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Franchise Advantages And Challenges

May 26, 2008
There are advantages and challenges to nearly every business model. The key is to understand what they are and the impact they'll have on your business ahead of time so you know what to look out for. The idea here is not to scare you away from franchising. On the contrary, the more you know about the challenges involved the more likely you will be a successful franchisee.

Advantages

A franchise system gives you the best of both worlds: established systems, purchasing power, and professional advice from those who have been through opening a unit on the one hand, and personal, local ownership that creates a bond with customers on the other (what Mom-and-Pops are known for).

Established Systems

An established concept gives you brand recognition and gives customers a level of comfort that they know what they can expect from your business. Franchises can, by and large, open for business sooner than an independent, who has to start from scratch, enabling you to begin recuperating your loans faster.

Purchasing Power

The benefits of the increased purchasing power you will enjoy through a franchise are straightforward. Spending less money increases your profit. You will enjoy lower overhead because you're essentially buying everything in bulk, from food products to kitchen appliances. And you won't spend money on things you don't need - the logistics and troubleshooting has been done for you.

Note that you may not realize the full benefits of bulk purchasing if you are the first unit in a new city or region. Distribution costs vary by region and, if you're the only unit, there are fewer economies of scale. Be sure to consult other franchisees regarding their experiences in this area.

Professional Advice

Plus, in a franchise system, there is no such thing as a first time task, because someone (a field rep, another franchisee, experienced vendors) has been through it before. So, if you need a special permit from the city in order to sell goods at a street festival, another franchisee can probably tell you which department to call, what to specifically ask for ("make sure to allow for a generator"), and what factors to avoid ("don't leave trash in the area - they are very strict"). Franchise support personnel share best practices among their store owners and serve as an information resource for system tools.

Other Advantages

Marketing

Marketing through advertising is rarely successful unless done on a large scale, targeting audiences via many venues and with tremendous frequency. This is impossibly expensive for a small business to achieve without economies of scale. Through the combined marketing fund your franchise manages you will get the benefits of name and brand recognition. It is up to you to make the most of the brand recognition by using local store marketing techniques to establish your location and reputation in your community. The combined efforts of your franchise advertising and your local marketing can be a powerful and lucrative combination.

Financing

It can be difficult for small businesses to acquire substantial financing to get a solid start. When you have the backing of a popular and proven franchise it can be easier to get sufficient funds at reasonable rates and schedules to get off on the right foot. While this also will depend on your business history and finance savvy, a big name and established concept can have the same beneficial impact on your financial backers as it will your customers.

Challenges

The challenges of being a franchisee often have to do with unreasonable expectations - you're not your own boss, the brand is your boss. If you want to serve beer (because your customers are asking for it), but the franchise has a policy against selling beer, you can't sell beer. Brand standards reach every part of your business, from uniforms and how they are worn to what types of coupons you can and cannot use. Know your tolerance for rule-following and look for a system that fits your comfort level.

Keep this in mind, even if you follow all brand standards, adhere to all franchise-prescribed processes, and cross all T's and dot all I's, other franchisees in your market may not - and this will affect your business. Franchisee inconsistency defeats the purpose of a franchise, whether it's your inconsistency or someone else's. You're only as strong as the weakest link.

Another thing to watch out for in a franchise system is relying too heavily on the parent company's services. You are one of many and the success or failure of your store is completely up to you. Know what services are guaranteed from the franchisor and be realistic about what you need to do in order to make your business a success. If you're waiting on a national ad campaign to drive your sales, you might be very disappointed in the results.

There are other issues too, which do not always affect all businesses, even within the same concept. Territory rights might make it impossible to obtain a great location, channel conflict (especially online or through grocery stores) can reduce demand at your physical location, and the use of only approved vendors ("I have a guy who can do this for less...") often are not thought of before signing the franchise agreement. Keeping all of these factors in mind while conducting franchise research and UFOC research will help you sign an agreement you can live with.

Every franchise system is different, as is every franchisee. Know what you're looking for, ask questions, and look for a system that fits with your goals and comfort levels.
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This publication is copyright 2008 by Franchise Genius LLC. This copyright notice and any embedded links within this publication must remain as part of this document.
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