establishing customer goodwill from scratch. Furthermore, branded products and streamlined operations are already developed so there is no more trying to figure out what works or doesn’t.
If You Can Accept Being A Follower
Training programs are also a mainstay of franchising and will help get franchisees up to speed on the “right” way for dealing with operational and management aspects of the business. Also, an operations manual stating guidelines for required standards will be provided to franchisees for easy referencing. But to make it all come together, franchisees must strictly adhere to the given directions. Although some variation could be allowed, franchisors generally don’t allow franchisees to deviate from the core products or services, and the way they do business. Simply put, franchisees must be willing to play the role of a follower.
If You Are Willing To Share The Profits
Since royalties will need to be submitted to the franchisor on a regular basis, franchisees must be willing to split profits, through both good and bad times. Not to mention, there is typically also a requirement for some sort of advertising fund that franchisees need to commit towards.
If You Can Accept The Risk Of Discontinuation
There is one sticking point that needs to be highlighted. When the franchise agreement expires, the franchisor may radically change the terms of the initial agreement or even unilaterally decline to go ahead with renewal options. The equipment and machinery that’s purchased, that all belongs to the franchisee. But the intellectual property (i.e. brand name, logo, branded products, etc.), will be reclaimed by the franchisor, and perhaps along with customer goodwill that has been built in the franchisee’s location.
If You Have Enough Money
But at the end of the day, all the above mentioned needs to be supported by one single factor — in order to become a franchisee, one must have the required capital to invest up front for the franchise fee and start-up costs. Otherwise, everything else is just hypothetical.